IRS Puts Cost of Paper Slip-Up at $22 Million

Failure by Internal Revenue Service officials to sign 31 routine documents could cost up to $22.6 million in lost tax collections, the IRS said today. A group of critics estimated that the loss would be $13 billion or more.

IRS spokesman Frank Keith said the problem involves IRS Form 23C, a summary document or cover letter. That form must be signed before additional taxes can be assessed against the tax returns to which it is attached. One form can cover hundreds of thousands of returns and other tax documents.

Over the last five years, the IRS recently discovered, 31 of those forms were not signed. Keith said those forms covered about 10,700 tax returns and total tax assessments of $46 million.

Keith issued the statement in response to an assertion by the National Coalition of IRS Whistleblowers that 1 million tax assessments totaling $13 billion or more are in jeopardy because of the mistake.

“This incredible mistake makes the shredding and toilet-bowl flushing of tax returns in past years look trivial in comparison,” Paul DesFosses, president of the coalition, told a news conference Wednesday.

However, Keith said the IRS has been able to make new assessments of $23.4 million against 7,600 of those taxpayers. The three-year statute of limitations has expired in the other 3,100 cases involving $22.6 million, much of which taxpayers already had paid, he said.

Keith said that additional taxes paid in those 3,100 cases in the last two years would be refunded automatically without further action by taxpayers.

The problem was brought to light when the coalition obtained 25 pages of internal IRS documents, dated April 12, 1990, that explained to field offices how the snafu should be handled.

“Since the assessments were not properly made, all subsequent actions taken in reliance on a properly assessed liability were invalid,” one document reads.