Taxpayers Pay Only the
Tax Due - No More, No Less

The Internal Revenue Service today said that it is changing procedures to be used in the information document matching program for tax year 1987 and future years to ensure that taxpayers who might not have claimed all their withholding tax will get any refunds which may be due. The changes are needed, the IRS explained, to make sure that the matching program is consistent with the agency's policy that taxpayers pay only the tax due -- no more, no less.

The IRS also gave instructions for a special claim procedure for taxpayers who may have understated the tax withheld on their 1985 returns because the period for making claims for 1985 will run out on April 15, 1989. Taxpayers will receive further instructions about the tax year 1986 matching program when the IRS completes a review of its records to determine the best way to give taxpayers the additional credits they may be due.

In the information document matching program, the IRS compares the returns taxpayers send to the IRS with information received from third parties, such as Forms W-2 reporting wages and Forms 1099 reporting income such as interest, dividends and lump sum pension distributions. The matching program for tax year 1985 is complete and the program for 1986 is in progress. Matching for 1987 returns will begin later this year with the revised procedures in place.

In the 1985 matching program, 8.7 million returns were selected because of apparent discrepancies. The IRS needed to contact 4 million of these taxpayers to resolve the apparent discrepancies.

Here's how the matching program works. Initial comparison of the tax returns and the information documents is done by computer to identify differences. IRS examiners then look at the actual tax returns to resolve the discrepancies which may result because the income has been reported but on the wrong part of the return or may not be identified accurately. Frequently, more than one information document is involved in the apparent discrepancy with the tax return. Discrepancies which cannot be resolved by inspecting the return require correspondence with the taxpayer.

The majority of Federal income tax withholding is reported to taxpayers and to the IRS on Forms W-2 and W-2P. However, tax withholding may sometimes also be reported on Forms 1099 information documents, such as the Form 1099R which reports lump sum distributions from pension plans and the tax withheld on those distributions.

The IRS said it is more likely taxpayers could overlook tax withholding on Form 1099 than on Forms W-2 or W-2P. However, only 5 percent of the information documents showing withholding are Forms 1099.

The IRS confirmed after its review that the instructions for the matching program required that discrepancies involving withholding reported on Forms W-2 or W-2P should be adjusted but some discrepancies in withholding reported on Form 1099 were not adjusted. Adjustments can, of course, result in additional taxes due as well as refunds. The IRS said that the difference in the instructions was based on initial screening of various types of discrepancies which indicated that taxpayers generally reported tax withholding from Forms 1099 correctly on their returns.

Taxpayers should review their 1985 returns, especially if tax withholding was reported on a Form 1099. If taxpayers find that they have not claimed all their withholding for 1985 they should file a special claim.

To make such a claim, taxpayers may but are not required to use IRS Form 1040X, "Amended U.S. Individual Income return," or Form 843, "Claim." Just send the IRS a statement explaining that the taxpayer is entitled to additional withholding credits for tax year 1985. At the top of the page, clearly identify the claim by entering the notation, "1985 INCOME TAX WITHHOLDING CLAIM." Include copies of the Forms 1099 and other withholding documents to help the IRS substantiate the withholding which was not claimed on the original return. The claims must include the taxpayer's name, address and social security number and be signed and dated. Mail these special claims to the attention of the Problem Resolution Officer at the IRS service center where taxpayers are filing their 1988 returns.

The attached suggested format for the claim may be used by taxpayers to ensure they provide all necessary information.

Taxpayers who think they may not have claimed all their withholding but do not have copies of their 1985 tax records may still file a special claim by April 15, 1989. This will give the additional time necessary for the taxpayer to obtain copies of the Forms 1099 or other documents needed to process the claim for refund.

SAMPLE CLAIM: 1985 Income Tax Withholding Claim


Name:

Address:

Social Security Number:

Withholding on Original  Return  ________________
                 Correct Withholding  ________________
                             Refund due  ________________


Taxpayer signature                           Date

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