The IRS’s duplicate taxpayer identification number (DUPTIN) procedure unnecessarily rejects electronic returns and creates harm for individuals seeking to file their taxes. Guest blogger Justin Schwegel has written a three-part series that explains the process and takes us through some of the problems created when the IRS rejects a valid return because it arrives after an earlier filed return claims as dependents one or more of the persons on the later filed return. Justin is the director of the low income taxpayer clinic at Gulf Coast Legal Services located in Bradenton, Florida.
The problem Justin identifies is one mentioned by the National Taxpayer Advocate in her annual report and one that the American Bar Association Tax Section brought up with the Commissioner in the annual courtesy call that occurred in December of 2022. The Tax Section will provide further written comments on the issue in the near future. Its brief comments to the Commissioner in advance of the courtesy call stated:
The National Taxpayer Advocate’s 2021 Annual Report to Congress (the “2021 Annual Report”) included e-filing barriers as “Most Serious Problem #8.” For members of the low-income taxpayer community, a common reason for rejected e-filing submissions is where a dependent’s Social Security Number (“SSN”) has already been used in a previously filed return for the same tax year. The 2021 Annual Report indicates that during the 2021 filing season this was the reason for rejecting over 1.5 million e-filed returns (with mismatched dependent SSNs responsible for almost another 1.5 million rejections). As the 2021 Annual Report indicates, forcing the taxpayer to paper file a return with an uncorrected error does not improve matters for either the Service or the taxpayer. We would like to discuss changes to the e-filing system that could address these barriers.
As Justin describes, the current IRS practice fosters a race to file first in order to gain the upper hand. The system also causes some taxpayers whose returns are rejected to think that they cannot claim dependents they are legally entitled to claim. I look forward to the ABA comments and to the creation of a system that will better protect taxpayer rights while allowing the IRS to administer the electronic filing of returns in a reasonable manner. Keith
This is the first part in a three-part series on the IRS’s DUPTIN screening procedure. Part I will explore two case studies where the IRS DUPTIN screening procedure harmed taxpayers whose lawful claims for credits were erroneously rejected. Part II will describe in detail how the IRS’s DUPTIN screening procedure functions. Part III discusses various credits at stake in DUPTIN rejection cases and proposes some possible solutions.
The IRS’s duplicate taxpayer identification number (DUPTIN) procedure is aimed at preventing fraudulent tax returns and/or improper claims for tax credits. It does this by freezing a refund on the second tax return filed if a social security number for the primary or secondary has already been used on a prior return. It also rejects electronic returns that claim qualifying children or dependents if their social security number has already been used on a prior return. The DUPTIN procedure also triggers heightened scrutiny of these “DUPTIN” returns when certain criteria are met.
The reason for the DUPTIN procedure is logical. It would be a problem if the IRS paid 1,000 tax refunds where 1,000 different returns listed the same social security number for a qualifying child to claim the earned income credit EITC and child tax credit (CTC). Unfortunately, because of how the procedure is structured, many returns are improperly rejected, and many taxpayers are improperly denied credits they are entitled to by law.
The first part of this series will explore the procedural problems these taxpayers can face when trying to overcome the IRS’s DUPTIN process and negative financial consequences they have suffered. Rejecting the second electronic return that is filed is arbitrary. It also creates a knowledge hurdle. Many taxpayers do not know they can still claim the credits by filing a paper return. Those who do not know they can file a paper return suffer economic harm by not obtaining the tax benefits of claiming a dependent or qualifying child. Those who do file a paper return suffer economic harm caused by the delay in obtaining the refund for which they qualify since it can take months or years for the IRS to process paper returns and issue a refund.
Improper DUPTIN rejections are a systemic problem that create individual problems for real taxpayers. The two case studies below are real examples of taxpayers who suffered economic harm due to improper DUPTIN rejections. The knock-on effects they experienced are not unique to DUPTIN returns, but they are also not uncommon when untangling DUTPIN problems.
To resolve individual problems created by the systemic DUPTIN problem, the taxpayers were forced to deal with still more systemic problems in a cascade of procedural obstacles. This article is about the IRS DUPTIN screening process. However, the subsequent systemic obstacles taxpayers must overcome due to improper DUPTIN rejections is important context for understanding the scope of the problem created by the improper DUPTIN rejections.
Tanya Price
Tanya Price (pseudonym) got a restraining order against her abusive ex-husband Ed (pseudonym). The restraining order prevented Ed from coming near either herself or their son of whom she was awarded full custody. Tanya and Ed had a $5,000 joint deficiency from a 2020 married-filing joint return, and Tanya is not a good candidate for innocent spouse relief. When a taxpayer owes the IRS money, the IRS will generally not issue a refund to the taxpayer. Rather it will apply the overpayment and use it to pay down deficiency under the Treasury Offset Program.
Because Ms. Price was expected to get a refund of almost $7,000 on her 2021 return, I advised her to wait until after Ed filed. By waiting the IRS would offset his refund to reduce the joint deficiency since it is the IRS policy to collect from any party with a joint liability leaving the remaining parties on that liability with a reduced tax debt. In March of 2022, Ed must have filed his return and the IRS offset his refund which left about $4,000 of the 2020 deficiency remaining.
Tanya attempted to file her 2021 tax return using popular online tax processing software. She was surprised when her return was rejected because someone else had already claimed her son. Tanya called the tax software company’s customer support which told her that she would simply have to take her son off the return and file without him. When she asked if there was any way to file an amended return later to claim the credits for the son who had lived with her for all of 2021, a representative told her that no, unfortunately nothing could be done.
Fortunately for Tanya, she was already an LITC client, and we helped her submit a paper return before April 15, 2022. We preemptively included a copy of the restraining order and a judge’s findings from her divorce proceedings that her son stayed with her all but one night after her separation from Ed in March of 2021. In September 2022, $4,000 of her refund was offset to settle the 2020 deficiency and Tanya received a $3,000 refund. Many taxpayers in Tanya’s position receive an audit notice instead of a refund check.
Failure to pay and file penalties of $500 had accrued for 2020. The first-time abatement procedures described in the internal revenue manual (IRM) allow practitioners to request first-time abatements over the phone. However, after abatement, the failure to pay penalty can continue to accrue. Subsequent abatement requests can be made for the same year, but they must be made in writing using form 843.
Due to the DUPTIN rejection Ms. Price had to file a paper return. Other paper returns our LITC helped file had processing times exceeding one year. To avoid an additional penalty accrual, (and because getting through the IRS Practitioner line was nearly impossible) we waited until her 2021 return, which would pay off 2020, was received on her 2021 transcript. We called the practitioner priority service line to request abatement, but unfortunately, the return processed before the abatement request.
When the IRS processed the abatement, there was a $500 credit on the 2020 tax module, a year in which a joint return was filed. This credit was offset under the Treasury Offset Program to pay for Ed’s past due child support from a different relationship. Although the local taxpayer advocate was sympathetic to Ms. Price, first-time penalty abatement is not considered “apportionable” for injured spouse relief. Tanya was out $500.
Alex Black
Alex Black (pseudonym) thought his wife Wendy filed joint returns for 2015 and 2016 like she had for 2014. After their 2017 divorce Alex began to receive notices from the IRS enquiring about unfiled returns. Alex tried to file 2015 and 2016 returns electronically at a Volunteer Income Tax Assistance Center (VITA). That was when he learned Wendy had already claimed their children on a married filing separate return. His electronic returns were rejected due to DUPTIN. The VITA volunteer advised him to remove the children and submit the return.
In 2021 Alex came to our LITC for assistance in reestablishing an installment agreement to pay off his 2016 deficiency. The deficiency that arose, in part, because he had not claimed any qualifying children and his withholdings were insufficient. We reviewed his case and discussed his financial status and living arrangements in 2015 and 2016. He and his wife lived together for all of 2015 and 2016 until they moved apart halfway through 2017. Alex earned more and won the tiebreaker rules for which parent can claim qualifying children under IRC 152(c)(4)(B).
We assisted Alex in filing 2015 and 2016 amended returns in September of 2021. Alex had a large deficiency for 2016, but an amended return would result in a significant abatement under IRC 6404. Alex had already paid off his 2015 deficiency. Under the statute of limitations outlined at IRC 6511(a) we could only request a refund of payments made after September 2019. The original 2015 deficiency was $3,500 when it should have been closer to $250. Alex had paid off more than $4,500 he never should have owed including penalties and interest due to the DUPTIN electronic rejection. We could only request a refund of the $2,000 he had paid within the past two years.
Alex filed his 2016 amended return on September 9th, 2021. It was processed on August 8th, 2022 and the tax due was reduced from $4,000 to $1,000. However, the failure to file penalty which is capped at 25% of the amount of tax owed remained at $1,000, $750 more than the statute allows. We attempted to fix the penalty issue verbally over the practitioner hotline and failed. We submitted a written abatement request on form 843 and failed. The penalty was finally adjusted with assistance from the very helpful Clearwater, FL TAS office.
Unfortunately, the 2015 refund request was not so easy. The 2015 1040x was also submitted on September 9, 2021. The refund request explicitly cited the statute of limitations and limited the refund request to only those payments on or after October 1st, 2019, the first payment the taxpayer had made within the statute of limitations period.
In October 2022, Alex received a 105C letter from the IRS’s Kansas City campus advising that the refund request was rejected for being past the statute of limitations. I am compelled to note that September 9, 2021 is less than two years after October 1st 2019. The 105C also notified Alex of appeal rights. We submitted an appeal within a week.
In mid-January, the IRS sent a second 105C letter exactly the same as the first, but from the IRS’s Fresno campus. We submitted our second appeal to the IRS campus in Fresno on February 2, 2023. Yes, it was on Groundhog Day.
Examples of a bigger problem
Tanya and Alex are not alone. Every year the Gulfcoast Legal Services LITC and other LITCs around the country deal with similar complaints. Taxpayers file their tax returns electronically by default. In 2020, more than 94% of individuals who filed a 1040 did so electronically. However, with few exceptions, the IRS rejects electronic returns that claim credits or exemptions for a child or dependent if another taxpayer has already claimed the same child or dependent. This is usually done by a different parent in the case of parents who are not together.
Most taxpayers likely do not know they can still claim a qualifying child or dependent after an electronic return is rejected. This can be done by filing a paper return. The requirement to file a paper return is a knowledge hurdle that prevents many parents legally entitled to claim credits for their children, like Alex and Tanya, from receiving the credits. As discussed in these scenarios, the knowledge hurdle exists at VITA sites and among practitioners as well as taxpayers.
Many parents who know that they can file a paper return have paper returns audited and lack the capacity to overcome an audit. Where there is domestic violence, survivors may move away from an abusive spouse or partner and not update their address. Some victims fear an ex will discover their new address through forwarding information. If they file a paper return due to a DUPTIN rejection and are audited they may lose by default because they do not respond.
GLS has had several cases where IRS DUPTIN procedures prevented a survivor of domestic violence from getting a refund they were entitled to under statute. We have also had cases where the parent entitled to credits was audited under the IRS’s DUPTIN procedures. It is important to keep in mind the domestic violence context when examining the IRS’s DUPTIN procedures.