IRS: "Can you guess what you did wrong on your tax return?"

The Internal Revenue Service has announced a new warning letter it will be sending to taxpayers. It's replacing a letter than used to go out which suggested changes to income, deductions and credits. The new letter will simply tell taxpayers to check their tax returns, and if they think they've made a mistake, they should file an amended tax return.

With the old letters, the IRS calculated an amount due and included that with the notice. Now, no such estimate of taxes due will be calculated. The IRS computers are still doing the same thing they did before, which was to match tax return information against documentation received from outside sources, such as W-2s, 1099s, and K-1s. The difference is that the IRS will no longer be telling taxpayers what differences have been identified.

It seems a little counterproductive to just send taxpayers letters that hint that they've done something wrong. The old letters seem much more useful in that they identified the actual reason for sending the letter -- we think you've made a mistake and here is what it is. Now, taxpayers are instead told the IRS thinks they may have made a mistake, but the taxpayer is left to guess at what the error might be.

How does this new letter enhance the tax collection process? I have no idea. I can't imagine that it helps at all. The tax code in the United States is incredibly complicated, and playing an additional guessing game with taxpayers seems to be a waste of time. The IRS has said that they are going to test the new letters and see if they result in additional collection of taxes. If they work, their use will be expanded.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.