Top 6 Tax Problems Faced by Taxpayers

Jim Buttonow, CPA, CITP

SVP Post-Filing Tax Services

Published on: July 09, 2021

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IRS statistics are pretty reliable. So when it comes to tax problems, it is easy to identify the most common IRS problems taxpayers face.

Each year, the IRS publishes its Data Book which gives insight into taxpayer issues. You can read other IRS reports from various sources like the General Accountability Office, the Treasury Inspector General for Tax Administration (TIGTA), and the IRS advisory committees to glean more data into tax problems. Here are the six most common problems faced by taxpayers:

Tax Problem	# of taxpayers annually	Comments
Penalties “The IRS penalized me for late payment, late filing, or an inaccurate tax return”	29.5 million taxpayers annually	Over 150 different types of IRS penalties Only 11% of all penalties are abated 80% are related to individual taxpayers Most common penalty is “failure to pay” Failure to pay, estimated tax, and failure to file penalties make up 96% of all penalties for individuals
Unpaid taxes “I owe but I cannot pay”	As of 2019, 20.1 million owe and cannot pay	Over $539 billion is currently owed to the US Treasury 84% are individual taxpayers (16.8 million owe the IRS) Over 90% obtain a streamlined installment agreement IRS is actively chasing 11.2 million delinquent accounts
Non-filers “I have not filed my required tax return”	10.6 million (individual only) 50.5 million business non-filers	Identified non-filers through W-2s/1099s Likely several million more if you include small businesses IRS can file a return for taxpayer called a “substitute for return” using information in its possession (W-2s/1099s)
Underreport income “I did not report all of my W-2s/1099s”	2.0 million (2019)	Known as the IRS Automated Underreporter Program (CP2000 notice) Out of 150 million individual filers, 27 million taxpayers do not report all W-2s/1099s Average amount owed : $3,336
Math error notices “I made an error and the IRS adjusted my refund/balance owed”	1.9 million (2019)	Individuals only Most common error is incorrect tax calculation IRS adjusts return automatically by notice
Audits “I am being audited by the IRS”	1.1 million (2019)	74% are done by mail 89% of returns audited are changed by the IRS Mail audit- average amount owed : $6,164 Field audit: average amount owed : $68,122

Tax problem categories can overlap as Many taxpayers have multiple issues. For example, if a taxpayer has an audit, a late filing, or the inability to pay, they can also have penalties. The reality is that the most common issue facing taxpayers is trying to understand their IRS notices. About 10% of all taxpayers get an IRS notice. Those taxpayers have to navigate and figure out if they have one or more of the issues listed above, or a different issue not listed here like identity theft. For assistance creating a strategy to address your tax issue, visit Jackson Hewitt’s Tax Resolution Hub to see the various ways we can help you.

About the Author

Jim Buttonow, CPA, CITP, is the Senior Vice President for Post-Filing Tax Services at Jackson Hewitt. He’s been a leader in helping taxpayers and tax professionals resolve tax problems with the IRS, where he had worked for 19 years in various compliance-enforcement positions. Prior to his current role, Jim’s consulting practice focused on the areas of tax controversy and tax administration, which included leading product development on tax problem software for tax professionals, testifying before Congress, advocating for IRS transparency and efficiency, and proposing innovative large-scale solutions for taxpayers and tax professionals. Jim is also the author of Tax Problems and Solutions Handbook, a publication aimed at helping tax pros work more effectively in post-filing matters and resolving their clients’ most common tax problems.

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