Feb. 18, 2026 – This month, the U.S. Tax Court issued a memorandum opinion in El v. Commissioner, T.C. Memo. 2026-17, a case where the IRS made an enormous processing error. The taxpayer, Juliet El, claimed an additional child tax credit (“ACTC”) of $1,400 for her minor son and requested a refund of $5,271. The IRS computer system adjusted Ms. El’s ACTC to $17,164, which quadrupled her refund. Two years later, the IRS issued Ms. El a notice of deficiency for the excessive amount. The issue for the court was whether the ACTC that the IRS substantively (and erroneously) recalculated was a rebate refund that should be included in the deficiency.
As a matter of black-letter law, the IRS’s position was correct; Ms. El’s refund was a “rebate” in determining a deficiency. This case, however, is a poster child for bad tax administration, not only because the rebate was a result of the IRS’s error but also because the clock for underpayment interest has been running for five years due to a mistake by the IRS. Once the decision in the case is entered, the IRS will move Ms. El’s case to collection status. From there, a reasonable result is to abate the tax and interest through an offer-in-compromise (“OIC”) to promote effective tax administration for compelling public policy and equity considerations because the collection of that tax assessment undermines public confidence that the tax laws are being administered in a fair and equitable manner. See Treas. Reg. § 301.7122-1(b)(3)(ii); Internal Revenue Manual 5.8.11.3.2 & 5.8.11.5.1. Going from (very) bad to worse for Ms. El, before the IRS will consider her OIC request, she must complete and submit several forms and pay a non-refundable $250 fee; the IRS also evaluates her ability to pay before considering effective tax administration. Internal Revenue Manual 5.8.11.2 at (6). Although sad for Ms. El, this case is also bad for the rest of us because this mistake occurred when the IRS was at much higher staffing levels. Is Ms. El going to be the face of a different kind of “me too” movement?
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If you need help resolving a tax dispute with the IRS, please reach out to our team at K. Tyson Law. This article does not establish an attorney-client relationship and should not be construed as applying to a particular tax situation.
Written by Kim Tyson.