The Treasury Inspector General for Tax Administration has released Taxpayers Residing in the Hurricanes Katrina and Rita Disaster Areas Were Accurately Identified for Tax Relief (2006-40-109):

The IRS correctly identified taxpayers affected by Hurricanes Katrina and Rita and placed disaster indicators on their accounts. Disaster indicators properly prevented balance-due notices from being issued to affected taxpayers. Systemically placed indicators accounted for almost all (over 99.9 percent) of the indicators placed on taxpayers’ accounts. These systemically placed indicators had the correct disaster period beginning and ending dates.

However, manually input indicators, which accounted for less than 0.1 percent of the total, often had an incorrect disaster period beginning or ending date. We analyzed 1,150 manually input disaster indicators and identified 779 (68 percent) with an incorrect beginning and/or ending date. Taxpayers with these indicators on their accounts would have received less tax relief than they were entitled to.

In addition, the IRS extended the disaster period ending date twice to grant additional tax relief for Hurricane Katrina victims. When the IRS extended this date, accounts with manually input indicators were not updated. This occurred because the computer program used for the update identified only those accounts with systemically placed indicators. As a result, the ending date for 748 disaster indicators[4] was not properly extended, and the taxpayers with these indicators on their accounts would not have received the full benefit of the disaster relief provisions. We advised the IRS of this concern during our review, and IRS management took action to identify and manually input disaster indicators with corrected ending dates to these taxpayers’ accounts.