The issue involves taxpayers who were repaying taxes for years prior to 1990 under installment agreements. About 20,000 of these taxpayers were improperly asked by the IRS to extend their installment agreements beyond the 10-year legal time limit when collections would normally expire.
The IRS said was a "small percentage" of taxpayers with the repayment agreements.
"We sincerely regret our errors with these taxpayers," said Lee Monks, IRS taxpayer advocate. He added the agency will act quickly "to ensure we correct each account and make whatever refunds the law allows."
Letters of apology will be sent to "potentially affected" taxpayers, perhaps as early as this weekend, which will contain a claim form and a special toll-free number to protect their right to a refund.
The IRS can negotiate with taxpayers to extend the collection period beyond the 10-year statute of limitations as a condition of entering into an installment agreement. But the IRS cannot legally request taxpayers to extend the collection period after such an agreement was set.
In "a small fraction" of cases, taxpayers who didn't agree to extend the collection period had their installment agreements canceled and were told to immediately repay the full amount due.
"We may have been acting improperly in seeking to extend the installment agreements," Monks said in an interview.
Monks said he couldn't estimate the amount of money that would be refunded. The IRS has set up a special team of employees at its Philadelphia Service Center to handle the inquiries.
Written by Rob Wells