Tax Court Rules That What an IRS Agent Told You on the Phone Does Not Count: The Matto Case Explained

A federal Tax Court ruling issued on July 21, 2026 confirmed something that surprises many taxpayers: if an IRS agent tells you something on the phone, that conversation does not legally bind the IRS. The case is Matto v. Commissioner, TC Memo 2026-60, and its lesson is one every person who owes, or might soon owe, the IRS needs to understand before they pick up the phone and assume their problem is solved.

What Happened in the Matto Case

The case involved taxpayers David J. Matto and Krista M. Matto, who filed a timely 2020 Form 1040. Their return included Schedule E reporting net income from two S-corporations, Ala Moana Dental Care, Inc. and Diamond Head Dental Care Corp.

In late 2023, following the receipt of Employee Retention Credit (ERC) funds, the S-corporations filed amended corporate returns to revise downward their previously claimed deductions for qualified wages. As a result, the Mattos were required to file an amended 2020 Form 1040-X to reflect increased income allocations. This amendment resulted in an additional tax liability of $37,546, which the taxpayers paid.

The IRS then assessed $5,438 in underpayment interest for the 2020 tax year. That interest was calculated from the original 2020 filing due date, not from the date the couple filed their amended return in 2023. In other words, the IRS treated the extra tax as if it had been owed since 2020, and charged interest for the entire period it went unpaid.

The Mattos pushed back. They filed Form 843, seeking an interest abatement. First, they argued that the interest should not accrue for the 2020 tax year because the adjustments were based on the subsequent ERC claim. Second, they testified that an IRS agent verbally informed them during a telephone conversation that they would owe no interest for the 2020 tax year.

The Tax Court was not persuaded by either argument.

Why the Court Said No

There are two separate reasons the Mattos lost, and both matter to anyone in a similar situation.

Reason one: interest accrual is automatic

Under the tax code, underpayment interest is a mathematical calculation that runs from the original due date of the return. The Tax Court held that abatement under Section 6404(e)(1) was unavailable where the taxpayers’ underpayment interest accrued automatically after amended S-corporation returns revised qualified-wage deductions downward following the entities’ receipt of employee retention credits. Because the interest was simply arithmetic, not the result of any IRS mistake or slowdown, there was no legal basis for wiping it out.

Reason two: a phone call is not a promise

This is the part of the ruling with the broadest impact on everyday taxpayers. The Court reiterated the long-standing principle that “erroneous oral advice from an IRS employee is not binding on the Commissioner.”

Notably, the court actually accepted the Mattos’ representation that the advice was given. However, verbal assurances are legally non-binding on the Commissioner. The Court also found that advice regarding the applicability of underpayment interest is a legal interpretation and does not constitute a “ministerial or managerial act” under Section 6404(e)(1). Therefore, erroneous oral advice cannot serve as a statutory basis for interest abatement.

Put simply: the agent may well have said what the Mattos claimed. It still did not matter legally.

What This Means If You Owe the IRS

Many people call the IRS when they get a notice, hear something encouraging, and walk away believing their situation is resolved or that a charge will be waived. The Matto case is a direct warning that this approach carries real risk. Here is what to keep in mind.

Verbal assurances do not protect you. If an IRS phone representative tells you that interest will not accrue, that a deadline has been extended for you, or that a penalty will be forgiven, none of that has any legal weight unless it is confirmed in writing. The IRS is a large agency and its phone representatives can make mistakes. The law does not require the agency to honor those mistakes.

Interest abatement under Section 6404(e)(1) is narrow. When the IRS’s own delays or mistakes cause interest to accrue on your account, you can request an abatement. This is a narrow category. You have to show the delay was due to a managerial or ministerial act by the IRS, not normal processing time. A phone agent misreading your situation does not qualify.

Written IRS advice is different from oral advice. Form 843 also applies when interest accrued due to IRS errors or delays in processing, as well as abatement of penalties based on incorrect written advice from the IRS. To claim relief on that basis, you must attach both the original written advice from the IRS and your original request for that advice. The IRS must be able to verify that you received incorrect guidance and that following that guidance directly led to the penalty. A phone call, with no documentation, does not meet that bar.

The ERC Connection: Why This Case Affects More Taxpayers Than It Might Seem

The intersection of the Employee Retention Credit and amended tax returns has created a surge in litigation regarding the assessment of underpayment interest. If you are a business owner, a partner, or a shareholder in a small corporation that claimed ERC funds, your personal return may have needed to be amended just as the Mattos’ did. ERC funds trigger a retroactive clawback of qualified wage deductions, which requires individual shareholders to file amended returns and pay back-taxes. The IRS then assesses automatic underpayment interest from the original due date.

Many of those taxpayers called the IRS during the process, heard reassuring things, and may now be facing the same reality the Mattos faced in court. If that describes your situation, the time to act is before the IRS escalates to collections, not after.

What You Can Actually Do to Protect Yourself

The Matto ruling does not mean there is no relief available to taxpayers who owe interest or penalties. It means you need to pursue the right kind of relief, through the right channels, with documentation to back it up. Here is a practical checklist.

• Get everything in writing. If an IRS representative tells you something important, ask for it in writing or request a follow-up letter. Do not rely on a case number from a phone call as proof of anything.
• Keep records of every interaction. Note the date, time, name or ID number of the representative, and exactly what was said. Even if oral advice cannot bind the IRS, records can be valuable context.
• Understand which form does what. Form 843 is used to claim a refund or request an abatement of certain taxes, penalties, additions to tax, interest, and fees. But it has strict requirements, and filing it incorrectly or without proper documentation can delay your case or lead to an outright denial.
• Do not assume interest will go away on its own. The IRS is a stickler for requiring federal income tax payments to be made in full and on time. If taxpayers do not meet their obligations, they are often assessed interest and penalties on top of the tax that has not been paid, but you may be able to secure an interest abatement if certain conditions exist.
• Explore all available options. Interest abatement is one tool. Depending on your circumstances, you could be eligible for an installment agreement, an Offer in Compromise, penalty abatement through First-Time Abatement, or other resolution options. A tax professional can evaluate which paths may apply to your specific situation.

The Bottom Line

The Matto case is a hard lesson, but it is one you can learn without going through what the Mattos did. A phone call with the IRS can be useful for gathering general information, but it cannot substitute for written guidance, professional advice, or a formal agreement. If you are dealing with IRS debt, interest charges, or an amended return situation, do not navigate it based on what someone told you over the phone.

Clear Start Tax works with individuals and businesses who owe the IRS and need a clear, documented path forward. If you have received a notice, been assessed interest you believe is unfair, or have an ERC-related amended return in play, speaking with a tax resolution professional can help you understand what options may be available to you based on your actual circumstances.