Treasury Inspector General for Tax Administration
Office of Audit
Verifying Eligibility for Certain New Tax Benefits Was a Challenge FOR
the 2010 Filing Season
Issued on September 30, 2010
Highlights
Highlights of Report Number: 2010-41-128 to the Internal Revenue Service Commissioner
for the Wage and Investment Division.
IMPACT ON TAXPAYERS
One of the challenges the Internal Revenue Service (IRS)
confronts each year in processing tax returns is the implementation of new tax
law changes. The passage of two
significant tax laws impacted the 2010 Filing Season and presented additional
challenges for the IRS. As of May 28,
2010, the IRS received more than 131.7 million individual income tax returns
and issued approximately 101 million refunds totaling $291.7 billion.
WHY TIGTA DID THE AUDIT
The filing season
is critical for the IRS because it is during this time that most individuals
file their income tax returns and contact the IRS if they have questions about
specific tax laws or filing procedures.
The overall objective of this review was to evaluate whether the IRS
timely and accurately processed individual paper and electronically filed tax
returns during the 2010 Filing Season.
WHAT TIGTA FOUND
The IRS timely processed
individual tax returns during the 2010 Filing Season. However, implementing some new tax provisions
presented challenges for the IRS. These
challenges resulted in increased error inventories from individuals incorrectly
calculating the Making Work Pay Credit and individuals not providing required
documentation when claiming the First-Time Homebuyer Credit. There were nearly 23.7 million errors on tax
returns through May 28, 2010, an increase of 7.1 percent
in error receipts compared to the same time last year.
TIGTA identified
inadequate controls and incomplete and inaccurate programming resulting in
125,762 individuals receiving nearly $111.4 million in erroneous Recovery Act-related
tax benefits:
·
10,581 individuals
claiming $65.6 million in erroneous Homebuyer Credits. IRS compliance
efforts did not allow 2,363 of the 10,581 individuals to receive $11.3 million they claimed for the Homebuyer Credit.
·
109,665 individuals
erroneously receiving $29.7 million in Making Work Pay and Government Retiree credits.
·
5,345 individuals
erroneously claiming $15.6 million in plug-in vehicle credits.
·
171 individuals claiming $453,220
in erroneous Nonbusiness Energy Property credits.
In addition, TIGTA
identified 2,933 individuals with more than $95.8 million in Qualified Motor
Vehicle Tax deductions on U.S. Individual Income Tax Returns, Itemized
Deductions (Form 1040, Schedule A) that exceeded the dollar amount the IRS uses
to identify a potentially erroneous claim.
The IRS had not developed a process to identify these potentially
erroneous claims on Schedule A.
WHAT TIGTA RECOMMENDED
The
Commissioner, Wage and Investment Division, should:
·
Develop processes to track and account for Recovery Act credits claimed
on plug-in vehicle credit tax forms.
·
Verify whether 8,218
individuals identified as erroneously claiming the First-Time Homebuyer Credit
are entitled to claim the credit.
·
Ensure computer systems
are programmed to identify individuals exceeding the maximum allowable
Nonbusiness Energy credits.
·
Ensure programming is implemented to identify and freeze refunds of
individuals claiming more than a specific dollar amount in Qualified Motor
Vehicle Tax deductions on Schedule A, if the deduction is extended.
The IRS agreed with each of our recommendations and
plans to take corrective actions.
READ THE
FULL REPORT
To view the report,
including the scope, methodology, and full IRS response, go to:
http://www.treas.gov/tigta/auditreports/2010reports/201041128fr.html
Email Address: inquiries@tigta.treas.gov
Phone
Number: 202-622-6500
Web Site: http://www.tigta.gov