Accounting and Controls Need to Be Improved
for Excess Collections


Final Report issued on December 15, 2015

Highlights of Reference Number:† 2016-30-005 to the Internal Revenue Service Commissioner for the Wage and Investment Division.


The Excess Collection File (XSF) was established to contain both nonrevenue receipts and tax payments that cannot be associated with the appropriate taxpayersí accounts.† Weaknesses in the administration of the XSF can create an environment in which unapplied taxpayer credits are vulnerable to loss and can either overstate or understate potential Government obligations.


Since January 2010, the XSF has grown from $4.7 billion to $5.8 billion, an increase of 23 percent.† This audit was initiated to determine whether the controls over the XSF adequately prevent improper transactions and ensure that expired credits are appropriately accounted for and not exposed to fraud or abuse.


TIGTA determined that 2.94 million (90 percent) of the 3.28 million records, involving $4.75 billion (82 percent) of $5.81 billion in the XSF database, were credits transferred to the XSF due to barred statute, i.e., the taxpayer no longer has a legal claim to the credit.† The retention period for credits in the XSF database does not match the time frames for which taxpayers can claim the credits.† The IRS retains these credits in the XSF database for seven years even though taxpayers have no legal claim to the funds.† IRS management could not explain why XSF credits are maintained specifically for seven years.† The XSF database actually has credits from the 1980ís, 1970ís, and even 1960ís.

As a result, the potential liability of credits in the XSF database was overstated by $4.7 billion as of July 2014.† This amount includes more than $530 million in credits that entered the XSF in Calendar Year 2013 due to barred statute. Eliminating these credits from the XSF database could decrease the IRSís exposure to potential fraud because credits will no longer be able to be viewed and accessed in the database.

The IRSís internal financial accounting for excess collections can also be improved to help the IRS manage the risks associated with the XSF.† For example, although the IRS Chief Financial Officer accounts for excess collections on an annual basis there is no attempt to keep track of the overall accumulated balance of the XSF which our audit determined to be at least $5.8 billion.

TIGTA also reviewed all credits transferred from the XSF greater than $15,000 and found that transfers did not always comply with procedures and managerial approval is not required.† Further, XSF controls do not allow managers to identify when taxpayer credits are transferred out of the XSF.† These control weaknesses increase the risk of undetected fraud.


TIGTA recommended that the IRS: 1) change the XSF purging criteria from the XSF entry date to the IRS received date; 2) use the general refund statute of limitations as the standard for moving credits from the XSF; 3) utilize the internal accounting function to improve IRS controls over the XSF; 4) capture and report data specific to transfers from the XSF; 5) ensure that employees comply with XSF documentation requirements; and 6) require management approval of all transfers out of the XSF.

IRS management agreed with two of our recommendations but declined to take action on the rest.† TIGTA continues to believe all of the recommendations if implemented would strengthen controls and improve the administration of the XSF.


To view the report, including the scope, methodology, and full IRS response, go to:


Phone Number ††/† 202-622-6500

E-mail Address †/

Website†††††† ††††††/