IMPROVEMENTS ARE NECESSARY TO ENSURE
THAT INDIVIDUAL AMENDED RETURNS WITH CLAIMS FOR REFUNDS AND
ABATEMENTS OF TAXES ARE PROPERLY REVIEWED
Final Report issued on May 17, 2016.
Highlights of Reference Number: 2016-30-032 to the Internal Revenue Service Commissioner for the Small Business/Self-Employed and the Wage and Investment Divisions.
IMPACT ON TAXPAYERS
When taxpayers identify that they need to make a change to their originally filed tax return, they can file an amended tax return, which may include a claim for refund or abatement of taxes. It is incumbent upon the IRS to ensure that claims for refunds and abatements of taxes are properly reviewed. Effective controls for reviewing claims ensure more consistent treatment of taxpayers, promote voluntary compliance, and protect revenue for the Federal Government.
WHY TIGTA DID THE AUDIT
This audit was initiated to determine whether the IRS’s controls over the auditing of amended individual tax returns with claims ensure that claims are properly evaluated and accurately processed and are effective in preventing the inappropriate issuance of tax refunds or allowance of tax abatements.
WHAT TIGTA FOUND
IRS controls over the examination of amended individual tax returns with claims did not always ensure that claims were properly evaluated and were not always effective in preventing the potentially inappropriate issuance of tax refunds and allowance of tax abatements. TIGTA reviewed a statistical sample of 84 Fiscal Year 2013 closed surveys and audits of amended individual returns with claims for refunds or abatements of taxes and found that 31 claims were not appropriately substantiated and/or had large, unusual, or questionable items on the tax return that were not adequately considered and investigated. TIGTA’s evaluation indicates that a combination of factors caused these problems and that actions can be taken to better ensure that claims are substantiated (appropriate supporting documentation is obtained) and that issues on the amended returns are recognized, considered, and properly investigated.
When the sample results are projected to the populations, TIGTA estimates that a total of approximately $34.4 million in tax refunds and abatements may have been inappropriately allowed.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the IRS change specific Examination function controls, tools, and procedures to improve surveying, auditing, and documenting reviews of claims for refunds and abatements of taxes.
IRS management agreed with five of the six recommendations and plans to take corrective actions. IRS management disagreed with our recommendation to require that claims coordinators document the justification for surveying a claim and to evaluate the benefits of requiring claims coordinators to identify and document whether any large, unusual, or questionable items existed on the return.
TIGTA believes that it would be beneficial for claims coordinators to utilize their expertise and research any large, unusual, or questionable items for all returns since they are more knowledgeable of audit issues and perhaps more equipped to identify issues.
READ THE FULL REPORT
To view the report, including the scope, methodology, and full IRS response, go to:
Phone Number / 202-622-6500
E-mail Address / TIGTACommunications@tigta.treas.gov
Website / https://www.treasury.gov/tigta