TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Office of Audit

Highlights

SOME REFUNDABLE CREDITS ARE STILL NOT CLASSIFIED AND REPORTED CORRECTLY AS A HIGH RISK FOR IMPROPER PAYMENT BY

THE INTERNAL REVENUE SERVICE

Final Report issued on May 13, 2019

Highlights of Reference Number:  2019-40-039 to the Commissioner of Internal Revenue.

IMPACT ON TAXPAYERS

The Improper Payments Elimination and Recovery Act of 2010 and subsequent legislation strengthened agency reporting requirements and redefined “significant improper payments” in Federal programs.  The Office of Management and Budget has declared the Earned Income Tax Credit (EITC) Program a high-risk program that is subject to reporting in the Department of the Treasury Agency Financial Report.  The IRS estimates that 25.06 percent ($18.4 billion) of EITC payments were issued improperly in Fiscal Year 2018.

WHY TIGTA DID THE AUDIT

This audit was initiated because TIGTA is required to assess the IRS’s compliance with the reporting requirements contained in the Improper Payments Elimination and Recovery Act of 2010; Executive Order 13520, Reducing Improper Payments; and the Improper Payment Elimination and Recovery Improvement Act of 2012.  The objective of this review was to determine whether the IRS complied with annual improper payment reporting requirements for Fiscal Year 2018.

WHAT TIGTA FOUND

The IRS provided all required EITC improper payment information for inclusion in the Department of the Treasury Agency Financial Report Fiscal Year 2018.  The IRS has not reduced the overall EITC improper payment rate to less than 10 percent, but it has been approved for this exception to the annual reduction target reporting requirement.  As an alternative, the Department of the Treasury and the Office of Management and Budget collaborated on the development of a series of EITC supplemental measures for use in lieu of reduction targets.

The IRS continues to incorrectly rate the improper payment risk associated with the Additional Child Tax Credit, the American Opportunity Tax Credit, and the Premium Tax Credit.  The incorrect rating allows the IRS to circumvent the reporting of required information for these programs to the Department of the Treasury for inclusion in the Agency Financial Report.

TIGTA identified over 2.2 million tax returns with an income discrepancy of $1,000 or greater from what was reported on the tax returns that were not selected for further review by the IRS.  These taxpayers received over $10.1 billion, which included $6.0 billion in EITCs and over $1.9 billion in Additional Child Tax Credits.

Finally, TIGTA identified that the IRS has initiated corrective actions in an effort to address prior deficiencies reported by TIGTA.  These efforts are resulting in the improved identification and recovery of erroneous EITC payments.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the IRS implement a process to systemically identify and evaluate tax returns filed by individuals who have nonwork Social Security Numbers to prevent erroneous refunds of EITCs and ACTCs.

IRS management agreed with this recommendation and plans to take appropriate corrective actions to identify and evaluate tax returns filed by individuals who use nonwork Social Security Numbers. 

READ THE FULL REPORT

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

https://www.treasury.gov/tigta/auditreports/2019reports/201940039fr.pdf.

 

Phone Number   /  202-622-6500

E-mail Address  /  TIGTACommunications@tigta.treas.gov

Website             /  https://www.treasury.gov/tigta