TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Office of Audit

Highlights

ACTIONS HAVE NOT BEEN TAKEN TO IMPROVE AMENDED TAX RETURN REVIEW PROCEDURES TO REDUCE ERRONEOUS AND FRAUDULENT REFUNDS

Final Report issued on July 31, 2019

Highlights of Reference Number:  2019-40-042 to the Commissioner of Internal Revenue.

IMPACT ON TAXPAYERS

When taxpayers make an error on the originally filed Form 1040, U.S. Individual Tax Return, they can file an amended tax return.  Taxpayers can also file an amended tax return to change amounts previously adjusted by the IRS, make a claim for a carryback due to a loss or unused credit, and make certain elections after the prescribed deadline.  Taxpayers generally must file an amended tax return within three years from the time the original tax return was filed or two years from the time the tax was paid, whichever is later.

WHY TIGTA DID THE AUDIT

This audit was initiated to follow up on TIGTA’s previous audit recommendations and to evaluate the IRS’s efforts to detect and prevent erroneous or fraudulent claims on amended tax returns.

WHAT TIGTA FOUND

TIGTA’s analysis of current amended tax return processes and procedures found that the IRS has not implemented a platform ********************************2********************************************************** ************************************************************2*******************.  While the IRS updated its internal guidelines, the improvements made to the guidelines *******************2**************************** *********************************2******************************.

Furthermore, the lack of management action to enable electronic filing of amended tax returns continues to result in taxpayer burden and higher processing costs.  TIGTA estimates that the IRS will spend $79.4 million in additional processing costs over five years because taxpayers are unable to electronically file their amended tax return.  Although IRS management agreed with our recommendation to expand electronic filing to include amended tax returns, the initiative has not been funded due to competing priorities in the IRS.

Finally, the IRS’s processes are inadequate because ****************************2**************************** ***********************************************************2********************************************************** ************2***********.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the IRS review the questionable amended tax returns identified and implement adequate processes to identify and correct employee errors to reduce erroneous refunds issued.  In addition, the IRS should ensure that a business case is completed and funding is requested to expand electronic filing for the 2020 Filing Season.  TIGTA also recommended that the IRS update its internal processes to identify and review amended tax returns with claims for refundable credits that were denied during the original tax return processing; ***********2********************************************************** ***********************************************************2********************************************************** **************2**************; and modify the Form 1040X, Amended U.S. Individual Tax Return, to enable individuals to use the Identity Protection Personal Identification Number when filing an amended tax return.

IRS management agreed with five of the seven recommendations.  IRS management disagreed with the need to hold amended tax returns for processing until the taxpayer confirms his or her identity when they are a victim of identity theft.  The IRS believes its current verification processes provide sufficient account protections.

IRS management partially agreed to evaluate amended tax returns for potential identity theft.  IRS management plans to conduct a study to assess the feasibility of using an Identity Protection Personal Identification Number on amended returns and develop processes accordingly.

Redaction Legend:

2 = Law Enforcement Techniques/ Procedures and Guidelines for Law Enforcement Investigations or Prosecutions.

 

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/201940042fr.pdf.

 

Phone Number   /  202-622-6500

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

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