TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Office of Audit

Highlights

RESULTS OF THE 2019 FILING SEASON

Final Report issued on January 22, 2020

Highlights of Reference Number:  2020-44-007 to the Commissioner of Internal Revenue.

IMPACT ON TAXPAYERS

The filing season, defined as the period from January through mid-April, 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 laws or filing procedures.  As of May 3, 2019, the IRS received more than 141 million individual income tax returns (with 90.4 percent electronically filed (e-filed)) and issued more than 100.4 million refunds totaling over $274 billion.

WHY TIGTA DID THE AUDIT

The IRS faced a number of challenges for the 2019 Filing Season, including implementation of the Tax Cuts and Jobs Act of 2017, a redesign of Form 1040, U.S. Individual Income Tax Return, and the partial Government shutdown that lasted 35 days (beginning on December 22, 2018, and ending on January 25, 2019).  The objective of this review was to evaluate whether the IRS timely and accurately processed individual paper and e-filed tax returns during the 2019 Filing Season.

WHAT TIGTA FOUND

In preparation for the 2019 Filing Season, the IRS updated its processes and procedures to address the Tax Cuts and Jobs Act and changes made to Form 1040.  The changes included creating or updating 542 tax products, updating 128 information technology systems, developing and issuing guidance documents, and updating fraud detection systems.  Despite the partial Government shutdown, the IRS began accepting and processing individual tax returns on January 28, 2019.

TIGTA’s review of 176 business rules and 34 error codes updated as a result of the Tax Cuts and Jobs Act and the Form 1040 redesign found that nine business rules (5.1 percent) and two error codes (5.9 percent) contained programming errors.  These errors resulted in 28,411 e-filed tax returns being incorrectly rejected, 149 e-filed tax returns not being rejected when they should have been, and 222,154 e-filed returns for which processing was incorrectly delayed.

As of April 10, 2019, the IRS estimated that it received 1.4 million e-filed tax returns which included a claim for relief from the estimated tax penalty.  In addition, on August 14, 2019, the IRS announced that it would automatically waive the penalty for more than 400,000 eligible taxpayers who had filed their tax returns but did not claim a waiver.  The IRS plans to perform the same analysis later in the calendar year to address any late-filed tax returns. 

The IRS also updated Form 8867, Paid Preparer’s Due Diligence Checklist, to include the requirements for returns filing with the Head of Household status and returns with the Credit for Other Dependents claims.  In addition, the IRS has established processes to identify tax returns for which Form 8867 is not attached when required.

Finally, TIGTA found that processes and procedures are needed to detect potential false deduction claims for unreimbursed employee business expenses, moving expenses, and casualty and theft losses.

WHAT TIGTA RECOMMENDED

TIGTA made 15 recommendations to the Commissioner, Wage and Investment Division.  The recommendations include ensuring that business rules properly identify potentially erroneous tax returns and establishing processes to identify potential false moving expense deduction and casualty and theft loss deduction claims at the time tax returns are filed.

IRS management agreed with all but two of the recommendations and has taken or plans to take corrective actions.  Management partially agreed with the remaining two recommendations.

READ THE FULL REPORT

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

https://www.treasury.gov/tigta/auditreports/2020reports/202044007fr.pdf.

 

Phone Number   /  202-622-6500

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

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