Treasury Inspector General for Tax Administration
April 15, 2011
TIGTA - 2011-19
Contact: Karen Kraushaar
WASHINGTON –The Internal Revenue Service (IRS) needs to strengthen its controls over all refundable tax credits, the Treasury Inspector General for Tax Administration (TIGTA) concluded in a report publicly released today.
TIGTA’s recommendation came in the last of a series of three reports on the IRS’s implementation of the First-Time Homebuyer Credit (Homebuyer Credit). The report concluded that the IRS did not ensure appropriate controls were established before initiating the processing of claims for the Homebuyer Credit. As a result, taxpayers received some $513 million in Homebuyer Credits for which they most likely did not qualify.
Homebuyers who purchased a home in 2008, 2009, or 2010 were able to take advantage of the Homebuyer Credit allowing eligible taxpayers to claim up to an $8,000 refundable credit on their tax return. TIGTA reviewed whether the IRS had controls in place that effectively identified erroneous claims for the Homebuyer Credit.
In interim reports issued in September 2009 and June 2010, TIGTA discussed several key controls that were not in place to detect and prevent the issuance of fraudulent Homebuyer Credits. Primary among these controls was the implementation of filters to identify questionable claims for the Credit before they were processed, and a requirement for documentation to substantiate the purchase of a home.
In its response, the IRS stated that it did not have math error authority to disallow the Homebuyer Credit during processing even if it asked for documentation and none was provided. The Worker, Homeownership, and Business Assistance Act of 2009 (Pub. L. No. 111-92, 123 Stat 298) was enacted on November 6, 2009, which granted the IRS math error authority to deny Homebuyer Credits if proper documentation was not provided by the taxpayer, but implementation of the filters and passage of this legislation occurred after many fraudulent and erroneous Homebuyer Credits had already been issued.
“The IRS has taken positive steps to strengthen controls and help prevent the issuance of inappropriate Homebuyer Credits,” said J. Russell George, the Treasury Inspector General for Tax Administration. “However, many of the actions occurred after hundreds of thousands of Homebuyer Credits had already been issued, including fraudulent and erroneous Credits totaling millions of dollars.”
“The IRS needs to take a much more timely and proactive approach to prevent fraudulent claims for refundable credits,” he added.
TIGTA made seven recommendations to the IRS, including: requiring taxpayers to provide supporting documentation to verify eligibility for all refundable tax credits and seeking legislation providing the IRS with math error authority to deny refundable credits when supporting documentation is not provided. The IRS generally agreed with TIGTA’s findings. However, TIGTA believes that the IRS’s corrective actions will not be proactive enough to prevent fraudulent claims for refundable credits.
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