Treasury Inspector General for Tax Administration
November 6, 2013
TIGTA - 2013-38
Contact: David Barnes
WASHINGTON -- The Internal Revenue Service (IRS) does not always identify potentially erroneous claims for General Business Credits when it processes tax returns, according to a new report released today by the Treasury Inspector General for Tax Administration (TIGTA).
The General Business Credit exists as an incentive for a business to engage in certain kinds of activities considered beneficial to the economy or public at large, such as improving disability access at their business for customers or providing childcare for employees.
In Tax Year 2011, the IRS received 455,618 Forms 1040, U.S. Individual Income Tax Return, with General Business Credits offsetting the taxes owed by more than $2 billion. The objective of TIGTA’s review was to assess the effectiveness of IRS controls to detect and prevent questionable claims for the General Business Credit on individual income tax returns.
TIGTA’s review of Tax Year 2011 tax returns with claims for General Business Credits found that the IRS has not established effective processes to identify individuals claiming potentially erroneous General Business Credits at the time tax returns are processed. TIGTA found 8,657 Tax Year 2011 electronically filed tax returns with unsupported and potentially erroneous claims for General Business Credits totaling approximately $1.3 billion. In addition, the IRS did not always ensure that required source credit forms were attached to paper-filed tax returns. Finally, the IRS needlessly expended approximately $76,000 to review 145,583 tax returns for which a programming error incorrectly identified an error in the computation of the General Business Credit.
“As with other tax credits, the General Business Credit serves a useful purpose and the IRS must prevent its abuse. In these difficult fiscal times, it is imperative the IRS develop processes to identify unsupported and potentially erroneous claims,” said J. Russell George, Treasury Inspector General for Tax Administration.
TIGTA recommended that the IRS develop processes to identify individuals claiming a General Business Credit on tax returns with unsupported and potentially erroneous claims for General Business Credits.
The IRS agreed with all of the recommendations and plans to develop a compliance strategy that considers the treatment and resources to address questionable claims. In addition, the IRS plans to use the strategy to determine the need for procedural changes for returns processing, revisions to forms or instructions, and any underlying programming changes to its systems.
Read the report.
Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.
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