TIGTA Seal graphic

Treasury Inspector General for Tax Administration

Press Release


May 2, 2017
TIGTA-2017-09
Contact: Karen Kraushaar, Director of Communications
Karen.Kraushaar@tigta.treas.gov
(202) 622-6500

Revised Refundable Credit Risk Assessments Still Do Not Provide an Accurate Measure of the Risk of Improper Payments

WASHINGTON — In its annual improper payment reporting, the Internal Revenue Service (IRS) provided all required information to the Department of the Treasury, but estimates that it issued 24 percent, ($16.8 billion), in Earned Income Tax Credit (EITC) payments improperly in Fiscal Year (FY) 2016, according to a report released today by the Treasury Inspector General for Tax Administration (TIGTA).

In addition, the IRS revised its risk assessments for the Additional Child Tax Credit (ACTC) and the American Opportunity Tax Credit (AOTC) in response to TIGTA recommendations. However, the revised assessments still do not provide a valid assessment of the risk of improper payments associated with these refundable tax credits.

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 the Department of the Treasury must include in its Agency Financial Report.

TIGTA initiated this audit because it must assess the IRS’s compliance with annual improper payment reporting requirements. The objective of this review was to determine whether the IRS complied with the annual improper payment reporting requirements for FY 2016. The EITC continues to be the only high-risk refundable credit identified by the IRS.

The IRS rated the risk of improper payments associated with the ACTC and the AOTC in FY 2016 as medium. However, the medium-risk rating is contrary to the IRS’s own compliance data which continues to show that both the ACTC and AOTC programs present a high risk of improper payments. Using the IRS’s own compliance data, TIGTA estimates that the potential ACTC improper payment rate for FY 2016 is 25.2 percent ($7.2 billion). For FY 2015, the potential ACTC improper payment rate is 24.2 percent ($5.7 billion).

TIGTA estimates that the potential AOTC improper payment rate for FY 2016 is 24.1 percent ($1.1 billion). For FY 2015, the potential AOTC improper payment rate is 30.7 percent ($1.8 billion).

“TIGTA’s audits of improper payments over the past few years show that curbing improper EITC payments is still a challenge for the IRS. In addition, the methodology the IRS uses to conduct risk assessments still does not provide a valid assessment of the risk of improper payments for refundable credits other than the EITC,” said J. Russell George, Treasury Inspector General for Tax Administration. “It is essential that the IRS provide valid risk assessments for improper payments,” he added.

TIGTA recommended that the IRS ensure that its methodology to conduct the Annual Improper Payment Risk Assessment for refundable tax credits, including the Premium Tax Credit, includes a quantitative assessment of IRS compliance data. TIGTA also recommended that the IRS work with the Centers for Medicare and Medicaid Services to assess the risk of improper Premium Tax Credit payments.

Read the report.

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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.