At least 1,260 individuals appear to have erroneously claimed about $1.8 million in Health Coverage Tax Credits on their 2007 returns.

J. Russell George

A report by the Treasury Department’s Inspector General for Tax Administration also found that 72 percent of the tax year 2006 individual tax returns that it sampled did not have the necessary documentation attached for purposes of claiming the HCTC. The tax credit is intended to make health coverage more affordable for certain groups of people who might otherwise not be insured.

TIGTA concluded that improvements are needed to ensure that individuals claiming the HCTC on their tax returns accurately compute the credit. It recommended that the IRS implement a process to identify inaccurate HCTC claims at the time a tax return is filed to prevent erroneous refunds from being issued. The IRS should also develop a process to ensure that taxpayers who claim the HCTC on their tax returns provide the required documentation to support their claims.

“The IRS’s identification of erroneous Health Coverage Tax Credit claims could put more than $9 million of funds to better use over five years,” said TIGTA Inspector General J. Russell George in a statement. “Developing such a process will improve the effectiveness of the HCTC program as it continues to expand.”

IRS management agreed with TIGTA’s recommendations, but proposed an alternative corrective action. It will identify potentially erroneous claims during processing, program additional error codes, inform taxpayers of their appeal rights, and request that taxpayers provide documentation to prove their claims. TIGTA agreed that the IRS’s proposed alternative corrective action would satisfy the intent of its original recommendation.