The Internal Revenue Service was not in compliance with all requirements of a 2010 law that increased agency accountability for reducing improper payments in federal programs, according to a new report that cited the high rate of improper payments for the Earned Income Tax Credit.
The report, released publicly Monday by the Treasury Inspector General for Tax Administration, found that the only program the IRS has identified for improper-payment reporting is the Earned Income Tax Credit Program. The IRS estimates that 21 to 25 percent of EITC payments were issued improperly in fiscal year 2012. The dollar value of these improper payments was estimated to be between $11.6 billion and $13.6 billion.
However, TIGTA auditors found that the IRS has not established annual improper payment reduction targets for the EITC and has not reported an improper payment rate of less than 10 percent. This is the second consecutive year that the IRS has not been in compliance with IPERA.
The Improper Payments Elimination and Recovery Act of 2010, also known as IPERA, increased agency accountability for reducing improper payments in federal programs and required agencies to identify programs that are at high risk for improper payments. Agencies are also required to set annual improper payment reduction targets for high risk programs.
TIGTA initiated its audit because IPERA requires TIGTA to assess the IRS’s compliance with improper payment requirements. The objective of its review was to assess the IRS’s compliance with IPERA.
The Treasury Department identifies the programs for which the IRS must assess the risk of improper payments. The IRS compiles the required information and forwards it to the Treasury for inclusion in the department’s agency financial report. TIGTA's analysis of the information provided by the IRS to the Treasury indicated that the IRS is not in compliance with all IPERA requirements.
“Although the IRS has implemented a number of programs over the years to address Earned Income Tax Credit improper payments, our auditors have found that the IRS faces significant challenges to becoming compliant with the Improper Payments Elimination and Recovery Act,” said TIGTA Inspector General J. Russell George in a statement.
Specifically, the process the Department uses to assess the risk of improper payments within its bureaus does not effectively assess the risk of improper payments in tax administration, TIGTA found. In addition, the ever-changing population of EITC claimants makes it difficult for the IRS to gain lasting improvements in EITC compliance through outreach, education and enforcement.
TIGTA made no recommendations in this report. However, prior reports contained five specific recommendations for improvement to which the IRS agreed. The prior reports evaluated the IRS’s compliance with improper payment requirements contained in Executive Order 13520 and the adequacy of the IRS’s fiscal year 2011 assessment of the risk of improper payments.
In response to the report, IRS CFO Pamela J. LaRue pointed out that the report had stated, “[b]ased on materiality, it is reasonable to omit [Earned Income Tax Credit] underpayments when computing the Fiscal Year 2012 improper payment rate. However, the IRS should continue to evaluate the significance of EITC underpayments annually and ensure that underpayments are included in its annual estimate of the EITC improper payment rate if warranted.”
“The IRS will continue to evaluate the significance of underpayments and report on that in the Fiscal Year 2013 estimate,” she said.