The Internal Revenue Service has been doing a better job of detecting and preventing fraudulent refunds this filing season, but programming bugs and inadequate controls are still allowing erroneous claims to get through for various tax credits.
In an interim report on the IRS’s 2011 filing season performance through early March, the Treasury Inspector General for Tax Administration found problems with the IRS’s administration of the Adoption Credit, the Qualified Motor Vehicle Deduction, the Non-Business Energy Property Credit, the Qualified Plug-in Electric Drive Motor Vehicle Credit, and the First-Time Homebuyer Credit. In addition, TIGTA auditors also found customer service problems at the IRS’s Taxpayer Assistance Centers and in the Volunteer Program, which prepares returns for low-income and other taxpayers.
As of March 4, 2011, the IRS had identified 335,341 tax returns claiming a combined $1.9 billion in fraudulent refunds and prevented the issuance of $1.8 billion (97 percent) in fraudulent refunds, TIGTA found in its report on the IRS’s performance during the 2011 filing season. This represents a 181 percent increase over the number of tax returns identified over this period in 2010. During the same period last year, the IRS had identified 119,484 tax returns with $733 million claimed in fraudulent refunds, and prevented the issuance of $721 million (98 percent) of the fraudulent refunds claimed. The report also noted an 88 percent increase in the number of tax returns filed by prisoners screened by the IRS this year.
“Our interim report on the IRS filing season provides a valuable opportunity for review, which is mixed again this year,” said TIGTA Inspector General J. Russell George in a statement. “On the one hand, the IRS is to be commended for its sharpened focus on fraud interception and prevention. On the other, its efforts to prevent improper credits still leave much to be desired, and customer service problems continue. I urge IRS officials to solve the problems we identified without delay.”
The 2011 filing season has presented challenges for IRS customer service, the report found. TIGTA auditors faced long wait times to speak with an assistor at Taxpayer Assistance Centers. The assistance received there was highly accurate, but wait times averaged an hour, and some auditors were turned away, denied services, or asked to return another day. Meanwhile, at the Volunteer Income Tax Assistance and Tax Counseling for the Elderly sites, tax return preparation had only a 60 percent accuracy rate, down from 86 percent in 2010, TIGTA found.
Changes to the tax laws in December 2010 resulted in some taxpayers being unable to file their tax returns until Feb. 14, 2011, according to TIGTA’s report. Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 on December 17, 2010.
Among other things, the law extended the expansion of the Earned Income Tax Credit and the American Opportunity Tax Credit, and this required the IRS to reprogram its processing systems for three provisions extended by the law—state and local sales tax deduction, higher education tuition and fees deduction, and educator expenses deduction.
TIGTA’s review of the processing of tax returns claiming credits or deductions identified programming errors resulting in the issuances of erroneous First-Time Homebuyer Credits and Non-Business Energy Property Credits.
Among the trends noted in the report, TIGTA found that more people are filing their returns electronically using home computers; however, the use of the Free File Program continues to decline. As of March 4, 2011, the IRS had received over 3 million individual tax returns through the Modernized E-File system, representing a 225 percent increase over the total number of tax returns the IRS received through this system during the entire 2010 filing season.
Incorrect programming and possible tax-examiner errors resulted in the issuance of erroneous First-Time Homebuyer Credits and Non-Business Energy Property Credits. Taxpayers are continuing to erroneously receive First-Time Homebuyer Credit claims with ineligible purchase dates.
An unusually large number of individuals (218,069) claimed $315 million in Qualified Motor Vehicle Deductions. The circumstances under which individuals can claim a QMV Deduction on their tax year 2010 tax return are limited; therefore deductions should not involve a large number of individuals. To claim the deduction in 2010, the taxpayer would have had to purchase a new vehicle in 2009, but defer payment of sales or excise tax until 2010. It seems unlikely that almost 220,000 taxpayers would have timed their transaction in this fashion.
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