The Internal Revenue Service still doesn't have the authority from Congress to correct billions of dollars in erroneous claims for the Earned Income Tax Credit despite recent legislation, according to a new report.
The report, from the Treasury Inspector General for Tax Administration, noted that the Consolidated Appropriations Act of 2016 provides the IRS with additional tools to reduce EITC improper payments. However, the law did not expand the IRS’s authority to systemically correct the erroneous claims it identifies.
The Office of Management and Budget has declared the Earned Income Tax Credit Program to be the only IRS revenue program fund at high risk for improper payments. The IRS estimates that 23.8 percent ($15.6 billion) of EITC payments were issued improperly in fiscal year 2015.
Without the authority to systemically correct erroneous claims, the IRS continues to be unable to address the majority of potentially erroneous EITC claims it identifies, according to TIGTA. The number of potentially erroneous EITC claims the IRS can audit is limited by resources. As a result, billions of dollars in potentially erroneous EITC claims go unaddressed each year.
“The IRS’s fiscal year 2017 budget submission contained a legislative proposal for correctable error authority,” said TIGTA Inspector General J. Russell George in a statement. “This authority would help it systemically address many of the erroneous claims it identifies.”
In addition, although the IRS completed risk assessments of the 22 program fund groups identified by the Treasury, the risk assessment process still does not provide a valid assessment of refundable credit improper payments, the report noted. For example, the IRS continued to incorrectly rate the risk of improper payments associated with the Additional Child Tax Credit and the American Opportunity Tax Credit in fiscal year 2015 as low, despite the IRS’s own enforcement data.
From those enforcement data, TIGTA estimates that the potential Additional Child Tax Credit improper payment rate for fiscal year 2015 is 24.2 percent, with potential improper payments totaling $5.7 billion, and estimates that the potential American Opportunity Tax Credit improper payment rate for fiscal year 2015 is 30.7 percent, with potential improper payments totaling $1.8 billion.
TIGTA recommended that the IRS ensure that the revised Additional Child Tax Credit improper payment risk assessment process includes a quantitative assessment. The report also recommended that the IRS ensure that the results of the American Opportunity Tax Credit Improper Payment risk assessment accurately reflect the high risk associated with American Opportunity Tax Credit payments. The IRS agreed with the recommendations and plans to take corrective action.
“The IRS continues to work with the Department of the Treasury, which supports expanded error correction authority as well as other legislative changes beyond those recently provided in the Consolidated Appropriations Act of 2016 that will help us improve compliance and reduce overclaims related to refundable credits,” wrote IRS CFO Ursula S. Gillis in response to the report. “We agree with you about the importance of properly accounting for payments made through the tax system for such useful benefits for the EITC, ACTC, and AOTC. We continue to use every tax administration tool and technique available to us as well as vigorously explore additional data sources and partners to verify claim eligibility, deter overclaims, and reduce payment errors. Without additional authorities granted to us by Congress, our ability to reduce payment errors in benefit programs administered through the tax system remains extremely challenging.”
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