IRS Shortchanged Unemployment Funds by $63M

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Internal accounting errors by the Internal Revenue Service reduced federal funding available for unemployment benefits by $63 million, according to a new report.

The report, by the Treasury Inspector General for Tax Administration, assessed changes made by the IRS in response to a 2003 audit of the IRS’s administration of the Unemployment Trust Fund. The fund provides a portion of extended unemployment benefits during periods of high unemployment and provides a loan fund for states when state unemployment funds are insufficient to pay state unemployment benefits. The IRS collects and processes taxes paid by employers to fund the federal government’s share of unemployment benefits.

While the IRS has improved its reporting of expenses associated with administering the fund, it still lacks sufficient controls to ensure that costs are calculated accurately. TIGTA found that the IRS overstated its expenses by $63,368,413 over a five-year period. These excess funds were transferred to the General Fund for overall federal government operations instead of remaining in the Unemployment Trust Fund.

“In these difficult economic times, the American people need to be assured that all unemployment taxes collected by the IRS are used for their intended purpose — providing economic relief to their fellow citizens who are unemployed,” said TIGTA Inspector General J. Russell George in a statement. “When TIGTA brought this to the IRS’s attention, the IRS recalculated its expenses and submitted revised reports to correctly distribute those funds to the Unemployment Trust Fund.”

TIGTA recommended that the IRS update its procedures for calculating the cost of administering the fund. The IRS agreed with TIGTA’s recommendations.

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Tax practice