IRS DIDN'T FLAG $111.4M IN ERRONEOUS TAX CREDITS

Washington, D.C. - The Internal Revenue Service faced challenges last tax season verifying taxpayers' eligibility for some of the newer stimulus-related tax credits, allowing 125,762 individuals to receive nearly $111.4 million in erroneous Recovery Act-related benefits, according to a new report from the Treasury Inspector General for Tax Administration. There were nearly 23.7 million errors on returns through May 28, 2010, an increase of 7.1 percent from the previous year.

TIGTA found 10,581 individuals claiming $65.6 million in erroneous Homebuyer Credits. IRS compliance efforts did not allow 2,363 of the 10,581 individuals to receive $11.3 million they claimed for the Homebuyer Credit. In addition, TIGTA identified 109,665 individuals erroneously receiving $29.7 million in Making Work Pay and Government Retiree Credits, and 5,345 individuals erroneously claiming $15.6 million in plug-in vehicle credits. TIGTA also found 171 individuals claiming $453,220 in erroneous Nonbusiness Energy Property credits.

In addition, TIGTA identified 2,933 individuals with more than $95.8 million in Qualified Motor Vehicle Tax deductions on individual income tax returns (Form 1040, Schedule A) that exceeded the dollar amount that the IRS uses to identify a potentially erroneous claim.

TIGTA recommended that the IRS should develop processes to track and account for Recovery Act credits claimed on plug-in vehicle credit tax forms and verify whether 8,218 individuals identified as erroneously claiming the First-Time Homebuyer Credit are entitled to claim the credit. The report also recommended that the IRS should ensure that its computer systems are programmed to identify individuals exceeding the maximum allowable Nonbusiness Energy credits. The IRS should also ensure that programming is implemented to identify and freeze the refunds of individuals claiming more than a specific dollar amount in Qualified Motor Vehicle Tax deductions on Schedule A, if the deduction is extended.

The IRS agreed with each of the report's recommendations.

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