TIGTA issues mixed report card for IRS on last tax season

The Treasury Inspector General for Tax Administration released a report on the results of this past filing season, indicating mixed success for the Internal Revenue Service.

IRS-Building-light
The IRS headquarters building in Washington, D.C.

The report was released to the public at a time when the IRS is dealing with a partial government shutdown that threatens to delay next filing season as the IRS prepares to handle the vast changes from the Tax Cuts and Jobs Act.

The tax overhaul was passed in December 2017, but had little impact on last filing season as taxpayers filed their returns for 2017. The tax reform law will have a far greater impact on the upcoming filing season. In TIGTA’s report, released Wednesday, it said that as of May 4, 2018, the IRS received 140.9 million tax returns (with 89.2 percent electronically filed) and issued more than 101.3 million refunds totaling almost $282 billion.

The IRS began accepting and processing individual tax returns on Jan. 29, 2018. However, on Feb. 9, 2018, after filing season had already started, Congress enacted the Bipartisan Budget Act of 2018, which retroactively extended a number of individual tax provisions for tax year 2017 and modified disaster relief provisions.

That too proved to be a challenge for the IRS at the hands of Congress, although not as big as the one the IRS would be facing with the Tax Cuts and Jobs Act.

The IRS faced several challenges with tax credits stemming from the Affordable Care Act to help taxpayers buy health insurance. As of May 3, 2018, the IRS processed 4.9 million tax returns that reported nearly $27 billion in Premium Tax Credits for Obamacare that were either received in advance or claimed at the time of filing. A total of $3.7 billion received in Advance Premium Tax Credits was over the amount of Premium Tax Credits that taxpayers were entitled to, with a total of $1 billion not required to be repaid.

The IRS also faced challenges with several tax credits related to education. Although the IRS informs taxpayers of the requirement to provide the educational institution’s Employer Identification Number or EIN, the IRS has yet to implement processes to identify and disallow American Opportunity Tax Credit claims at the time tax returns are filed for which the required EIN is not provided. TIGTA identified 234,053 tax returns that were filed without providing an educational institution’s EIN for which the taxpayers received approximately $209 million in the refundable American Opportunity Tax Credit.

The IRS also had to deal with a series of hurricanes and other natural disasters for which taxpayers claimed tax credits and other forms of relief. The IRS developed processes to implement the key tax provisions included in the Disaster Relief Act and the Tax Cuts and Jobs Act. However, not all taxpayers received the benefit intended from the disaster relief provision. TIGTA identified 1,128 tax returns claiming the Earned Income Tax Credit using Tax Year 2016 earned income that the IRS incorrectly adjusted based on the taxpayers’ tax year 2017 earned income. The IRS agreed that these tax returns were worked incorrectly.

The IRS continued to deal with problems facing identity theft victims, including many without Social Security numbers. TIGTA analyzed approximately 3.8 million confirmed identity theft victim tax accounts and found that 37,555 (1 percent) were Individual Taxpayer Identification Number, or ITIN, accounts, which are often issued to undocumented immigrants. The IRS currently doesn’t issue Identity Protection Personal Identification Numbers, or IP PINs, to ITIN account holders. Therefore, the 37,555 tax accounts won’t receive the same identity theft protection measures as Social Security number holders.

TIGTA issued a number of recommendations in the report. It recommended the IRS make sure it completes the review of the 1,128 accounts that didn’t receive the correct amount of the Earned Income Tax Credits. It also recommended the IRS should revise its processes for issuing an IP PIN so an IP PIN would be automatically issued to ITIN holders who are confirmed victims of identity theft and who aren’t working under someone else’s Social Security number, as well as expand the IP PIN opt-in program to include ITIN holders who aren’t automatically issued an IP PIN.

The IRS agreed with two of TIGTA’s recommendations and partially agreed with another recommendation to automatically assign IP PINs to ITIN holders who are confirmed victims of identity theft. IRS management doesn’t believe automatic assignment of IP PINs is a good idea at this time, but it does plan to modify the IP PIN opt-in program to allow eligible ITIN holders to participate.

“We do not agree with the recommendation to automatically issue IP PINs to ITIN holders who have not obtained employment through the improper use of another’s SSN; however, any eligible individual within this subset of the ITIN population will be able to request participation in the program,” wrote Kenneth C. Corbin, commissioner of the IRS’s Wage and Investment Division, in response to the report.

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