Watchdog Report: IRS Paid Out More Than $20 Billion in Erroneous Low-Income Tax Credits

Watchdog Report: IRS Paid Out More Than $20 Billion in Erroneous Low-Income Tax Credits

The Internal Revenue Service paid out $14.5 billion in erroneous Earned Income Tax Credit payments and between $5.9 billion and $7.1 billion in improper Additional Child Tax Credit payments in Fiscal Year 2013, according to a new government watchdog report.

The EITC and ACTC are refundable tax credits intended for lower-income Americans. In Tax Year 2012, the IRS paid out $63 billion in EITCs and $26.6 billion in ACTC payments. 

A Treasury Inspector General for Tax Administration (TIGTA) report released Tuesday, however, reveals a high risk level for improper payments for both programs. 

According to the report, TIGTA estimates that in Fiscal Year 2013, 24 percent or $14.5 billion EITC payments were made in error and between 25.2 percent and 30.5 percent or between $5.9 billion and $7.1 billion ACTC payments were made in error. 

The report notes that since FY 2011, the IRS has rated the ACTC risk rate as low. However this most recent report shows that is not the case. 

“The IRS has continually rated the risk of improper Additional Child Tax Credit payments as low; however, TIGTA’s assessment of the potential for improper payments in this program indicates that its improper payment rate is similar to that of the Earned Income Tax Credit,” J. Russell George, Treasury Inspector General for Tax Administration, said in a statement in conjunction with the report’s release. 

“It is imperative that the IRS take action to identify and address all of its programs that are at high risk for improper payments,” George added. 

TIGTA reports that while the IRS has “not developed a strategy to identify the root causes of ACTC improper payments” TIGTA believes the causes to be similar to those they have identified for erroneous EITC payments, which include “authentification and verification” issues. 

The watchdog made recommendations aimed at resolving some of the improper payment issues.

“TIGTA recommended that the IRS ensure that the results of the ACTC Improper Payment Risk Assessment accurately reflect the high risk associated with ACTC payments, identify the root causes of the improper ACTC payments, and establish a plan to reduce erroneous payments,” the report reads. “Furthermore, if correctable error authority is granted, the IRS should contract with the Department of Health and Human Services to obtain the complete National Directory of New Hires database.”

It further recommend that the IRS should seek “expanded National Directory of New Hires database authority to systemically verify claims for other income-based refundable credits.” 

While the IRS agreed with the recommendations dealing with the explained National Directory of New Hires database, it disagreed with the rest of the body’s recommendations.

“The IRS disagreed with TIGTA’s other recommendations, stating that it follows Departmental and Office of Management and Budget guidance in conducting the Improper Payment Risk Assessment for the ACTC,” TIGTA detailed in a release. “Further, OMB acknowledges that the IRS already conducts an analysis of the Tax Gap that incorporates those credits.  Finally, the IRS stated that obtaining the complete NDNH database is not cost effective.”


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