The Internal Revenue Service hands out billions of dollars in improper tax credits each year and, according to the Treasury Inspector General for Tax Administration, last fiscal year was no different.
In an audit report publicly released this week, TIGTA reveals that 23.8 percent — or $15.6 billion — of the Earned Income Tax Credits (EITC) the IRS paid out were improper. The EITC is a tax benefit intended for low to moderate income people.
The Office of Management and Budget defines an improper payment as “any payment that should not have been made, was made in an incorrect amount, or was made to an ineligible recipient” and considers the EITC to be a “high risk” for improper payments.
As a “high risk” program, TIGTA assesses the IRS’s compliance with statutory requirements to report improper EITC payment information to the Treasury Department.
The watchdog determined that, while the IRS did provide all the required information to the Treasury, the improper payment rate was well above the “less than 10 percent” rate mandated by the Improper Payments Elimination and Recovery Act.
TIGTA said the IRS’s authority should be expanded to allow for corrections to improper claims it uncovers.
“The IRS’s Fiscal Year 2017 budget submission contained a legislative proposal for correctable error authority,” J. Russell George, Treasury Inspector General for Tax Administration, said in a statement. “This authority would help it systemically address many of the erroneous claims it identifies.”
On top of misfired EITC payments, TIGTA also estimates that the potential Additional Child Tax Credit improper payment rate last fiscal year was 24.4 percent or $5.7 billion, and the potential American Opportunity Tax Credit improper payment rate in FY 2015 was 30.7 percent or $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 reads. “TIGTA 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.”