TIGTA Report: The IRS Must Do More to Reduce Improper Payments

Oct 22nd 2013
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The IRS has made no significant improvement in reducing improper Earned Income Tax Credit (EITC) payments, according to a report publicly released October 22, 2013, by the Treasury Inspector General for Tax Administration (TIGTA).

Executive Order 13520, Reducing Improper Payments and Eliminating Waste in Federal Programs, requires TIGTA to assess the IRS's compliance with the order on an annual basis. The objective of this review was to assess the IRS's efforts to implement Executive Order 13520.

The IRS estimates that 21 to 25 percent ($11.6 billion to $13.6 billion) of EITC payments were issued improperly during Fiscal Year 2012. However, TIGTA found that the IRS's Fiscal Year 2012 estimate for EITC claims and improper payments are understated because the laws extending increases in the EITC were not factored into the estimates.

TIGTA also found that the IRS has not established annual improper payment reduction targets as required by law. The IRS is also not in compliance with the quarterly reporting requirement for high-dollar improper EITC payments (payments totaling more than $5,000) to TIGTA and the Council of the Inspectors General for Integrity and Efficiency.

IRS management stated that they recently met with the Office of Management and Budget and agreed to develop supplemental measures and indicators in lieu of reduction targets. However, the IRS did not indicate when these measures would be in place.

"The IRS should be commended for implementing numerous processes to educate Americans and identify and prevent improper EITC payments", said J. Russell George, Treasury Inspector General for Tax Administration. "Unfortunately, it is still distributing more than $11 billion in improper EITC payments each year and that is disturbing.

"The IRS must do a better job of reining in improper payments in this and in other programs", George added.

TIGTA recommended that the IRS develop processes to identify high-dollar improper EITC payments and report the information to TIGTA and the Council as required by Executive Order 13520.

IRS management agreed with TIGTA's recommendation and plans to take appropriate corrective actions.

In a written statement to AccountingWEB, the IRS said:

The IRS appreciates the Inspector General's acknowledgement of all our work to implement processes that identify and prevent improper EITC payments. Every year, the IRS conducts 500,000 EITC audits as part of a broader enforcement strategy, and EITC claims are twice as likely to be audited as other tax returns. The IRS protects nearly $4 billion in improper claims each year and is committed to continuing to work to reduce improper claims. As the data in the TIGTA report shows, there has been a significant decline in the improper payments since 2010. 

To that end, the IRS continues to work with OMB to develop supplemental measures to better gauge the impact of IRS' compliance and outreach efforts. While federal privacy laws restrict the data that can be provided, IRS has also worked with OMB to develop a quarterly summary report of overpayments that will meet the reporting requirements of Executive Order 13520.

Read TIGTA's report: The Internal Revenue Service Is Not in Compliance with Executive Order 13520 to Reduce Improper Payments.

Source: October 22, 2013, TIGTA Press Release


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