The United States Government Accountability Office (GAO) has suggested that Congress give the Internal Revenue Service additional powers to automatically correct errors on tax returns in an attempt to drive up rates of compliance and boost tax collection.
The recommendation was made in a report into the 2008 filing season, when the
IRS was tasked with sending out 116 million stimulus payments, in addition to
its usual job of processing tax returns, which last year totalled 150 million.
While the agency has generally come in for praise for the way it administered
the distribution of stimulus payments on top of its usual workload, the GAO
report noted that a significant number of IRS employees had to be transferred
away from compliance activities to more mundane administrative functions to
ensure that tax returns and stimulus payments were dealt with on a timely basis.
As a result, it is expected that the costs and foregone revenue associated with
issuing the economic stimulus package payments will reach about USD960m, of
which USD655m is revenue foregone due to the shift of collections staff to telephone
service. However, if the service had more authority to use 'math error checks'
to weed out mistakes on tax returns, this figure could have been considerably
reduced, the GAO report concluded.
"Given the potential for improving compliance now and in the future, Congress
may wish to provide IRS with the authority to use math error checks to identify
and correct returns with: ineligible IRA "catch-up" contributions;
and contributions to traditional IRAs from taxpayers over age 70-1/2,"
the report recommended.
Another area where the IRS does not use its current legal authority to automatically
correct errors when processing tax returns involves eligibility for the child
and dependent care credit by taxpayers who are "Married Filing Separately."
Taxpayers in this filing status are not eligible for the credit, but the IRS allows
the credit to be claimed, issues refunds, and then audits taxpayers to try to
recover the money. The IRS also does not use its existing legislative authority
to verify earned income tax credit claims by non-custodial parents, and in
2006, USD91m of claims were unverified.
Senator Chuck Grassley, the ranking Republican on the Senate Finance Committee,
agreed with the conclusions of the report and argued that the IRS should also
have made use of private contractors to collect back taxes.
“The IRS did a lot things right in the filing season, even with the added
challenge of getting out stimulus payments. However, there are some lessons
to be learned and applied to the next filing season. The agency didn’t
collect USD655m because it pulled personnel from collections to staff phones
to answer stimulus calls," Grassley noted.
"Because of the quick timing of stimulus, the IRS couldn’t hire
and train phone people quickly enough. However, the IRS could have made more
use of the private contractors that exist just to make calls to taxpayers who
owe money. This would have reduced the cost of using IRS collections staff to
take stimulus calls," he added
"Taxpayers should pay exactly what they owe, not a penny more or penny
less. The IRS needs to help taxpayers get it right. If the IRS needs legislation
to use additional Math Error Authority as recommended by the GAO or to improve
its guidance to taxpayers and tax return accuracy, the agency should make the
case for that. I’ll listen and if legislation is needed, will work to
make it happen," Grassley concluded.
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