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IRS To Improve Tax Refund Offset Program

by Mike Godfrey,, Washington

29 April 2016

Following a report released by the Treasury Inspector General for Tax Administration (TIGTA), the US Internal Revenue Service (IRS) has agreed to revise computer programming and correct its procedures to ensure it identifies all available tax refunds to offset federal tax liabilities.

The US tax code requires a taxpayer's refund to be offset first to pay outstanding federal tax debt before it may be offset to non-tax debts or applied as a credit to a future tax period. After the tax overpayments have been offset to existing individual tax debts, any amount remaining can then be offset to business tax account liabilities.

The overall objective of TIGTA's audit was to determine whether the IRS's processes and controls ensure that overpayments are properly and accurately applied to offset federal tax liabilities.

TIGTA found that, in the 2013 tax year, the IRS did offset more than USD6.8bn in individual tax refunds to pay outstanding individual and business tax debts. However, TIGTA also discovered, for example, that the IRS's processes do not effectively identify sole proprietors with business tax debt, and that the agency also incorrectly offsets individual tax refunds to the tax debt of limited liability companies.

"The IRS needs to revise its processes and controls to ensure that refunds for tax overpayments are properly offset to pay for individual or business tax liabilities," said J Russell George, the TIGTA. "At present, the IRS's existing computer programming cannot provide this assurance."

In its report, TIGTA made several recommendations. The IRS plans to take corrective action by implementing the requisite programming changes (subject to budgetary constraints, limited resources, and competing priorities).

TAGS: individuals | compliance | tax | business | tax compliance | Internal Revenue Service (IRS) | tax authority | United States | tax breaks | Tax

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