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More IRS Action Sought On Improper Tax Credit Payments

by Mike Godfrey,, Washington

16 December 2014

The United States Internal Revenue Service (IRS) is required by law to take action in federal programs identified as being at high risk of improper payments, and it needs to classify the Additional Child Tax Credit (ACTC) as such a program, according to a recent report by the Treasury Inspector General for Tax Administration (TIGTA).

Under the Improper Payments Elimination and Recovery Act of 2010, a program is defined as having significant improper payments when they exceed both 2.5 percent of program outlays and USD10m of all program payments made during the fiscal year.

However, while the IRS has developed processes to identify improper Earned Income Tax Credit (EITC) payments and their root causes, estimating that 24 percent of all EITC payments made in the 2013 fiscal year, or USD14.5bn, were paid in error, it has not classified the ACTC as at high risk, even though TIGTA has estimated the potential ACTC improper payment rate for 2013 was up to 30.5 percent. Potential ACTC improper payments could then have totaled up to USD7.1bn.

TIGTA pointed out that the EITC and ACTC are both refundable credits designed to help low-income individuals reduce their tax burden, and IRS enforcement data show that the root causes of improper ACTC payments are similar to those of the EITC.

The overall objective of TIGTA's review was to assess the IRS's efforts to identify and address the root causes of erroneous EITC and ACTC payments and it found that significant changes in IRS compliance processes would still be necessary to make any significant reduction in improper payments.

However, in addition, J. Russell George, the TIGTA, commented that "the IRS has continually rated the risk of improper ACTC payments as low; however, … it is imperative that the IRS take action to identify and address all of its programs that are at high risk for improper payments."

TAGS: individuals | compliance | tax | tax compliance | law | tax credits | Internal Revenue Service (IRS) | enforcement | tax authority | legislation | United States | individual income tax | Tax

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