The IRS’s inspector general plans to issue an interim report in June on the accuracy of the IRS’s coronavirus economic impact payment calculations.
The announcement by the Treasury Inspector General for Tax Administration responded to a Tax Notes inquiry on oversight of improper pandemic stimulus payments, after TIGTA issued an audit May 4 citing $26.7 billion in improper refundable tax credit payments made by the IRS in 2019. The inspector general said the agency isn’t using its statutory authority to recover more of the payments.
“Erroneous refund penalties are not being assessed, the majority of taxpayers who are recertified to receive a refundable credit do not meet eligibility requirements, and bans are not being used effectively,” TIGTA said in its audit on improper payments. The inspector general noted that “limited resources result in the majority of refundable credit claims with income discrepancies not being addressed.”
A TIGTA spokesperson told Tax Notes that the June report would include preliminary results on the issuance of notices that taxpayers are supposed to receive shortly after stimulus payments.
“Recovering improper payments is always a challenge for government agencies, especially when fraud is the culprit rather than an error,” said Linda Miller, fraud and financial crimes practice leader at Grant Thornton LLP. She added that “recovery efforts usually only claw back a fraction of the loss.”
Complexity Vexes
The IRS reported that $17.4 billion (25.3 percent) in earned income tax credit payments made in 2019 were improper, TIGTA said. The agency also estimated that 26 percent of American opportunity tax credits ($2.1 billion) and 15.2 percent of additional child tax credits ($7.2 billion) were made improperly.
However, James McTigue, director of strategic issues at the Government Accountability Office, said oversight of refundable tax credits such as the EITC is not entirely comparable to pandemic response payment oversight.
“The high improper [refundable credit] payment rates reflect the complexity of the programs involved,” McTigue said. EITC eligibility relies on income, filing status, residency, and relationship requirements that can be hard to authenticate, he noted.
By contrast, Miller said, the IRS is making economic impact payment eligibility determinations using 2018 and 2019 tax returns rather than individual qualifications.
Taxpayers’ desire to get their economic impact payments quickly may open opportunities for fraud, McTigue cautioned.
But Miller said most improper IRS payments under the program so far — to dead people, bad bank accounts, or individuals who appear to qualify but don’t — will be “exceptionally laborious and challenging” to recover.
Improper coronavirus relief payments likely won’t be recovered “except in situations where a large-scale fraud ring appears to have been in place, or the data match is relatively easy and low cost,” Miller said.
New IRS Powers
TIGTA and Treasury are members of the Pandemic Response Accountability Committee, which oversees government spending on coronavirus relief, although President Trump fired the original head of the committee, and he hasn’t been replaced.
Besides the IRS using its existing authority to recover payments and penalize offenders, TIGTA said Congress could grant the agency additional powers, such as the authority to correct improper payment returns during processing.
TIGTA also said the agency didn’t report net premium tax credit improper payment estimates, which the watchdog said might be as vulnerable to errors and fraud as the EITC.
The TIGTA report covers only improper payment rates for fiscal 2019, which ended September 20, 2019. It doesn’t include any data or recommendations for improving identification and recovery of various IRS-administered improper coronavirus relief payments.
The IRS didn’t respond to a request for comment or update.