IRS Not in Compliance with Improper Payments Law

[kcjenkins]

From "Accounting Today"

The Internal Revenue Service was not in compliance with all requirements of a 2010 law that increased agency accountability for reducing improper payments in federal programs, according to a new report that cited the high rate of improper payments for the Earned Income Tax Credit.

The report, released publicly Monday by the Treasury Inspector General for Tax Administration, found that the only program the IRS has identified for improper-payment reporting is the Earned Income Tax Credit Program. The IRS estimates that 21 to 25 percent of EITC payments were issued improperly in fiscal year 2012. The dollar value of these improper payments was estimated to be between $11.6 billion and $13.6 billion.

However, TIGTA auditors found that the IRS has not established annual improper payment reduction targets for the EITC and has not reported an improper payment rate of less than 10 percent. This is the second consecutive year that the IRS has not been in compliance with IPERA.

The Improper Payments Elimination and Recovery Act of 2010, also known as IPERA, increased agency accountability for reducing improper payments in federal programs and required agencies to identify programs that are at high risk for improper payments. Agencies are also required to set annual improper payment reduction targets for high risk programs.

TIGTA initiated its audit because IPERA requires TIGTA to assess the IRS’s compliance with improper payment requirements. The objective of its review was to assess the IRS’s compliance with IPERA.

The Treasury Department identifies the programs for which the IRS must assess the risk of improper payments. The IRS compiles the required information and forwards it to the Treasury for inclusion in the department’s agency financial report. TIGTA's analysis of the information provided by the IRS to the Treasury indicated that the IRS is not in compliance with all IPERA requirements.

“Although the IRS has implemented a number of programs over the years to address Earned Income Tax Credit improper payments, our auditors have found that the IRS faces significant challenges to becoming compliant with the Improper Payments Elimination and Recovery Act,” said TIGTA Inspector General J. Russell George in a statement.

Specifically, the process the Department uses to assess the risk of improper payments within its bureaus does not effectively assess the risk of improper payments in tax administration, TIGTA found. In addition, the ever-changing population of EITC claimants makes it difficult for the IRS to gain lasting improvements in EITC compliance through outreach, education and enforcement.

TIGTA made no recommendations in this report. However, prior reports contained five specific recommendations for improvement to which the IRS agreed. The prior reports evaluated the IRS’s compliance with improper payment requirements contained in Executive Order 13520 and the adequacy of the IRS’s fiscal year 2011 assessment of the risk of improper payments.

In response to the report, IRS CFO Pamela J. LaRue pointed out that the report had stated, “ased on materiality, it is reasonable to omit [Earned Income Tax Credit] underpayments when computing the Fiscal Year 2012 improper payment rate. However, the IRS should continue to evaluate the significance of EITC underpayments annually and ensure that underpayments are included in its annual estimate of the EITC improper payment rate if warranted.”

“The IRS will continue to evaluate the significance of underpayments and report on that in the Fiscal Year 2013 estimate,” she said.

[Jack from Ohio]

And this information is a surprise to whom?

[joanmcq]

The IRS is between two rocks and a hard place with the EIC. Congress says, "get refunds out fast", which doesn't allow time to preaudit. When more controls are put into place, the tax prep industry screams, as evidenced by this year's bitching about the new 8667. When the IRS pulls any suspect returns, the preparers scream to congress & the IRS (and blames the software companies) that their clients aren't getting refunds fast enough. The only way to correct it, besides getting rid of the EIC, would be to preaudit all EIC returns before sending out refunds. And tell the EIC crowd, you get your money when you get your money.

[kcjenkins]

Sounds like a good idea to me.

[BulldogTom]

I have an "EIC Idea". The Feds should dump EIC payments on the states. Make the individuals go to the welfare department with their tax return and apply for the EIC payments. Feds reimburse the state or pay directly to the individuals after state certification. State welfare will have a better handle on who lives where, who is getting what government assistance payments, etc. The state welfare system is a better place to document and approve these payments. It also takes it out of the Tax system and puts it in the welfare system where it belongs. Should also allow for easier transmission of information between 50 states and the Feds rather than 100,000 preparers and the Feds.

Finally, the Feds can then use this as a stimulus measure and release the checks at the time of the year they want to for maximum effect on the economy. How much you want to bet they will release them before the election?

Just my 2 cents.

Tom

Hollister, CA

[kcjenkins]

Damn fine idea, Tom.

[taxxcpa]

The EIC should be a "non-refundable" credit.

[Gail in Virginia]

Personally I don't think eic has anything to do with income tax. My suggestion is that if it is supposed to "refund" the social security deducted from low wage earners, why not just change the way social security is collected? Start collecting on wages above a certain amount with no ceiling. Then we don't have to audit our clients, employers can better afford more entry level workers and that might stimulate the economy. And with no ceiling social security shoud not be negatively impacted.

[WITAXLADY]

and then my client - a guy applies and shows the proper qualifications and gets denied just because the mom already filed and they don't check her out... he pays back thousands!

[kcjenkins]

He should not be paying back, his mom is the one who should be paying. He should have just paper filed and presented his proof, and he'd get his proper refund.

[jainen]

>>it is reasonable to omit [Earned Income Tax Credit] underpayments when computing the Fiscal Year 2012 improper payment rate<<

Let's not talk about facts that don't support our political viewpoint.

[kcjenkins]

You left off the important qualifier, Jainen. The statement started “ased on materiality..." which we know means that, at this point, the UNDERPAYMENT rate is too low to affect the results. Also, they then added "However, the IRS should continue to evaluate the significance of EITC underpayments annually and ensure that underpayments are included in its annual estimate of the EITC improper payment rate if warranted.” So they are measuring it now, and plan to continue that.

You are usually fairer than this, Jainen.

[jainen]

>>The statement started “ased on materiality..." which we know means that, at this point, the UNDERPAYMENT rate is too low to affect the results.<<

That is NOT what it means! Under Generally Accepted Accounting Principles (GAAP), "materiality" isn't usually quantitative, at least not in the sense of a ratio. It is instead a subjective professional judgement about whether the information would or would not affect a user's decision. GAAP even has special standards for government accounting, in which political and other non-economic opinions look to the nature of the item rather than its size.

For example, some people don't care if taxpayers claim less than they could, and it doesn't matter how much less. Apparently IRS disagrees--although they have tightened up enforcement, they have also done a lot of outreach to encourage EITC. There's an important policy difference if you think EITC is reaching the wrong people or not reaching the right people.

So the auditors are not saying there is little underpayment. They are saying they don't care about underpayment. This report is only about over-payment, that is, reaching the wrong people. They don't want to look at other facts that don't support their conclusion.