People Received $111.4 Million In Bogus Tax Benefits

According to the Treasury Inspector General for Tax Administration (TIGTA), the number of tax returns containing errors rose by 7.1 percent during the 2010 filing season.  As a result, 125,762 individuals received nearly $111.4 million in incorrect tax benefits under the $787 billion stimulus passed by the Congress in 2009.

This is bound to add fuel to the debate over whether the American Recovery and Reinvestment Act of 2009 was a bad idea, or as some liberals such as Paul Krugman of The New York Times suggest, not large enough. Almost every Republican advertisement running ahead of next week’s midterm elections denounces the stimulus as a “failure” and the tax system as needlessly complicated.   What gets less notice, however, is how the changes taxed the IRS.

“Implementing legislation for the 2010 Filing Season required the IRS to update many tax products and perform extensive programming in an effort to ensure tax returns would be processed accurately,” the report says. “We identified 71 tax products (33 tax forms, 12 instructions, and 26 publications) requiring updates due to legislation and determined 59 of them had been updated clearly and accurately. Of the remaining 12 tax products, 9 were incorrect, 2 had inconsistencies.”

The fact that almost half the material TGTA found was wrong for one reason or another was depressing but not unprecedented. A previous TGTA report found a 26 percent error rate with the issuance of tax liens, a particularly scary notion during these current economic times. Yet another TGTA report said the agency could make “better use” of third-party data to “identify and prevent more than $1 billion in potentially erroneous refunds.”

In the recent TIGTA report, auditors found “inadequate controls and incomplete and inaccurate programming” that resulted in the following:

* 10,581 individuals claiming $65.6 million in erroneous First-Time Homebuyer Credits (IRS prevented 2,363 of them from receiving some $11.3 million in credits);
* 109,665 individuals erroneously received $29.7 million in Making Work Pay and Government Retiree Credits;
* 5,345 individuals erroneously claimed $15.6 million in plug-in electric vehicle credits;
* 171 individuals claimed $453,220 in erroneous non-business energy property credits.

In addition, TIGTA also found 2,933 individuals with more than $95.8 million in Qualified Motor Vehicle Tax deductions on individual income tax returns “that exceeded the dollar amount the IRS uses to identify a potentially erroneous claim.”

Of course, the TGTA did credit the IRS for getting plenty right while at the same time urging the agency to do better.

“During the 2010 Filing Season, the IRS timely processed individual income tax returns and issued refunds on schedule,” said J. Russell George, the Treasury Inspector General for Tax Administration. “However, while the IRS did a good job overall, improvements are needed to prevent erroneous claims for credits and deductions.”

The IRS agreed to implement the changes suggested by the TGTA. More changes to how the IRS manages itself are obviously needed.

–Jonathan Berr