IRS Pays Out $3.2 Billion By Mistake

IRS Pays Out $3.2 Billion By Mistake

And That Number Is Expected To Climb



By Dell Hill

The Internal Revenue Service - better known as “The Tax Man” - is not an agency of federal government that’s affected by political ideology.  It has a job to do, as dictated by tax code legislation and it really doesn’t matter if a Democrat or Republican is in the White House or which party controls the House and Senate.  So this report from Accounting Today should inspire indignation from both sides of the political aisle.

“The Internal Revenue Service may have paid $3.2 billion in erroneous American Opportunity Tax Credits during the first five months of 2010 to 2.1 million taxpayers, according to a new government report.
                                           
The report, by the Treasury Inspector General for Tax Administration, found that 1.7 million taxpayers erroneously received an estimated $2.6 billion in education credits even though the IRS had no supporting documentation that they had attended an accredited institution of higher learning.

While the IRS initially did not agree with the amount of erroneous claims identified by TIGTA, it subsequently informed TIGTA that it has found a high percentage of the claims with no supporting documentation to indeed be erroneous.

IRS management noted that they expect the percentage of erroneous tax credits to further grow and have increased the number of tax returns they plan to review with this condition in fiscal year 2012.

An estimated 52 percent of the returns with potentially erroneous education credits were prepared by paid tax preparers, who should have been aware of the eligibility requirements, said the report.
   
The problem stems from a refundable tax credit known as the American Opportunity Tax Credit, which was created under the American Recovery and Reinvestment Act of 2009 as a way to help taxpayers offset the cost of higher education.  The credit has been extended to both 2011 and 2012 tax returns.

House Ways and Means Oversight Subcommittee Chairman Charles Boustany, R-La., said Thursday he was dismayed and concerned by the lack of progress by the IRS to prevent the erroneous payments of education tax credits.  “The IRS is failing to protect taxpayer dollars and must take stronger steps to ensure education credits should go to those who deserve them,” he said in a statement.  “In this case, taxpayers potentially lost $3.2 billion dollars.  Enough is enough.  It's time for the IRS to start taking proactive measures to stop erroneous payments on the front end.”

TIGTA also found that 370,924 taxpayers received an estimated $550 million in education credits for which they were not eligible because they did not attend college for the required amount of time or were post-graduate students.

In addition, 84,754 students who did not have a valid Social Security Number were claimed by taxpayers who received $103 million in education credits.  Each of these students had an Individual Taxpayer Identification Number, however.

The report also found that 63,713 taxpayers erroneously received an estimated $88.4 million in education credits for students claimed as dependents or spouses on another taxpayer’s tax return, and 250 prisoners erroneously received $255,879 in education credits.”

Read the entire Accounting Today report by clicking right here.

Error after error after error.  And it’s expected that many more such errors will be uncovered over time.

Speaking of time; isn’t it about time that something really serious is done about the tax code structure in this country?  We’re obviously losing many billions to tax loopholes and errors such as those reported today.  I know we have a lot on our plate, but this is one area that needs to be addressed very, very soon.