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The IRS Effectively Planned to Use and Provide Oversight of the American Rescue Plan Act Funds; However, Subsequent Reallocation of Modernization Funds Resulted in Significant Replanning
American Rescue Plan Act: Accuracy of Advance Child Tax Credit Periodic Payments
As detailed previously, we provided the Director, Return Integrity and Compliance Services, Wage and Investment Division, with notifications and files detailing erroneous payments we identified and recommended that the IRS evaluate the discrepancies to identify why the payments were made to prevent additional periodic payments to ineligible taxpayers. In addition, we recommended that the IRS add a stop payment transaction code to taxpayer accounts to prevent them from receiving additional improper advance Child Tax Credit payments.
On August 9, 2021, we notified the Director, Return Integrity and Compliance Services, Wage and Investment Division, of our concerns related to eligible taxpayers who did not receive their advance Child Tax Credit payments. We recommended that the IRS evaluate the discrepancies to identify why periodic payments were not made to eligible taxpayers.
On June 29, 2021, we notified the Director, Return Integrity and Compliance Services, Wage and Investment Division, that the messaging provided on the IRS’s eligibility assistant tool and the presentation of information related to the advance Child Tax Credit payments on IRS.gov may be confusing to taxpayers. For example, the link to “Get Answers on the Advance Child Tax Credit” that is located on the IRS.gov main page takes taxpayers to the Advance Child Tax Credit Payments in 2021 web page; however, the links to get the questions and answers is at the bottom of the screen. We recommended that the IRS consider revising the messaging and presentation of information on its platforms to make it clear for taxpayers.
On January 28, 2022, we notified the Director, Return Integrity and Compliance Services, Wage and Investment Division, that we identified 2.2 million taxpayers who had their direct deposit information updated by the IRS between August 23 and October 5, 2021. We recommended that the IRS conduct an outreach effort to inform taxpayers of the possibility that their advance payments may have been sent to payroll allotment accounts. This outreach effort could include sending a separate letter to the impacted taxpayers.
The Director, Return Integrity and Compliance Services, Wage and Investment Division, should develop and implement processes and procedures to include data validation on incoming files from third-party sources prior to their use.
Processing of Recovery Rebate Credit Claims During the 2021 Filing Season
On June 15, 2021, we alerted IRS management of our concerns with the systemic calculation of the allowable RRC amount. We recommended that IRS management review the returns we identified and provide us with any corrective actions they intended to take.
Conduct analysis of Tax Year 2020 tax returns processed after May 27, 2021, to identify additional individuals who received an RRC for a qualifying child for which the IRS has already paid an EIP or an RRC to someone else and take the actions needed to recover RRC payments that are determined to be erroneous.
Review the 7,022 individuals identified in which the IRS issued multiple RRCs for a qualifying child who was claimed on more than one tax return and take the actions needed to recover payments that are determined to be erroneous.
Conduct analysis of Tax Year 2020 tax returns processed after May 27, 2021, to identify additional individuals who received an RRC for a qualifying child who was claimed on more than one tax return and take the actions needed to recover payments that are determined to be erroneous.
Review the 75,594 tax returns identified in which the individual is potentially a nonresident alien and take the actions needed to recover the RRC payments that are determined to be erroneous.
Perform analysis of Tax Year 2020 tax returns filed after May 27, 2021, to identify additional tax returns with the same characteristics as those the IRS determined were filed by a nonresident alien and take the actions needed to recover erroneous RRC payments.
The Commissioner, Wage and Investment Division, should coordinate with the Territories to confirm and recover erroneous RRCs.
Review the nearly 6.9 million potentially eligible individuals we provided to the IRS who had not filed a Tax Year 2020 tax return as of May 27, 2021, and send a letter to those individuals who still have not filed a Tax Year 2020 return to encourage them to file a return and claim the RRC if eligible.
Review the 3.1 million eligible individuals we identified who filed a Tax Year 2020 return and proactively issue these taxpayers their credit.
Conduct additional analysis to identify tax returns filed after May 27, 2021, in which an individual is eligible for the RRC based on their Tax Year 2020 tax return and did not claim the credit, and proactively issue the taxpayer their credit.
If IRS management does not proactively issue the RRC to individuals who filed a return and did not claim the credit, the IRS should notify these individuals that they are eligible to claim the RRC and should file an amended tax return to claim the credit.
On March 19, 2021, we alerted IRS management of our concerns that an incorrect amount of advance payments was being used to calculate the RRC for some taxpayers. We recommended that IRS management review the returns we identified and provide us with any corrective actions they intended to take.
Work with the BFS to ensure that individuals who were denied the RRC and have still not activated their EIP1 or EIP2 debit card as of December 31, 2021, have EIPs reversed in their tax account and are issued their RRC. These processes should include notifying Metabank that the debit cards in question are to be cancelled.
Work with the BFS to obtain recurring data during Processing Year 2022 to identify individuals who have not activated their advance ARPA RRC debit card at the time a return is filed and implement processes to reverse the advance payment so these individuals can receive the RRC on their Tax Year 2021 tax return.
We alerted the Commissioner, Wage and Investment Division, of our concerns that the IRS was unnecessarily burdening taxpayers whose RRC claims were identified for manual ERS review. We recommended the IRS develop processes to systemically adjust RRC claims using the computer-generated RRC calculation.
On April 6, 2021, we alerted IRS management of our concerns regarding ERS tax examiners incorrectly computing the RRC (see management’s action in response to Recommendation 1). We recommended the IRS review the returns we identified and take the actions necessary to ensure that these taxpayers receive the amount of the RRC they are entitled to receive.
On March 12, 2021, we alerted IRS management of our concerns that some tax returns were not being identified by fraud filters. We recommended IRS management review the returns we identified and associated fraud filters to identify why these returns were not selected and make programming changes as necessary to ensure proper identification of returns with potentially questionable claims.
Conduct analysis to identify Tax Year 2020 RRC claims processed after May 27, 2021, to identify other returns in which ERS tax examiners incorrectly calculated the number of allowable dependents and returns that were not reprocessed per IRS guidance after programming was corrected, and ensure that these taxpayers receive the correct amount of the RRC.
Review the 14,508 individuals identified in which the IRS issued an RRC to an individual who was claimed as a dependent on someone else’s tax return but did not check the dependent box and take the actions needed to recover payments that are determined to be erroneous.
Conduct analysis of Tax Year 2020 tax returns processed after May 27, 2021, to identify additional individuals who received an RRC and were also claimed as a dependent on someone else’s tax return but did not check the dependent box, and take the actions needed to recover the RRC payments that are determined to be erroneous.
Review the 238,680 individuals under the age of 25 identified as potential dependents and take the actions needed to recover payments that are determined to be erroneous.
Review the 15,741 individuals identified in which the individual incorrectly received an RRC and an EIP for the same qualifying child and take the actions needed to recover RRC payments that are determined to be erroneous.
American Rescue Plan Act: Continued Review of Premium Tax Credit Provisions
The Commissioner, Wage and Investment Division, and the Commissioner, Small Business/Self-Employed Division, should consider expanding the use of soft notices to address potentially erroneous PTC claims. These notices should provide individuals with information specific to the eligibility or reporting requirements related to the potential error the IRS identified and suggest the filing of an amended return, if an error has occurred.
The Commissioner, Wage and Investment Division, should notify the 317,418 taxpayers we identified, who potentially received less PTC than they were entitled or repaid more APTC than required, that they may qualify for additional PTC or overpaid APTC and encourage them to file an amended Tax Year 2021 return, if applicable.
The Commissioner, Wage and Investment Division, should develop processes, such as the use of courtesy letters to notify individuals of their potential eligibility, to proactively assist taxpayers who, based on available tax return and Exchange data, potentially claimed less PTC than entitled or paid more APTC than required.
On October 26, 2022, we notified the Director, Submission Processing, of our concerns regarding taxpayers who are potentially eligible for additional PTC based on their unemployment status during Tax Year 2021. We recommended that the Director, Submission Processing, notify these taxpayers that they may qualify for additional PTC or be able to reduce the amount of excess APTC they must repay and encourage them to file an amended Tax Year 2021 return, if they qualify.
On October 25, 2022, we notified the Director, Submission Processing, of our concerns with the draft Tax Year 2022 Form 8962 instructions. We recommended that the IRS revise the instructions to inform taxpayers that they have an option to set a domestic violence indicator on their tax return.
American Rescue Plan Act: Review of the Reconciliation of the Child Tax Credit
Review all of the 6,833 taxpayers with excess Child Tax Credit identified during our review and take appropriate actions to ensure that the taxpayers receive the correct amount of the Child Tax Credit.
Identify additional taxpayers after May 5, 2022, who received excess Child Tax Credit as a result of tax examiner error and take appropriate actions to ensure that these taxpayers receive the correct amount of the Child Tax Credit.
Review the 105 taxpayers who potentially did not receive all of their eligible Child Tax Credit identified during our review and take appropriate actions to ensure that they receive the correct amount of the Child Tax Credit.
Evaluate the priority of programming to ensure that processes and procedures are developed to identify and correct tax examiner entries input during the error correction process that exceed statutory limits, including a process to systemically reprocess corrected returns through Error Resolution programming before being released for processing.
On February 17, 2022, we notified IRS management of our concerns with undeliverable payments that post after the processing of the tax return. In these instances, the IRS processed the tax return as if the payment was received by the taxpayer. As a result, the taxpayer would receive less Child Tax Credit than they are eligible to receive. We recommended that the IRS develop a process to identify undeliverable payments after processing of the TY 2021 tax return.
Identify taxpayers with advance payments who have yet to file a TY 2021 tax return and send a reminder notice, similar to the Department of the Treasury, using the advance payments as part of the criteria.
Work with the Commissioner, Small Business/Self-Employed Division, to create a process to recover potentially erroneous advance payments from taxpayers who have not filed a TY 2021 tax return.
American Rescue Plan Act: Assessment of the Expanded Child and Dependent Care and Earned Income Tax Credits
On February 17, 2022, we notified the Director, Submission Processing, Wage and Investment Division, of our concern with three business rules and recommended that IRS management update the business rule programming to identify and evaluate returns for both refundable and nonrefundable CDCC claims.
Ensure that programming is updated for Processing Year 2023 to identify taxpayers who reported an obviously invalid care provider TIN on Form 2441.
Develop a tool or programming for Error Resolution to ensure that tax returns claiming prior year expenses are systemically identified to determine if the maximum CDCC had been claimed in the prior year, before processing the return and potentially releasing erroneous refunds.
Work with the Department of the Treasury, Office of Tax Policy, to advance legislation to treat a tax return as filed only when it is accepted. This would remove the legal risks associated with rejecting tax returns with conditions that indicate the taxpayer is ineligible for refundable credits claimed on the return.
If legislation is enacted, develop programming to reject e-filed returns meeting certain conditions, such as those noted in this report.
The Commissioner, Wage and Investment Division, should ensure that the compliance filter criteria for identifying individuals claiming self-only EITC who are not eligible for work is updated to include the *************************.
The Commissioner, Wage and Investment Division, should establish processes to compare subsequent legislative changes with compliance filterprogramming to identify and make necessary changes, as needed.
The Commissioner, Wage and Investment Division, should review the 774,559 returns with self-only EITC from potentially ineligible ******** and take actions needed to recover credits that are determined to be erroneous.
The Commissioner, Wage and Investment Division, should complete examinations for all 61 tax returns we identified to ensure taxpayers receive the correct CDCC amounts.
Reporting on the Use of Coronavirus Response Funding Could Be Enhanced
The Chief Financial Officer should evaluate the feasibility of expanding the information captured in the IRS’s financial tracking system to include tracking budgeted and dedicated staffing by spend plan requirement area for future sources of supplemental funding.
Action Is Being Taken to Address the System Limitation That Contributed to the Destruction of Tax Year 2019 Paper‑Filed Information Returns
On May 5, 2023, we notified IRS management of our concerns with the use of nonlocking bins in the Austin Tax Processing Center. We recommended that the IRS coordinate with the contractor or subcontractor and implement the use of lockable bins for classified waste.
Program and Organizational Changes Are Needed to Address the Continued Inadequate Tax Account Assistance Provided to Taxpayers
On September 20, 2021, we notified the Director, Accounts Management, that the Austin site was not requiring Accounts Management screeners to come into the office to perform their duties, resulting in a significant backlog and delays in inventory being routed to Accounts Management to be worked. We recommended that the IRS establish consistent guidance and clarification on when resources can be directed to the office to help with screening inventory, to ensure that sufficient staff is available to screen documents in a timely manner, and establish processes to monitor the progress,
The Commissioner, Wage and Investment Division, should update existing scanning software or obtain a new scanning software to address document capacity concerns.
The Commissioner, Wage and Investment Division, should ensure that programming is updated to systemically reject electronic submissions of Forms 2848 and 8821 when missing one of the five essential elements (name, address, signature, etc.) without manually mailing a rejection letter.
The Commissioner, Wage and Investment Division, should ensure that the rejection letter used for Forms 2848 and 8821 is updated to include language that a revised form can be submitted electronically via an IRS Tax Pro Account25 or through Taxpayer Digital Communication.
The Commissioner, Wage and Investment Division, should develop an action plan to prioritize the continued expansion of documents that can be sent in via electronic fax and converted into a Correspondence Imaging System (CIS) image.
Develop an action plan to prioritize the continued expansion of documents that can be sent in via electronic fax and converted into a CIS image.
The Commissioner, Wage and Investment Division, should Identify priority work that needs to be expedited by the Image Control Team (ICT) and assess the feasibility of creating an electronic fax number to receive this inventory.
On July 12, 2021, TiGTA notified the Director, Accounts Management, of concerns regarding inaccuracies as it related to the compiling and reporting of the Accounts Management Inventory Report (AMIR). TIGTA recommended that the IRS perform a reconciliation of each Accounts Management site’s AMIR to the source reports to identify inventory inconsistencies and reporting errors by site
The Commissioner, Wage and Investment Division, should complete the inventory reconciliations for the four remaining Accounts Management site’s to identify and correct inventory inaccuracies and inconsistencies and implement processes to provide oversight by periodically performing reconciliations for each site so that any future inconsistencies and errors are identified and corrected in a timely manner.
The Commissioner, Wage and Investment Division, should develop specific and detailed instructions for preparing the Accounts Management Inventory Report (AMIR), including how controlled and uncontrolled inventory should be captured
The Commissioner, Wage and Investment Division, should develop a process to systemically pull all controlled inventory for each Accounts Management site for the Accounts Management Inventory Report (AMIR) to ensure consistency, reduce human error, and increase efficiencies
The Commissioner, Wage and Investment Division, should modify Accounts Management inventory reporting to report unassigned controlled inventory separately on the nationwide Accounts Management Inventory Report (AMIR) and limit the site-specific AMIRs to only the inventory assigned to be worked in each site.
The Commissioner, Wage and Investment Division, should evaluate directing taxpayers to send tax account correspondence and replies intended for Accounts Management directly to Campus Support Sites for processing to reduce backlogs at Tax Processing Centers and improve services to taxpayers.
The Commissioner, Wage and Investment Division, should prioritize the development and implementation of tools that will enable taxpayers seeking assistance or responding to Accounts Management to correspond with the IRS electronically, including the ability to directly upload documents into Accounts Management’s inventory.
The Chief Taxpayer Experience Officer, in conjunction with the Director, IRS NEXT Office, should evaluate establishing two distinct IRS programs as part of the IRS reorganization under the Taxpayer First Act – one dedicated to answering toll-free telephone calls and one dedicated to working Accounts Management inventory – with adequate staffing to provide appropriate service to taxpayers using each channel.
On June 9, 2021, we notified the Director, Customer Account Services, that Submission Processing requested resources from Accounts Management to assist with clearing the Image Control Team (ICT) backlog and was told by Campus Support management that no resources could be made available to assist with reducing the ICT backlog. We recommended that the IRS assess the availability of Campus Support’s ICT staffing or other resources that could be made available to assist with clearing the ICT backlogs at Tax Processing Centers.
On September 3, 2021, we notified the Director, Accounts Management, of concerns relating to the newly stood-up Fresno Campus Support Site, including scanners not being used to the full extent possible. We recommended that IRS management provide us with it plans to address our concerns identified with the new Fresno Campus Support Site, including additional staffing to assist Image Control Team (ICT).
The Commissioner, Wage and Investment Division, should complete a strategic review of all 10 Image Control Team (ICT) sites to determine what contributes to the ICT’s inability to timely scan and validate documents. Based on the results of this review, initiate steps to address the concerns identified. This should include the development of an action plan to ensure that the high-capacity ICT scanners and staffing are realigned to the appropriate sites based on actual or expected inventory levels and that responsibility of the ICT operations are consolidated under the appropriate function.
The Commissioner, Wage and Investment Division, should cross-train additional mail clerks at Campus Support Sites to work Image Control Team (ICT) validations, freeing up additional resources in sites with higher inventories needing to be scanned, or consider shipping inventory to sites with less inventory to be scanned.
The Commissioner, Wage and Investment Division, should develop specific instructions and a common template for all 10 Image Control Team (ICT) sites to consistently capture ICT inventory information.
The IRS’s Inability to Keep Pace with Non-Corporate Applications for Refund of Net Operating Losses Under the CARES Act Has Cost Taxpayers Millions of Dollars in Additional Interest
Devote additional resources to process the tentative refunds faster and reduce interest payments.
Develop contingency plans, specific to the processing of Forms 1045, so that taxpayers are not adversely affected by a future cessation in operations.
Develop contingency plans, specific to the processing of Forms 1045, so that taxpayers are not adversely affected by a future cessation in operations.
The Commissioner, Small Business/Self-Employed Division, and the Commissioner, Wage and Investment Division, should evaluate and update their compliance strategy associated with the CARES Act to determine if it matches the risks associated with reversing TCJA provisions.