WASHINGTON – The Internal Revenue Service (IRS) generally developed processes to implement key tax provisions affecting the 2017 Tax Filing Season; however, some IRS tax processing procedures need improvement according to a report that the Treasury Inspector General for Tax Administration (TIGTA) issued today.
The filing season, defined as the period from January 1 through mid-April, is critical for the IRS because it is during this time that most individuals file their income tax returns and contact the IRS if they have questions about specific laws or filing procedures. As of May 5, 2017, the IRS received 138.9 million tax returns (with 88.7 percent electronically filed) and issued more than 101.6 million refunds totaling almost $282 billion.
The IRS began accepting and processing individual tax returns on January 23, 2017, as scheduled, and processed 5.1 million tax returns that reported nearly $23.9 billion in Premium Tax Credits that were either received in advance or claimed at the time of filing. Taxpayers received $5.8 billion in Advance Premium Tax Credits to which they were not entitled, of which $3.5 billion was not required to be repaid. In addition, as of May 4, 2017, more than 2.5 million taxpayers filed a return that was silent with respect to their health care coverage.
As required, the IRS held all refunds that included the Earned Income Tax Credit and Additional Child Tax Credit (ACTC) until February 15, 2017, and most tax return preparers complied with the expanded due-diligence requirements for the Child Tax Credit, ACTC, and American Opportunity Tax Credit (AOTC). As of May 4, 2017, 441,071 (93.5 percent) of the 471,518 tax return preparers who filed at least one claim for these credits included Form 8867, Paid Preparer's Due-Diligence Checklist, as required. However, IRS processes do not ensure that all noncompliant preparers are notified.
The IRS continues to pay the AOTC for ineligible students. TIGTA estimates that the IRS erroneously paid $2.8 billion in AOTCs on more than 1.7 million Tax Year 2016 returns, on which no educational institution Employer Identification Number was provided as required, or the student received the AOTC for more than the four-year limit.
The IRS inappropriately denied approximately $1 million in Residential Energy Efficient Property Credits to 494 taxpayers as of May 4, 2017. In addition, IRS processes do not effectively determine whether taxpayers filing as Married Filing Separately and claiming the Child and Dependent Care Credit are eligible under an exception in the law before denying the credit. Married Filing Separately taxpayers filed 12,057 claims for the Child and Dependent Care Credit totaling $7.4 million, all of which were denied by the IRS.
TIGTA made seven recommendations to the IRS. IRS management agreed to all seven recommendations.