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November 5, 2009
Li-Yun Chien
TIGTA-PAO@tigta.treas.gov
(202) 622-6500

Taxpayers Incorrectly Claimed Health Coverage Tax Credit

The Treasury Inspector General for Tax Administration (TIGTA) today publicly released its audit of the Internal Revenue Service's processing of the Health Coverage Tax Credit (HCTC). The HCTC is intended to make health coverage more affordable for certain groups of people who might otherwise not be insured.

TIGTA found that 72 percent of the tax year 2006 individual tax returns that it sampled did not have the necessary documentation attached for purposes of claiming the HCTC. TIGTA also identified 1,260 individuals who appear to have erroneously claimed about $1.8 million in HCTCs on their 2007 returns.

TIGTA concluded that improvements are needed to ensure that individuals claiming the HCTC on their tax returns accurately compute the credit. The IRS also should implement a process to identify inaccurate HCTC claims at the time a tax return is filed to prevent erroneous refunds from being issued.

TIGTA recommended that the IRS develop processes to: 1) ensure that taxpayers who claim the HCTC on their tax returns provide the required documentation to support their claims; and 2) identify erroneous HCTC claims at the time tax returns are initially processed.

IRS management agreed with TIGTA's first recommendation and further agreed with the premise of the second recommendation but proposed an alternative corrective action. Specifically, the IRS will identify potentially erroneous claims during processing, program additional error codes, inform taxpayers of their appeal rights, and request that taxpayers provide documentation to prove their claims. TIGTA agreed that the IRS's proposed alternative corrective action will satisfy the intent of its original recommendation.

"The IRS's identification of erroneous Health Coverage Tax Credit claims could put more than $9 million of funds to better use over 5 years," commented J. Russell George, the Treasury Inspector General for Tax Administration. "Developing such a process will improve the effectiveness of the HCTC program as it continues to expand," added Inspector General George.