In general, the Internal Revenue Service (IRS) is accurately processing tax returns during the 2009 Filing Season despite the challenges of processing returns that include claims for tax credits designed to stimulate the economy and encourage homeownership, concludes a report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).
"While we still have some concerns, overall, the IRS has accurately processed most of the returns it received," commented J. Russell George, the Treasury Inspector General for Tax Administration. "This season, the IRS faces numerous challenges with the various changes implemented over the last year, such as the Recovery Rebate Credit and the First Time Homebuyer Credit."
In 2008, Congress created a $7,500 First Time Homebuyer Credit (FTHC) to allow taxpayers who are first-time homebuyers a refundable tax credit. The credit was increased to a maximum $8,000 credit by Congress in February 2009.
Also in 2008, Congress enacted the Economic Stimulus Act of 2008, which resulted in the issuance of more than 119 million economic stimulus payments totaling more than $96 billion. Most individuals received the economic stimulus payment in advance of filing their 2008 tax return based on information from their 2007 tax return. Individuals who qualify for a larger payment as a result of changes between their 2007 and 2008 tax returns will receive the Recovery Rebate Credit (RRC) when they file their 2008 tax return.
TIGTA's report, which evaluated the IRS's Filing Season performance through March 6, 2009, found that, overall; the IRS accurately processed returns and issued refunds in a timely manner.
Of the 56.9 million tax returns processed through March 6, 11.4 million included a claim for the RRC. Claims for the RRC totaled approximately $7.1 billion.
"The IRS accurately computed the Recovery Rebate Credit on 99.6 percent of the tax returns it processed. This is remarkable, given the difficulty taxpayers are having in identifying the amount of their credit," commented George. "The IRS is effectively handling the growing number of tax returns filed with errors on the credit by hiring seasonal employees earlier, offering overtime to its employees and making changes to its computer programs and operating procedures."
Regarding the First Time Homebuyer Credit, TIGTA identified 38,158 claims (of the 567,685 claims filed) in which taxpayers may have had ownership in a personal residence within the last 3 years, which makes them ineligible. The IRS is implementing processes to improve its identification of potentially erroneous or fraudulent claims for the FTHC and recover erroneous FTHC refunds.
Overall to date, the IRS has identified 67,780 returns which fraudulently claim roughly $421 million in refunds. Of those fraudulent refund claims, the IRS was able to prevent the issuance of roughly 89 percent.
"While the IRS has identified a majority of the fraudulent refunds claimed, $44 million was still issued," commented George. "The IRS must do more to prevent the issuance of fraudulent refunds."
Other significant findings include a 6.1 percent increase in electronic filing compared to the same period in 2008 and a 30.2 percent decrease in use of the Free File Program. The IRS believes this is due to a later start to the filing season, the migration of taxpayers to other free offers in the marketplace and the elimination of e-filing fees by some software providers.
In addition, callers to the IRS's toll-free telephone assistance lines are experiencing longer delays than the IRS had planned. The IRS' 58.8 percent level of service is 20.7 percentage points lower than the actual 2008 Filing Season. The average speed of answer is currently 9.8 minutes compared with 5.4 minutes in 2008.
Because this is an interim report, TIGTA did not make any recommendations.