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.