Authorities Provided by the Internal Revenue Code Are Not Effectively Used to Address Erroneous Refundable Credit and Withholding Credit Claims

The Commissioner, Wage and Investment Division, should assess the erroneous refund penalty for reduced or disallowed withholding and refundable credit claims on all claims for which the IRS determines the claim is excessive and does not have a reasonable basis, and the taxpayer is not subject to the penalties under I.R.C. Sections 6662, 6662A, and 6663.

The Commissioner, Wage and Investment Division, should, at a minimum, prioritize resources to ensure that all tax returns with a recertification indicator that meet the IRS's examination selection criteria and break a DDb rule are examined. As resources become available, the IRS should ensure that all tax returns with a recertification indictor that meet the examination selection criteria are examined.

The Commissioner, Wage and Investment Division, should develop processes and procedures to manually set a recertification indicator on tax accounts associated with refundable credit claims that were disallowed through the AQC program until a systemic process is implemented.

The Commissioner, Wage and Investment Division, should add recertification indicators to the tax accounts of the 6,259 cases we identified with a refundable credit claim disallowed through the AQC program. In addition, the IRS should identify additional taxpayers whose refundable credit claim was disallowed by the AQC program since December 2018 and add recertification indicators to these tax accounts.

The Commissioner, Wage and Investment Division, should ensure that a systemic process is implemented to set the recertification indicator on taxpayers' accounts when refundable credit claims are disallowed as part of the IRS's AQC program.