A report issued by the Treasury Inspector General for Tax Administration (TIGTA) has found that the IRS issued potentially improper Recovery Rebate Credit (RRC) payments, pursuant to the CARES Act, totaling $898 million.
Accounting Today explained that the RRC payments were included in the federal government’s efforts to provide a stimulus to the economy during the early days of the COVID-19 pandemic. The The Coronavirus Aid, Relief, and Economic Security (CARES) Act created the refundable tax credit of up to $1,200 per eligible adult, to be applied toward the taxpayer’s tax year 2020 tax liability. Most taxpayers received Economic Impact Payments as deposits in their bank accounts or through a debit card in the mail, but those who didn’t receive their payment could claim it on their tax return. The Consolidated Appropriations Act of December 2020 subsequently added an RRC of up to $600 for each eligible individual and $600 for each eligible child and modified the eligibility requirements for the RRC. Taxpayers had to enter the amounts they received from the payments and credits on their tax returns, and the IRS would reconcile them with its records.
According to the report, TIGTA initiated an audit to assess the IRS’s processing of RRC claims during the 2021 filing season. The CARES Act and the Consolidated Appropriations Act, 2021 (CAA) authorized the IRS to make advance payments of the RRCs to eligible individuals.
The report found that as of May 27, 2021, “the IRS had processed 26.3 million tax returns with RRC claims totaling $39.2 billion. Of these, the IRS issued potentially improper RRC payments totaling $898 million. These include $79.8 million in the RRC that should have been paid to eligible individuals and $818.5 million in the RRC that was paid to ineligible individuals. The IRS declined to review nearly $598 million of the improper payments and take the actions needed to recover them. Additionally, the IRS stated it has no plans to further assist approximately 10 million potentially eligible individuals in receiving their payment.”
Additionally, the report found that the IRS correctly calculated the allowable RRC for 26.1 million (99.3 percent) of the 26.3 million tax returns that claimed an RRC as of May 27, 2021. TIGTA’s testing identified 181,743 returns for which IRS programming (11,797 returns), Error Resolution function tax examiner (167,130 returns) errors, and timing issues (2,816 returns) resulted in the incorrect RRC being given to the taxpayer. In addition, 355,015 potentially ineligible individuals were erroneously issued the RRC. These include ineligible dependents, nonresidents, and individuals associated with a credit from a U.S. Territory.
TIGTA also identified approximately 10 million potentially eligible individuals who had not received an RRC by that date. Finally, it found that debit card policies and the decision to manually verify RRC claims unnecessarily burdened taxpayers and delayed access to stimulus payments for some taxpayers. TIGTA issued 12 alerts during this review to alert the IRS of its concerns. The IRS implemented programming changes to address one alert and agreed to take action on four additional alerts. These actions include reviewing the tax returns TIGTA identified, taking the actions necessary to correct the taxpayers’ tax accounts, and implementing processes to automate the error resolution process for RRC claims filed during the 2022 filing season.
In light of its findings, TIGTA made 22 recommendations to the IRS. They included taking actions needed to correct erroneous RRC payments, ensuring that eligible individuals receive their credit, and notifying individuals who have not filed a tax return or did not claim the RRC of their potential eligibility. TIGTA also recommended that the IRS obtain recurring data in processing year 2022 to identify individuals who have not activated their debit card for the advance stimulus payment and establish processes to reverse these advance payments so individuals can receive the RRC on their tax year 2021 tax return.
The IRS agreed with eight of the 22 recommendations. It did not agree to review erroneous payments totaling nearly $598 million that were paid to ineligible individuals as of May 27, 2021. Nor did it agree to conduct an analysis to identify and recover additional erroneous RRC payments issued after May 27, 2021. Finally, the IRS did not agree to take any actions to ensure that the approximately 10 million potentially eligible individuals TIGTA identified as of May 27, 2021, receive their RRC or to identify additional individuals who are eligible for the RRC but did not claim the credit.