TIGTA Expresses Concerns Regarding Poor Controls Over All Refundable Tax Credits

An audit of the First-Time Homebuyer Credit has led the Treasury Inspector General for Tax Administration (TIGTA) to the conclusion that improved controls are needed over all refundable tax credits. (Audit Report No. 2011-41-035) The credit was available to taxpayers who purchased a home in 2008, 2009, or 2010. “Fraudulent and erroneous Homebuyer Credits totaling millions of dollars in refunds were issued, revealing a need for not only stronger controls over claims for the Homebuyer Credit, but also for strengthening controls over all refundable credits,” TIGTA said. The audit took note of IRS's efforts to bolster controls regarding the First-Time Homebuyer Credit, including the use of filters to identify questionable claims for the credit before they are processed. Legislation granting IRS math error authority was also helpful, the audit said. However, control weaknesses discovered in the latest audit, as well as in two previous audits, “allowed potentially erroneous refunds of more than $513 million to be received by taxpayers who most likely did not qualify” for the credit, the audit said. TIGTA recommended that IRS require taxpayers to supply documentation to support eligibility for all refundable tax credits. In addition, “to the extent feasible, the IRS should also ensure that the processing of refundable credits provided for in late legislation be initiated only after sufficient controls can be implemented to protect the government from erroneous and fraudulent claims for the credits,” TIGTA said. The audit is available at http://www.treasury.gov/tigta/auditreports/2011reports/201141035fr.pdf.