The Internal Revenue Service doled out nearly $3 billion in erroneous business tax credits in 2013 to corporations that should not have qualified for the breaks – all at taxpayer expense.
A newly released report from the Treasury Inspector General for Tax Administration (TIGTA) said the billions in improper payments came through carry-forward business tax credits to companies that filed electronically.
Related: IRS Gave $14.5 Billion in Low-Income Tax Credits to the Wrong People
Corporations can qualify for a spate of incentives if they participate in activities considered beneficial to the economy, such as providing childcare for their employees’ children. In 2013 alone, corporations claimed more than $93 billion worth of tax credits, TIGTA said.
The auditors identified more than 3,000 electronically filed forms through the U.S. Corporation Income Tax Return that had potentially erroneous credits totaling more than $2.7 billion. Auditors also found that companies had claimed another $35 million worth of improper payments through a tax provision for small businesses that had already expired. Yet the IRS failed to catch these mistakes.
“Given the amount of potential tax revenue at risk, it is imperative that the IRS improve its processes to ensure that corporations accurately claim carry-forward general business credits,” Inspector General J. Russell George said in the report.
On the flip side, auditors said a programming error also caused some businesses that filed electronically to miss out on certain tax breaks that they claimed. That includes about $170 million in Empowerment Zone Employment Credits.
Related: Government Blows $125 Billion in Improper Payments
The IRS has said it’s corrected the problem. Officials, though, are unable to determine how many similar errors occurred with tax returns filed on paper.
TIGTA recommended the agency determine whether the same programming error also affected paper-filed business returns – and if so, take actions to correct the programming.
The IRS agreed with the auditor’s recommendations but said it can’t assure TIGTA they’ll be implemented by 2016 “due to other priorities competing for the same resources.”
IRS officials have repeatedly warned of the difficulties of this tax season due to the agency’s dwindling budget. Late last year, Congress slashed its budget by $346 million for 2015. The IRS’s budget – routinely subject to massive cuts – is now at about $10.9 billion. That’s $1 billion less than it was five years ago.
Related: Underfunded IRS Begins Crucial Obamacare Test
TIGTA’s report comes when the federal government overall is struggling to rein in hundreds of billions of dollars issued in erroneous payments every year. A report from the Government Accountability Office last month said the government handed out $124.7 billion in improper payments – the most GAO has recorded recently. That represented a nearly 17 percent increase from the previous year when improper payments totaled $105.8 billion.
Much of the increase came from Medicare, Medicaid and the Earned Income Tax Credit, which accounted for about 76 percent of the total estimate, GAO said.
The Obama administration and Congress have tried repeatedly to crack down on improper payments. Agencies aim to document the number of improper payments they make each year through each specific program, as well as how much it costs the government. However, some departments have been slow to follow the process.
In 2010 Congress also approved a measure mandating all inspectors general keep track of their agencies’ efforts to reduce improper payments. So far, the IGs say the agencies are making progress – but as the new report suggests, there is more work to be done.
Top Reads from The Fiscal Times:
