Interim Results of the 2011 Filing Season

I thought I'd post this. One of the highlights is interesting.

Treasury Inspector General For Tax Administration - Interim Results of the 2011 Filing Season
March 31, 2011
Reference Number: 2011-40-032

Highlights of Reference Number: 2011-40-032 to the Internal Revenue Service Commissioner for the Wage and Investment Division.

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WHY TIGTA DID THE AUDIT

The 2011 Filing Season involves the enactment of two significant tax laws, repayment of the First-Time Homebuyer Credit and the passage of late legislation. The IRS is also continuing migrating electronic filing (e-filing) to the Modernized e-File system to process individual tax returns. The objective of this review was to provide selected information related to the IRS 2011 Filing Season results as of either March 4 or March 5, 2011.

WHAT TIGTA FOUND

As of March 4, 2011, the IRS received nearly 60.5 million tax returns – 53.9 million (89 percent) were e‑filed and nearly 6.7 million (11 percent) were filed on paper. The IRS has issued nearly 52.6 million tax refunds totaling approximately $161.3 billion.

The passage of late legislation resulted in the IRS having Electronic Return Originators hold approximately 6.5 million e-file tax returns to be transmitted on February 14. In addition, the IRS held approximately 100,000 paper tax returns received prior to February 14.

Our review identified that several programming errors resulted in the incorrect populating of the IRS’s computer records. Programming errors are also resulting in the issuance of erroneous First-Time Homebuyer Credits and Non‑Business Energy Property Credits.

In addition, the IRS has received returns from 9,859 individuals claiming over $124 million in Adoption Credits, with 6,974 (71 percent) of the claims either having invalid, insufficient, or missing documentation to support the legitimacy of these claims. The IRS did not act on our recommendation to seek authority to disallow claims without proper documentation. As such, each of these claims will be sent to its Examination function.

Furthermore, as of March 4, 2011, the IRS had identified 335,341 tax returns with $1.9 billion claimed in fraudulent refunds and prevented the issuance of $1.8 billion (97 percent) of those fraudulent refunds. The IRS also selected 63,501 tax returns filed by prisoners for fraud screening, representing an 88 percent increase compared to last filing season.

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The last paragraph above caught my attention. The IRS prevented the issuance of 97 percent of fraudulent refunds. But the other 3%, 10,060 returns (335,341 times 3%) received $100 million in fraudulent refunds ($1.9 Billion minus $1.8 Billion). That's an average $9,940.00 per fraudulent refund paid out.

In the details of the report, I saw an interesting statistic, 80% of tax returns that claimed theQualified Plug-in Electric Drive Motor Vehicle Credits were erroneous due to nonqualifying makes of vehicles.

Another interesting item, from Figure 5: Fraudulent Returns and Refunds Identified and Stopped in Processing Years 2008–2010

Processing Year 2008 (Tax Year 2007), Amount of Fraudulent Refunds Identified $1,959,992,377, Amount of Fraudulent Refunds Stopped $1,683,912,973

Processing Year 2009 (Tax Year 2008), Amount of Fraudulent Refunds Identified $2,988,945,590, Amount of Fraudulent Refunds Stopped $2,517,094,116

Processing Year 2010 (Tax Year 2009), Amount of Fraudulent Refunds Identified $7,300,996,194, Amount of Fraudulent Refunds Stopped $6,931,931,314

The IRS explains the situation this way:

Unscrupulous individuals continue to submit tax returns with false income documents to the IRS for the sole purpose of receiving a fraudulent refund from the Government.