An underused free tax filing option.
Erroneous claims for a pandemic-related credit.
Here's a snapshot of our newest reports.
Management Took Actions to Address Erroneous Employee Retention Credit Claims; However, Some Questionable Claims Still Need to Be Addressed
Why did we do this audit?
We assessed the IRS’s processes to ensure the accuracy of tax returns with the Employee Retention Credit (ERC) and the IRS’s efforts to prevent or recover erroneous ERC.
This is our third review of the ERC, which was intended to provide relief to businesses affected by the pandemic.
What did we find?
- The IRS experienced delays in processing ERC claims. The IRS didn't begin processing claims for 12 months, due to a lack of updated programming, procedural guidance, and the effects of the pandemic. These ERC claims were also filed on paper forms, so they were processed manually. As of April 2024, the IRS reported 1.4 million ERC claims waiting to be worked.
- The IRS doesn't have enough data to verify eligibility. For example, the IRS had no data to support whether the employer fully or partially suspended operations due to a pandemic government order or whether it experienced a decline in gross receipts. The IRS would need to conduct a resource-intensive exam to determine if an employer met these criteria.
- The IRS updated identity theft filters to identify more than 155,000 tax returns claiming potentially erroneous ERC and prevented $487 million in refunds from being issued during 2021 through 2023. However, the IRS does not apply updated filters to tax returns that were previously screened using old criteria. We identified nearly 1,000 returns reporting $19.6 million in potentially erroneous ERC through July 2023 that the IRS didn't identify.
For more of our findings:
Improvements Are Needed to Ensure Oversight of and Increase Participation in the Free File Program
Why did we do this audit?
Several years ago, we reported that the complexity, confusion, and lack of taxpayer awareness about the IRS Free File Program cause many eligible taxpayers to not use it.
This review was a follow up on IRS’s efforts to improve the Free File Program, focusing on additional taxpayer safeguards and actions the IRS has taken to improve testing and monitoring of compliance with program participation requirements.
What is the Free File Program?
It's a public‑private partnership between the IRS and a group of tax preparation software companies that provide free electronic preparation and filing of Federal tax returns for certain taxpayers.
The Free File Program started in 2002 to help increase the electronic filing rate to 80% for individual taxpayers. The IRS has since exceeded this goal (96%).
What did we find?
- The IRS doesn't ensure that Free File Program partners are meeting all requirements to protect tax return data from unauthorized disclosure. Several companies have been sanctioned by the Federal Trade Commission for an unauthorized disclosure of taxpayer information while also participating in the Free File Program. However, IRS won't consider allegations of wrongdoing as a reason to remove a partner.
- We also found that the IRS has not implemented any effective solutions to increase taxpayer participation in the program. Between 2020 and 2024, only 3% of eligible taxpayers used it. We recommended the IRS explore additional ways to reach eligible taxpayers, such as mailers, e-mails, and text messaging. We also recommended that the IRS and the partners should share the responsibility to promote the Free File Program.
For more of our findings:
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