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IRS SENT OVER $800M IN POTENTIALLY IMPROPER RECOVERY REBATE PAYMENTS

By  Michael Cohn
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May 23, 2022, 4:19 p.m. EDT 4 Min Read
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The Internal Revenue Service issued potentially improper Recovery Rebate Credit
payments totaling $898 million, according to a new report. 

The report, from the Treasury Inspector General for Tax Administration, noted
that $79.8 million in Recovery Rebate Credits actually should have been paid to
eligible individuals, but $818.5 million was paid to ineligible individuals.
Nevertheless, the IRS declined to review nearly $598 million of the improper
payments and take the actions needed to recover them. The IRS also told TIGTA it
has no plans to further help approximately 10 million potentially eligible
individuals receive their payments. 

The Recovery Rebate Credit was part of the federal government’s efforts to
provide a stimulus to the economy during the early days of the COVID-19
pandemic. The CARES Act, passed in March 2020, created the refundable tax credit
of up to $1,200 per eligible adult that would be applied toward the taxpayer’s
tax year 2020 tax liability. For most taxpayers, that meant receiving Economic
Impact Payments deposited in their bank accounts or through a debit card in the
mail, but if they didn’t receive their payment, they could claim it on their tax
return. In addition, eligible individuals were able to receive up to $500 for
each child in their family under 17 years old.


Internal Revenue Service headquarters in Washington, D.C.
Samuel Corum/Bloomberg





The Consolidated Appropriations Act of December 2020 later 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.

As of May 27, 2021, the IRS had processed 26.3 million tax returns with RRC
claims totaling $39.2 billion. TIGTA found that the IRS correctly calculated the
allowable RRC for 26.1 million (or 99.3%) of those 26.3 million tax returns.
However, TIGTA’s testing identified 181,743 returns for which either IRS
programming problems (11,797 returns), Error Resolution function tax examiner
mistakes (167,130 returns) or timing issues (2,816 returns) resulted in the
wrong RRC being given to the taxpayer. In addition, 355,015 potentially
ineligible individuals were erroneously issued the RRC, according to the report.
They 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 have not received an RRC as of May 27, 2021. A number of factors contributed
to the problems, including the debit cards that were sent to millions of
taxpayers from a third-party financial company. Many of those cards were
mistaken as junk mail and accidentally thrown away, although taxpayers had the
chance to claim the funds later. 

“Finally, debit card policies and the decision to manually verify RRC claims
unnecessarily burdened taxpayers and delayed access to stimulus payments for
some taxpayers,” said the report. 

TIGTA said it issued 12 alerts during its review to alert the IRS about its
concerns. The service implemented programming changes to address one of those
alerts and agreed to take action on four others. 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. 

TIGTA made 22 recommendations to the IRS. They included taking actions to
correct erroneous RRC payments; ensuring eligible individuals receive their
credit; and notifying individuals who haven’t filed a tax return or didn’t claim
the RRC of their potential eligibility. TIGTA also suggested the IRS should
obtain recurring data in 2022 to identify individuals who have not activated
their debit card for the advance American Rescue Plan Act stimulus payment and
establish processes to reverse these advance payments so individuals can receive
the RRC on their 2021 tax return. 

The IRS agreed with eight of TIGTA’s 22 recommendations. However, it didn’t
agree to review erroneous payments totaling nearly $598 million that were paid
to ineligible individuals as of May 27, 2021. The IRS also didn’t agree to
conduct an analysis to identify and recover additional erroneous RRC payments
issued after May 27, 2021. Finally, the IRS didn’t agree to take any actions to
ensure that the approximately 10 million potentially eligible individuals
identified by TIGTA as of May 27, 2021, receive their RRC or to identify others
who are eligible for the RRC but didn’t claim the credit.

The IRS pointed out that it processed the vast amount of RRC claims correctly.
“Achieving a 99.3% accuracy rate was no small feat,” wrote Kenneth Corbin,
commissioner of the IRS’s Wage and Investment Division in response to the
report. “We developed programming for the reconciliation of a single EIP during
the 2021 filing season; however, passage of the CRTRA on Dec. 27, 2020 required
us to issue the second EIP and to quickly change programming to permit
reconciliation of both EIPs, which had slight differences in eligibility
criteria, before tax year 2020 returns claiming the RRC could be processed. The
changes to our processing systems were programmed and implemented with only a
two-week delay to the opening of the filing season.”

With the sudden changes, it’s no surprise that so many taxpayers had the
incorrect amounts on their tax returns. Many of the errors caught by the IRS
were due to the second EIP not being deducted from the total credit claimed on
the tax return. The volume of fallout to the IRS’s Error Resolution System
exceeded its expectations for the reconciliation error but did result in the
development of automated solutions during the 2021 and 2022 filing seasons. 

Michael Cohn
Editor-in-chief, AccountingToday.com
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