The Treasury Inspector General for Tax Administration (TIGTA) recently released a report relating to the erroneous or possibly fraudulent issuance of refundable tax credits. The credits total over $152 million, and deal with the implementation of the 2015 PATH (Protecting Americans from Tax Hikes) Act, specifically the reduction of retroactive Earned Income Tax Credits, Additional Child Tax Credits, Child Tax Credits and American Opportunity Tax Credits.
While more than $152 million is seemingly a huge number of improperly allowed credits and deductions, it is a mere drop in the bucket to the overall total of $24.3 billion for fiscal year 2016 alone. In spite of slashed budgets and fewer audit staff in its branch locations, the IRS is likely to eventually try to recoup those huge losses by means of en masse tax collections.
The PATH Act
The PATH Act is designed to, among other things, prevent retroactive claiming of EITC, ACTC, CTC and AOTC if the taxpayer identification number used to make the claim was issued after the dates for which the credit is sought. In theory, the process would actually simplify the work of IRS agents verifying that requested credits are proper by automatically matching up the dates of claimed credits with the issuance of a taxpayer ID or SSN. The execution mechanism, however, still isn’t in place.
For now, the IRS is following the recommendation from TIGTA that it review more than 15,700 tax returns to determine if tax credits are appropriate. Those returns represent over $34 million in credits, and each of those taxpayers could potentially be facing an audit or tax collection action.
The tax code is unwieldy, complex and ever-evolving. It can be daunting even for experts to determine if individuals and businesses are in compliance, so laypeople can often find themselves running afoul of regulations because of misunderstanding the code, improperly but innocently seeking credits or not reporting foreign accounts. A skilled tax attorney can help ensure your tax strategy is compliant, efficient and beneficial to your personal or business needs.