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TIGTA: IRS Struggled to Reconcile Child Tax Credit Payments

S.J. Steinhardt
Published Date:
Jun 16, 2023

The IRS made errors in its calculations and distributions of the Child Tax Credit (CTC), a Treasury Inspector General for Tax Administration (TIGTA) report found.

The CTC, which was increased by the American Rescue Plan Act in 2021, provides tax breaks to families with children that meet certain qualifications. The 2021 law provided taxpayers the ability to receive up to one half of the estimated Tax Year 2021 CTC in advance payments between July and December 2021. That provision forced the IRS to set up a system hastily for disbursing the payments, including to taxpayers who didn't normally file tax returns, Accounting Today reported.

The automated process created by the IRS to recalculate the Child Tax Credit, including the amount of advance payments posted to a taxpayers’ tax account, identified 3.8 million tax returns that contained a discrepancy between the IRS-calculated CTC amount and the amount claimed by the taxpayer that required resolution, according to the report.

The creation of that process occurred after a previous TIGTA report that found that the IRS erroneously issued 3.3 million advance payments to 1.5 million taxpayers who weren't eligible to receive an advance payment. As of Oct. 12, 2022, approximately 4.1 million taxpayers who were issued about $9 billion in advance payments had not yet filed a tax return.

In all, the IRS “issued 216.9 million advance payments totaling $93.5 billion, estimating the advance payments based on prior year tax return information and information reported through its non-filer tools,” the report read.

TIGTA’s analysis of tax year 2021 tax returns processed through May 5, 2022, identified 6,833 taxpayers who received potentially $10.5 million in excess CTC. The report attributed this to tax examiners incorrectly resolving error conditions that allowed more CTC than what the taxpayer was eligible to claim on their tax return.

The report also identified 105 taxpayers who did not receive all of their eligible CTC, resulting in the taxpayers not receiving an estimated $139,000 in Child Tax Credits.

TIGTA made seven recommendations to the IRS, including: identifying and reviewing the instances where taxpayers received more or less CTC than they were eligible to receive, sending letters to taxpayers with advance CTC payments who have yet to file a Tax Year 2021 tax return, and creating a process to recover potentially erroneous advance payments.

The IRS agreed with four of the seven recommendations and partially agreed with another. The IRS did not agree to identify additional taxpayers with excess CTCs or to develop a process to recover erroneous advance payments on non-filers.

TIGTA believes that that IRS still needs to recover $1 billion in erroneous advance payments.

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