JOINT HEARING
SUBCOMMITTEE ON OVERSIGHT
SUBCOMMITTEE
COMMITTEE ON WAYS
June 19, 2008
The Honorable J. Russell George
Treasury Inspector General for
Tax Administration
STATEMENT OF
THE HONORABLE J. RUSSELL GEORGE
TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION
June 19, 2008
Chairman Lewis, Chairman McNulty, Ranking Member Ramstad, Ranking Member Johnson, and Members of the Subcommittees, thank you for the opportunity to submit testimony for this hearing. My comments will focus on the Treasury Inspector General for Tax Administration’s (TIGTA) audit and investigative actions pertaining to the Economic Stimulus Act of 2008.
The Economic Stimulus Act of
2008, signed on February 13, 2008, was enacted to energize the national
economy. For most individuals, the amount of the stimulus payment
received is dependant on their net income tax liability. Single taxpayers will generally receive the
greater of $300 or their actual tax liability up to $600 and couples will
generally receive the greater of $600 or their actual tax liability up to
$1,200. Anyone with qualifying children
will also receive an additional $300 per child.
IRS began issuing stimulus payments on May 2, 2008.
The stimulus payments are being estimated using information
reported on 2007 tax returns, so that individuals can benefit from the payments
as soon as possible. Individuals who
qualify for a larger payment as a result of changes between their 2007 and 2008
tax returns will receive the additional payment when they file their 2008
return (generally between January and April 2009). Individuals who receive more than they would
have if the payment had been calculated using information from their 2008
return will not be asked to pay the excess back.
Due to the time-sensitive nature of these payments, we have been
advising the IRS of our concerns as soon as we have identified them, to allow
the IRS to take immediate corrective action when possible. In August 2008, we plan to issue the final report
of this phase of our work on the Internal Revenue Service’s (IRS) efforts
to implement the stimulus payments.
Status of the
Stimulus Payment Program:
·
The IRS issued approximately 76.5 million stimulus payments as of
June 13, 2008, totaling approximately $63.9 billion.
·
The IRS has made progress on resolving the back-log of
stimulus-only tax returns. The IRS had
processed 94 percent of the 7.7 million stimulus-only returns received as of
June 7, 2008.
· The IRS plans to issue stimulus payments through December 2008 for those tax returns filed by October 15th.
Audit Status:
We have reviewed approximately 102.7 million[1] stimulus payments generated from returns processed as of May 30,
2008. We determined that the IRS is correctly calculating the
stimulus payment for approximately 99.6 percent of the returns. Correct
calculation includes ensuring that payments are not issued to individuals
without a valid Social Security Number, individuals who do not meet gross
income and net tax liability tests, and individuals who exceed income
limitations. However, we have identified approximately 385,000 stimulus
payments in which our calculation of the payment does not agree with the IRS's payment
calculation. Preliminary review of these payments found that the
differences resulted from:
·
Programming that did not include qualified self-employment losses
in the determination of eligibility. The IRS, with the Department of the Treasury’s
concurrence, is using a percentage of the self-employment tax reported on Self-Employment Tax (Schedule SE) in the
computation of the stimulus payment instead of the actual self-employment
income or loss reported on various tax schedules. The IRS and the Department of the Treasury
indicated they were aware that this methodology did not address Profit or Loss from Business (Schedule C)
and Profit or Loss from Farm (Schedule
F) losses. However, the Treasury
Department chose to use the Schedule SE percentage because it would have been
too complex to program the payment for every possible self-employment scenario,
given the time available. The Treasury
Department indicated that the Schedule SE percentage would result in a correct
payment for most individuals. As of May 30,
2008, TIGTA had identified approximately 104,000 returns with
approximately $55 million in stimulus payments that should not have been paid
to individuals with Schedule C and Schedule F losses.
·
Programming did not include all qualified self-employment income
in the determination of eligibility. As of May 30, 2008, TIGTA had
identified approximately 25,000 returns for which the stimulus
payment was not allowed. In these cases, we believe that taxpayers were
entitled to an additional $16.5 million.
These errors affected clergy and other individuals whose income is not
subject to the self-employment tax. TIGTA
plans to review the IRS’s programming of the stimulus payments for Tax Year 2008
to ensure these individuals will receive the payments they are entitled to when
they file their 2008 return.
· Taxpayers were not receiving the
child portion of the stimulus payment because they did not check the Child Tax
Credit qualifying box on the tax return. When TIGTA raised this
concern, the IRS initially responded that it could not allow the child
portion of the stimulus payment in these instances because eligibility for the
Child Tax Credit could not be determined from the information on the tax
return. The IRS subsequently announced that it will issue the additional
child portion of the stimulus payment to approximately 350,000 households in
July. TIGTA is in the process of quantifying the number of individuals
that might be affected.
Other Items of Interest:
·
TIGTA has initiated a review to evaluate the effectiveness of the Criminal
Investigation (CI) Division’s actions to prevent the issuance of stimulus
payments to individuals whose tax returns claimed false income tax refunds or who
filed false stimulus-only returns. To
date, we have obtained data
extracts to be used in our assessment of whether the CI Division implemented
controls as indicated and whether the controls are functioning as
intended. We also plan to select samples
to determine if the appropriate freeze was placed on accounts previously
identified as fraudulent to ensure that a stimulus payment is not issued and to
ensure that controls designed to stop stimulus payments for fraudulent returns
are working as intended.
·
On May 22, 2008, Congress passed H.R. 6081, the “Heroes Earnings
Assistance and Relief Tax Act of 2008,” to amend the Economic Stimulus Act of
2008 to allow thousands of military personnel to receive a stimulus payment,
regardless of whether they or their spouse, or their children have a valid Social
Security Number. The Joint Committee on Taxation estimates that this
provision will cost $14 million in Fiscal Year 2009. It is anticipated
that the President will sign this legislation. The IRS is currently
working on identifying affected military personnel. If this legislation is enacted, TIGTA will
review the IRS’s implementation
Additionally,
TIGTA is monitoring the following issues:
· As of June 7, 2008, the IRS
identified 246,079 duplicate paper-filed stimulus-only returns. These
stimulus-only returns were filed using the same Social Security Number as another
tax return. The IRS has consolidated the processing of these returns at
its
· The IRS has determined that between
18,000 and 22,000 Understanding Your Economic Stimulus Payment Notice (Notice
1378) were issued to the wrong individuals. This was the result of
a vendor error, and the problem has been corrected.
· The IRS identified a programming
error that resulted in approximately 1,500 payments being directly deposited into
the wrong individual’s bank account. These payments totaled approximately
$1.4 million. The IRS has since
corrected the error and is in the process of reissuing payments to the entitled
individuals. IRS is working with the banks to recover the incorrect
deposits.
·
The IRS
reiterated that it will issue a paper stimulus-only check to anyone who 1) used
a Refund Anticipation Loan (RAL), 2) split the direct deposit refund among more
than one bank account, or 3) had tax preparation and other fees deducted from
the refund (refund anticipation check (RAC)).
This process was established to ensure that the individual received the
stimulus payment instead of the financial institution or tax preparer that
provided the RAL or RAC. As of April 17,
2008, 9.9 million taxpayers had used a RAL and 10.3 million had used a RAC to
receive their refunds. For split
refunds, the IRS decided to issue a paper check because it did not know which
account the taxpayer wanted the stimulus payment deposited in. As of June 2, approximately 225,867 taxpayers
had split their direct deposit refund among more than one bank account. Not all of these individuals may qualify for
an economic stimulus payment.
·
IRS officials stated that on May 28, 2008, they had been notified
by a tax preparation firm that approximately 450,000 tax returns had been
submitted to the IRS without the RAL indicator.
The IRS, aided by the firm, was able to identify these accounts before
the stimulus payments were issued.
Payments for these accounts are being correctly issued via paper check
consistent with IRS’s decision to issue paper checks on accounts having a
RAL. The media incorrectly reported that
these payments were being deposited into RAL accounts.
·
As of
May 30, 2008, TIGTA identified approximately 8,800 individuals (0.15 percent)
who filed a stimulus-only return had a balance due on their tax accounts. Some of the balance-due conditions are the
result of IRS input errors or taxpayers entering information on the wrong line
of their tax return. The IRS is aware of
this condition and has taken steps to resolve these accounts.
Office of Investigations:
TIGTA has initiated 12 complaints involving
economic stimulus payments. The allegations are as follows:
·
One
case involves an alleged return preparer scheme that was reported to IRS-CID in
·
Two cases
involve allegations of false impersonators requesting bank information via the
telephone;
·
Nine
cases involve phishing emails, most of which direct victims to follow an
Internet link purportedly associated with the recipient’s economic stimulus
refund.
In closing, I would like to
emphasize that TIGTA will continue to closely monitor the issuance of the
economic stimulus payments and to promptly alert the IRS of any problems or
emerging issues. Mr. Chairman and
Members of both Subcommittees, thank you for the opportunity to provide TIGTA’s
assessment of the IRS’s implementation of the Economic Stimulus Act of 2008. I would be pleased to respond in writing to
any questions you may have.