Millions of dollars in refundable credits that were determined to be erroneous after taxpayers received them may never be recovered, the Treasury Inspector General for Tax Administration has said.
Refundable credits such as the First-Time Homebuyer Credit can, among other things, provide cash payments and are a fraud risk.
Often the IRS has to rely on a process of refund offsets, which withhold future tax refunds to repay any amounts owed by a taxpayer found to have received a credit erroneously, TIGTA said.
It said that due to post-refund examinations of tax returns, taxpayers were required to repay more than some $2.3 billion in erroneous refundable tax credits during tax years 2006 – 2009.
By the end of December 2011, the IRS had recovered an estimated $1.3 billion, of which more than 70 percent was collected through refund offsets, the IG said.
It said management agreed with recommendations to implement additional controls to identify and stop erroneous claims before refunds are issued, such as implementing an account indicator to identify taxpayers who claim erroneous refundable credits to prevent them from receiving those claims for a period of time.
