Errors with certain business tax credits may have cost the Internal Revenue Service more than $2.7 billion in 2013.
The money was lost from carry-forward business credits in more than 3,000 electronically filed corporate income tax forms, according to a report by the Treasury Inspector General for Tax Administration. These credits can be used for future filings and are awarded to corporations for offering services such as childcare for employees’ children.
“Given the amount of potential tax revenue at risk, it is imperative that the IRS improve its processes to ensure that corporations accurately claim carryforward general business credits,” Inspector General J. Russell George said.
It was impossible to determine why the IRS errors caused the loss, thanks to significant redactions in the publicly released version of the report.
Investigators found that another $35 million was improperly claimed on more than 1,400 corporate tax returns in credits in 2012 and 2013 because corporations were able to use an expired tax provision for small businesses. This was possible because the IRS didn’t update its forms, which erroneously listed the credit as an option for businesses when filing their taxes.
The IRS disagreed with two of the watchdog’s five recommendations, though most details are unavailable due to heavy redactions.
The agency disagreed with one recommendation that the IRS audit the erroneous claims identified in the report. The IRS told the watchdog that the benefits “do not outweigh the significant cost and the potential of lost revenue,” because additional time would need to be spent on those claims, rather than on audits that could provide greater refunds to the U.S. Treasury, the inspector general said.
The other declined recommendation was too highly redacted to understand the significance.
“TIGTA is concerned about the lack of sufficient corrective action in response to the other two recommendations, and believes that implementing these recommendations would significantly improve the IRS’s ability to ensure compliance in this area,” according to the report.’
Also, a programming error caused a reverse problem, where more than 700 filing corporations did not receive $170 million in Empowerment Zone Employment Credits, which are given to businesses that operate in economically distressed areas.
The inspector general determined the issue existed with electronic filers. However, investigators and the IRS alike couldn’t determine if that problem existed for paper-filers as well.
In total, corporations claimed $93 billion worth of general business credits in 2013. The inspector general found in September 2013 that $41 million in carry-forward credits from nearly 4,000 forms were claimed for individual income tax returns.
