TIGTA helped save $6B, agency says

The Treasury Inspector General for Tax Administration says it completed 1,032 investigations that contributed to savings of more than $6.1 billion from April through September of this year.

According to TIGTA’s Semiannual Report to Congress, the agency’s offices also issued some 60 reports during the six months touching on varied IRS activities and making recommendations for improvement, some of which the tax service agreed with and some of which it didn’t.

Among TIGTA reports from the period:

1. Staying above $400K. The IRS has made limited progress on the methodology to comply with a Treasury directive to not increase audits for taxpayers with incomes below $400,000. In the directive, which was issued in the wake of $24 billion of Inflation Reduction Act funds allocated to IRS enforcement activities, the Treasury Secretary stated that “enforcement resources will focus on high-end noncompliance.” 

Although the IRS and Treasury chose Tax Year 2018 for the base year, this report reads, as of May 2024, the IRS had yet to calculate the audit coverage for TY 2018 because it had not finalized its methodology for the audit coverage calculation. The IRS and Treasury have been exploring a range of options to develop a different methodology.

2. Hiring delays at the IRS. IRA funds allowed the IRS to expand its hiring; the agency was also granted multiple direct hire authorities to expedite hiring and fill job vacancies. From Oct. 1, 2021, to Sept. 30, 2023, the IRS processed nearly 53,000 new hires. Although the agency used multiple DHAs to expedite its hiring process to fill vacant positions, almost 19,000 of new hires in fiscal years 2022 and 2023 exceeded the Office of Personnel Management’s target of 80 calendar days to hire. 

Delays in hiring, according to the report, resulted from workload constraints and miscommunication, security checks exceeding their targeted completion time and limitations in the IRS’s hiring management system. TIGTA recommended corrective measures that the IRS agreed with.

3. Direct File issues. The Direct File Pilot deployed successfully but security and testing improvements are needed. The IRS launched the Direct File Pilot program on Feb. 1, implementing it to a limited scope of taxpayers. TIGTA found that during systems development, the Direct File Pilot team did not appropriately complete two of its required artifacts and that a later report was issued without the security assessment for the cloud platform where the Pilot resides, among other issues.

4. Serving the underserved. Opportunities remain for better taxpayer service to underserved communities. The IRS uses various models to identify the underserved, underrepresented and rural population, but has no clear definition for these populations, TIGTA found. Actions also need to be taken to ensure the success of the Lifting Communities Up initiative in expanding services and assistance to taxpayers in underserved populations, according to a separate report.

5. Too big a footprint. The IRS still has unneeded office space. For FY24, the IRS indicated it would spend some $600 million on real estate costs, including 516 office buildings totaling some 22.3 million square feet, TIGTA found. In FY23, more than half of IRS buildings had a workstation occupancy rate of 50% or less. In addition, the service has not implemented workstation sharing/hoteling for some 61% of its employees. 

6. ERC issues. A little more than a year ago, the IRS placed a moratorium on processing new Employee Retention Credit claims due to a surge in suspicious claims, updated its identity theft filters, and reported that it had identified more than 155,000 returns making potentially erroneous ERC claims, preventing $487 million in undeserved refunds. TIGTA noted that the IRS does not apply updated filters to tax returns that were previously screened using old criteria, identifying 997 returns reporting $19.6 million in potentially erroneous ERC that the IRS did not identify.

The IRS has implemented initiatives that assessed or prevented erroneous ERC amounts, preventing $1.6 billion in claims and allowed the agency to assess $573 million as of last April. TIGTA nonetheless identified an additional 923 entities that claimed credits worth $105 million that should have received a disallowance letter but were not initially identified by the IRS.

7. Other issues. Additional reports noted that:

• Millions of taxpayers took early retirement distributions, but some did not pay the additional tax, claim an exception or report the income; 
• The IRS has been unable to use some of its enforcement tools to match reported virtual currency-related income to taxpayers’ returns; and, 
• Improvements are needed to ensure that local Taxpayer Advocate Service telephone lines are properly monitored.