Just days after the end of the 2016 filing season, the Treasury Inspector General for Tax Administration (TIGTA) issued its preliminary report on what went well and what went badly for the IRS this year (TIGTA Rep’t No. 2016-40-034).
The interim report covers the period from the start of tax season (Jan. 19) through March 5. A final report is expected in September.
The biggest challenge the IRS faced this tax season was the late passage of the Protecting Americans From Tax Hikes (PATH) Act of 2015, enacted in December as part of the Consolidated Appropriations Act, 2016, P.L. 114-113. That legislation retroactively extended several expired tax provisions. However, TIGTA reports that, anticipating the passage of an extenders bill, the IRS had already taken steps to handle the extension of these provisions before the law was enacted, which allowed tax season to start on time.
As of March 4, the IRS had received approximately 67 million tax returns, about the same number as on that date in 2015. Almost 94% of these returns were e-filed (a very slight increase from the 2015 figure). The IRS had issued 53.5 million refunds, totaling more than $160 billion. The IRS expects to receive more than 150 million individual income tax returns during calendar 2016.
Health care: The Patient Protection and Affordable Care Act, P.L. 111-148, continues to affect many individual taxpayers. As of Feb. 25, the IRS had processed 1.4 million returns that reported $4.4 billion in premium tax credits under Sec. 36B. Also, 2.7 million returns reported payments under Sec. 5000A totaling $1 billion for not maintaining required health insurance coverage.
As of March 3, the IRS had received approximately 47 million returns reporting that all members of the taxpayer’s family maintained minimum essential health coverage. Another 6 million returns indicated that at least one taxpayer on the return was exempt from the coverage requirement. TIGTA plans to conduct a separate review to evaluate the IRS’s handling of various health care reporting issues.
Fraud: As of March 5, the IRS reported that it had identified 42,148 tax returns that claimed $227 million in fraudulent refunds and that it had prevented issuance of $180.6 million of those fraudulent refunds. The IRS was also, as of March 3, holding 328,908 returns based on a clustering filter tool it uses to identify multiple refunds going to the same address or bank account.
The IRS also identified 31,578 fraudulent tax returns involving identity theft, as of Feb. 29. TIGTA reports that the IRS is currently using 183 identity theft filters to recognize these returns.
Customer service: As of March 5, approximately 46.1 million taxpayers had contacted the IRS using its toll-free phone lines. IRS assistors had answered 7.3 million calls, which TIGTA characterized as providing a 72.8% level of service. This was an increase from 2015’s 38.5% level of service. TIGTA defines “level of service” as “relative success rate of taxpayers who call for live assistance on the IRS toll-free telephone lines.” It measures how many calls are answered once they make it into the IRS assistor queue—calls that do not make it into the queue are not counted. The average time taxpayers waited on hold once they were in the queue was 9.6 minutes.
The IRS is also predicting that it will assist 4.7 million taxpayers at its Taxpayer Assistance Centers in FY 2016, a 16% decrease from FY 2015.
Areas of concern
TIGTA says that it is continuing to assess the IRS’s processing of tax returns affected by several key provisions. These include the tuition and fees deduction, the state and local general sales tax deduction, the mortgage insurance premium deduction, the exclusion from gross income for discharge of indebtedness on a principal residence, charitable distributions from individual retirement plans, and increased Sec. 179 expensing in lieu of depreciation.
TIGTA is also evaluating the IRS’s handling of returns that claim the health coverage tax credit under Sec. 35. The IRS has indicated that it is holding all returns claiming the health coverage tax credit for additional review before they are processed. As of March 10, it had accepted 13,015 e-filed returns claiming the credit.
The IRS’s over-aged inventory also continues to be a problem. Over-aged inventory includes amended tax returns, responses to notices, identity theft cases, and other items that have been in inventory for more than 45 days. As of Feb. 27, there were 1.2 million cases in the IRS’s over-aged inventory, compared with 1.3 million at the end of the 2015 processing year.
—Alistair Nevius (firstname.lastname@example.org) is The Tax Adviser’s editor-in-chief, tax.