IRS Has Trouble Complying with New Tax Laws

Recent tax law changes continue to bedevil the Internal Revenue Service, according to a new government report on tax season.

The interim report on the 2010 filing season by the Treasury Inspector General of Tax Administration found that implementation of two significant tax laws (The American Recovery and Reinvestment Act of 2009, or "Recovery Act," and the Worker, Homeownership, and Business Assistance Act of 2009) has caused confusion, resulting in taxpayers making errors in claiming Recovery Act credits on their tax returns; delays in processing tax returns; and erroneous payments by the IRS.

TIGTA auditors analyzed 2010 filing season results as of the first week of March 2010, and found that, as of that time, the IRS had paid some $24.2 million in erroneous Making Work Pay and Government Retiree Credits and improperly awarded some $4.7 million in erroneous Plug-in Vehicle Credits. The IRS estimates that 50 percent of the individuals claiming the First-Time Homebuyer Credit will not attach the required documentation this year.

The report further found that the IRS is grappling with glitches in its Modernized e-File system. Errors in the system are limiting its utility and causing it to erroneously reject returns. While the IRS had estimated that 5.9 million tax returns would be processed through March, the system had successfully processed only 98,596 returns as of March 5.

"Our report concludes that the IRS is having a mixed filing season this year," said TIGTA Inspector General J. Russell George in a statement. "On the one hand, they are having difficulty implementing many of the changes created by the passage of the laws designed to stimulate the economy. On the other hand, the news is not all bad, as the IRS is detecting and stopping more erroneous refunds this year."

As of March 5, 2010, the IRS had identified 119,484 tax returns with $733 million in fraudulent refunds and prevented the issuance of some 98 percent ($721 million) of those refunds.

The IRS is also handling more calls from taxpayers than it anticipated. It has received more calls from individuals who owe taxes, and believes the economic downturn is part of the reason. As of March 6, the IRS handled 960,161 calls on its telephone line that is dedicated to taxpayers with balances due, which is 34 percent more than the 716,248 services provided during the same period in 2009.