The Treasury Inspector General for Tax Administration,
Among other things, the report pointed out that:
- The credit is not supposed to be allowed if a care provider is the primary taxpayer, spouse or dependent of a taxpayer, but there are no instructions to reject such applications. The IRS’s system does not check whether the care provider’s taxpayer identification number matches that of a dependent.
- IRS systems do not automatically reject applications with obviously false taxpayer identification numbers on the Form 2441, like 123456789, 111111111 or 888888888.
- The system does not automatically reject returns lacking a qualifying person’s name or TIN.
- The system does not filter for further review any claims for a child born after the tax year for which the claim was made.
- The IRS lacks processes to review the prior-year tax return to ensure the maximum credit amount has not already been claimed; certain people were able to circumvent limits by taking advantage of a programming limitation that prevents the IRS from verifying the accuracy of prior-year expenses. Lacking sufficient information from the tax return itself, the IRS programmed its system to simply allow up to $2,100 of expenses for all prior CDCC claims on the tax year 2021 returns.
- The IRS lacks a compliance filter that will identify tax returns claiming the CDCC for an adult who may not be disabled for possible post-refund treatment.
The IRS generally agreed with many of the recommendations made by TIGTA to address these issues, including updating its system programming to catch more noncompliant returns. However, it said the agency still needs more updates to its internal policies and coding in order to identify erroneous claims and attempts to circumvent controls.
