A federal watchdog said the Internal Revenue Service may have allowed thousands of people to claim $ 57 million in income tax deductions in the past year that they should not have had.
A review by the Treasury Inspector General of the Tax Administration found loopholes in the IRS’s handling of the so-called qualifying business income tax rebate created under Donald Trump’s 2017 Tax Reform Package.
The law allows some “passing” business owners – such as S corporations, partnerships and sole proprietorships – to deduct up to 20 percent of their business income from individual income tax returns.
The inspector general’s office said it found 12,980 statements filed last year that claimed about $ 57 million in “potentially erroneous” deductions on business income even though the IRS has developed more than a dozen rules to spot such erroneous filings.
The January 13 report It was heavily revised, and it appears that details about the exact error with the returns and how the IRS handled them were withheld. But she said, “No measures were taken by the IRS during processing to address these potentially false allegations.”
The auditors suggested that the IRS could have detected incorrect deductions by taking a close look at the returns that were “flagged.” For example, IRS officials ended up rejecting eligible business income deductions for about 85 percent of 68 returns from the 2018 tax year examined, the report says.
But Eric Hilton, an IRS official, noted that the nearly 13,000 returns appropriated by the IG office represented only about 0.1 percent of the 9.4 million returns claiming business income deductions. He added that more than 95 percent of those proceeds were properly vetted by the tax authority.
The IRS dropped three of the Inspector General’s five recommendations to improve its ability to verify deductions while approving or partially approving the other two recommendations, according to the report.
Hilton argued that pursuing additional compliance procedures would “reduce the total potential revenue” by diverting resources from other IRS activities.
“The IRS decided that taking proposed actions during processing activities could harm taxpayers and increase risk,” wrote Hilton, the IRS Small Business / Self-employed Division Commissioner, in response to the audit report.