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American Rescue Plan Act: Accuracy of
Advance Child Tax Credit Periodic Payments
September 21, 2022
Report Number: 2022-47-070
TIGTACommunications@tigta.treas.gov | www.treasury.gov/tigta
TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION
HIGHLIGHTS: American Rescue Plan Act:
Accuracy of Advance Child Tax Credit Periodic Payments
Final Audit Report issued on September 21, 2022
Report Number 2022-47-070
Why TIGTA Did This Audit
The American Rescue Plan Act of
2021 (ARPA), enacted on
March 11, 2021, increased the
amount of the Child Tax Credit
from $2,000 to $3,000 per child
under the age of 18 ($3,600 for
children under age of 6) for Tax
Year 2021 only and made the
credit fully refundable to eligible
taxpayers. The increased Child Tax
Credit is reduced (phased out) for
taxpayers with adjusted gross
income that exceeds $75,000
($112,500 for head of household
and $150,000 for married couples
filing a joint return and qualifying
widow(er)s).
This audit was initiated to assess
processes and procedures to
ensure that Child Tax Credit
advance periodic payments are
accurate and made to only those
taxpayers who meet qualification
requirements.
Impact on Tax Administration
In preparation to issue advance
monthly Child Tax Credit
payments, the IRS launched a
series of comprehensive
educational and awareness
campaigns, and coordinated with
internal and external stakeholders
to focus outreach on those
taxpayers most impacted by these
changes.
While the IRS moved swiftly to
correctly send more than
175.6 million payments totaling
$75.6 billion, there were 8.3 million
payments totaling $3.7 billion that
should have been sent to
4.1 million eligible taxpayers.
What TIGTA Found
The swiftness of the IRS’s implementation of the ARPA-related monthly
advance Child Tax Credit payments was a significant undertaking. The
first monthly payments were issued on July 15, 2021, only four months
after legislation was enacted. As of December 2021, the IRS had
issued 216.9 million payments totaling $93.5 billion.
TIGTA’s review of 178.9 million payments made between July and
November 2021, totaling more than $76.7 billion, determined that the
IRS correctly sent more than 175.6 million payments (98 percent)
totaling about $75.6 billion. However, 3.3 million payments, totaling
over $1.1 billion, were sent to 1.5 million taxpayers who should not
have received the payment. Further, the IRS did not send 8.3 million
payments, totaling about $3.7 billion, to 4.1 million eligible taxpayers.
The IRS developed a reconciliation letter, as required by legislation,
identifying advanced payments received by taxpayers and to use when
preparing their Tax Year 2021 tax return. TIGTA’s review of the 57.1
million reconciliation letters sent to taxpayers identified only 6,829
letters that were not sent to taxpayers or were sent with an incorrect
amount of advance Child Tax Credit payments. This was primarily due
to the reversals of advance payments that were not reflected on the
reconciliation letters. TIGTA plans to continue to monitor payment
reversals that occur after the issuance of the letters in our review of the
reconciliation of Child Tax Credit payments in Filing Season 2022.
Finally, processes are needed to ensure the validity of bank account
information received from third parties. Our review identified
11,459 payments, totaling $4.2 million, were erroneously sent to
523 bank accounts. The IRS also erroneously updated 1,610 taxpayers’
direct deposit information with bank account information associated
with a payroll allotment account (e.g., a health savings account).
What TIGTA Recommended
TIGTA made five recommendations to the IRS including the need to
take actions to: prevent taxpayers from receiving additional improper
advance Child Tax Credit payments, inform taxpayers of the possibility
that their advance payments may have been sent to other accounts
the taxpayers may own, and validate incoming files from third-party
sources prior to their use.
The IRS agreed with all of the recommendations. The IRS posted
transaction codes on the impacted accounts to block additional
payments to ineligible taxpayers, and the IRS plans to implement
procedures to validate incoming files from third-party sources prior to
their use.
U.S. DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20024
TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
September 21, 2022
MEMORANDUM FOR: COMMISSIONER OF INTERNAL REVENUE
FROM:
Heather M. Hill
Deputy Inspector General for Audit
SUBJECT:
Final Audit Report – American Rescue Plan Act: Accuracy of Advance
Child Tax Credit Periodic Payments (Audit # 202140727)
This report presents the results of our review to assess processes and procedures to ensure that
Child Tax Credit advance periodic payments are accurate and made to only those taxpayers who
meet qualification requirements. This review is part of our Fiscal Year 2022 Annual Audit Plan
and addresses the major management and performance challenges of Implementing Tax Law
Changes and Reducing Fraudulent Claims and Improper Payments.
Management’s complete response to the draft report is included as Appendix V.
Copies of this report are also being sent to the Internal Revenue Service managers affected
by the report recommendations. If you have any questions, please contact me or
Diana M. Tengesdal, Acting Assistant Inspector General for Audit (Returns Processing and
Account Services).
American Rescue Plan Act: Accuracy of
Advance Child Tax Credit Periodic Payments
Table of Contents
Background .....................................................................................................................................Page 1
Results of Review .......................................................................................................................Page 3
Some Taxpayers Erroneously Received Advance Child Tax
Credit Payments....................................................................................................................Page 4
Recommendation 1: ...................................................................Page 5
Some Taxpayers Did Not Receive Advance Child Tax
Credit Payments....................................................................................................................Page 6
Recommendation 2: .......................................................................... Page 6
Some Ineligible Taxpayers Were Sent Letters Regarding Eligibility
and Estimated Payments, While Others Were Overlooked ..................................Page 7
Recommendation 3: .......................................................................... Page 8
Processes Are Needed to Ensure the Validity of Bank
Account Information Received From Third Parties .................................................Page 9
Recommendations 4 and 5: .....................................................Page 10
Appendices
Appendix I – Detailed Objective, Scope, and Methodology ................................Page 11
Appendix II – Outcome Measures .................................................................................Page 13
Appendix III – Example of Letter 6416, Advance Child Tax
Credit Outreach ....................................................................................................................Page 16
Appendix IV – Example of Letter 6417, Advance Child Tax
Credit Payment .....................................................................................................................Page 17
Appendix V – Management’s Response to the Draft Report ..............................Page. 18
Appendix VI – Abbreviations ...........................................................................................Page. 23
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Background
The American Rescue Plan Act of 2021 (ARPA),1 enacted on March 11, 2021, increased the
amount of the Child Tax Credit from $2,000 to $3,000 per child under the age of 18 ($3,600 for
children under the age of 6) for Tax Year (TY)2 2021 only and makes the Child Tax Credit fully
refundable to eligible taxpayers. However, the increased Child Tax Credit is reduced (phased
out) for taxpayers with adjusted gross income that exceeds $75,000 ($112,500 for head of
household and $150,000 for married couples filing a joint return and qualifying widow(er)s).
The ARPA authorizes advance periodic payments of the Child Tax Credit
The ARPA also directed the Internal Revenue Service (IRS) to establish a program for making
periodic payments to taxpayers, equal to 50 percent of the estimated credit amount. Taxpayers
can claim the remaining one-half of the credit when they file their TY 2021 tax return. To
determine eligibility and the amount of these advance payments, the IRS was authorized to use
information from a taxpayer’s TY 2020 tax return. If the taxpayer had not yet filed a TY 2020 tax
return, the IRS could then use the taxpayer’s TY 2019 tax return.
In addition, for eligibility determination, the IRS can also use information that the taxpayer may
have entered into either the Child Tax Credit Non-Filer Sign-up Tool or the Non-Filers: Enter
Payment Info Here Tool (also used to receive their stimulus payment). The Child Tax Credit
Non-Filer Sign-up Tool assisted taxpayers who were eligible to receive advance Child Tax Credit
payments but did not have a tax return filing requirement. The tool allowed taxpayers to file a
simplified TY 2020 tax return that contained the information the IRS needed to determine the
taxpayer’s eligibility and issue the advance payment.
The IRS began issuing advance payments of the Child Tax Credit on July 15, 2021, and continued
issuing these payments each month through December 2021. Figure 1 shows the number of
payments and amounts of these payments issued each month.
1 Pub. L. 117-2.
2 A 12-month accounting period for keeping records on income and expenses used as the basis for calculating the
annual taxes due. For most individual taxpayers, the tax year is synonymous with the calendar year.
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Advance Child Tax Credit Periodic Payments
Figure 1: Summary of Monthly Advance Child Tax Credit Payments
Month
Number of Payments
Amount of Payments
July
35,192,958
$14,886,893,467
August
37,344,036
$15,933,506,547
September
36,184,171
$15,437,269,519
October
36,001,264
$15,489,288,793
November
36,105,517
$15,722,851,547
December
36,076,784
$16,023,936,767
Totals
216,904,730
$93,493,746,640
Source: Treasury Inspector General for Tax Administration (TIGTA) analysis of
monthly advance Child Tax Credit payment information provided by the IRS
each month between July and December 2021.
The ARPA required the development of an online portal to allow taxpayers to update their
information
ARPA legislation also required the IRS to develop an online portal, known as the Child Tax Credit
Update Portal. This portal provides taxpayers with the ability to unenroll from receiving advance
payments. In addition, the portal was to allow taxpayers to update their mailing address, bank
account information for direct deposit of payments, the number of their qualifying children,
filing status, and annual income.3 Taxpayers access the Child Tax Credit Update Portal either by
using their existing IRS credentials established for access to Get Transcript4 or Online Account,
or by creating an account using the Secure Access Digital Identity system. According to the IRS,
because the Secure Access Digital Identity system is intended to improve taxpayer access to IRS
online services as well as provide the next generation of identity proofing,5 the launch of this
system was accelerated.
Updates made to the taxpayer’s information via the Child Tax Credit Update Portal are then
reflected in the IRS’s records and used in determining the taxpayer’s advance monthly payment.
The IRS began developing the Child Tax Credit Update Portal immediately upon implementation
of the ARPA and on June 21, 2021, deployed the first release that allowed taxpayers to check if
they were eligible to receive or unenroll from receiving the advance payments.
For those taxpayers who may not have access to the Internet, the IRS developed alternative
non-electronic processes to enable these taxpayers to perform many of the functionalities that
the Child Tax Credit Update Portal provides. For example, the IRS created a dedicated
telephone line for taxpayers to call and unenroll or provide the IRS with updated information. In
3 The IRS stated that it developed the ability to change the number of qualifying children and filing status, but these
capabilities were not released.
4 Allows taxpayers to view and download their tax information, such as account transactions, line-by-line tax return
information, and income reported to the IRS. Taxpayers can download or print five distinct transcript types: tax
account, tax return, record of account, wage and income, and verification of nonfiling.
5 Verifying the claimed identity of an applicant by collecting and validating sufficient information, e.g., identity history,
credentials, and documents, about a person.
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Advance Child Tax Credit Periodic Payments
addition, taxpayers could also visit a Taxpayer Assistance Center.6 The IRS’s customer service
representatives,7 answering the telephone or at the Taxpayer Assistance Center, will authenticate
the taxpayer and then enter the taxpayer’s request or updated information in the Accounts
Management System.8 Similar to the Child Tax Credit Update Portal, changes made in the
Accounts Management System will update the IRS’s records and be factored into the taxpayer’s
next monthly advance payment. Taxpayers can update their bank account information only
through the Child Tax Credit Update Portal. We conducted a separate review of the Child Tax
Credit Update Portal and nonportal update methods.9
This audit assesses the processes and procedures to ensure that advance Child Tax Credit
payments were made to only those taxpayers who met the qualification requirements as well as
the accuracy of the amounts reflected in Letter 6419, 2021 Total Advance Child Tax Credit
(AdvCTC) Payments, which were mailed to taxpayers starting in late December 2021. We are
conducting a separate review to ensure that taxpayers are properly reconciling the advance
Child Tax Credit payments received during Calendar Year 2021.10
Results of Review
In preparation of issuing advance monthly Child Tax Credit payments, the IRS launched a series
of comprehensive educational and awareness campaigns. This was done to ensure that
taxpayers understood changes made to the eligibility requirements and to inform taxpayers of
the Child Tax Credit Non-Filer Sign-up Tool, as well as the Child Tax Credit Update Portal, and
non-electronic processes to unenroll and/or update their information that is then used to
calculate the advance monthly Child Tax Credit payment amounts. The IRS also coordinated
with internal and external stakeholders to identify taxpayers most impacted by these legislative
changes to focus outreach efforts to this specific population of taxpayers. The IRS’s collective
outreach efforts included publishing information in tax publications, developing and distributing
marketing materials, using social media, and conducting in-person outreach events.
The swiftness of the IRS’s implementation of the ARPA-related monthly advance Child Tax Credit
payments was a significant undertaking. Overall, the IRS’s efforts to implement this legislation
directly resulted in assisting millions of taxpayers in obtaining advance Child Tax Credit
payments. As stated previously, the IRS deployed the first release of the Child Tax Credit Update
Portal on June 21, 2021, and issued the first monthly payments on July 15, 2021, only four
months after legislation was enacted. As of December 2021, the IRS had issued 216.9 million
6 An IRS office with employees who answer questions, provide assistance, and resolve account-related issues for
taxpayers face-to-face.
7 Receives and/or initiates contact with taxpayers and/or their representatives to encourage voluntary compliance and
resolves account inquiries, performs research on taxpayer accounts to facilitate case resolution, coordinates with
external collection partners to resolve identified issues that impede case resolution, and adjusts taxpayer accounts.
8 A system that provides employees access to multiple IRS systems through their computers and allows for inventory
management, case delivery, history narratives, print-to-fax capabilities for sending information to taxpayers, and
electronic referral generation.
9 TIGTA, Report No. 2022-47-042, American Rescue Plan Act: Assessment of the Child Tax Credit Update Portal’s
Capabilities and Related Processes (July 2022).
10 TIGTA, Audit No. 202240712, American Rescue Plan Act Advanced Child Tax Credit Tax Filing Reconciliation for
Individuals.
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Advance Child Tax Credit Periodic Payments
payments totaling $93.5 billion. Accomplishing this required a significant undertaking on the
IRS’s part to develop processes/procedures to determine eligibility, compute payment amounts,
and develop an online portal and non-electronic assistance options for taxpayers to provide the
IRS with updates to key information used to compute the amount of payments.
Our review of 178.9 million advance Child Tax Credit payments issued for July through
November 2021, totaling more than $76.7 billion,11 identified:
•
175.6 million payments (98 percent) totaling $75.6 billion were made to eligible
taxpayers.
•
3.3 million payments (2 percent) totaling over $1.1 billion that were erroneously sent to
individuals who were not eligible to receive a payment.
Our analysis also identified an additional 8.3 million payments totaling $3.7 billion that the IRS
should have sent to 4.1 million eligible taxpayers.
In addition, IRS notification letters, i.e., Letter 6416, Advance Child Tax Credit Outreach,12 and/or
Letter 6417, Advance Child Tax Credit Payment,13 were not sent to some taxpayers who should
have received a letter and conversely were sent erroneously to taxpayers who should not have
received a letter. Finally, as required by the ARPA legislation, the IRS sent Letter 6419, which
provided taxpayers with a written notice regarding advance Child Tax Credit payments to help
them reconcile and receive the TY 2021 Child Tax Credit. The letter contains necessary
information for taxpayers to prepare their TY 2021 tax returns.
Some Taxpayers Erroneously Received Advance Child Tax Credit Payments
Our analysis of advance Child Tax Credit payments issued for July through November 2021
identified 3.3 million payments that were sent erroneously to 1.5 million taxpayers who were not
eligible to receive a payment. These payments totaled nearly $1.1 billion and included instances
in which a dependent did not meet age requirements, was deceased, or was claimed on another
tax return. Taxpayers who receive the advance Child Tax Credit payments for which they do not
qualify may be required to repay the erroneous payments received.14
During the course of our audit, we independently identified taxpayers who were eligible for
advance Child Tax Credit payments. This was done to allow us to then evaluate whether the IRS
correctly issued advance Child Tax Credit payments to only those individuals who were eligible.
When we identified instances in which taxpayers received erroneous advance Child Tax Credit
payments, we immediately notified IRS management to determine the cause of the erroneous
11 This does not include recovery payments that the IRS issued to provide advance Child Tax Credit payments to
taxpayers who were eligible but did not receive the payments in July and August 2021 due to programming errors
(discussed later in this report).
12 See Appendix III for an example of the letter.
13 See Appendix IV for an example of the letter.
14 Individuals who received an excess amount of advance Child Tax Credit payments may not be required to repay
those amounts. Taxpayers will not need to repay the excess payment amount if their main home was in the United
States for more than one-half of Calendar Year 2021, if they received advance payments for more children than they
claim on their TY 2021 tax return, and their modified adjusted gross income is less than or equal to $40,000 ($50,000
for head of household filers and $60,000 for married couples filing a joint return and qualifying widow(er)s). This
provision gradually phases out.
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payment, and more importantly to ensure that they took action(s) to prevent additional advance
Child Tax Credit payments from being issued to ineligible taxpayers for the subsequent monthly
payments. For example, the concerns we raised included:
•
496,205 potentially improper advance Child Tax Credit payments totaling almost
$134 million in July 2021 because the dependent claimed on the TY 2019 or 2020 return
was not eligible (e.g., more than one taxpayer claimed the dependent on their TY 2019 or
2020 return, or the dependent(s) claimed was too old).
•
393,282 potentially improper advance Child Tax Credit payments totaling almost
$132.1 million in August and September 2021 because the dependent claimed on the
TY 2019 or TY 2020 tax return was not eligible.
•
41,329 potentially improper advance Child Tax Credit payments in October 2021 totaling
$17.3 million because the dependent(s) claimed was also claimed by another taxpayer on
their TY 2020 return.
Recommendation 1 (E-Mail Alert): As detailed previously, we provided the Director, Return
Integrity and Compliance Services, Wage and Investment Division, with notifications and files
detailing erroneous payments we identified and recommended that the IRS evaluate the
discrepancies to identify why the payments were made to prevent additional periodic payments
to ineligible taxpayers. In addition, we recommended that the IRS add a stop payment
transaction code to taxpayer accounts to prevent them from receiving additional improper
advance Child Tax Credit payments.
Management’s Response to Alert: The IRS agreed with our recommendation. On
August 11, 2021, IRS management agreed with 454,284 of the 496,205 July 2021
payment exception cases and stated that the improper payments were the result of a
computer programming error. The IRS advised that the computer programming error
had been corrected by September 23, 2021. For the remaining 41,921 payments, the IRS
stated that the taxpayers had at least one eligible dependent and a July 2021 advance
Child Tax Credit payment was warranted.
On October 7, 2021, IRS management agreed with the ineligible dependent issue
involving 393,282 August and September 2021 payments. Management indicated that
they worked with the Information Technology organization to place a transaction code
on taxpayers’ accounts to prevent the issuance of the October 2021 advance Child Tax
Credit payments to taxpayers with duplicate dependent issues. Management also noted
they were reviewing the business and technical requirements to identify and correct any
other potential issues.
On December 27, 2021, IRS management agreed with 35,415 of the 41,329 October 2021
payment exception cases, stating they created a bypass condition to prevent payments
from being issued in the event that a January 2022 payment file is generated. For the
remaining 5,914 payments, the IRS stated that the dependents were eligible for advance
Child Tax Credit payments.
Finally, management noted in their formal response to this report that on
October 6, 2021, they posted transaction codes on the impacted accounts to block
additional payments from being made to those taxpayers determined to be ineligible.
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Management also notified the public of the actions taken through a public service
announcement on IRS.gov.
Some Taxpayers Did Not Receive Advance Child Tax Credit Payments
Our analysis of advance Child Tax Credit payments issued for July through November 2021
identified 8.3 million payments totaling about $3.7 billion that should have been sent to
4.1 million eligible taxpayers. Using the same approach as we detailed previously, we identified
taxpayers who were eligible to receive an advance Child Tax Credit payment but had not been
issued a payment by the IRS. For the July and August 2021 payments, we immediately notified
IRS management to determine the cause of the nonpayment and ensure that action(s) were
taken to send payments to eligible taxpayers.
Recommendation 2 (E-Mail Alert): On August 9, 2021, we notified the Director, Return
Integrity and Compliance Services, Wage and Investment Division, of our concerns related to
eligible taxpayers who did not receive their advance Child Tax Credit payments. We
recommended that the IRS evaluate the discrepancies to identify why periodic payments were
not made to eligible taxpayers.
Management’s Response to Alert: The IRS agreed with our recommendation. For the
July 2021 advance Child Tax Credit payments, IRS management indicated that there was
a programming error that erroneously excluded taxpayers who had an Individual
Taxpayer Identification Number15 from receiving the advance Child Tax Credit payment.
For the August 2021 advance Child Tax Credit payments, a programming error occurred
when only one spouse updated their bank account information in the Child Tax Credit
Update Portal. The IRS required both spouses to update this information for the entire
advance payment to be deposited into the new bank account.
The IRS corrected errors that caused certain taxpayers to be excluded from receiving a
periodic payment. In August 2021, the IRS issued 1,294,928 recovery payments to
impacted taxpayers totaling more than $503.7 million, and in September 2021, the IRS
sent 632,505 recovery payments to affected taxpayers totaling about $224.1 million. The
IRS stated that these taxpayers continued to receive the appropriate monthly payments
unless they became ineligible, and that it established a team to continue tracking and
addressing advanced payment issues in the event subsequent legislation would have
extended the advance payments beyond 2021.
For those eligible individuals the IRS was unable to address, the IRS advised that advance
payments that were not made would be provided when the taxpayers complete the Child Tax
credit reconciliation, i.e., Schedule 8812, Credits for Qualifying Children and Other Dependents,
as part of their TY 2021 tax return filing. As a result, we did not request IRS management to
determine the cause of the nonpayment for September through November payments. We are
conducting a separate review of the reconciliation of Child Tax Credit payments in Filing
15 A nine digit number assigned by the IRS to taxpayers who are required to have a Taxpayer Identification Number
for Federal tax purposes but are not eligible to obtain a Social Security Number.
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Season 2022, which includes monitoring the filings of these individuals to ensure that they
receive their payments.16
Some Ineligible Taxpayers Were Sent Letters Regarding Eligibility and
Estimated Payments, While Others Were Overlooked
In June 2021, the IRS sent 36.5 million Letters 6416 notifying taxpayers they may be potentially
eligible to receive advance monthly Child Tax Credit payments. This letter also informed
taxpayers that if they did not want to receive these advance payments, instructions for
unenrolling would be provided by the end of June. Finally, the letter directed taxpayers to the
IRS’s newly created website (irs.gov/childtaxcredit2021) where they could obtain additional
information related to the advance Child Tax Credit payments.
On June 10, 2021, and July 13, 2021, we notified the Director, Return Integrity and Compliance
Services, Wage and Investment Division, that our review identified 269,938 taxpayers who were
erroneously sent Letter 6416. Conversely, we also identified 358,993 taxpayers who should have
been sent Letter 6416. We recommended that the IRS ensure that taxpayers who were
erroneously sent a letter do not receive an advance payment and those who should receive an
advance Child Tax Credit payment are notified. In response, management stated that the
purpose of Letter 6416 was to notify potential eligible taxpayers and the letter was not the
actual number of taxpayers who would receive the advance payments because they were still
working on refining the criteria. The IRS indicated that it would not be issuing any additional
outreach letters because it needed to focus its resources on preparing to issue the monthly
payments.
In addition to issuing Letter 6416, the IRS also sent 33.4 million Letters 6417 in June 2021
advising taxpayers that the advance payments would begin in July 2021. Taxpayers who had
already filed their TY 2019 or 2020 tax return were advised that no further action was needed.
The letter further explained that if taxpayers received their tax refund via direct deposit, their
advance payments would also be deposited via direct deposit on the 15th of every month.
Finally, the letter provided taxpayers with the amount of the estimated advance monthly Child
Tax Credit payment.
On July 23, 2021, we notified the Director, Return Integrity and Compliance Services, Wage and
Investment Division, that we identified over 4.3 million taxpayers who were not sent Letter 6417.
Conversely, we identified over 761,000 taxpayers who were sent Letter 6417 in error. In
response, management stated that the file used to generate Letter 6417 represented taxpayers
that the IRS estimated would receive the advance payments using tax return information and
programming requirements as of May 27, 2021, i.e., a snapshot in time. In addition, the IRS
needed to meet a specific deadline to issue these letters before the first payments were issued
on July 15, 2021. The IRS also indicated that it needed to focus its resources on preparing to
issue the remaining monthly payments.
16 TIGTA, Audit No. 202240712, American Rescue Plan Act Advanced Child Tax Credit Tax Filing Reconciliation for
Individuals.
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The IRS developed a reconciliation letter as required by legislation
As stated previously, the ARPA also required the IRS to provide taxpayers with a written notice,
regarding advance Child Tax Credit payments, no later than January 31, 2022, identifying
advanced payments received by taxpayers and to use when preparing their Tax Year 2021 tax
return. As a result, the IRS developed Letter 6419. The letter includes the:
•
Total amount of TY 2021 advance Child Tax Credit payments.
•
Number of qualifying children used to calculate advance payments.
This letter also contains information to assist taxpayers in preparing their TY 2021 tax returns.
Our analysis of the IRS’s Letter 6419 file determined that the IRS sent the majority of the letters
to the correct taxpayers, and the letters included the correct amounts of advance Child Tax
Credit payments taxpayers received. Specifically, of the 57.1 million letters sent to taxpayers, we
identified 6,829 letters that were not sent to taxpayers or were sent with an incorrect amount of
advance Child Tax Credit payments. On January 18, 2022, we provided IRS management with a
preliminary list of 835 taxpayers with discrepancies for their evaluation. The IRS advised that
these discrepancies primarily involved differences due to the reversals of advance payments that
were not reflected on Letter 6419 due to timing of the IRS’s cutoff date to issue the letters and
the posting of the reversal to the taxpayer’s tax account. Reversals reduce the total advance
Child Tax Credit payments and can occur due to a payment being returned as undeliverable. An
undeliverable payment can take months before the IRS identifies and posts to the taxpayer’s tax
account. Management noted that they included content on IRS.gov on where and what the
taxpayer can do to get the information if they did not receive Letter 6419.
We are conducting a separate review that includes monitoring payment reversals that occur
after the issuance of Letter 6419 to ensure that taxpayers receive their correct amount of Child
Tax Credit.17
Information provided to taxpayers through the eligibility assistant tool and IRS website
was not always clear
The IRS created a website specifically to provide taxpayers with resources related to the Child
Tax Credit. This website had an interactive advance Child Tax Credit eligibility assistant tool that
the IRS developed to help families determine whether they qualify for the advance Child Tax
Credit payments. Our review identified that the information provided could be improved to
better ensure taxpayer understanding of the information being provided.
Recommendation 3 (E-Mail Alert): On June 29, 2021, we notified the Director, Return Integrity
and Compliance Services, Wage and Investment Division, that the messaging provided on the
IRS’s eligibility assistant tool and the presentation of information related to the advance Child
Tax Credit payments on IRS.gov may be confusing to taxpayers. For example, the link to “Get
Answers on the Advance Child Tax Credit” that is located on the IRS.gov main page takes
taxpayers to the Advance Child Tax Credit Payments in 2021 web page; however, the links to get
the questions and answers is at the bottom of the screen. We recommended that the IRS
17 TIGTA, Audit No. 202240712, American Rescue Plan Act Advanced Child Tax Credit Tax Filing Reconciliation for
Individuals.
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consider revising the messaging and presentation of information on its platforms to make it
clear for taxpayers.
Management’s Response: IRS management agreed and updated or modified links to
the Advance Child Tax Credit Payments in 2021 web page and the main page of IRS.gov.
On July 9, 2021, IRS management revised messaging provided on the eligibility assistant
tool.
Processes Are Needed to Ensure the Validity of Bank Account Information
Received From Third Parties
Our analysis of bank accounts to which monthly advance Child Tax Credit payments were sent
during July and August 2021 identified 523 bank accounts associated with 11,216 taxpayers that
the IRS sent 11,459 potentially erroneously payments totaling $4.2 million. The IRS sent four or
more deposits to these 523 bank accounts. IRS internal guidelines state that if more than three
taxpayers use the same bank account, the advance Child Tax Credit payments will be issued as a
paper check beginning with the fourth taxpayer to use the account. This is done to protect
against undetected identity theft. When we brought our concerns to IRS management’s
attention, they agreed that the majority of these payments were in fact erroneously sent to
these bank accounts. Specifically, the IRS concluded that as of September 24, 2021:
•
11,431 of the 11,459 payments from July and August 2021 had transactions on the
taxpayer’s tax account that either reversed or replaced the bank account information, or
unenrolled the taxpayer.
•
10,603 (93 percent) of the 11,459 payments for July and August 2021 were returned by
the bank.
According to the IRS, the erroneous payments were the result of errors in the direct deposit
numbers provided in third-party files the IRS used to update taxpayer direct deposit numbers.
The IRS updates the direct deposit information to reduce the number of paper checks issued
where the taxpayer did not provide direct deposit information. This helps ensure that taxpayers
received their advance Child Tax Credit payments in the most expeditious manner. The IRS
coordinated with the Bureau of the Fiscal Service (BFS) to obtain direct deposit information for
those potentially eligible taxpayers who did not have a bank account on file with the IRS.
Specifically, some of the direct deposit numbers were “truncated” and thus were not valid direct
deposit numbers. As a hypothetical, the bank account number was 123450, but it should have
been 123450000. It was not until we brought our concerns to management’s attention that they
realized there was a truncation error. IRS management indicated that they did not validate the
direct deposit account number before updating the information to taxpayer tax accounts. Going
forward, the IRS advised that validation will be completed to ensure that all BFS files contain
valid direct deposit account numbers.
However, subsequent to the IRS stating it would validate bank account information, our review
identified additional truncated bank account numbers for which subsequent payments were
attempted to be sent. When we brought this same issue to IRS management’s attention a few
months later, they agreed that being able to validate files received from third parties was a good
suggestion. The IRS’s position is that any validation efforts should be completed by the BFS
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prior to sending the data to the IRS, because the BFS is the agency providing the third-party
bank account data.
Third-party bank information provided to the IRS in August 2021 also incorrectly
included bank account information associated with allotment accounts
Our review also identified that direct deposit information from the BFS included accounts
whereby taxpayers received some type of government payment. For example, the BFS provided
the IRS with payroll allotment accounts, e.g., a health savings account, for 1,610 taxpayers for
which the IRS issued 5,468 payments totaling $1.8 million. This information was used by the IRS
to proactively update taxpayers’ direct deposit numbers between August 23, 2021, and
October 5, 2021.
Specifically, the IRS obtained direct deposit account information for taxpayers who had been
receiving a paper check from the BFS, and the IRS used this information to update the taxpayers’
accounts. This allowed the IRS to begin sending the taxpayers electronic payments; however, in
some instances, the BFS provided payroll allotment accounts – accounts in which taxpayers
would not know to look when trying to find these payments. This created unnecessary burden
and worry for taxpayers when they received their Letter 6419 and could not reconcile their
advance payments to their bank account information.
Recommendation 4 (E-Mail Alert): On January 28, 2022, we notified the Director, Return
Integrity and Compliance Services, Wage and Investment Division, that we identified 2.2 million
taxpayers who had their direct deposit information updated by the IRS between August 23 and
October 5, 2021. We recommended that the IRS conduct an outreach effort to inform taxpayers
of the possibility that their advance payments may have been sent to payroll allotment accounts.
This outreach effort could include sending a separate letter to the impacted taxpayers.
Management’s Response: IRS management agreed with our recommendation and
stated that the BFS will issue outreach notices to taxpayers whose advance Child Tax
Credit payment was sent to a payroll allocation account. In addition, the IRS stated that
the BFS will also support a toll-free operation to assist taxpayers in identifying the
accounts to which advance Child Tax Credit payments were made.
We plan to continue to monitor this situation in our separate review of the reconciliation of
Child Tax Credit payments in Filing Season 2022.18
Recommendation 5: The Director, Return Integrity and Compliance Services, Wage and
Investment Division, should develop and implement processes and procedures to include data
validation on incoming files from third-party sources prior to their use.
Management’s Response: The IRS agreed with this recommendation and will
implement processes and procedures to complete data validation prior to its use from
third-party sources.
18 TIGTA, Audit No. 202240712, American Rescue Plan Act Advanced Child Tax Credit Tax Filing Reconciliation for
Individuals.
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Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of this review was to assess processes and procedures to ensure that Child
Tax Credit advance periodic payments are accurate and made to only those taxpayers who meet
qualification requirements. To accomplish our objective, we:
•
Evaluated the IRS’s processes for ensuring that it identified all eligible individuals for
advance Child Tax Credit payments and sent notification letters to only eligible
taxpayers.
•
Assessed the IRS’s processes for ensuring that it identified all eligible individuals for
advance Child Tax Credit payments and sent advance Child Tax Credit payments to only
eligible taxpayers. We assessed IRS methodologies and criteria for identifying the
correct taxpayers to receive advance Child Tax Credit payments, and quantified the
number of eligible individuals who did not receive notification letters or advance Child
Tax Credit payments and the amount for each that was not issued.
•
Evaluated the IRS’s processes for accurately issuing Letter 6419, which provided
taxpayers a written notice to help reconcile and receive the TY 2021 Child Tax Credit.
•
Reviewed bank account information to identify payments going to the same bank
account for different taxpayers.
Performance of This Review
This review was performed with information obtained from the Wage and Investment Division,
Return Integrity and Compliance Services function during the period July 2021 through
April 2022. We conducted this performance audit in accordance with generally accepted
government auditing standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objective. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit objective.
Major contributors to the report were Russell P. Martin, Assistant Inspector General for Audit
(Returns Processing and Account Services); Diana M. Tengesdal, Director; Darryl Roth, Audit
Manager; Kenneth Carlson, Lead Auditor; Tanya Boone, Senior Auditor; and Sandy Ramos,
Auditor.
Validity and Reliability of Data From Computer-Based Systems
During this review, we obtained taxpayer account information from the IRS’s Individual Master
File,1 TYs 2019 and 2020 tax return information from the Individual Returns Transaction File,2
personal information about taxpayers from the National Account Profile table,3 and payment
1 The IRS database that maintains transactions or records of individual tax accounts.
2 A database maintained by the IRS that contains information on the individual tax returns it receives.
3 IRS database that is a compilation of selected entity data from various IRS Master Files that also includes data from
the Social Security Administration.
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data from the IRS’s Economic Impact Payment Tax File and Refund Files4 for Processing
Year5 2021 that were available on TIGTA’s Data Center Warehouse.6 We ensured that each file
contained the specific data elements relevant to our review. We selected samples from each
extract and verified that the data in the extracts were the same as the data captured in the
Integrated Data Retrieval System.7 We determined that the data were sufficiently reliable for
purposes of this report.
Internal Controls Methodology
Internal controls relate to management’s plans, methods, and procedures used to meet their
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance. We determined that the
following internal controls were relevant to our audit objective: processes and procedures for
the IRS’s implementation of the advance Child Tax Credit eligibility requirements and the
issuance of periodic payments. We tested these controls by reviewing and analyzing relevant
documents, data, and calculations and holding discussions with IRS management.
4 A database that contains information on tax refunds sent for processing.
5 The calendar year in which the tax return or document is processed by the IRS.
6 A TIGTA repository of IRS data.
7 IRS computer system capable of retrieving or updating stored information. It works in conjunction with a taxpayer’s
account records.
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Appendix II
Outcome Measures
This appendix presents detailed information on the measurable impact that our recommended
corrective actions will have on tax administration. These benefits will be incorporated into our
Semiannual Report to Congress.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Actual; 882,981 payments made totaling
$267,203,496 that were sent to taxpayers who should not have received them
(see Recommendation 1).
Methodology Used to Measure the Reported Benefit:
We obtained extracts from the Individual Master File for TYs 2019 and 2020, the Individual
Return Transaction File for Processing Years 2020 and 2021, the National Account Profile for
Processing Year 2021, and the Listing of Advance Child Tax Credit payments between July and
November 2021.
Each month between July and November 2021, we used the above tax information to determine
the eligibility of dependents claimed on taxpayers’ TY 2019 and/or TY 2020 tax returns. We
used the tax and dependent information, along with IRS criteria for determining advance Child
Tax Credit payment eligibility, to create a table of taxpayers who should have received advance
Child Tax Credit payments. Each month, we compared our analyses to the 178,900,513 monthly
payments, totaling more than $76.7 billion, issued by the IRS between July and November 2021,
and identified 1,463,013 ineligible taxpayers who received more than $1.1 billion in payments.
Of these, we focused our analysis to identify the most frequent causes of the improper
payments, ineligible or duplicate dependents. Our analysis identified and IRS management
agreed with:
•
454,284 improper advance Child Tax Credit payments made in July 2021, totaling
$119,929,080 where the dependents claimed on taxpayers’ TY 2019 and/or TY 2020 tax
returns were not eligible.
•
393,282 improper advance Child Tax Credit payments made in August and
September 2021 totaling $132,075,843 where the dependents claimed on taxpayers’
TY 2019 and/or TY 2020 tax returns were not eligible.
•
35,415 improper advance Child Tax Credit payments made in October 2021, totaling
$15,198,573 where the dependent(s) claimed was not eligible because the dependent
was also claimed by another taxpayer in TY 2020.
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Type and Value of Outcome Measure:
•
Taxpayer Rights and Entitlements – Actual; 1,927,433 payments totaling $727,794,113
that should have been sent to eligible taxpayers (see Recommendation 2).
Methodology Used to Measure the Reported Benefit:
We obtained extracts from the Individual Master File for TYs 2019 and 2020, the Individual
Return Transaction File for Processing Years 2020 and 2021, the National Account Profile for
Processing Year 2021, and the Listing of Advance Child Tax Credit payments between July and
November 2021.
Each month between July and November 2021, we used the above tax information to determine
the eligibility of dependents claimed on taxpayers’ TY 2019 and/or TY 2020 tax returns. We
used the tax and dependent information, along with IRS criteria for determining advance Child
Tax Credit payment eligibility, to create a table of taxpayers who should have received advance
Child Tax Credit payments. Each month, we compared our analyses to the 178,900,513 monthly
payments, totaling more than $76.7 billion, issued by the IRS between July and November 2021
and identified 4,107,195 eligible taxpayers who did not receive 8,330,030 payments totaling
nearly $3.7 billion in payments to which they were entitled to receive. Of these, we focused our
analysis to identify the most frequent causes of why eligible taxpayers did not receive monthly
payments. These conditions occurred because of programing errors and include:
•
1,294,928 monthly advance Child Tax Credit payments that were not made to eligible
taxpayers in July 2021 totaling $503,717,938.
•
632,505 monthly advance Child Tax Credit payments that were not made to eligible
taxpayers in August 2021 totaling $224,076,175.
Type and Value of Outcome Measure:
•
Reliability of Information – Actual; 11,459 payments totaling $4,176,294 for
11,216 taxpayers that were erroneously sent to 523 bank accounts (see
Recommendation 4).
Methodology Used to Measure the Reported Benefit:
We obtained the Listing of Advance Child Tax Credit payments between July and
November 2021. This listing included payments made electronically and via paper check with
the bank routing and account information for electronic payments.
In July and August 2021, we analyzed the bank routing and account information for advance
Child Tax Credit electronic payments the IRS made to taxpayers and counted the number of
payments the IRS sent to each bank account. IRS internal guidelines state that if more than
three taxpayers use the same bank account, the advance Child Tax Credit payments will be
issued as a paper check beginning with the fourth taxpayer to use the account. This is done to
protect against undetected identity theft.
After counting the payments made to each bank account each month, we identified 523 bank
accounts that received advance Child Tax Credits for more than three taxpayers within a single
month. In total, the IRS erroneously sent 11,459 payments totaling $4,176,294 to these
523 bank accounts.
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Type and Value of Outcome Measure:
•
Reliability of Information – Actual; 1,610 taxpayers received 5,468 advance Child Tax
Credit payments of $1.8 million to payroll allotment accounts (see Recommendation 5).
Methodology Used to Measure the Reported Benefit:
Our research, in conjunction with bank account update information received from the Return
Integrity and Compliance Services function, identified 2,217,941 taxpayers who had their direct
deposit information updated by the IRS between August 23, 2021, and October 5, 2021. The IRS
advised that 5,468 of the advance Child Tax Credit payments, totaling $1.8 million, were made to
1,610 different payroll allotment accounts.
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Appendix III
Example of Letter 6416, Advance Child Tax Credit Outreach
Source: IRS Letter 6416.
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Appendix IV
Example of Letter 6417, Advance Child Tax Credit Payment
Source: IRS Letter 6417.
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Appendix V
Management’s Response to the Draft Report
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Appendix VI
Abbreviations
ARPA
American Rescue Plan Act of 2021
BFS
Bureau of the Fiscal Service
IRS
Internal Revenue Service
TIGTA
Treasury Inspector General for Tax Administration
TY
Tax Year
To report fraud, waste, or abuse,
call our toll-free hotline at:
(800) 366-4484
By Web:
www.treasury.gov/tigta/
Or Write:
Treasury Inspector General for Tax Administration
P.O. Box 589
Ben Franklin Station
Washington, D.C. 20044-0589
Information you provide is confidential, and you may remain anonymous.