American Rescue Plan Act: Assessment of the Expanded Child and Dependent Care and Earned Income Tax Credits

Summary

The Treasury Inspector General for Tax Administration (TIGTA) Final Audit Report, Report Number 2023-47-037, issued on June 15, 2023, assesses IRS processes for the expanded Child and Dependent Care Credit (CDCC) and self-only Earned Income Tax Credit (EITC) for Tax Year 2021 under the American Rescue Plan Act. As of May 5, 2022, the IRS processed more than 5.1 million tax returns claiming refundable CDCC (totaling more than $11.1 billion). TIGTA found 3,573 returns with potentially erroneous CDCCs totaling $6.8 million with obviously invalid care provider Taxpayer Identification Numbers, and 7,486 electronically filed returns that did not meet the requirements for self-only EITC. TIGTA made nine recommendations, and the IRS agreed with seven and disagreed with two.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Full text

1

American Rescue Plan Act:
Assessment of the Expanded Child and Dependent Care
and Earned Income Tax Credits

June 15, 2023

Report Number:  2023-47-037

This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined
to be restricted from public release has been redacted from this document.
TIGTACommunications@tigta.treas.gov   |   www.treasury.gov/tigta
TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

HIGHLIGHTS:  American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
Final Audit Report issued on June 15, 2023
Report Number 2023-47-037

Why TIGTA Did This Audit
This audit was initiated to follow
up on prior audit
recommendations and assess the
adequacy of the IRS’s processes
and procedures to ensure that
expanded eligibility requirements
for the Child and Dependent Care
Credit (CDCC) and the self-only
Earned Income Tax Credit (EITC)
for Tax Year 2021 were met.
Impact on Tax Administration
The American Rescue Plan Act of
2021 temporarily expanded the
CDCC and self-only EITC for
Tax Year 2021.  These changes
made the CDCC one of the largest
refundable tax credits
administered by the IRS for
Tax Year 2021.  Refundable credits
present a unique risk to tax
administration because taxpayers
not only can have their tax reduced
to zero; they can also receive a
"refund" of excess credit.  The
unintended consequences of
refundable credits are that they
can result in the issuance of
improper payments and can be the
target of unscrupulous individuals.
As such, they pose a significant risk
as an avenue for those seeking to
defraud the Government.
As of May 5, 2022, the IRS
processed more than 5.1 million
tax returns claiming refundable
CDCC totaling more than
$11.1 billion.

What TIGTA Found
The IRS did not update business rules to reflect changes made to the
Form 2441, Child and Dependent Care Expenses, for Tax Year 2021.
TIGTA alerted IRS management of our concern in February 2022, and
they created three new business rules and revised seven business
rules.  For the three rules implemented after TIGTA brought these
concerns to IRS management’s attention, the IRS found that 932
taxpayers had more than $2.2 million in CDCC claims rejected before
the return was accepted.
TIGTA also determined that IRS management needs to take
additional actions to address prior agreed to recommendations.
While IRS management took action to implement some of the
recommendations TIGTA made in March 2022, some prior concerns
and recommendations were not fully addressed.  For example, our
review of tax returns filed as of May 5, 2022, continued to identify
3,573 returns with potentially erroneous CDCCs totaling $6.8 million
with obviously invalid care provider Taxpayer Identification Numbers.
In addition, TIGTA identified that taxpayers who have Social Security
Numbers not eligible for work continue to receive erroneous EITC.
As of May 5, 2022, there were a total of 7,486 electronically filed tax
returns identified by the IRS’s prerefund filters and through TIGTA’s
analysis that did not meet the requirements for self-only EITC.
However, with the appropriate legal authority, the IRS could reject
these returns without creating any legal risk and prevent more than
$2.9 million in improper payments.
Finally, CDCCs were allowed which exceeded the statutory limits
allowed by law due to employee errors and a lack of controls.  For
example, TIGTA identified 61 returns that received $203,535 more in
refundable CDCC claims than allowed by the law.
What TIGTA Recommended
TIGTA made nine recommendations to the IRS that included ensuring
that programming is updated for Processing Year 2023 to identify
taxpayers who reported an obviously invalid care provider Taxpayer
Identification Number on the Form 2441.  TIGTA also recommended
that the IRS work with the Department of the Treasury, Office of Tax
Policy, to advance legislation to treat a tax return as filed only when it
is accepted, allowing the IRS to remove the legal risk of rejecting tax
returns.
The IRS agreed with seven recommendations.  The IRS disagreed with
two recommendations.  IRS management did not agree to develop a
tool or programming to ensure that tax returns with prior year
expenses are systemically identified.  Management also did not agree
to review the 774,559 returns TIGTA identified that received more
than $668.8 million in self-only EITC ****************2*****************
****2****, and to recover credits that are determined to be erroneous.

U.S. DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.  20024
TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION

June 15, 2023

MEMORANDUM FOR: COMMISSIONER OF INTERNAL REVENUE

FROM:
Heather M. Hill

Deputy Inspector General for Audit

SUBJECT:
Final Audit Report – American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
(Audit # 202240709)

This report represents the results of our review to assess the adequacy of processes and
procedures to ensure that the expanded eligibility requirements for the Child and Dependent
Care Credit (CDCC) and self-only Earned Income Tax Credit (EITC) for Tax Year 2021 were met.
This review is part of our Fiscal Year 2023 Annual Audit Plan and addresses the major
management and performance challenges of Administering Tax Law Changes and Reducing Tax
Fraud and Improper Payments.
Management’s complete response to the draft audit report is included as Appendix IV.  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:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
Table of Contents
Background .....................................................................................................................................Page 1
Results of Review .......................................................................................................................Page 2
Programming Updated to Reject Tax Returns With
Erroneous Child and Dependent Care Credit Claims  ............................................Page 2
Recommendation 1: ...................................................................Page 3
Management Needs to Take Additional Actions to
Address Prior Agreed to Recommendations .............................................................Page 4
Recommendations 2 and 3: .....................................................Page 8
Additional Actions Are Needed to Ensure That Erroneous
Earned Income Tax Credits Are Not Allowed ............................................................Page 8
Recommendations 4 and 5: .....................................................Page 9
Recommendations 6 and 7: .....................................................Page 10
Recommendation 8: ...................................................................Page 11
Credits Exceeding the Statutory Limits Were Allowed Due
to Employee Errors and a Lack of Controls ................................................................Page 11
Recommendation 9: ...................................................................Page 12
Appendices
Appendix I – Detailed Objective, Scope, and Methodology ................................Page 13
Appendix II – Outcome Measures .................................................................................Page 15
Appendix III – Prior TIGTA Reports on Nonwork Social Security
Numbers ..................................................................................................................................Page 19
Appendix IV – Management’s Response to the Draft Report .............................Page 20
Appendix V – Glossary of Terms ....................................................................................Page 27
Appendix VI – Abbreviations ...........................................................................................Page 29

Page  1
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
Background
The American Rescue Plan Act of 2021 (ARPA) temporarily expanded the Child and Dependent
Care Credit (CDCC) for Tax Year (TY) 2021.1  The expansion made the CDCC fully refundable for
taxpayers whose main home was in the United States for more than one-half of the year.2  The
maximum amount of credit also increased from $1,050 to $4,000 for one qualifying person and
from $2,100 to $8,000 for two or more qualifying persons.  These changes made the CDCC one
of the largest refundable tax credits administered by the IRS for Tax Year 2021.  Refundable
credits present a unique risk to tax administration because taxpayers not only can have their tax
reduced to zero; they can also receive a "refund" of excess credit.
As of May 5, 2022, the IRS processed more than 5.1 million tax returns claiming refundable
CDCC totaling more than $11.1 billion.  Taxpayers claim the CDCC by filing Form 2441, Child and
Dependent Care Expenses.  The form requires taxpayers to enter information about their care
provider, i.e., name, address, Taxpayer Identification Number (TIN), and the amount paid.3
Expansion of the EITC
The ARPA also temporarily expanded the eligibility rules and the amount of Earned Income Tax
Credit (EITC) for taxpayers with no qualifying children, i.e., self-only, for TY 2021.  Figure 1 shows
the various changes made by the ARPA to the self-only EITC.
Figure 1:  Self-Only EITC Requirements Changes

Rules for
TY 2020
ARPA Rules for
TY 2021
Maximum EITC
$538
$1,502
Maximum
Adjusted Gross Income
$21,710 Married Filing Jointly;
$15,820 all other eligible filing
statuses
$27,380 Married Filing Jointly:
$21,430 all other eligible filing
statuses
Earned Income Amount for
Maximum Credit
$4,220
$9,820
Phase Out Amount Begins
$5,280
$11,610
Credit Percentage
7.65%
15.3%
Phase Out Percentage
7.65%
15.3%
Maximum Investment Income
$3,650
$10,0004

1 Pub. L. No. 117-2, 135 Stat. 8 (codified in scattered sections of 7, 12, 15, 19, 20, 26, 29, 42, and 45 U.S.C.).
See Appendix V for a Glossary of Terms.
2 In the case of a joint return, this requirement is met when either spouse has a principal place of abode in the
United States for more than one-half of the taxable year.
3 There are specific rules about who is an eligible care provider or qualifying person that are explained in
Publication 503, Child and Dependent Care Expenses.
4 The increase in maximum investment income to $10,000 applies to TY 2021 and is indexed to inflation for
subsequent tax years.

Page  2
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits

Rules for
TY 2020
ARPA Rules for
TY 2021
Minimum Age for Eligibility
25
19;
24 for specified student;
18 for qualified former
foster/homeless youth
Maximum Age for Credit
64
N/A
Source:  Treasury Inspector General for Tax Administration (TIGTA) comparison of TYs 2020 and 2021 EITC
provisions.
Prior audit recommended enhancements to fix processing control weaknesses
As previously noted, the changes in the ARPA made the CDCC one of the largest refundable
credits during Tax Year 2021.  The unintended consequences of refundable credits are that they
can result in the issuance of improper payments and can be the targets of unscrupulous
individuals.  As such, they pose a significant risk as an avenue for those seeking to defraud the
Government.
Recognizing the significant risk of potentially improper/fraudulent CDCC claims, we evaluated
Tax Year 2019 tax returns that received CDCCs to evaluate IRS processes to detect potentially
fraudulent and erroneous claims.  In March 2022, we reported on a number of weaknesses in the
controls over the processing of CDCC claims.5  We issued 11 alerts and made nine
recommendations to the IRS so management could address the deficiencies we identified
before taxpayers began filing claims for the refundable CDCC during Processing Year 2022.  This
current review assesses the sufficiency of management’s corrective actions and evaluates the
expansion of the CDCC and the EITC for taxpayers with no qualifying children.
Results of Review
Programming Updated to Reject Tax Returns With Erroneous Child and
Dependent Care Credit Claims
Business rules and error codes are two methods for the Internal Revenue Service (IRS) to correct
tax returns before refunds are issued to taxpayers.  Our review identified five new or modified
CDCC business rules and one error code for TY 2021 as a result of the expanded CDCC.6  Our
initial testing of the new or modified business rules for tax returns accepted through
January 28, 2022, identified concerns that the business rules were not rejecting erroneous tax
returns.  However, management took actions during our review to correct the programming
deficiencies.  Our subsequent analysis of tax returns accepted and rejected by the IRS between

5 TIGTA Report No. 2022-47-023, American Rescue Plan Act:  Assessment of the Processes to Identify and Address
Improper Child and Dependent Care Credit Claims (Mar. 2022).
6 Business Rules: F2441-002-04, F2441-011-02, F2441-526, F2441-001-01, and F2441-024.  Error Code: 363.  Business
Rule F2441-023 was disabled for TY 2021.

Page  3
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
January 18 and May 5, 2022, found that the business rules and error code worked as intended
after programming updates were implemented.
As previously noted, the CDCC became refundable for TY 2021.  The IRS updated Form 2441 for
TY 2021 to include the credit totals for both the refundable and nonrefundable CDCC amounts.
However, our review of the business rules for TY 2021 found that the business rules were not
updated to reflect these changes.  For example, the business rules were not updated to account
for the new refundable CDCC amount listed on Line 10 of the Form 2441.  Figure 2 highlights all
of the changes made to Part II, Credit for Child and Dependent Care Expenses, on the TY 2021
Form 2441.
Figure 2:  Changes to Form 2441 Part II for TY 2021

Source:  Part II of TY 2021 Form 2441.
Recommendation 1 (E-Mail Alert):  On February 17, 2022, we notified the Director, Submission
Processing, Wage and Investment Division, of our concern with three business rules and
recommended that IRS management update the business rule programming to identify and
evaluate returns for both refundable and nonrefundable CDCC claims.

Management’s Response to Alert:  IRS management agreed with our concern and
indicated they were also reviewing additional business rules prior to our e-mail alert.  IRS
management noted that they created three new business rules and modified seven
business rules.  The new and revised rules became effective on March 20, 2022.
Our analysis of accepted and rejected returns with an attached Form 2441 filed between
March 20 and September 30, 2022, found that the three new business rules and seven modified
business rules were working as intended.  For the three rules we brought to management’s
attention, management found that 932 taxpayers had more than $2.2 million in CDCC claims
rejected before the return was accepted.

Page  4
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
Management Needs to Take Additional Actions to Address Prior Agreed to
Recommendations
Our review of the IRS’s processes and procedures found that the IRS took action to address five
(of nine) prior recommendations and four (of eleven) concerns documented in e-mail alerts.  We
issued e-mail alerts to IRS management during our prior review so they could take immediate
corrective action and minimize any impact on taxpayers/tax administration.  However, additional
actions are warranted to fully address the remaining four prior audit recommendations.
Actions were taken to fully address prior concerns and recommendations
Figure 3 summarizes actions taken by the IRS, for which we identified no additional concerns.
The reference number provided indicates the number of the recommendation or alert and page
number it appears on in our prior report.
Figure 3:  Prior Alerts/Recommendations That Were Fully Implemented
Reference Number
Recommendation
Actions Taken
E-mail alert (Page 9)
Care provider reported on
the Form 2441 was not an
eligible care provider.
No formal recommendation made.
IRS management revised its internal
guidance to instruct employees to
disallow expenses if the care provider TIN
is the same as the primary taxpayer,
spouse, or a dependent of the taxpayer.
E-mail alert (Page 10)
Qualifying person’s
information missing from
Form 2441.
No formal recommendation made.
IRS management revised its internal
guidance to provide additional
clarification to employees reviewing
paper-filed returns and updated its
programming to reject electronically filed
(e-filed) returns with missing information.
E-mail alert (Page 10)
Qualifying person(s) listed
on the Form 2441 was not
alive.
No formal recommendation made.
IRS management created a compliance
filter.  However, as of December 28, 2022,
the IRS has not selected any returns for
prerefund or post-refund examination.
E-mail alert (Page 11)
Earned income was not
reported for both the
primary and secondary
taxpayers.
No formal recommendation made.
IRS management issued an alert to
employees on reinforcing internal
guidance.

Recommendation #1
(Page 13)
Update processes to ********2********
*******************2*******************
**********2*********, and the amount
paid to the care provider from
Form 2441.
N/A – IRS management did not make any
procedural changes because the CDCC was
not extended as a refundable credit
beyond TY 2021.
Audit Note:  Action no longer warranted.

Page  5
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
Reference Number
Recommendation
Actions Taken
Recommendation #2
(Page 13)
Update paper verification processes to
generate errors in the Error Resolution
System when the **********2*********
*******2******, or amounts paid to the
care provider are missing.
N/A – IRS management did not request
programming changes because the CDCC
was not extended as a refundable credit
beyond TY 2021.
Audit Note:  Action no longer warranted.
Recommendation #3
(Page 15)

Revise Form 2441 to include
checkboxes to note whether
dependent care expenses are for a
spouse or dependent who is
physically or mentally incapable of
caring for themselves or if special
deemed earned income rules apply.
IRS management revised Form 2441 for
TY 2022 to include a checkbox as we had
recommended.
Recommendation #5
(Page 16)
Work with the Department of the
Treasury, Office of Tax Policy, to
obtain the legal authority to disallow
the CDCC when the primary or
secondary taxpayer has an *****2*****
Individual Taxpayer Identification
Number (ITIN).
IRS management drafted and elevated the
legislative proposal to the Office of Tax
Policy on September 1, 2022.
Recommendation #7
(Page 17)

Revise Form 2441 instructions and
Publication 503, using examples, so
taxpayers may better understand the
requirements.
IRS management added two examples on
Page 8 of Publication 503, under “Camp,”
to help clarify that expenses incurred for
summer camp qualify for the credit, but
expenses incurred for summer tutoring do
not qualify.
Source:  TIGTA’s review of actions taken in response to recommendations and alerts made in Report
No. 2022-47-023 issued in March 2022.
Prior concerns and recommendations were not fully addressed
Figure 4 summarizes the actions taken or not taken by the IRS to address our prior concerns and
recommendations for which we determined that additional action is needed.  The reference
number provided indicates the number of the recommendation or alert and page number in our
prior report.

Page  6
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
Figure 4:  Prior Alerts/Recommendations Where Additional Action Is Needed
Reference Number
Recommendation
Actions Taken
E-mail alert
(Page 10) -
Invalid care provider
TIN.
No formal recommendation made.
IRS management revised its internal guidance to
provide additional clarification to employees
reviewing paper-filed returns and updated its
programming to reject e-filed returns with
obviously invalid care provider TINs, including
Employer Identification Numbers and not just
Social Security Numbers (SSN).
Audit Note:  Our review of tax returns filed as
of May 5, 2022, identified 3,573 returns with
potentially erroneous CDCCs totaling
$6.8 million with obviously invalid TINs.  IRS
management updated two business rules to
include Employer Identification Numbers for
Processing Year 2023.
E-mail alert
(Page 10) -
Programming
limitations allowed
taxpayers to
circumvent limits for
prior year expenses.
No formal recommendation made.

IRS management created a compliance filter.
Audit Note:  Our analysis of TY 2021 tax returns
with a Form 2441 processed as of May 5, 2022,
identified 1,290 tax returns with erroneous prior
year expense claims totaling almost $1.9 million
when the taxpayers already claimed the
maximum amount of qualified expenses for the
prior year.
The IRS’s compliance filter identified 1,148
(89 percent) of these returns.  However, as of
November 10, 2022, the IRS has selected only
35 returns for prerefund audit.  Management
stated that the remaining 1,113 returns were not
selected for prerefund audit due to resource
limitations.
Recommendation #4
(Page 15)
Develop a process to identify tax
returns with adult ********2********
******************2*****************
******************2*****************.
These tax returns should be
considered for selection for
post-refund compliance reviews.
IRS management developed a compliance filter
for Processing Year 2022 to identify tax returns
claiming the CDCC for an adult, who may not be
disabled, for possible post-refund treatment.
IRS management also stated that they would
determine the scope of potential
noncompliance of TY 2021 returns that meet
their selection tolerances.
Audit Note:  As of July 21, 2022, the
compliance filter identified 4,061 returns;
however, the IRS plans to work only *2* returns
(*2* percent) due to its dollar tolerances.  IRS
management does not plan to work
**2** returns (*****2*****) with more than
$10.7 million in potentially erroneous
refundable CDCCs.

Page  7
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
Reference Number
Recommendation
Actions Taken
E-mail alert
(Page 11)
Taxpayer used an
***2*** ITIN on Form
2441 to claim ***2***
Recommendation #6
(Page 16)
No formal recommendation made
to identify and address claims
where the primary or secondary
taxpayer had an ***2*** ITIN.
However, we recommended that
the IRS develop a process to
identify tax returns with ***2***
ITINs used to identify the care
provider.  These tax returns should
be considered for selection for
post-refund compliance reviews.
Management disagreed stating it does not have
the legal authority to disallow these returns.
Management has not created a compliance plan
specific to ***2*** ITINs.
While TIGTA agrees that the IRS currently does
not have the legal authority to disallow the
CDCC with an ***2*** ITIN at the time tax
returns are processed, our recommendation
focused on developing procedures to identify
these claims to then address them via post-
refund treatment.
Audit Note:  Our analysis of more than
5.5 million TY 2021 returns processed through
May 5, 2022, that claimed the CDCC, identified
19,081 returns that used 15,349 unique ***2***
ITINs, totaling more than $46 million in
refundable CDCCs.7
Recommendation #8
(Page 18)
Develop a process to identify tax
returns with care provider
******************2*****************
******************2*****************
********2*******.  These tax returns
should be selected for post-refund
compliance reviews.
Management disagreed and has not created a
compliance plan to address this.
Audit Note:  We believe that reviewing the
returns in a post-refund compliance review
allows the IRS to look at the specific facts and
circumstances of each situation.
Recommendation #9
(Page 19)
Develop a compliance plan for
post-refund treatment of cases
involving ********2*****************
******************2*****************
******************2*****************
******************2*****************
******************2*****************
******************2*****************
******************2*****************
******************2*****************.
IRS management completed its assessment of
Processing Year 2022 return data in March 2023
and does not plan to take any additional actions
based on their review of the data.
Audit Note:  Our analysis of TY 2021 tax returns
with a Form 2441 processed as of May 5, 2022,
identified 528 ****************2******************
received $2.5 million in potentially erroneous
refundable CDCCs.

Source:  TIGTA’s review of actions taken in response to recommendations and alerts made in Report
No. 2022-47-023 issued in March 2022.
IRS management indicates that it does not always reject tax returns with a Form 2441
when the taxpayer does not appear to be eligible for the CDCC because an invalid credit
does not preclude the IRS from accepting the tax return.  As shown in Figure 4, there are
numerous situations where the IRS accepts the return for processing and must then try
to confirm the taxpayer’s eligibility for the credit by selecting the returns through a
compliance filter.  However, the IRS is limited in the number of returns that it can address
in a post-processing environment due to resource limitations.  As a result, tens of
millions of dollars of potentially erroneous credit claims go unaddressed each year.

7 **********************************************************2********************************************************
************************************************************2***************************************************.

Page  8
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
Seeking legislative authority to treat a tax return as filed only when it is accepted would
remove the legal risks of rejecting tax returns that include obviously invalid claims for
credits and allow the IRS to more efficiently address these issues and provide better
customer service to taxpayers.
The Commissioner, Wage and Investment Division, should:
Recommendation 2:  Ensure that programming is updated for Processing Year 2023 to identify
taxpayers who reported an obviously invalid care provider TIN on Form 2441.

Management’s Response:  IRS management agreed with our recommendation.
Management stated that programming updates were implemented for the 2023 filing
season.
Recommendation 3:  Develop a tool or programming for Error Resolution to ensure that tax
returns claiming prior year expenses are systemically identified to determine if the maximum
CDCC had been claimed in the prior year, before processing the return and potentially releasing
erroneous refunds.

Management’s Response:  IRS management disagreed with our recommendation.
Management stated that verifying prior-year expenses is beyond the scope of
math-error authority during return processing.  Ascertaining the accuracy of a deduction
based on prior-year claims must be done under existing deficiency procedures.

Office of Audit Comment:  The IRS’s internal guidance for its Error Resolution
function provides instructions that addresses when the amount of the prior year
expenses claimed exceeds the maximum allowable amounts.  Our
recommendation focuses on developing a process to identify tax returns with
prior-year expenses for which maximum CDCC amounts have already been
claimed in the prior year, to ensure that employees have this information during
their verification process.
Additional Actions Are Needed to Ensure That Erroneous Earned Income Tax
Credits Are Not Allowed
We identified one modified self-only EITC business rule and one error code for
Processing Year 2022.8  Our analysis of tax returns processed through May 5, 2022, found that
the new error code was working as intended; however, ********************1*********************
*************1**************.  We notified IRS management and they corrected the programming
for Processing Year 2023.
Taxpayers with nonwork SSNs continue to receive erroneous EITC
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 requires
individuals claiming the EITC to have a valid-for-work SSN and authorizes the IRS to deny claims
to those individuals who file using an invalid SSN.9  The taxpayer, spouse (if Married Filing

8 Business Rule: F1040-460.  Error Code: 340.
9 Pub. L. No. 104-193.

Page  9
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
Jointly), and each qualifying child must have a valid SSN to be eligible to claim the EITC.  For
purposes of the EITC, a valid SSN is a number issued by the Social Security Administration to a
U.S. citizen or to a noncitizen who obtained the SSN for purposes other than to obtain a benefit
partially or fully funded by the Federal Government, e.g., Medicaid, food stamps.  “Benefit-only”
SSNs are typically referred to as nonwork SSNs.  A valid SSN does not include an ITIN, an
Adoption Taxpayer Identification Number, or an IRS Number.  We have previously issued several
reports regarding our concerns with nonwork SSNs, as shown in Appendix III.
The IRS has processes in place to identify tax returns that claim self-only EITC with a nonwork
SSN.  These returns are identified for compliance review prior to the refund being issued.  As of
May 5, 2022, the IRS identified **2** returns meeting this condition, *************1**************
***1***.  However, our analysis of more than 12.7 million TY 2021 tax returns claiming self-only
EITC processed as of May 5, 2022, found that additional actions are needed to prevent potential
erroneous EITC amounts.  For example:
•
Rejecting e-filed returns.  The IRS currently does not reject e-filed tax returns claiming
self-only EITC with a nonwork SSN, as it does not have the explicit legal authority to do
so, as previously discussed in this report.  Our analysis identified **2** tax returns
claiming self-only EITC of more than $2.9 million associated with a nonwork SSN, which
were not identified by the IRS for prerefund compliance because the refund amount was
below the IRS’s dollar tolerance.  Further review of the **2** returns found that **2**
(99.9 percent) were e-filed.  In addition, the IRS identified **2** tax returns that met its
dollar tolerance for compliance review, all but *********************1*********************.
These 7,486 e-filed tax returns did not meet the requirements for self-only EITC.
However, as previously stated, with the appropriate legal authority, the IRS could reject
these returns without creating any legal risk and prevent more than $2.9 million in
improper payments.  In addition, management could save resources by not auditing the
returns that were above the IRS’s dollar tolerance.  Unfortunately, IRS management does
not track the costs to audit these returns.  As such, we cannot estimate the potential cost
savings.
The Commissioner, Wage and Investment Division, should:
Recommendation 4:  Work with the Department of the Treasury, Office of Tax Policy, to
advance legislation to treat a tax return as filed only when it is accepted.  This would
remove the legal risks associated with rejecting tax returns with conditions that indicate
the taxpayer is ineligible for refundable credits claimed on the return.

Management’s Response:  IRS management agreed with the recommendation.
Management stated they will elevate this issue to the Office of Tax Policy for
consideration as a legislative request.
Recommendation 5:  If legislation is enacted, develop programming to reject e-filed
returns meeting certain conditions, such as those noted in this report.

Management’s Response:  IRS management agreed with the recommendation.
Management stated that if legislation is enacted, they will review and determine
the actions to be taken.

Page  10
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
•
Adding ****************2**************** to the compliance filter criteria.  Our analysis
identified 561 returns claiming self-only EITC of more than $780,000 whose ******2******
************2***********.  This occurred because the compliance filter does not include
this *****2*****.  According to IRS management, **********2********* returns are not
included in the criteria because there is potential for one spouse to provide
substantiation and the other spouse may not, which would require a recalculation of the
credits and would not fall within the limited scope of the prerefund program.
Management also stated it must consider resource availability.  We disagree with
management’s position as they have the ability to define the scope of work for their
prerefund program.  The IRS received more than $45.6 billion for tax enforcement as part
of the Inflation Reduction Act of 2022.10  Using enforcement resources to prevent
erroneous amounts from being paid and educating taxpayers of their errors is a good
use of IRS resources and provides better customer service to taxpayers.
Recommendation 6:  The Commissioner, Wage and Investment Division, should ensure
that the compliance filter criteria for identifying individuals claiming self-only EITC who
are not eligible for work is updated to include the **************2***************.

Management’s Response:  IRS management agreed with the recommendation
and revised pre-refund filters to include returns claiming ************2***********
****2****.
•
Ensuring that legislative changes are updated in compliance filter criteria.  Our analysis
identified 2,031 returns claiming more than $2.7 million in EITC that met the IRS’s criteria
for selection but were not selected for review.  According to IRS management, this was
because programming did not get updated for Processing Year 2022 to account for the
increased self-only EITC amounts allowed by the ARPA.
Recommendation 7:  The Commissioner, Wage and Investment Division, should
establish processes to compare subsequent legislative changes with compliance filter
programming to identify and make necessary changes, as needed.

Management’s Response:  IRS management agreed with the recommendation
and conducts program assessments annually to ensure rules are accurate and
selections are as intended.
Ineligible ****2**** received erroneous EITC ****2****
As noted in Figure 1, the ARPA increased the maximum amount of self-only EITC from $538 in
TY 2020 to $1,502 in TY 2021.  It also expanded the number of individuals eligible for the credit
by increasing the maximum income amounts, lowering the minimum age limitations from 25 to
19 (************2************* and 18 for former foster or homeless youth), etc.  In response to
these legislative changes, the IRS created a compliance filter for Processing Year 2022 to identify
****2**** who were ineligible for self-only EITC.  However, the IRS’s criteria for this compliance
filter selects only returns claiming both the EITC and the **************2***************.  As a
result, the IRS did not identify potentially ineligible ****2**** who claimed only the EITC.

10 Public Law 117-169, 136 Stat. 1818 (2022).

Page  11
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
Our analysis of TY 2021 tax returns claiming self-only EITC processed through May 5, 2022,
identified 774,559 returns that received more than $668.8 million in self-only EITC.  These
taxpayers were ************************************2*********************************************
**************2*************** who were potentially not eligible for the EITC because the EITC
eligibility criteria require *****************2******************.  IRS management indicated that
their prerefund compliance criteria is designed to identify cases, with a high degree of
confidence, where taxpayers will not qualify for the credit.  Management also noted there are
exceptions in which these taxpayers might qualify for the credit, e.g., the taxpayer is a qualified
homeless youth or qualified former foster youth.  However, we disagree as the exceptions we
identified most likely do not affect the majority of the population.
Management noted that it would not make sense to create a new compliance filter for
subsequent tax years because the rule limiting EITC eligibility for ********2******** was only for
TY 2021.  We agree with the IRS’s rationale.  However, the IRS should take actions to identify and
recover potentially erroneous credits from ineligible ****2****.
Recommendation 8:  The Commissioner, Wage and Investment Division, should review the
774,559 returns with self-only EITC from potentially ineligible ****2**** and take actions needed
to recover credits that are determined to be erroneous.

Management’s Response:  IRS management disagreed with the recommendation.
Management stated that they have a robust audit selection process, which considers
many factors to balance resources across all compliance areas.  The returns identified are
subject to selection for examination as resources allow.

Office of Audit Comment:  We are concerned with management’s position to
not address the potentially erroneous self-only EITC claims we identified during
post-processing compliance.  As noted by management, returns are selected for
examination based on available resources.  Given that the IRS for years has
acknowledged that it has limited resources, it is unlikely that the more than
$668.8 million potentially erroneous claims will be recovered.
Credits Exceeding the Statutory Limits Were Allowed Due to Employee Errors
and a Lack of Controls
Our review of more than 5.5 million TY 2021 tax returns claiming the CDCC that were processed
through May 5, 2022, identified 61 tax returns that allowed $203,535 more in refundable CDCCs
than the maximum amount of the CDCC allowed by the law.  The maximum amount of CDCC
taxpayers were allowed for TY 2021 was $4,000 if the taxpayer had one qualifying person or
$8,000 if the taxpayer had two or more qualifying persons.  In September 2022, we notified IRS
management of our concern and recommended that they open examinations for the tax returns
we identified to correct the CDCC amounts.  IRS management agreed.
According to IRS management, taxpayers were allowed more than the CDCC maximum due to
errors made by employees during tax return processing.  The IRS’s internal guidance instructs
employees in the Error Resolution function to manually compute the CDCC amounts and
compare that to the amount claimed by the taxpayer in certain instances.  Employees are
instructed to override the taxpayer amount with the manually computed amount.  Further,

Page  12
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
management stated that programming limitations prevent the IRS’s systems from identifying
instances where the amounts verified by employees exceed the maximum amount allowed.  As
such, the tax returns are not identified when employees make mistakes.
We previously identified this same issue during our review of the IRS’s Error Resolution System.
In December 2020, we reported that processes and procedures were needed to identify and
correct entries by tax examiners resulting in millions of dollars in improper payments.11  We
recommended that the IRS develop processes and procedures to identify and correct tax
examiner entries in verified fields that exceed statutory limits, including a process to ensure that
tax returns with verified amounts are systemically reprocessed through error resolution
programming before being released for processing.  IRS management agreed with our
recommendation but stated that programming is subject to Information Technology
organization resources and other competing priorities.  As of February 7, 2023, management
noted that this recommendation was put on hold until December 15, 2023.
Recommendation 9:  The Commissioner, Wage and Investment Division, should complete
examinations for all 61 tax returns we identified to ensure taxpayers receive the correct CDCC
amounts.

Management’s Response:  IRS management agreed with the recommendation and will
review the 61 returns and take appropriate action.

11 TIGTA Report No. 2021-40-008, Expansion of Self-Correction for Electronic Filers and Other Improvements Could
Reduce Taxpayer Burden and Costs Associated With Tax Return Error Resolution (Dec. 2020).

Page  13
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of this audit was to assess the adequacy of processes and procedures to
ensure that expanded eligibility requirements for the CDCC and self-only EITC for TY 2021 were
met.  To accomplish our objective, we:
•
Determined if the IRS’s new or revised business rules were appropriately rejecting
incorrect/incomplete Forms 2441 and Schedules EIC, Earned Income Credit, claims for
self-only EITC.
•
Determined if the IRS’s new or revised Error Resolution codes correctly identified
incorrect/incomplete Forms 2441 and Schedules EIC and disallowed the CDCC or
self-only EITC claimed on tax returns with errors.
•
Determined if the IRS’s compliance filters adequately identified and addressed incorrect
claims for the CDCC and self-only EITC.
•
Evaluated the actions taken by the IRS to address processing weaknesses identified
during our previous CDCC audit.
Performance of This Review
This review was performed with information obtained from the IRS Wage and Investment
Division’s Submission Processing and Return Integrity and Compliance Services functions in
Atlanta, Georgia, and the Tax Processing Center in Kansas City, Missouri, during the period
December 2021 to February 2023.  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 Diana Tengesdal, Acting Assistant Inspector General for
Audit (Returns Processing and Account Services); Linna Hung, Director; Jeffrey Cullum, Audit
Manager; Paula Johnson, Audit Manager; Edgar Moon, Lead Auditor; Jordan Bunte, Auditor;
Alexis Gomez, Auditor; and Audrey Graper, Auditor.
Validity and Reliability of Data From Computer-Based Systems
During this review, we obtained data extracts from the IRS’s Master File, Modernized Tax Return
Database, National Account Profile (NAP), and Individual Return Transaction File (IRTF)
databases for Processing Year 2022 that were available on TIGTA’s Data Center Warehouse.  We
obtained extracts of Tax Year 2021 Forms 2441, Schedules EIC, and Forms 1098-T to evaluate IRS
processing of tax returns with a CDCC or EITC claim.  Before relying on the data, we ensured that
each file contained the specific data elements we requested.  In addition, we selected random
samples of either the extract or the results throughout the analysis and verified that the data in
the extracts were the same as the data captured in the IRS’s Integrated Data Retrieval System
and Employee User Portal.  We also performed analysis to ensure the validity and

Page  14
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
reasonableness of our data, such as ranges of dollar values and tax periods.  Based on the
results of our testing, we believe that the data used in our review were sufficiently reliable for
the 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 for the IRS’s
implementation of the expanded CDCC and self-only EITC eligibility requirements.  We tested
these controls by reviewing and analyzing relevant documents, data, and calculations related to
the issuance of the CDCC and self-only EITC and meeting with IRS management.

Page  15
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
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; $2,222,772 in refundable CDCCs claimed
by 932 taxpayers that were rejected due to programming updates as a result of our
e-mail alert issued February 17, 2022 (see Recommendation 1).
Methodology Used to Measure the Reported Benefit:
As a result of our e-mail alert, the IRS implemented corrective actions on March 20, 2022,
revising three business rules.  The IRS identified 932 unique taxpayers for a total of $2,222,772 in
refundable CDCCs that were rejected after the corrective actions were implemented.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; $2,518,933 in erroneous refundable
CDCCs on 1,054 returns for *****************2*********************************************
***********************2*********************** (see page 7).
Methodology Used to Measure the Reported Benefit:
We obtained an extract of more than 5.5 million TY 2021 returns claiming the CDCC that were
processed through May 5, 2022, from the IRTF.  We subsequently limited our review to returns
receiving the CDCC.  We queried the returns receiving the CDCC to identify tax returns that had
a ***********************************2***************************************.  We obtained address
information for ********************2*******************.  We queried the population to identify
tax returns where the ********************************2*********************************************
*********2***********.  Our analysis identified **2** returns with potentially erroneous refundable
CDCCs totaling $2,523,644.  However, we found that **********************1**********************
***1*** were included in other outcome measures and we reduced our outcome accordingly.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; $6,807,639 in refundable CDCCs
erroneously received on 3,572 returns due to a programming error (see
Recommendation 2).
Methodology Used to Measure the Reported Benefit:
We obtained an extract of more than 5.5 million TY 2021 returns claiming the CDCC that were
processed through May 5, 2022, from the IRTF.  We subsequently limited our review to returns
that received the CDCC.  We queried the care provider TINs reported on Forms 2441 to identify
obviously invalid TINs, e.g., 999999999.  Our analysis identified 3,573 returns with potentially

Page  16
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
erroneous refundable CDCCs totaling $6,810,139 where the care providers’ TIN reported on the
Form 2441 by the taxpayer was obviously an invalid TIN.  However, we found that ******1*****
******************1********************* included in other outcome measures and we reduced our
outcome accordingly.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; $1,882,862 in erroneous prior year
expenses received on 1,290 returns when the taxpayers already claimed the maximum
amount of qualified expenses in the prior year (see Recommendation 3).
Methodology Used to Measure the Reported Benefit:
We obtained an extract of more than 5.5 million TY 2021 returns claiming the CDCC that were
processed through May 5, 2022, from the IRTF.  We subsequently limited our review to returns
receiving prior year expenses and the CDCC.  We then identified the TY 2020 Form 2441 data by
matching the primary SSNs.  From the TY 2020 data, we identified returns that had reported the
maximum amount of qualified expenses by identifying returns that reported $3,000 or more for
one qualifying individual or $6,000 for two or more qualifying individuals.  In total, our analysis
identified 1,290 returns with potentially erroneous prior year expenses totaling $1,882,862 where
the taxpayer was claiming prior year expenses but had already claimed the maximum amount of
qualified expenses in a prior year and as such was not eligible to use the prior year expenses.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; $56,855,986 in refundable CDCCs
erroneously received on **2** returns that were not worked due to a lack of resources
and should have been rejected (see Recommendations 4 and 5).
Methodology Used to Measure the Reported Benefit:
We identified two scenarios in which the IRS’s decision to not reject returns due to legal risks
resulted in the IRS paying more than $56.8 million in potentially erroneous refundable CDCCs on
**2** returns.
•
******2****** receiving $10,714,241 in refundable CDCCs that were adult qualifying
persons on Form 2441 who may not be disabled.  These returns were identified by an IRS
compliance filter after return processing but were not selected to be worked by the
compliance filter due to IRS dollar tolerances.  This information was provided by IRS
management at our request.
•
19,072 returns receiving $46,141,745 in refundable CDCCs that used an *****2*****.  We
identified 19,081 returns receiving $46,169,834 in refundable CDCCs that used an ***2***
**2** but found that nine returns with refundable CDCCs of $28,089 were included in
other outcome measures and we reduced our outcome accordingly.  These returns were
identified by reviewing the more than 5.5 million TY 2021 returns claiming the CDCC and
determining the ******2****** from for the primary, secondary or care provider TINs.  We
searched for ************************2************************.

Page  17
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; $2,943,461 in refundable self-only
EITC received on *******2******* for which the credit should have been rejected because
the taxpayers were not eligible to work in the United States (see Recommendation 5).
Methodology Used to Measure the Reported Benefit:
We obtained an extract of more than 12.7 million TY 2021 returns claiming self-only EITC that
were processed through May 5, 2022, from the IRTF.  We joined the primary and spouse TINs
from these tax returns to the NAP database to obtain the citizenship code for both TINs.  We
then identified returns where the primary or spouse TINs had a citizenship code that identified
the individual as not eligible for work in the United States.  From this population, we identified
tax returns that were below the IRS’s dollar tolerance for its compliance filter.  Our analysis
identified **2** returns receiving $2,943,461 in self-only EITC that were below the IRS dollar
tolerance and therefore would not be selected by the IRS’s compliance filter.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; $780,130 in refundable self-only EITC
on 561 returns in which the *******************2*****************.  IRS programming was
not designed to select this ******2****** for prerefund self-only EITC audits (see
Recommendation 6).
Methodology Used to Measure the Reported Benefit:
We obtained an extract of more than 12.7 million TY 2021 returns claiming self-only EITC that
were processed through May 5, 2022, from the IRTF.  We joined the primary and spouse TINs
from these tax returns to the NAP database to obtain the citizenship code for both TINs.  We
then identified returns where the primary or spouse TINs had a citizenship code that identified
the individual as not eligible for work in the United States.  From this population, we kept only
returns that met the IRS’s dollar tolerance for its compliance filter.  We then queried to identify
returns with a *******************2*****************, as the IRS’s compliance filter is not
programmed to identify these tax returns.  Our analysis identified 561 returns receiving $780,130
in self-only EITC.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; $2,708,298 in refundable self-only
EITC claimed on 2,031 returns that met the IRS’s criteria for selection but were not
selected due to programming not being updated to account for the increased self-only
EITC amounts allowed by the ARPA (see Recommendation 7).
Methodology Used to Measure the Reported Benefit:
We obtained an extract of more than 12.7 million TY 2021 returns claiming self-only EITC that
were processed through May 5, 2022, from the IRTF.  We joined the primary and spouse TINs
from these tax returns to the NAP database to obtain the citizenship code for both TINs.  We
then identified returns where the primary or spouse TINs had a citizenship code that identified
the individual as not eligible for work in the United States.  From this population, we kept all

Page  18
American Rescue Plan Act:  Assessment of the
Expanded Child and Dependent Care and Earned Income Tax Credits
returns except those with a *******************2***************** (as this was not part of the IRS’s
compliance filter criteria).  Our analysis identified 2,031 returns receiving $2,708,298 in self-only
EITC that were not selected by the IRS’s compliance filter but that met the criteria.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; $668,656,663 in refundable self-only
EITC erroneously received on 774,309 returns that were not identified due to incomplete
compliance filter criteria (see Recommendation 8).
Methodology Used to Measure the Reported Benefit:
We obtained an extract of more than 12.7 million TY 2021 returns claiming self-only EITC that
were processed through May 5, 2022, from the IRTF.  We joined the primary TINs from these
self-only EITC tax returns to the NAP database to obtain the Date of Birth for the primary TIN.
This was needed to determine whether the TIN met the **2** qualifications to be a ***2***.  We
then limited our review to returns where the TIN was between the ********2*********, as TY 2021
**********2********* must be at least *2* to qualify for self-only EITC.  Finally, we identified tax
returns with a filing status of Single and where the primary TIN had a ******2****** reported to
the IRS, indicating they were a ****2****.  Our analysis identified 774,559 returns receiving
$668,864,273 in potentially erroneous self-only EITC that were not identified by the IRS because
the IRS’s compliance filter only identified returns claiming both the EITC and the *****2*****
************2***********.  However, we found that 250 returns with self-only EITCs of $207,610
were included in other outcome measures and we reduced our outcome accordingly.
Type and Value of Outcome Measure:
•
Cost Savings (Funds Put to Better Use) – Potential; $203,535 in refundable CDCCs
received on 61 returns that exceeded the maximum amount of the CDCC allowed by the
law (see Recommendation 9).
Methodology Used to Measure the Reported Benefit:
We obtained an extract of more than 5.5 million TY 2021 returns claiming the CDCC that were
processed through May 5, 2022, from the IRTF.  We subsequently limited our review to returns
receiving the CDCC.  We computed the maximum allowable amount each tax return was eligible
for based upon the eligibility rules.  For example, the maximum amount allowed for TY 2021 was
the lesser of qualified expenses or $8,000 for one qualifying person or $16,000 for two or more.
Then the lesser of that number or earned income is multiplied by the appropriate percentage
based on adjusted gross income.  We queried the returns receiving the CDCC for any returns
that that exceeded our computed maximum amount.  Our analysis identified 61 returns that
were allowed more than the maximum amount of the CDCC allowed by law, due to errors made
by employees during return processing.

Page  19
Appendix III
Prior TIGTA Reports on Nonwork Social Security Numbers
Prior Reports
Findings/Sub-Findings
Prior Report
Page Number
TIGTA, Report No. 2017-40-042, Processes
Do Not Maximize the Use of Third-Party
Income Documents to Identify Potentially
Improper Refundable Credit Claims
(July 2017).
Processes Still Have Not Been Established to
Prevent the Issuance of Earned Income Tax
Credits to Individuals with Social Security
Numbers That Are Not Valid for Work
12
TIGTA, Report No. 2018-40-032,
The Internal Revenue Service Is Not in
Compliance With Improper Payment
Requirements (Apr. 2018)
Processes have not been developed to
prevent the issuance of the EITC to
individuals with SSNs that are not valid for
work
14
TIGTA, Report No. 2019-40-039,
Some Refundable Credits Are Still Not
Classified and Reported Correctly as a
High Risk for Improper Payment by the
Internal Revenue Service (May 2019).
A pilot program was initiated to identify and
address erroneous EITC claims by individuals
issued a “nonwork” SSN
12
TIGTA, Report No. 2020-40-025,
Improper Payment Reporting Has
Improved; However, There Have Been No
Significant Reductions to the Billions of
Dollars of Improper Payments (April 2020).
Revising the Nonwork Social Security
Number Case Selection Could Increase
Revenue Protected
9
Source:  TIGTA’s summary of prior audit reports.

Page  20
Appendix IV
Management’s Response to the Draft Report

Page  21

Page  22

Page  23

Page  24

3

CORRECTIVE ACTION
This recommendation is dependent on potential future legislative actions by Congress. If
legislation is enacted, we will review it and determine the actions to be taken.

IMPLEMENTATION DATE
N/A

RESPONSIBLE OFFICIAL
N/A

CORRECTIVE ACTION MONITORING PLAN
N/A
Recommendations

RECOMMENDATION 6
The Commissioner, Wage and Investment Division, should ensure that the compliance
filter criteria for identifying individuals claiming self-only EITC who are not eligible for work
is updated to include the *****************2******************.

CORRECTIVE ACTION
We revised pre-refund filters to include returns claiming *************2**************. It is
important to note that this rule is not specific to the American Rescue Plan Act and/or self-
only Earned Income Tax Credit (EITC).

IMPLEMENTATION DATE
June 15, 2023

RESPONSIBLE OFFICIAL
Director, Refundable Credits Program Management, Return Integrity and Compliance
Services, Wage and Investment Division

CORRECTIVE ACTION MONITORING PLAN
We will monitor this corrective action as part of our internal management control system.

RECOMMENDATION 7
The Commissioner, Wage and Investment Division, should establish processes to
compare subsequent legislative changes with compliance filter programming to identify
and make necessary changes, as needed.

Page  25

4

CORRECTIVE ACTION
We conduct program assessments annually to ensure rules are accurate and selections
are as intended.

IMPLEMENTATION DATE
October 15, 2023

RESPONSIBLE OFFICIAL
Director, Refundable Credits Program Management, Return Integrity and Compliance
Services, Wage and Investment Division

CORRECTIVE ACTION MONITORING PLAN
We will monitor this corrective action as part of our internal management control
system.

RECOMMENDATION 8
The Commissioner, Wage and Investment Division, should review the 774,559 returns
with self-only EITC from potentially ineligible ******2****** and take actions needed to
recover credits that are determined to be erroneous.

CORRECTIVE ACTION
The IRS has a robust audit selection process, which considers many factors to balance
our resources across all compliance areas. The returns identified are subject to
selection for examination as resources allow.

IMPLEMENTATION DATE
N/A

RESPONSIBLE OFFICIAL
N/A

CORRECTIVE ACTION MONITORING PLAN
N/A

RECOMMENDATION 9
The Commissioner, Wage and Investment Division, should complete examinations for
all 61 tax returns we identified to ensure taxpayers receive the correct CDCC amounts.

CORRECTIVE ACTION
We will review the 61 returns and take appropriate action.

IMPLEMENTATION DATE
February 15, 2024

Page  26

Page  27

Appendix V
Glossary of Terms
Term
Definition
Business Rule
Used to validate information included on e-filed tax returns for acceptance
into tax return processing.
Child and Dependent Care
Credit
A tax credit for expenses that are paid for the care of a qualifying individual
to enable taxpayers to work or to actively look for work.
Data Center Warehouse
A TIGTA repository of IRS data.
Earned Income Tax Credit
A refundable tax credit for low-income to moderate-income workers.
Employee User Portal
The internal IRS portal that allows employees to access IRS data and
systems (such as tax administration processing systems and financial
information systems) in a secure, authenticated session.
Error Code
These codes validate the accuracy of tax returns during processing.
Error Resolution System
A real-time computer system used to identify and address paper and
e-filed tax returns with an error condition.
Form 1098-T
Form 1098-T, Tuition Statement, is used by eligible educational institutions
to report amounts they received for qualified tuition and related expense
payments from each enrolled student.
Individual Return
Transaction File
A database maintained by the IRS that contains information on the
individual tax returns it receives.
Individual Tax
Identification Number
A nine-digit number assigned by the IRS to taxpayers who are required to
have a TIN for Federal tax purposes but are not eligible to obtain an SSN.
Integrated Data Retrieval
System
IRS computer system capable of retrieving or updating stored information.
It works in conjunction with a taxpayer’s account records.
Master File
The IRS database that stores various types of taxpayer account information.
This database includes individual, business, and employee plans and
exempt organizations data.
Modernized Tax Return
Database
The official repository of all electronic returns processed through the
Modernized e-File system.
National Account Profile
IRS database that is a compilation of selected entity data from various IRS
Master Files that also includes data from the Social Security Administration.
Processing Year
The calendar year in which the tax return or document is processed by the
IRS.
Qualified Former Foster
Youth
A qualified former foster youth is defined as an individual who on or after
age 14 was in foster care, under a plan administered under the Social
Security Act, and consents to disclosure of such information to the IRS.
Qualified Homeless Youth
Qualified homeless youth is defined as an individual who certifies that they
are either an unaccompanied youth who is homeless, or is unaccompanied,
at risk of homelessness, and self-supporting.

Page  28
Term
Definition
**********2*********
********************************2***************************************
********************************2***************************************
********************************2***************************************
********************************2***************************************
********************************2***************************************
********************************2************.
Taxpayer Identification
Number
A nine-digit number assigned to taxpayers for identification purposes.
Depending upon the nature of the taxpayer, the TIN is either an Employer
Identification Number, an SSN, or an ITIN.
Tax Year
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.

Page  29
Appendix VI
Abbreviations
ARPA
American Rescue Plan Act of 2021
CDCC
Child and Dependent Care Credit
E-File(d)
Electronically File(d)
EITC
Earned Income Tax Credit
IRS
Internal Revenue Service
IRTF
Individual Return Transaction File
ITIN
Individual Taxpayer Identification Number
NAP
National Account Profile
SSN
Social Security Number
TIGTA
Treasury Inspector General for Tax Administration
TIN
Taxpayer Identification Number
TY
Tax Year

To report fraud, waste, or abuse,
 contact our hotline on the web at www.tigta.gov or via e-mail at
oi.govreports@tigta.treas.gov.

To make suggestions to improve IRS policies, processes, or systems
affecting taxpayers, contact us at www.tigta.gov/form/suggestions.

Information you provide is confidential, and you may remain anonymous.

File and source

File

2023-47-037-assessment-of-the-expanded-child-and-dependent-care-and-earned-income-tax-credits.pdf

Size

2,886,430 bytes

SHA-256

8db50ebb1beb08653f6c6459a49514f95c84183682b838ccb730541a04b875b5

Our copy

2023-47-037-assessment-of-the-expanded-child-and-dependent-care-and-earned-income-tax-credits.pdf

Original

www.oversight.gov