Assessment of Fiscal Year 2024 Compliance With Improper Payment Reporting Requirements (Report 2025-400-025)
Summary
Treasury Inspector General for Tax Administration (TIGTA) Final Audit Report 2025-400-025, Assessment of Fiscal Year 2024 Compliance With Improper Payment Reporting Requirements, dated May 9, 2025, from Diana M. Tengesdal to the IRS Commissioner. TIGTA finds the IRS partially complied with the Payment Integrity Information Act for FY 2024 and did not meet the goal of reducing improper payment rates below 10 percent. The IRS calculated rates for four programs: Additional Child Tax Credit 11 percent, American Opportunity Tax Credit 28 percent, Earned Income Tax Credit 27 percent and Net Premium Tax Credit 29 percent. It also says the IRS is not reporting rates for pandemic-related programs, though it continues to assess risk for programs such as the Employee Retention Credit. TIGTA made three recommendations and the IRS agreed with all three.
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TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION
Assessment of Fiscal Year 2024 Compliance With
Improper Payment Reporting Requirements
May 9, 2025
Report Number: 2025-400-025
se manual line
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..
1
TIGTACommunications@tigta.treas.gov | www.tigta.gov
HIGHLIGHTS: Assessment of Fiscal Year 2024 Compliance With
Improper Payment Reporting Requirements
Final Audit Report issued on May 9, 2025 Report Number 2025-400-025
Why TIGTA Did This Audit What TIGTA Found
This audit was initiated because For FY 2024, the IRS partially complied with the reporting
agency Inspectors General are requirements contained in the PIIA. As in prior years, the IRS
required to annually assess and calculated improper payment rates for the following four high-risk
report on improper payment programs: Additional Child Tax Credit (ACTC), American Opportunity
requirements contained in the Tax Credit (AOTC), Earned Income Tax Credit (EITC), and Net
Payment Integrity Information Act Premium Tax Credit (PTC). However, the IRS still has not satisfied the
(PIIA). goal to reduce improper payment rates to less than 10 percent.
The objective of this review was to Additionally, the IRS is not reporting improper payment rates for
determine whether the IRS pandemic-related programs because they believe it would be
complied with annual improper an inefficient use of resources given the short-term nature of
payment reporting requirements pandemic programs. However, the IRS continues to assess risk for
for Fiscal Year (FY) 2024. pandemic-related programs, such as the Employee Retention Credit.
Impact on Tax Administration
The PIIA and the Office of ACTC 11%
Management and Budget (OMB)
AOTC 28%
define an improper payment as
any payment that should not have EITC 27%
been made, was made in an
incorrect amount, or was made to Net PTC 29%
an ineligible recipient. For FY 2024,
the IRS calculated improper The IRS did not reduce the improper payment
payment estimates for four rate to less than 10 percent.
programs that meet the OMB’s
definition of a high-priority The FY 2024 Department of the Treasury Agency Financial Report
program susceptible to improper attributes the causes of refundable tax credit errors to factors such as
payments. The OMB defines the complexity of the statutory eligibility rules, inability to verify
high-priority programs as taxpayer-provided information prior to issuing refunds, lack of
programs with improper payments correctable error authority, and a requirement to issue refunds within
resulting in monetary losses that 45 days. For example, when there are taxpayers who claim the same
exceed $100 million annually. dependent, the IRS cannot determine which taxpayer is eligible at the
time a tax return is filed, and the IRS must process both claims and
complete post-filing activities such as issuing notices or conducting
audits to determine eligibility. For the 2025 Filing Season, the IRS
implemented a change that will accept electronically filed individual
tax returns when a dependent has already been claimed on another
return to reduce the burden on taxpayers and issue their refunds
timely. IRS management noted minimal impact of the duplicate
dependent condition on total improper payments.
What TIGTA Recommended
We made three recommendations in this report, including that the
IRS request additional legislative considerations to help reduce
improper payments and analyze the impact of the new processing
procedures for returns claiming duplicate dependents.
The IRS agreed with all three recommendations.
Treasury Inspector General for tax administration seal.
U.S. DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20024
May 9, 2025
MEMORANDUM FOR: COMMISSIONER OF INTERNAL REVENUE
FROM: Diana M. Tengesdal
Acting Deputy Inspector General for Audit
SUBJECT: Final Audit Report – Assessment of Fiscal Year 2024 Compliance With
Improper Payment Reporting Requirements (Audit No.: 2025400001)
This report presents the results of our review to determine whether the Internal Revenue Service
(IRS) complied with the annual improper payment reporting requirements for Fiscal Year 2024.
This review is part of our Fiscal Year 2025 Annual Audit Plan and addresses the major
management and performance challenge of Tax Fraud and Improper Payments.
Management’s complete response to the draft report is included as Appendix V. If you have any
questions, please contact me or Deann L. Baiza, Acting Assistant Inspector General for Audit
(Returns Processing and Account Services).
Assessment of Fiscal Year 2024 Compliance With
Improper Payment Reporting Requirements
Table of Contents
Background........................................................................................... Page 1
Results of Review ................................................................................. Page 2
Assessment of Fiscal Year 2024 Compliance With
Improper Payment Reporting Requirements ............................................................Page 3
The Strategies for Reducing Improper Payments May Not
Significantly Reduce Error Rates.....................................................................................Page 5
Recommendation 1:...........................................................................Page 8
The IRS is Testing a New Process to Avoid Refund Delays
for Certain Taxpayers, But the Impact on Improper
Payments is Unknown .......................................................................................................Page 9
Recommendations 2 and 3: ............................................................Page 10
Appendices
Appendix I – Detailed Objective, Scope, and
Methodology .........................................................................................................................Page 11
Appendix II – Programs Identified for Improper Payment
Risk Assessments..................................................................................................................Page 12
Appendix III – Improper Payment Laws Repealed by the
Payment Integrity Information Act................................................................................Page 13
Appendix IV – Prior Treasury Inspector General for Tax
Administration Reports Addressing Refundable Credits
and Math Error Authority..................................................................................................Page 14
Appendix V – Management’s Response to the Draft
Report.......................................................................................................................................Page 15
Appendix VI – Glossary of Terms ...................................................................................Page 19
Appendix VII – Abbreviations ..........................................................................................Page 21
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Assessment of Fiscal Year 2024 Compliance With
Improper Payment Reporting Requirements
Background
The Payment Integrity Information Act (PIIA) and the Office of Management and Budget (OMB)
define an improper payment as any payment that should not have been made, was made in an
incorrect amount, or was made to an ineligible recipient.1 Agency Inspectors General are
responsible for evaluating agency information related to improper payments.
In March 2020, the PIIA repealed several improper payment laws but set forth similar improper
payment reporting requirements, and the following remain in effect:2
Executive Order 13520, Reducing Improper Payments, issued in
November 2009, requires federal agencies to provide agency Inspectors
General with detailed information on efforts to identify and reduce the
number of improper payments in federal programs with the highest dollar
value of improper payments.
The Consolidated Appropriations Act of 2021 , enacted in December 2020.3
This Act directed the Internal Revenue Service (IRS) to make the elimination of
improper payments an utmost priority. In addition, the Act directed the IRS to
implement, within 270 calendar days of enactment of the Act, all open and
unimplemented recommendations from TIGTA and the Government
Accountability Office that address improper payments, or report on
impediments to implementation of each open recommendation. We
previously assessed the IRS’s compliance with this requirement and found the
IRS reported all unimplemented recommendations as required.4
OMB Circular A-123 Appendix C, Requirements for Payment Integrity
Improvement , issued in March 2021. Appendix C provides agencies and
Inspectors General with guidance on improper payment determinations and
reporting. Every year, each agency Inspector General must review its agency’s
improper payment reporting in the Agency Financial Report (AFR) and any
accompanying material, such as that provided on www.paymentaccuracy.gov,
to determine if the agency complies with improper payment legislation and
OMB guidance.
Process to identify IRS programs for improper payment risk assessment
Agencies must conduct an improper payment risk assessment at least once every 3 years for
each program with annual outlays over $10 million. The Department of the Treasury (hereafter
referred to as the Treasury Department) identifies the programs that the IRS must assess for the
risk of improper payments each fiscal year. The IRS must also complete a Treasury Certification
for each program that was not identified as needing a risk assessment stating there were no
1
Payment Integrity Information Act of 2019, 31 U.S.C. §§ 3351-3358 (2020). See Appendix VI for a glossary of terms.
2
See Appendix III for a list of improper payment laws repealed by the PIIA.
3
Pub. L. No. 116-260, 134 Stat. 1182.
4
TIGTA, Report No. 2021-40-036, Improper Payment Rates for Refundable Tax Credits Remain High (May 2021) and
TIGTA, Report No. 2022-40-037, Programs Susceptible to Improper Payments Are Not Adequately Assessed and
Reported (May 2022).
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Assessment of Fiscal Year 2024 Compliance With
Improper Payment Reporting Requirements
material changes to the program since the last risk assessment was completed. For
Fiscal Year (FY) 2024, the Treasury Department selected 6 program fund groups that required
certification and 12 IRS programs that required a risk assessment.5
The IRS can use one of two types of risk assessments:
Qualitative Risk Assessment – used to assess the risk that a program’s internal
controls could make the program susceptible to improper payments. The OMB
requires agencies to conduct qualitative assessments after the first 12 months
of the program and at least once every 3 fiscal years thereafter. Once the IRS
determines that a program is susceptible to improper payments, it must
produce a statistically valid estimate of the improper payments the following
fiscal year.
Quantitative Risk Assessment – used to review a sample of disbursements to
formulate the overall estimated improper payment rate. In cases in which a
quantitative risk assessment is conducted, it could take one of several forms,
such as a statistical assessment similar to what is required for the regular
improper payment estimate or a nonstatistical assessment in which its ratio of
improper payments and unknown payments is projected to the annual outlays.
In addition, the IRS must provide the following information as part of an improper payment
estimate for any program identified as susceptible to significant improper payments as a result
of a risk assessment in the Treasury Department’s next fiscal year AFR:
· The rate and amount of improper payments.
· The root causes of the improper payments.
· The actions taken to address the root causes.
· The annual improper payment reduction targets.
· A discussion of any limitations to the IRS’s ability to reduce improper payments.
Results of Review
The OMB defines high-priority programs as programs with improper payments resulting in
monetary losses that exceed $100 million annually. For FY 2024, the IRS estimated an overall
improper payment rate of 21.9 percent and estimated improper payments totaling
approximately $21.4 billion for the following credits: Additional Child Tax Credit (ACTC);
American Opportunity Tax Credit (AOTC), Earned Income Tax Credit (EITC) and Net Premium Tax
Credit (PTC). See Figure 1 for details.
5
See Appendix II for the list of the 12 IRS programs identified by the Treasury Department for improper payment risk
assessments in FY 2024.
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Assessment of Fiscal Year 2024 Compliance With
Improper Payment Reporting Requirements
Figure 1: FY 2024 Improper Payments and Rates6
Improper
Total Claims Improper
IRS Program Payments
(in billions) Payment Rate
(in billions)
ACTC $32.1 10.7% $3.4
AOTC $5.2 27.7% $1.4
EITC $58.4 27.3% $15.9
Net PTC $2.3 28.5% $0.7
Totals $98.0 21.9% $21.4
Source: FY 2024 Treasury Department AFR.
Use as many “pulled quotes” to highlight important information as you would like. For more, copy and paste any pulled quote where needed. Click box margins to delete any unwanted pulled quotes.
Assessment of Fiscal Year 2024 Compliance With Improper Payment
Reporting Requirements
Consider a pulled quote for each finding to highlight a key point; however, pulled quotes should not be used just for the sake of use.
We determined that the IRS partially complied with reporting requirements contained in the PIIA
for FY 2024. The IRS complied with improper payment reporting compliance on the four main
high-risk programs: ACTC, AOTC, EITC, and the Net PTC. However, the IRS has still not satisfied
the PIIA goal of reducing the overall improper payment rate to less than 10 percent.
In May 2021, we reported that the OMB provided the IRS an alternative to reducing the
improper payment rate to less than 10 percent. This included noting that if a reduction target
remained constant due to the complexities of the programs, this situation should be explained
in the Treasury Department AFR, which the IRS did.7 Figure 2 provides a summary of our
evaluation of the IRS’s compliance with the various improper payment reporting requirements
for FY 2024.8
Figure 2: Compliance With Improper Payment Requirements for FY 2024
IRS
Improper Payment Requirement
Compliance
Published payment integrity information with the annual financial
statement.
Posted the annual financial statement and accompanying materials
to agency website.
6
For presentation purposes, the improper payment rates, total claims, and estimated improper payments as
presented may be impacted by rounding. Further detail is available within the datasets found on
www.paymentaccuracy.gov.
7
TIGTA, Report No. 2021-40-036, Improper Payment Rates for Refundable Tax Credits Remain High (May 2021).
8
The Executive Order 13520 requirements are incorporated into Appendix C of OMB Circular A-123 which align with
the PIIA.
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Assessment of Fiscal Year 2024 Compliance With
Improper Payment Reporting Requirements
IRS
Improper Payment Requirement
Compliance
Conducted improper payment risk assessments for each program
with annual outlays greater than $10 million at least once in the last
3 years.
Adequately concluded whether programs are likely to make
improper payments and unknown payments above or below
statutory threshold.9
Published improper payment and unknown payment estimates for
programs susceptible to significant improper payments and
unknown payments in the accompanying materials to the annual
financial statement.
Published corrective action plans for each program for which an
estimate above the statutory threshold was published in the
accompanying materials to the annual financial statement.
Published an improper payment and unknown payment reduction
target for each program for which an estimate above the statutory
threshold was published in the accompanying materials to the
annual financial statement.
Demonstrated improvements to payment integrity or to reach a
tolerable improper payment and unknown payment rate.
Developed a plan to meet the improper payment and unknown
payment reduction target.
Reported an improper payment and unknown payment estimate of
less than 10% for each program for which an estimate was
published in the accompanying materials to the annual financial
statement.
Source: Analysis of the IRS’s compliance with improper payment requirements for FY 2024.
IRS improper payment rate reporting does not extend to pandemic-related credits
In June 2020, the OMB issued guidance directing all agencies to apply payment integrity
requirements to any new program created or significant new funding provided by pandemic
legislation. Subsequently, in August 2022, the Treasury Department informed the OMB that due
to the short-term nature of pandemic-related programs, estimating the amount and rate of
improper payments, assessing the root cause, and developing corrective action plans to reduce
payment errors in the future would provide minimal value and be an ineffective use of
resources. The memorandum noted that it will continue to assess risk for programs deemed
susceptible to significant improper payments. However, the Treasury Department indicated that
it will not plan to report an improper payment estimate of such programs either in its AFR or on
paymentaccuracy.gov.
9
Unknown payments are payments made by a program where it is still unknown whether the payment is proper or
improper. Payments are reported as unknown so that a program does not unintentionally over or under report the
payment type results.
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Assessment of Fiscal Year 2024 Compliance With
Improper Payment Reporting Requirements
For FY 2024, the IRS completed the required risk assessments for the Economic Impact
Payments and Recovery Rebate Credits and the Employee Retention Credit (ERC)/Paid Sick and
Family Leave Credit after determining that these programs are susceptible to significant
improper payments. As indicated in the Treasury Department memorandum, the IRS did not
calculate or report improper payment rates for the ERC/Paid Sick and Family Leave Credit as
high-risk and susceptible to improper payments.
The FY 2024 Treasury Department AFR noted that the ERC was the most significant component
of the pandemic refundable credit fund expenditures. However, the IRS recognizes the risk for
fraud for these claims and has reported that the ERC increasingly became the target of
aggressive marketing by unscrupulous promoters who caused some businesses to claim the
credit when they were not eligible. The IRS took steps to address this by placing a moratorium
on processing ERC claims, implementing a voluntary disclosure program, allowing taxpayers to
withdraw their claims, etc. In September 2024, we reported that these initiatives prevented the
issuance of $1.6 billion in ERCs and allowed the IRS to recapture $573 million in ERCs.10 As of
January 2025, the IRS still has over 1 million unprocessed ERC claims in inventory.
The Strategies for Reducing Improper Payments May Not Significantly
Reduce Error Rates
The IRS has not reduced the improper payment rate estimates to less than 10 percent for any of
its reported high-risk programs. According to the
FY 2024 Treasury Department AFR, to meet this metric
The IRS would need to reduce
the IRS would need to reduce erroneous payments for erroneous payments by
its refundable tax credit programs by $11.7 billion. $11.7 billion to meet PIIA
Figure 3 provides a comparison of the improper requirements.
payment rates for FYs 2022 through 2024.
Figure 3: FY 2022 Through FY 2024 Improper Payment Rates
Source: FYs 2022 through 2024 Treasury Department AFRs.
10
TIGTA, Report No. 2024-400-068, Management Took Actions to Address Erroneous Employee Retention Credit
Claims; However, Some Questionable Claims Still Need to Be Addressed (September 2024).
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Assessment of Fiscal Year 2024 Compliance With
Improper Payment Reporting Requirements
The IRS has reported a reduction in some improper payment rates in recent years. However, the
EITC improper payment rate has been consistently above 22 percent despite the IRS’s efforts
over the years to reduce these rates. Figure 4 shows that the EITC estimated error rates have
ranged from 23 percent to 34 percent from FYs 2003 to 2024.
Figure 4: EITC Improper Payment Rates From FYs 2003 Through 2024
36%
34%
34%
32%
30%
28%
26%
24%
22%
23%
20%
2003 2006 2009 2012 2015 2018 2021 2024
Source: Improper payment rates were pulled from various Treasury Department and TIGTA reports.
Factors beyond the IRS’s control contribute to improper payments
The FY 2024 Treasury Department AFR attributes the causes of refundable tax credit errors
to factors such as the complexity of the statutory eligibility rules, inability to verify
taxpayer-provided information prior to issuing refunds, lack of correctable error authority, and a
requirement to issue refunds within 45 days of the filing deadline to prevent paying interest. The
FY 2024 Treasury Department AFR also notes that refundable credit improper payments are not
primarily the result of internal control weaknesses that the IRS can address. Eligibility rules differ
for each credit and are often complex because they address complicated family relationships
and residency arrangements to determine eligibility. The IRS noted that a meaningful reduction
in the estimated error rate is unlikely without independent data sources that the IRS can use to
verify taxpayer-provided information. For example, EITC overclaims are from the IRS’s inability to
verify qualifying child eligibility requirements and taxpayers misreporting certain types of
income which the IRS has difficulty verifying at the time of filing.
In addition, the IRS needs the resources, both time and people, to address improper payments.
According to the FY 2024 Treasury Department AFR, reducing the improper payment rates for
refundable credits would require increasing audits. However, the IRS recently reduced the
number of refundable tax credit audits because these taxpayers are primarily low-income
individuals and historically, they were disproportionately audited. Further, if the IRS reallocated
enforcement resources from other examination programs to comply with the PIIA, it would lose
substantial revenue.
The IRS stated that an over-reliance on pre-refund audits to resolve basic errors results in
delayed refunds to taxpayers and additional interest payments made by the federal government.
To address this, the IRS previously requested but has not been provided with additional
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Assessment of Fiscal Year 2024 Compliance With
Improper Payment Reporting Requirements
correctable or math error authority, which allows the IRS to correct certain mathematical or
clerical errors on returns at filing.11 We agree that if the IRS had this additional authority, it could
help address improper payments. As such, we continue to recommend that the IRS work with
the Treasury Department’s Office of Tax Policy to request additional correctable error authority.12
The IRS continues its focus on outreach and education to reduce improper payment error
rates
In May 2024, we reported on the various strategies that the IRS has in place to educate both
taxpayers and tax preparers about the eligibility requirements for refundable credits and
identifying the most common errors.13 The FY 2024 Treasury Department AFR notes that
preparer outreach and education continue as part of the IRS’s overall strategy to raise public
awareness and encourage eligible taxpayers to claim refundable credits. This includes things like:
· Nationwide Tax Forums and the Refundable Credits Summit.
· Technical Training and Tax Preparer Toolkits.
· Webinars and Tax Preparer Alerts.
Additionally, the IRS created a “Who Do You Trust” flyer and distributed this content via its social
media platforms, to its partners in the community, and on televisions at various Taxpayer
Assistance Center sites. Figure 5 provides an example of the flyer.
11
These requests have been made throughout the years in the Treasury Department’s General Explanations of the
Administration’s Revenue Proposals that can be found on treasury.gov.
12
See Appendix IV for prior TIGTA reports addressing refundable tax credits and math error authority.
13
TIGTA, Report No. 2024-400-026, Assessment of Fiscal Year 2023 Compliance With Improper Payment Reporting
Requirements (May 2024).
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Assessment of Fiscal Year 2024 Compliance With
Improper Payment Reporting Requirements
Figure 5: IRS Who Do You Trust Flyer
Source: IRS Publication 5895.
The IRS’s FY 2025 budget submission also included two legislative proposals specific to paid
preparers. One proposal focuses on increasing penalties against and addressing noncompliance
or inappropriate behavior by paid preparers and the other proposal would establish mandatory
minimum competency standards for paid preparers. While the IRS may be adjusting its strategic
priorities to focus on tax preparer education and outreach, these efforts alone may not be
sufficient to significantly impact taxpayer and preparer behavior and reduce the refundable
credit improper payment rates.
Recommendation 1: The Commissioner, Taxpayer Services, should work with the Office of Tax
Policy to request additional legislative considerations that will help the IRS reduce improper
payments associated with refundable tax credits.
Management’s Response: The IRS agreed with the recommendation and will work to
request additional legislative considerations that will help the IRS reduce improper
payments associated with refundable tax credits.
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Assessment of Fiscal Year 2024 Compliance With
Improper Payment Reporting Requirements
The IRS is Testing a New Process to Avoid Refund Delays for Certain
Taxpayers, But the Impact on Improper Payments is Unknown
As previously mentioned, one of the challenges to reduce improper payments is determining
who is truly eligible for a credit. For example, multiple taxpayers may try to claim the same
dependent(s) for the EITC and Child Tax Credit. One example would be a divorced couple that
each file a tax return and claim the same dependent(s). Another example could be a fraudster
who uses a stolen identity to claim another person’s dependent to get a credit.
In the divorced couple example, the IRS ultimately must determine which parent is eligible to
claim the dependent. This determination cannot be done when returns are filed. *******2********
**************2***************** However, because only one parent is eligible to claim the
dependent, the other payment is an improper payment.
After both tax returns are processed, the IRS places codes on both taxpayer accounts where a
duplicate dependent is present. This information is used to help determine if the returns will be
selected for an audit or if the IRS will send a soft notice providing information on accurately
claiming dependents. IRS management indicated that it is still necessary to conduct an audit
when a duplicate dependent is claimed because it cannot be presumed that all refundable
credits claimed by the taxpayer are improper and attributable to the duplicate dependent.
The IRS is piloting a new process for taxpayers who claim dependents who have already
been claimed on another taxpayer’s return
Prior to Filing Season 2025, the IRS rejected an electronically filed (e-filed) tax return if a
dependent was already claimed by another taxpayer to help minimize improper payments and
potential fraud. When this happened, the taxpayer whose return was rejected then had to file
their tax return by paper. This can be a burden to both the taxpayer and the IRS, since paper tax
returns require more resources to process. To determine the impact of this process, the IRS
analyzed taxpayers’ filing behaviors when their Tax Year 2022 tax return was rejected because of
a duplicate dependent. The IRS found taxpayers in this situation responded in one of three ways:
· The taxpayer e-filed again, removing the duplicate dependent.
· The taxpayer filed again but by paper, claiming the duplicate dependent.
· The taxpayer did not file a subsequent tax return.
Taxpayers whose returns were rejected for claiming a duplicate dependent had their refund
delayed. For Filing Season 2025, the IRS will accept an e-filed tax return even if the dependent
has already been claimed on another return as long as the primary taxpayer on the second
return includes a valid Identity Protection Personal Identification Number (IP PIN).14 The IP PIN
gives the IRS a reasonable assurance that the second filer has been authenticated because the
application process requires an individual to verify their identity with the IRS. According to the
IRS, this change will make it easier for taxpayers to claim important credits like the EITC and
Child Tax Credit.
14
A unique six-digit number that only the taxpayer and the IRS knows. The IP PIN is primarily used to protect the
taxpayer from identity theft.
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Assessment of Fiscal Year 2024 Compliance With
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However, the impact of this new process on improper payment rates is unknown. In
Tax Year 2022, there were 751,000 taxpayers whose returns were rejected because of a
duplicate dependent condition. If the IRS denied half of the credits originally claimed by these
taxpayers, it would only lower improper payments from $21.4 billion to $20 billion. As previously
mentioned, the IRS would need to reduce erroneous payments by $11.7 billion to comply with
the PIIA requirements. This illustrates how difficult it is for the IRS to reduce improper payment
rates to less than 10 percent.
The Commissioner, Taxpayer Services, should:
Recommendation 2: Conduct an analysis of the new IP PIN procedures to 1) identify the impact
on taxpayer filing behavior and refundable credits claimed; 2) evaluate the number of returns
selected for post-refund review; and 3) measure the dollar impact to tax
administration/improper payments.
Management’s Response: The IRS agreed with the recommendation and will conduct
an analysis of the cases selected for post-refund review and determine the impact the
new IP PIN procedures had on taxpayer filing behavior, issuance of improper payments,
and the dollar impact to tax administration.
Recommendation 3: Upon completing the analysis noted in Recommendation 2, determine if
the new IP PIN procedures should be continued.
Management’s Response: The IRS agreed with the recommendation and will make a
determination about continuing the new IP PIN procedures after the analysis from
Recommendation 2 is complete.
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Assessment of Fiscal Year 2024 Compliance With
Improper Payment Reporting Requirements
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of this audit was to determine whether the IRS complied with the annual
improper payment reporting requirements for FY 2024. To accomplish this objective, we:
· Obtained and reviewed the information that the IRS provided to the Treasury
Department for inclusion in the AFR to determine if the information provided satisfied
the requirements.
· Evaluated the adequacy of the IRS’s FY 2024 risk assessments for the IRS revenue
program funds identified by the Treasury Department.
· Reviewed the IRS’s methodology to calculate the ACTC, AOTC, EITC, and Net PTC
improper payment rates for FY 2024.
· Evaluated the impact of accepting e-filed tax returns with duplicate dependents on
improper payments.
Performance of This Review
This review was performed with information obtained from Office of the Chief Financial Officer
located at the IRS Headquarters in Washington, D.C., and the Return Integrity and Compliance
Services function located in Atlanta, Georgia, during the period November 2024 through
March 2025. 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.
Data Validation Methodology
We presented data as reported in Treasury Department AFRs and internal metrics from the IRS
Office of Taxpayer Services. This information was reported without additional analysis. We
believe it is 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: the controls in place to ensure
that the IRS met the annual improper payment reporting requirements established in the PIIA.
We tested these controls by reviewing and analyzing relevant documents and holding
discussions with IRS management.
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Assessment of Fiscal Year 2024 Compliance With
Improper Payment Reporting Requirements
Appendix II
Programs Identified for Improper Payment Risk Assessments
The following IRS programs were identified by the Treasury Department for improper payment
risk assessments for FY 2024.
Treasury Fund Risk Assessment
IRS Program
Symbol Determination
Refund Collection, Interest 20X0904 Non-susceptible
Qualified Zone Academy Bonds 20X0945 Non-susceptible
Taxpayer Services 20X0912 Non-susceptible
Tax Law Enforcement 20X0913 Non-susceptible
Operations Support 20X0919 Non-susceptible
Business Systems Modernization 20X0921 Non-susceptible
Private Collection Agent Program 20X5510 Non-susceptible
Alternative Minimum Tax – Corporate 20X0931 Non-susceptible
Special Compliance Personnel Program Account 20X5622 Non-susceptible
Informant Reimbursement 20X5433 Non-susceptible
U.S. Coronavirus Payments - Economic Impact
20X0905 Susceptible
Payments and Recovery Rebate Credits
U.S. Coronavirus Refundable Credits - Sick and
20X0936 Susceptible
Family Leave Credit and Employee Retention Credit
Source: IRS Office of the Chief Financial Officer.
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Improper Payment Reporting Requirements
Appendix III
Improper Payment Laws Repealed by the
Payment Integrity Information Act
Improper Payment Law Description
Enacted on November 26, 2002, the law requires federal agencies,
Improper Payments including the IRS, to estimate the dollar amount of improper
Information Act 1 payments and report to Congress annually on the causes of and the
steps taken to reduce improper payments.
Enacted July 22, 2010, the Act redefined what “significant improper
payments” are; strengthened agency reporting requirements and
Improper Payments
defined significant improper payments as exceeding either 1.5
Elimination and Recovery Ac 2
percent of program outlays and $10 million of all program activities
or $100 million.
Enacted on January 10, 2013, the Act codifies many parts of Executive
Improper Payments Order 13520 and requires the OMB Director to identify a list of
Elimination and Recovery high-priority federal programs and agencies to develop additional or
Improvement Act 3 supplemental measures for tracking progress in reducing improper
payments in these programs.
Enacted on June 30, 2016, the Act requires the OMB to establish
Fraud Reduction and Data guidelines to identify and assess fraud risks and design and
Analytics Act 4 implement control activities to prevent, detect, and respond to fraud,
including improper payments.
Source: Analysis of legislation related to improper payments.
1
Pub. L. No. 107-300, 116 Stat. 2350.
2
Pub. L. No. 111-204, 124 Stat. 2224.
3
Pub. L. No. 112-248, 126 Stat. 2390.
4
Pub. L. No. 114-186, 130 Stat. 546.
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Assessment of Fiscal Year 2024 Compliance With
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Appendix IV
Prior Treasury Inspector General for Tax Administration Reports
Addressing Refundable Credits and Math Error Authority
· TIGTA, Report No. 2014-40-093, Existing Compliance Processes Will Not Reduce the
Billions of Dollars in Improper Earned Income Tax Credit and Additional Child Tax Credit
Payments, (September 2014).
· TIGTA, Report No. 2016-40-036, Without Expanded Error Correction Authority, Billions of
Dollars in Identified Potentially Erroneous Earned Income Credit Claims Will Continue to
Go Unaddressed Each Year, (April 2016).
· 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).
· TIGTA, Report No. 2020-40-008, Authorities Provided by the Internal Revenue Code Are
Not Effectively Used to Address Erroneous Refundable Credit and Withholding Credit
Claims, (February 2020).
· TIGTA, Report No. 2021-40-070, Addressing Complex and Inconsistent Earned Income
Tax Credit and Additional Child Tax Credit Rules May Reduce Unintentional Errors and
Increase Participation, (September 2021).
· TIGTA, Report No. 2023-47-037, American Rescue Plan Act: Assessment of the Expanded
Child and Dependent Care and Earned Income Tax Credits (June 2023).
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Improper Payment Reporting Requirements
Appendix V
Management’s Response to the Draft Report
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Assessment of Fiscal Year 2024 Compliance With
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Appendix VI
Glossary of Terms
Term Definition
A credit for individuals who receive less than the full amount of the
Additional Child Tax Credit nonrefundable Child Tax Credit. The ACTC may result in a refund even if no
tax is owed.
Presents the Treasury Department’s financial and performance information
Agency Financial Report
for the fiscal year, with comparative prior year data where appropriate.
A credit for qualified education expenses paid for an eligible student for
American Opportunity
the first four years of higher education. A partially refundable federal tax
Tax Credit
credit used to help parents and college students offset the costs of college.
Earned Income Tax Credit A refundable tax credit for low-income to moderate-income workers.
A refundable tax credit for certain eligible businesses and tax-exempt
Employee Retention Credit
organizations that had employees and were affected during the pandemic.
Filing Season The period from January 1 through mid-April when most individual income
tax returns are filed.
Any yearly accounting period, regardless of its relationship to a calendar
Fiscal Year year. The federal government’s fiscal year begins on October 1 and ends on
September 30.
Government An independent, nonpartisan agency that works for Congress. It reports to
Accountability Office Congress on how well government programs and policies are meeting their
objectives. It advises Congress and the heads of executive agencies about
ways to make the government more efficient, effective, ethical, equitable,
and responsive.
High-Priority Program Program identified as susceptible to significant improper payments.
Any payment that should not have been made or that was made in an
incorrect amount under statutory, contractual, administrative, or other
Improper Payment
legally applicable requirements (including both overpayments and
underpayments).
Improper Payment Rate Amount in improper payments divided by the amount in program outlays.
When the PTC exceeds the Advance PTC (PTC minus Advance PTC equals
Net Premium Tax Credit Net PTC). The Net PTC reduces a taxpayer’s tax liability and, if it is more
than the tax liability, results in a refundable tax credit.
A payment to liquidate an obligation generally equal to cash
Outlay
disbursements (the measure of government spending).
Any disbursement or transfer of federal funds to any non-federal person,
non-federal entity, or federal employee that is made by a federal agency,
Payment
contractor, grantee, or a governmental or other organization administering
a federal program or activity.
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Term Definition
Activities or sets of activities recognized as programs by the public, the
Program OMB, or Congress as well as those that entail program management or
policy direction.
A technique used to quantify risk associated with improper payments and
unknown payments. For example, a qualitative improper payment risk
assessment methodology prioritizes the identified improper payment and
Qualitative Risk
unknown payment risks using a predefined rating scale. Risks will be scored
Assessment
based on their probability or likelihood of occurring and the impact on
improper payments and unknown payments in the program should they
occur.
A risk assessment technique that focuses on measurable data such as
improper or unknown payment amount. For example, a quantitative
Quantitative Risk
improper payment risk assessment will provide numerical improper
Assessment
payment amounts and assess the probability of their occurrence. The
assessment may be similar to the regular improper payment estimate.
Refundable Tax Credit Refundable tax credits can be used to reduce a taxpayer’s tax liability to
zero. Any excess of the credit beyond the tax liability can be refunded to
the taxpayer. A taxpayer can receive a refund even if he or she did not owe
taxes or earn income.
Risk Assessment The process of identifying risks to organizational operations (including
mission, functions, image, reputation), organizational assets, individuals,
other organizations, and the nation, resulting from the operation of an
information system. Incorporates threat and vulnerability analyses and
considers mitigations provided by security controls planned or in place.
Annual improper payments and unknown payments, i.e., the sum of
monetary loss improper payments, non-monetary loss improper payments,
Significant Improper and unknown payments, in the program exceeding 1) both 1.5 percent of
Payment program outlays and $10 million of all program or activity payments made
during the fiscal year reported or 2) $100 million (regardless of the
improper payment percentage of total program outlays).
A 12-month accounting period for keeping records on income and
Tax Year expenses used as the basis for calculating the annual taxes due. For most
individual taxpayers, the tax year is synonymous with the calendar year.
IRS program that allows businesses that claimed the ERC in error to return
the money. The first Voluntary Disclosure Program ran from
Voluntary Disclosure December 2023 to March 2024 and set a voluntarily repayment of only
Program 80 percent of the amount claimed for the ERC. The second Voluntary
Disclosure Program, which started in August 2024 and expired in
December 2024, set a pay back of 85 percent of the amount claimed.
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Appendix VII
Abbreviations
ACTC Additional Child Tax Credit
AFR Agency Financial Report
AOTC American Opportunity Tax Credit
E-filed Electronically Filed
EITC Earned Income Tax Credit
ERC Employee Retention Credit
FY Fiscal Year
IP PIN Identity Protection Personal Identification Number
IRS Internal Revenue Service
OMB Office of Management and Budget
PIIA Payment Integrity Information Act
PTC Premium Tax Credit
TIGTA Treasury Inspector General for Tax Administration
Page 21
To report fraud, waste, or abuse,
contact our hotline on the web at
https://www.tigta.gov/reportcrime-misconduct.
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.
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