Friday, October 9, 2009


TAX PROF Paul Caron’s post “IRS Made Errors in Stimulus Payments to 400,000 Taxpayers” takes us to a TIGTA report on “Evaluation of the Planning, Computation, and Issuance of the Recovery Rebate Credit”.

According to the report summary –

However, taxpayer confusion in calculating the recovery rebate credit and programming errors presented significant challenges. Despite education and assistance efforts by the IRS, taxpayer confusion in computing the recovery rebate credit resulted in a significant number of errors. Of the 114.3 million tax returns processed as of April 17, 2009, 16.7 million (14.6 percent) included at least 1 error that needed to be addressed by the IRS Error Resolution function (8.4 million had a recovery rebate credit error).”

And –

We identified 399,099 tax returns (0.4 percent) for which our calculation of the recovery rebate credit and the IRS’ calculation did not agree. Our analysis indicated that 258,850 taxpayers did not receive $84.6 million to which they were entitled and 140,549 taxpayers received $60.6 million more in credits than they were entitled to receive.”

And one more –

Finally, legislation did not provide the IRS with math error authority {allowing the IRS to systemically disallow certain taxpayer claims at the time a tax return in processed – rdf} to prevent individuals without valid Social Security Numbers from receiving the recovery rebate credit. . . As a result, the IRS erroneously provided more than $27 million in recovery rebate credits to more than 44,000 taxpayers who did not have a valid Social Security Number.”

TIGTA did give the IRS credit for doing a good overall job – “the IRS successfully planned for the implementation of the recovery rebate credit”.

The problem is not with the IRS – the Service certainly rose to the occasion and did a relatively good job in dealing with the excessive job thrust upon it without much notice. The problem is with the cafones in Congress who initiated the rebate checks, and the recovery rebate credit, in the first place.

Last September I reported here at TWTP on a presentation by Lyle Lauterbach, the head of the NJ office of the IRS Taxpayer Advocate Service, at the Annual Conference of the NJ chapter of NATP –

Lyle said that the economic ‘stimulus’ rebate check program ‘has overwhelmed every aspect of the IRS’. He reported that so far 30,000 cases have been submitted to the Taxpayer Advocate Service regarding the economic “stimulus” payment (“ESP” as it is referred to by the IRS) and pointed out that because of the ESP, ‘everything that would normally take 60 days will now take 120 days’.”

I have noticed the problem in my own practice. The IRS took forever to finally respond to or resolve client issues I submitted via written correspondence. The response time is still longer than it should be – so it appears that the Service has still not fully recovered from the rebate fiasco.

The effect of the rebates on the IRS was very expensive in another way. The Government Accountability Office (GAO) issued a report in June of 2008 that reported (the emphasis is mine) –

The costs for implementing the economic stimulus legislation may be up to $862 million. IRS received a supplemental appropriation of $202 million for implementing the economic stimulus legislation. The Social Security Administration received a supplemental of $31 million and the Financial Management Service received a supplemental of $64 million. The reallocation of hundreds of IRS collections staff to answering taxpayer telephone calls will also result in up to $565 million in foregone enforcement revenue, according to IRS estimates.”

A BUZZ entry from earlier this year quoted Kay Bell’s post “Stimulus Rebate Confusion Continues”, which echoes my sentiments –

I hate these gimmicky tax breaks. . . . Politicians -- and yes, I use that word pointedly -- make most of these changes primarily for political gain, not because it's good tax policy. And the electorate encourages them, by clamoring for such immediate money-back options.”

Her bottom line is worth repeating again and again –

Instead, federal lawmakers should get serious about making real, constructive and permanent changes to our tax system, like, for example, eliminating the alternative minimum tax. This parallel tax system has been tripping up more taxpayers every year for, uh, forever it seems, but every year, Congress can only seem to manage a temporary fix.

Sure, writing good tax policy is not an easy job, but it's not an impossible one either. And that's what Congress should be doing instead of crafting legislation that's designed simply to get them perpetually reelected

I will refrain from saying – “I told you so”. But I will quote the bottom line of my 8/1/2008 guest post at the TAX GUY blog on the subject, “That Was the Economic Stimulus That Was” –

I can guarantee that after all is said and done when I write about the affect of the 2008 economic ‘stimulus’ checks I will be once again saying, ‘These checks cost the IRS a fortune, created tons of confusion, and resulted in millions of errors on 2008 tax returns! And it is doubtful that they did anything to stimulate the economy.’



Monica said...

I'm finally catching up on my blog wanderings! You are Kay are both correct, of course. I like the term Kay uses of "gimmicky." It's ridiculous!

I've got to finish up my last bit of CPE and renew my license, then I look forward to reading your simplification suggestions more thoroughly. Congress has created a huge mess, and I don't want to leave that mess for my kids. Hopefully, we can make change happen, in between all the client work.

I look forward to many more discussions!


Robert D Flach said...


As do I!

And I look forward to reading more TaxCPA posts.