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May 8, 2016


Tax refund offsets, part 2: TIGTA calls for change in procedures

Let’s continue our discussion of tax refund offsets. There are various scenarios in which the IRS can hold on to a refund or subtract part of it to satisfy some other obligation.

Having federal tax debt is one such scenario. As we noted in the first part of this post there are also several others.

Recently a report from the Treasury Inspector General for Tax Administration (TIGTA) questioned the IRS’s procedures for handling refund offsets. In this part of the post, we will look at what TIGTA found and what changes the IRS may make in response.

TIGTA’s analysis was based on data from the 2013 tax year. The data showed that the amount of refund offsets by the IRS involving individual taxpayers was a whopping $6.8 billion.

TIGTA found, however, that the IRS was not very effective in identifying cases where a sole proprietor of a business had business tax debt. Business tax debt owed by a sole proprietor is one of the scenarios in which an offset is allowed.

TIGTA said in its report that the IRS paid out refunds in tax year 2013 to more than 53,000 taxpayers who owed taxes on business accounts associated with their individual accounts. The amount that should have been offset, TIGTA said, was about $74.5 million.

TIGTA also pointed to other areas where the IRS could improve its offset procedures. The IRS did not object to any of TIGTA’s recommendations.

The IRS did point, however, to the fiscal constraints it is under. It is an understandable response, given the budget cuts the IRS has experienced in recent years.