The Treasury Inspector General for Tax Administration (TIGTA) issued a report today based on an audit that was completed regarding amended tax returns. TIGTA initiated the audit because it found issues with the verification of claims on amended tax returns and believes that certain changes to the amended tax return process would lessen the issuance of erroneous tax refunds, reduce processing costs, and ease the burden on taxpayers.
What it found, in a statistical sample of 259 amended tax returns for fiscal year 2012 given a refund of $500 or more, was that 17% or 44 tax returns were likely given erroneous refunds. TIGTA estimated, based on the audit’s results, that potentially $439 million in tax refunds were erroneously given on approximately 187,400 tax returns for fiscal year 2012.
TIGTA suggested the Internal Revenue Service (IRS) update Form 1040, U.S. Individual Tax Return, so that it allows taxpayers to make corrections to original tax return filings. This would be a big change since currently taxpayers leverage Form 1040x, Amended U.S. Individual Tax Return, to amend tax returns. Moreover, TIGTA recommended the IRS allow taxpayers to e-file amended tax returns since this is not currently possible.
TIGTA’s treasury inspector, General J. Russell George stated, “The IRS’s current process for filing and processing amended income tax returns creates unnecessary burden on taxpayers and increases the potential for erroneous tax refund payments.”
Heather Gosnick, lead tax attorney at Clean Slate Tax, LLC stated, “The ability to e-file Form 1040x would be major improvement to the current process of amending a tax return. Currently, it can take months for the IRS to verify the receipt of an amended tax return.”
Although the IRS disagreed with updating Form 1040, it did agree to consider the e-filing of tax returns and agreed to review the 44 tax returns that were improperly issued tax refunds. The IRS stated it would look at updating Form 1040x’s format and appearance.