Watchdog urges IRS to expand e-filing

The inspector general at IRS wants the agency to ditch its error prone and largely manual process for examining amended individual tax returns and allow users to submit their changes through the same streamlined e-filing portal used for original returns.

Online document management (Jirsak/Shutterstock.com)
 

For years, taxpayers have been able to file their taxes with the IRS electronically, with the press of a few buttons. However, if they happen to make a mistake or want to file for previous year's return, they'd better have a printer, pen and some stamps handy.

That's because while the IRS has long since entered the digital age for individual returns, the agency still requires paper filing for amended tax returns. Now the Treasury Inspector General for Tax Administration wants the agency to ditch its mistake-prone and largely manual process for examining amended returns and allow users to submit their changes through a similar e-filing portal.

When an original individual tax return is filed, even on paper, the underlying numbers are fed into automated systems like the Return Review Program to calculate and verify the math and search for indicators of potential fraud. However, amended returns are routed through a separate, largely manual process that auditors believe is error prone and more likely to result in faulty calculations.

It's not a new problem, and TIGTA says it has issued at least four previous reports since 2011 calling attention to the way IRS processes amended returns. That includes a 2014 report that looked at a sample of 259 amended tax returns from 2012 where the filer claimed more than $500 in refunds, finding 44 such returns that contained "potentially erroneous tax refunds totaling $103,270." Extrapolating that data, TIGTA estimates the IRS could have issued more than $2.1 billion in potentially erroneous tax refunds over the past five years.

Officials at the IRS have claimed they do use software systems to assist employees, but they said limited and dwindling resources are an obstacle to tech upgrades.

According to the report, IRS management stated that it submitted funding requests for an additional $4.1 million in both fiscal years 2016 and 2017 to update systems and enable e-filing of amended returns through the Modernized e-File system, but the initiatives never received funding due to "high cost" and "competing priorities." Since then, IRS replaced its legacy e-filing system.

IRS Wage and Investment Commissioner Kenneth Corbin endorsed the potential benefits of building in new e-file capabilities for amended returns, but he said in agency comments that it was about more than money, noting that such returns are eligible under a lengthy and resource-intensive appeal review process that competes with other compliance priorities at the agency.

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