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The IRS may have allowed thousands of people to claim $ 57 million in income tax deductions last year that they shouldn’t have received, says a federal agency.
AMERICANS SHOULD AVOID RETURNING PAPER TAX RETURN AMONG BACKLOG, IRS SAYS
An audit by the Inspector General of the Treasury for Tax Administration found gaps in the way the IRS deals with the so-called reduction in qualified business income tax set out in Donald Trump’s 2017 tax reform package.
The law allows certain pass-through business owners – such as S corporations, partnerships and individual companies – to deduct up to 20 percent of their business revenue from their individual income tax returns.
The inspector general’s office said it found 12,980 statements filed last year that claimed about $ 57 million in “potentially erroneous” business revenue deductions, although the IRS has developed more than a dozen rules to detect such defective records .
The January 13 report was heavily edited, and details of what exactly was wrong with the returns and how the IRS handled them appeared to be erased. But he said that “no action was taken by the IRS during processing to resolve these potentially erroneous claims.”
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The auditors suggested that the IRS could have detected incorrect deductions by looking more closely at returns that were “flagged”. For example, IRS employees ended up denying qualified deductions from business income to about 85% of the 68 returns for fiscal 2018 that were examined, the report says.
But IRS employee Eric Hylton noted that the approximately 13,000 returns that the IG office highlighted accounted for only about 0.1% of the 9.4 million returns that claimed deductions from business revenue. More than 95% of those returns have been properly analyzed by the IRS, he added.
The tax agency rejected three of the inspector general’s five recommendations to improve his ability to verify deductions by agreeing or partially agreeing with the other two, according to the report.
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Seeking extra compliance measures “would reduce the potential for overall revenue” by diverting resources from other IRS activities, argued Hylton.
“The IRS has determined that the actions suggested during processing activities can harm taxpayers and increase risk,” wrote Hylton, commissioner of the IRS Small Business / Self Employees Division, in response to the audit report.