recovery act irs quickly implemented tax provisions but reporting ppt

‘This port 1 describes the satus ofthe intemal Reverie Save’ QRS implementation of Recovery Actas provisions 2 examines whether IRS captured o planed Drovisions: assesses IRS ‘ota a dete

United States Government Accountability Office

Reporting and Enforcement Improvements Are Needed

GAO-10-349

BGA Oe GAO

Highlights

aa 9451030 sop

Why GAO Did This Study

‘The American Recovary and

(covery At), was enact to

holxer the eugglng 8, economy, an etimated cont of $757 hon,

f hỉch mo than athml va m

The orm of ex ell othe publ

‘This port 1) describes the satus

ofthe intemal Reverie Save’

(QRS) implementation of Recovery

Actas provisions (2) examines

whether IRS captured o planed

Drovisions: (assesses IRS

‘ota a determine pote

Abuse ofthe provisions an (1)

Aiscusscs posable leon eared

for futire tax administration, GAO naan IRS's implementation and

flatacotection plans foreach

provision: revi TRS ad

Department ofthe Trea

(Treasury) rskemanagement

Alocumens, Interviewed foderal

Sh indus fiat and oct

fn ve provisions implemented

20d Bld Ameria Bonds (BAB),

Consolidated Omit Bact

Reconctbation Act (COBRA), First

Time Homebuyer Credit THEO),

Making Work Pay Cre an Net

Operating Los earybacks

Cn

GAO suggests that the Congress

consider (1 authorizing TS

publish more BAB information and

(2) granting IRS broader author

tovcoret error daring as fe

Drocesing 00 algo recommends

Tis ata none infrmaton em,

[DADs enhance compliance with

the COBRA provision, and prepare report on Recovery At lawns

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mmmummm RECOVERY ACT

IRS Quickly Implemented Tax Provisions, but Reporting and Enforcement improvements Are leede

What GAO Found

RS Quihiy Adresse she Acts Significant Implementation Challenges

‘The Recovery Act posed significant implementation challenges for IRS Docause itd more than 50 provisions, many of which wore immediatly oF retroactively available and had tobe implemented during the tax Hing

‘Seasol!—INS's busiest ine Some provisions fected the 2000 fing season

‘CANS tax year, while others mainly wil affect the 2010 avd 2011 Bling seasons IRS responded icky toi chalenges For instance, within about 6 Tnonths ofthe Recovery Act's enactment, IRS had issued guidance oF

Instructions for more than 80 percent ofthe provisions

‘computer changesto collect dat, and subsequent improvements Wore

‘equi For example, because of the compressed tne to implement the 2009, FFTHG, IRS id not make computer changes to collect data, including the home purchase date, Without sich information, IRS unable to easily distinguish 2008 and 2300 FTHECs Distinguishing betwen the two credits is

‘tcl because they nvolse different requirements including whether and how the eredit so be repaid IRS plans lo very the date of purchase on past aims and make any necessary adjustments wien it bens enforcing 2008 FTHBC repayment provisions IRS also plans to make the computer changes needed to collec ll significant data, including the hone purchase date ro

- isel Tom fr 2000 esis RSs Data Collecton Efforts Have Limitations IRS went beyond ies typleal data-collection efforts and plans to collet some data ta track many Recovery Act provisions Specifically, IRS curently has {etsled data collection plans for IT or abont 31 pervent ofthe provisions

tnt states covenant Accountbty onan

and percent of the tal estimated cost of het

provisions nal collections dt net fll or cette

faplure the use of some provisions In adtion, very

lite ofthe dats that 12s collected on theta

provisions hs hoen rleseed publi

As one example oflinjed data, neither IRS nor any

‘ther federal enc ix collecting for publleadon te sort

Uhweacts spending projects DAB project can be very

Similar totose Rade by Recovery At spending

projects, ba the sane transpareney and aceountiity

Ao mot apply IRS weve ta collect auch infarmation,

{orpublis the information Sate and fal govermuents

‘may seve aa uuinited umber of BABs through

December 31, 2040, and all BAB proceeds st be sed

for qualified capital expenditure As of nay 1, 2010,

Taine aon $921 lion One hed sl hit

TBAB were ised for education, which were more

fssuances than for any other specified typeof BAB

As onother example, COBRA dat wil understate the

‘nnnber of nviiduals receiving health instance Por

Instance, if COBRA premium asisince was pad fora

fonner employee, his ober spouse, sal one ik, a

fnsstance, Acconting to IRS ofa, the relevant form

Adit not inchude dependants duo (oa shor

linplementatlon time frame, space constraints on the

additional reporting requirements,

Provisions! BeonomicSeimulus Effocs Cannot Be

Proce ole

Similar twat GAO fas fore sho the aes seni

projets, the tax provisions’ econo stimuli fect

fanot be preistly isolated Reanoists use evidence

‘rom macroceonomle forecasting models and models

ffects These approaches, howrvef, ae tmpverise

Ipecause historia! experience may not apply well ven

the magi ofthe Recovery Act The effect of some

provistoa an specific aspevis of the ecotorny may be

tleseribed in gonoral crm: For example, the Counel of Economie Advisers noted that in sadion te other policy

acthons fectingresenda al estate, the PTHUC may

have moderated construction industry jb knees

‘Some Compliance Challenges vost and Otters Remain

Aros of 1s PTI preven compliance

reviews, as of Fabry 1, 2010 IRS ed fe abot

110.000 refunds pending cv o erninal exannation,

schemes and had 123 ering investigations open Although IRS iddfssed som challenges with the PEC sn these was, all neds to Fall a Ws to

“oii who fal là part hơe sex and

‘night be required to ropay pare of the ered boca thet homes ceased wo be Wei prinelpal places of fins could he sed for his pps Pomm 1000, “Proceeds from Real Estate Transactions” but isnot lear IRS coll ts the fora for this purpose under Seti tint party dat that it expect oss ind then evaluate the rests,

Sir, [RS oe wot Fiz etons ov ns th fenmplosers stop claiming the crest for COBRA premium Subsidies when former employees are no longer eligible omplince ites exists expansting a panne proiset

to determine if employers ae claiing the subsidies for Jonge (hạn allowed Uy at, IRS could sel ll

‘and unging tem to cermect any tro thay have ma,

ecumenting IRS's Recovery Act Lessons Learned and snanving lis Authority, with Appeupriate Control,

Sond wd lesson lear tn alter the 3010 Bing

‘Staaon but ve yet to slevelop plas fo doings,

In addiion, 12S an taxpayers would have benetited i

eS tone stator mh cris" (MBA wo correct erors during tc return processing when the Recovery Act was Ose implemented, rather than only ater problema were Matted Authoring sich

‘eth sppenprite contaos conld have several Renee to

TR ond txpagers; for example, fs an auamilel and low-cost means to protect tevente and avoid audits Gat ane costly to IS aan burdensome to axa,

jencs Comments

‘The Commissioner of Internal Revenue aged fully wlth

‘wold ve tobe ance wih dhe hanen on BAB

‘seuers but said IRS stood ready Yo inplesvent thề recoimgendation f te Congres auoezed pubicaion boy having 2 nitimam reporting tosh or delgangthe

‘onset of requirement, as was doe when similar

‘reporting for chante organizations was istitted He

‘io sald that n thowe cea in which more MEA cold

Ln ses Gevrament Asounsity ce

‘Appendix IIT ‘The 54 Recovery Act Tax Provisions That IRS Has

‘Appendix IV IRS Data Collected on Four Tax Provisions in the

‘Table: Eligibility Requirements forthe FTHBC 30

“Table 6: Characteristies ofthe Five Provisions GAO Selected for

‘Table 6: laformation about the 51 Recovery Aet Provisions That

‘Table 7: Recent Selevted IRS Data Collected on BABS mm

‘Table & Recent Selected IRS Duta Collected on COBRA 50

‘Table: Selected IRS Data Collected on the FTHRC through

Figure 1: Categorization ofthe Tax Provisions That IRS Had a Role

in Administering, with Number and Dollar Value of

Figure 2 Total JCT-Estimated Budget Elfects ofthe 5 Recovery|

‘Act Prosisions That IRS Has a Rolen Adiinistering from

Figure Number of BAB Issuances by Type of Issue as of January 1.2010 oo

FTHBC Pin Tae Homebuyer Creat GDP gross domestic prodet Here Health Coverage Tax Credit

BA Individual retirement account

es Enweral Reenve Service Jor “Joint Committee on Taxation MAGI modified adjusted gross ineome MEA, math error authority

MWPC Making Work Pay Credit NOL Net Operating Loss Pace Pension Benett Guaranty Comporation SBISE Smal BusinesvSelFEmplosed

TẠA ‘Trade Adjustment Assisiznce TIGTA Treasury Inspector General for Tax Administration

‘Treasury Department of the Treasry WOPC” Work Opportonity Tax Credit

‘eesnary you aha produce his mata bop

Taited States Government Accountability Office

February 10,2010 Congressional Addressees

‘The American Recovery and Reinvestment Act of 2009 (Recovery Act) is san estimated $787 billion initiative intended o addess the most serious

‘economic ersis since the Great Depression Although the Recovery Act primarily consists of new funding for programs and other investments Sesigned to stimulate the economy, more than a third ofthe act consists of tax relief to the American public The Recovery Act alls for

‘unprecedented levels of transparency and accountability in how Recovery

‘Act dollars are being spent, but information onthe tax provisions is generally not ineluded in mandatory Recovery Act reporting We raised the sue of providing siilar oversight ofthe tx provisions in previous {estimons" GAO reports and testimonies onthe Recovery Act are avalable

at wnw gio govitecovery

As part of an effort to provide the Congress and others with relevant

‘oversight information on the tax provisions inthe Recovery Act, we performed this review under the Comptroller General's authority to conduct evaluations: Our objectives were to (1) describe the status ofthe Internal Revenue Service's (IRS) implementation of Recovery Act tx provisions; (2) analyze IRS's plans to collect data on the provisions,

‘examine whether and how IRS captured data on the use of selected provisions, aud discuss the provisions’ overal effect (8) assess IRS's

‘efforts to determine potential abuse ofthe provisions and IRS's steps for minimizing it and (1) discuss possible lessons learned for future tax Administration To meet our objectives, we obtained and analyzed IRS's

‘implementation and data-colecton plans for each provision; reviewed!

RS, Department of the Treasury (Treasury), and Treasury Inspector General for Tax Administration (TIGTA) planning, implementation, risk

‘management, and other documents; and interviewed federal officials and Industry representatives

‘ofthe provisions we reviewed, Soe appendix I fora ful deserption of ue scope and methodology

‘We concited this performance anit from June 2008 dhrough February

2010 in aveordance with generally accepted government auditing standards Those standaris require that we plan and perform te aut to

‘obtain suflicient appropriate evidence to provide a reasonable basis for

‘out findings and conclusions based on out alt objectives We believe {hat the evidence obtained provides reasonable basis for our hndings| sand conelusions based on our it objectives and found the 12S daa we used reliable forthe purposes ofthis report

5288 billion in tax reli shown an its Recovery Act Web site recovery go! ICTs estimate ince the effect on the budget of provisions ofthe set adaministeredthzouh the tax code, but CBO's $212

Dillion estimate, which is based on ICT estimate, eludes only the effect

‘on revere collections The printary diference is that CBO's estate does rot include soxne provisions tha rest aiional federal ois rather than only reduced tax collections, This ocears under several provisions

‘when taxpayers ean reeeivea refund even if they do not have any tax lability On recovery gov, the administration includes bath entegories to arrive ais estimate of $288 billion in tax relief The JCT estimate of 325 billion also ineludes the cast of COBRA and economic recovery payments provisions thar IRS administers,

TRS had a cole in administering 54 Recovery Aet provisions However, IRS snot responsible for implementingall prosisions inched in the tax section of the Recovery Act, such is gran in lew of eredits and the New Markets Tax Credit Grants were authorized heeause the effectiveness of particular credits was thought to be undermined by eeonome conditions {he arant provisions ate dninstered elsewhere in Treasiny In arecent report, TIGTA's count of Recovery Act provisions also differed from ours, for example, itinchuded the Nevw Markets Tax Cred, which isbeing administered by Trensuty's Community Development Financial Institutions Fune

‘To favlate management of he provisions, as shown in figure 1 IRS grouped the provisions into sx eategores, with individual ereits as the largest eategory by fr in terms of dolar, A seventh category, withholding

fn government contractors, appears inthe figure because ts being

‘administered by IRS; however, IRS did not consider tobe a category Dbecause the Recovery Act only delayed the effective date for the

‘withholding

Figure 1 Cuegorasson of he ax Provisions Tat Reads Role

‘Administering, with Numb an Delo Value of Provisions

Fiwres Tom ser estnaied bugger efecto tie 6t Recovery Ae Provisions

‘TAINS Haw a Role n Aristerin, om Fes! Yeu 2008 nuh 2019

Bull Amerie Bonds (BAB): BABS are taxable government bonds that ean

be ested with federal subsidies fora portion of the borrowing costs, olivered either throuzh nongetundable tax credits provided ta holders of {he bonds ((ax credit BAB) or as refundable tax eres paid to state and local governmental issuers ofthe bonds (act payment BAB) Direct papment BABS are «new iype of bond that provides state and local sovernment issuers with achrect subsidy payment equal 10 35 percent of

‘he bond incest they pay Tax credit BABs provide investors with a

‘onrefuadable tax credit of 35 percent ofthe net bond inceest payments {excluding the credit), which represents a federal subsidy to the state or Jocal governnental issuer equal to approximately 2 percent ofthe total return C0 the investor Sate and loeal governments may issue an unlimited

‘number of BABS theough December 31,2010, and all BAB proceeds must

De used for capital expenditures

'Consolilaled Omnibus Badset ieconcllaton Aet (COBRA): Recenty cextenled, the COBRA provision originally provide a 69 perce health insnranee subsidy fr p 9 months for niduals who lose health Insurance coverage due to involuntary’ termination between September 2,

2008, and December 3, 2009” Former employers, or in some eases rwsikiemployer heath plans or insurers, pay 65 pereent of issarunce relum costs and are elmburse Uhrogh a as ered against thei

‘payroll tax laity or through a tax refund ithe crea exceeds te payroll Laity Pirst'ime Homebuyer Credit (FVHBC} The Recovery Act expanded the FTHBC, which was inially established underthe Housing ad Economie Recovery Act of 308, to provide taxpayers a refundsble tax ered of wp +0 $8,000 ror the purchase of 2 home! Taxpayers are generally not required oepay the credit unless the home eeases to be the taxpayer's principal residence within 3 years of puechase.”'Several af the ses with the [FTHBC that are disenssed in this report include differences between the

2008 and 2 eredits, The 208 ere differs from he 200 ceed in that t provided aswsvers up Lo $7,500, which has co he reply $500

Increntents ever the eantse of 15ÿear peviod We testified on the use of|

iance challenges in October

‘Making Work Pay Credit (MWPC): The MWPC Is refundable tax ered

‘hat provides up co $400 and $800, respectively, to working individuals and

‘married couples who file joint returns Taxpayers may receive the credit throughout the

thei paychecks Taxpayers who do not have taxes withheld throughout

‘the year will not benefit rom the credit unt they claim ie on thelr annual [Nel Operating Loss (NOL) Carryback: The NOL carryback provision allows eligible stall businesses-—those that had a:year gross receipts Average of no more than $15 million—to apply for refund for taxes paid inup to 5 previous years if the business experienced a loss in 2008." Health Coverage Tax Credit (CTC): The HICTC ean be elimed (1) by

‘workers who have lost manufacturing or service jos due to intertationa trade or have lost public agency jobs and are eligible fora form of Trade Aajustment Assistance or (2) by those who are receiving payments from the Pension Benefit Guaranty Corporation, Among other things, the Recovery Act Increased the health insurance prem subsidy rate from

655 percent to 80 percent ofthe premiums for an eligible taxpayer's

‘qualified health insurance plan,

"the Worker, lniowrerbip, and Dainese Asan Act of 20 e4 the NOL

"the 14 poisons implemen 2008 were the MVP, eons coe

ROL canpbackes COBRA she HTC, and st bond provisions, including BABS

these ptovilone,sich as te FTNBC and NƠI, catyhacks, ete retroactive and cond be eaied on 82005 ax return TRS started aking action on many ofthe remzining 40 provisions in 2008 as well Some provisions affected he 2008 fling season (or tax your 2008), while others tainly wil affect the 2010 and 2001 filing seasons

‘To implement the provisions, IRS quickly issued forms and guidance

‘communicated with taxpayers and tax return preparers, and made

‘compuier programming or processing changes For example, within days ffthe act's passage, IRS lsuiedgevised withholding tables forthe MWC and produced new or updated tx Forms and Instructions fori sad COBRA As shown in table 1,8 of Janay 12, 2010, IRS either completed

‘or initiated steps to iste neve forms an! instructions and revise many

‘others for {Sof the 5 provisions, or 89 percent ofthe total, When e frst

‘checked on progress, as of August 2, 2009, or about 8 months ater the Recawery Acs enachent, the peteentage was ao greater tan 3) percent In addition, a of January 12, 2010, IRS communicated with {taxpayers and tux return preparers through a variety of avenues, sue as news releases, pastings on isgox, podcasts, and You Tube videos for {7 of {he 54, or about 87 pereent of the provisions [RS ako made computes programming ehanges co enable processing for paper and electronically Hed reas for 39, or about 72 pereent ofthe provisions IRS did not plan {o engage in guidance and insercton fr b provisions or escation and,

‘outreach activites for 7 provisions, oF make processing and hrogratnning changes for 15 provisions heeause, according to IRS afficals, some di not require activities to inform the public or ready IRS systems We agree with this decison because, a we sar, some of the tx provisions witha implementation actives were extensions or expansions of previously

‘existing tax provisions, modified previously existing tax rules, o gave Additional guidance For example, one provision amended the Work Opportunity Tax Credit (WOTC) Lo create wo new cateyories of targeted

‘roups, and ass result, IRS updated the instructions to the related tax form tobe filed wits 18S bt id not isolate amounts elated to these

‘categories onthe form self or make any substantive processing znd programing changes

Asa frst example ofa radeoft, because IRS needed t0 que set of withholding tables so taxpayers could inmedtately benefit fromthe MWC throngh resced federal tx withholding, Treasury decided nat to fully account forthe effect of the NWPC on taxpayers whose incomes

‘were in he MWPC phaseout range." As a vesll, axpayers with incomes in the phaseoat range did not receive a precisely ealeulated tax reduction, In November 2009, IS ised new withholing tables for 2010 that included H80 new brackets i bette recognize the effect ofthe MWPC on taxpayers

in the phaseout range

‘The withholding changes fo the NWPC may also have unfavorable consequences forsome other taxpayers For instance, TIGTA recently reported ihat over 15 million raxpayers, such as those receiving pensions

and joint filers with 80 oF more jobs between them, may be negarively

affecied by the MWPC." These taxpayers may owe taxes orveeeivea lesser or no rend because wot enough taxes were withheld from the payehecks co stisty their exeniual Lax obligation or maintain previows

‘withholding loves IRS and Treasury have taken steps to deal wi potential underwithholding for these taxpayers IRS has conducted

‘ulreach o encourage taxpayers to look more closely at thei ax

‘withholding and plans to da wore outeaeh, IRS's Wed site contains ablations and otter guidance, ineltng tax withholding ealeuaton, Instructing taxpayers how to aust heir withholding in ight of the [MIWPC To address potential underwithholding for pensioners, Treasury {developed supplemental withholding tales that pension aininiseators

‘ean use in conjunction with the previously issued tables to oftse the eTiect

‘ofthe MPC,

In addition, because ofthe MWPC, some taxpayers could be subject to tae penalties aca resi ofthe credit" TIGTA estimated that aver 1 milion faxpayers could be assessed a tax penalty or have their ax penalty

‘increased because ofthe MWPC IRS fas taken steps to addres these cconceras ag well ast wil allow taxpayers to use Form 2210,

‘nderpayinent of Estimated Tax by hlividvals, Estates, and Trusts” (0 request that the penalties be waived IRS has alerted faxpavers Cs

‘option and how to exercise it by adding information o the instructions for the Form 100, "UUS,Indvidia! Income Tex Rea,” an, according to

"TIGA, also plans to add information to Publication 505, "Tax Wihbolding and Estimated Tas.”

A second tradeofTinvolved the FTHIBC, Because ofthe compressed time to plsntept the revised credit, IRS did not male compnter changes to easily collet data, inchuding the home purchase date, ftom the Fors 5105, Fst

‘Time Homebuser Credit” the form used to cain the credit.” Ths was

May fe Neyaaly Acad by he Rote

problematic because without the home purchase date IRS was unable to

‘easily distinguish 2008 and 2009 FTHBC claims, a problem we noted In our October 209 testimony." Distinguishing between the two ered is erica bbecause the ats establishing them contain diferent requirements,

including whether and how the redit sto be repaid.” In studying PTHBC claims, TIGTA found that, a8 of May 29, 2008, IRS had not properly

‘ategorized more than 13/10 returns, considering them a8 2008 claims instead of 2008 claims.” According to TIGTA, if further action isnot taken, Some taxpayers wito bought a home in 2009 could receive a letter from IRS incorrectly indicating that they must repay the credit IRS plans to verify the date of purchase on past claims and make any necessary adjustments

‘when it begins enforcing the 2008 PTHBC repayment provisions IRS also plans to make the computer changes needed to collet all significant data {or 2009 claims, ineuding home purchase dat, trom a revised Form 5105,

Asa third example ofa adeoff, hecause ofthe limited time to make lecessary computer programming changes that would have enabled payments by direct deposit, IRS issued BAB direct payments by paper cheek instead of electronic payments According o IRS officials, IRS's use

‘ofpaper checks possibly increased the costs of issuing BAB direct payments a least nomvals For 2010, IRS plans to change Form 8088-CP,

“Return for Credit Payments to Issuers of Qualified Bonds," to include bbank routing numbers so that payments ean be made electronically

Also, hecause ofthe Inited time TRS used an existing tax-exempt {government bond form, Form 8038-G, “Information Return for Tax- Exempt Government Obligation,” for state and local governments to report 2000 BAB information, Governmental issuers were required tơ submit a copy of Form 8035-6, to identify the issue as a BAB and to record Information on the issue price, weighted average maturity, yield

percentage, and the use of bond proceeds However, unlike what is required for other bond issues, BAD issuers were alsa required to attach a Separate schedule to identify the type of bond issue For 2010, 1RS plans to lusea new form specifically designed for BABS The new form will collect

the save information tat was collected in 2009, but issuers willbe able to ienty the (ype of BAB and provide information on the typeof bond issie allon the form el, reqting no attachinent

Another effect ofthe tnited time available (o implement BABs was that

AB work took priority over already-existing bond projects, delaying the

‘other penjects somewhat, acurding vo Treasury aad IRS oficial Asa final example, IRS also made tradeoffs when implementing NOL cansbacke

‘As soon asthe Recovery Net was enacted, taxpayers began filing 3 4, and Syear NOL carrsbaek claims, which allowed them to nse 2008 stall, bbasiness losses to reduce taxable income from 3,4, or 3 years before and set tax refunds quickly Because taxpayers made claims before IRS issued Ais guldanee on Mech 1, 2009, lagpavers msde what IRS officals

‘considered invalid or unclear elections on their NOL carryback claims” Despite the Mareh 10th guidance, taxpagers contin to file unclear carr back elas beeause they appeared to have not followed the Inss#actions nthe guidance, which told taxpayers (o attach a statement 10 ther tax return indeating certain information Ofials processed the las and decided! to issue on May 11, 2009, second piece of guidance

‘superseding the hlafeh Lith one in oer to make the process easier Tor faxpayers The May Ith guidance reduced the bueden on taxpayers by allowing them to fe the appropriate NOL-earrsback form without having toatlach an election statement iy reviewing the computations on the appropriate form, [RS was able to find the Information cneeded to process the calm

‘When processing takes more than 45 days, IRS has to pay interest on NOL, ref, just asc nest for other refunds taking more thas 45 days to frrocess In order to process the elaims on time, TRS inkilly Cook one to

‘ovo revenne agents at seven camps Tocations swag from examination

‘cases for Ifo 2 days per week to setermine whether stall Businesses’ 2 year average gross receipts were under 4815 million ceiling, making ther

‘eligible forthe NOL carsyback refunds, This lasted for about 2 months

‘unl IRS developed a Gross Reeeipts Average Calculator tool This tool replaced the need fo extensive revenue agent involvement by

automatically calculating a taxpayer's average gross receipts

Collecting data on the tax provisions is important to (1) ensure Recovery

‘Act funds are used efficiently, 2) ensure program compliance, and (3) determine program effectiveness Without appropriate dat, it may be

‘ther impossible or easily to determine the extent to whieh the tax benefits were used, when they were used, whether they were used effectively and as intended, and whether any lessons could be learned In previous reports, we noted that IRS did not colleet sufficient information {odetermine the use and effectiveness af certain tax provisions.” In the report on Indian reservation depreciation, we noted thatthe lack of sufficient data impeded IRS's ability to ensure program compliance.”

IRS Has Plans to Collect,

Some Data to Track Many

Provisions

Inthe pas, IRS officials said that TR's role isto collect data only tothe extent that the data help i to administer the tax code However, forthe Recovery Aet, IRS went beyond its typieal efforts in order to provide transpareney over the se of the tax provisions and to eollect more reportable data on te tax provisions For example, IRS dd not collect any

‘additional data related 1 the 5-year NOL earryback forthe Job Creation

"and Worker Assistance Act of 2002, but itis ollecting earryback data for the Recovery Act's NOL provision,

‘Throughout the year ater the Recovery Aet was enacted, IRS developed plans for collecting data, For example, as shown in table 2, ofthe 54 provisions that IRS hasa role in implementing, IRS had detailed data collection plan for 17, or about 31 percent These 17 provisions cover bout $207 billion, or 6 pereent, ofthe $326 bilion total cost that JCT festimated forthe Bt provisions, or about 33 pereent ofthe Bi provisions,

«covering about $96 billion, oF 30 percent, ofthe total cos, IRS had

‘entfied preliminary datasources, but not what, Ifany, dat it wil

‘compile and report

Calelation category Plans soureeetaonied’ "ivomtax forms?" planned’ Tota

of gible individuals IRS doesnot plan to modify the ras form to erable {ata collection on the newly elise individuals as it cutrently does not collect data on any ofthe eligible indicia For the final 10 provisions,

covering about $18 billion or 6 percent of total cost, IR dd noe plan collect data or report any information because, necording to 18S officials {his eategory included 9 provisions relating to guidance o reflecting rale changes For the other provision, IRS hla minimal vole, and Treasury's

Financial Management Service (FAS) took the ted in administering

‘Weagree with 88's decision not 1 report on these 10 prosisions

‘Very litle ofthe data that 1RS has collected on the tax provisions has been leased publily On September 3, 2000, Treasury released preliminary

‘ata collected on ks Recovery Act programs, including the use of BAB, economic recovery payments and he FTHBC Recovery.aov includes + ham on the estinated dollars distributed through the tax provisions, bat this estimate is not based on atual provision use Rather, it prorates| estimates that were created by Treasury's Ofice of Tax Analysis before the act's implementation Data collected for individual tax provisions (hat specify the number of provision users and dolar amount of eames made

‘were not reported on recovery-gov, as of January 2, 2010,

Initial Data Collection Did

Not Fully or Accurately

Capture the Use of Some

Recovery Act Provisions

BAB Data Do Not Show

Speeifie Bond Use

During much of our review, 1S focused on collecting a internally reorting data on four provisions BABS, COBRA, the FTHBC, and the CTC, (See app IV for information on the use of these provisions.) Some

‘ofthe data IRS collected did not accurately enpture taxpayers’ use of Recovery Act provisions as provision use was sometimes incompletely đeserlbed or overstated

18's reporting requirements for BABS are svnimal in contrast to requirements for Recovery Act infrastructure and other direct spending projects, even though such projects may be sila For example, funding for both Recovery Aet spending projects and BABS may be used for Ihighisuy, school, water sewer, er ulity improvements, Currently, IRS requires state and local governments to submit an information return at the tine of bond issuance that descrites the type of hond ise, ise price, weighted average matey, yield percentage, and the use of bond proceeds As shown sn appendi ÏV, of January 1, 2910, tae sd Toca

‘zovernments reported £43 BAB issuances value at about 822 illon

‘One hundred and thiny-one BABS were issued for education, whieh Was

‘more issuances than for any other type, except the “other” eategory Spending projects undertaken unter the Recovery Act by state and local governments are subject to additional reporting requirements, Section

1512 of he act requires nonvedeval recipients of Recovery Act grants,

‘contracts, and loans te provide information on each projet or activ Including deseription ofthe project and its purpose, an evaluation of Hs satus toward completion, the amount of recovery funds spent, and the

‘numberof jobs ereated and retained” The reporting requted for spending projects i intended to increase accountability ad inussarenes-

addition, federal agencies are tequired to submit reports that describe the Aimount of Recovery Aet funds made avaiable and paid out to the sates through contracts, grants and loans Although IRS i not required to publily report dala on BAB us, doing so could inerease necountabilty

nd transpareney As part of is bond outteneh effets, Treasiy hes asked osernmental issuers lo report how their goverment hss used BABS

"ressury plans to compile this information fr its internal use ony There are no efforts by other federal agencies to compile or publish BAB

Information The limited data collected and pubitey reported for BABS

‘does not reflect the same empitass as Hat for penclng projects,

According (othe Director of IRS's Tax-Exempt Banels division, more {etalled information reporting on BAB-Iinanced projects, such # that Teauired on the Schedule K of Form 990, “Supplemental Information on

‘Tax-Exempt Bonds,” may inerease compliance over the fe of hnds because government Sssvers would be reminded of bond requirements

‘each year whe ing the form andl would be more likely o keep and

‘maintain required documentation Chartable organizations are required to Submit Sehedtne K annoally with theirtas vers although no sine yearly bond reporting requirement exists for governmental bod issuers

‘he rationale forthe Schedule K was that significant noncompliance with recordkeeping reguiements for charitable organiution tax-exempt bons

‘existed, making t bard for IRS to determine ifthe bonds remained

‘qualified for ax exemption througout their hfe Aeconinaly, Schedule K and is inscructions ask fora description of the bond's purpose—

‘constructing 2 hospital or acquiring office equipment are examples cited—

‘nd the year the project was substantially completed, just ike the reporting requirements for Recovery Act spending projects,

IS officials said that yearly BAB reporting similar tothe Schedule K

‘would help IRS know whether bonds remained qualified for thei tax-

COBRA Data Will Not Include

the Number of Dependents,

Benefiting from COBRA

Assistance:

‘advantaged stahis One hundred percent of BAB proceeds are 1 be used for qualified capital expenditares, and veary reposting by zoxemmental Issuers would allow [RS to more easily identify bsuers who have noc adhered to this standard or maintained the required documentation to show hows bond proceeds were used, It coulé also help lawmakers or

‘others in determining the overall effectiveness ofthe newly created bonds Any ational cost of reporting, such as those already tome for spend projects, could be texpered by having a mnirnure reporting threstold oF

‘laying the onset of requirements, as was the ease when reporting for charable organizations was instnited However if 18S required siore specife reporting for BABs, it could not publely release it fr individ

‘ssvers, Currently, unlike te case with the Schedule K,LRS is prohibited from disciosing HAB-related information collected by IS, Legislation

‘would be needed to allow the BAB information and any similar Information related (o governmental bonds ta be disclosed

Acconlng to Treasury officials, given the perodie direct payments that IRS must make forthe frst tive to state an local governments for BABS,

‘ongoing safeguards are needed to very that payments are only made on

‘outstanding bond tssues that continve requirements To this end, IRS and Treasury havea working group fo to meet BAB elitilty

‘examine efferent approaches for acquiring BAB mnfrzation over the ie

‘of bonds to verify payments aad determine how frequently additonal bond

‘information reporting by issuers should occur The working group may Suggest new ond reporting requirenient, seh 28 anew ta for, late

2010, More detailed reporting on BABS to provide added transparency and

‘accountability es help with this effort and be benefieil it were

‘compatible with other needs identified ty the working rou

As of December 18,2000, IRS had not reported the number of former

‘employees receiving COBRA premium assistance When the data are ready, IRS information on COBRA premium assistance eains will

‘understate the total numberof individuals receiving health instrance Employers are instrieed to ist the namber of individuals provided

‘COBRA preminn assistance on Form 941 for 200, “Emaploger's Quarterly Federal Tax Return.” However, the number entered on the form is ony the {otal namber of former employees receiving COBRA coverage and does not include their dependents who may be covered under the same insurance plan For example, COBRA preniam assistance was pad for

an insratice plan that covered former employee and his oF her spouse

‘and hil 0 employer would count Lat 8 ane person provided COBRA premiuin assistance on Form if], not three Counting this way prevents 8

‘meaningful comparison with the JCT's estimate that 7 million workers and

Initial FTHBC Data Did Not

Reflect the Credit’s Full Dollar

Value

‘dependents would use the COBRA subsidy Moreover, the nnmber does

‘no provide stakeholders complete information on provision use

‘According to IRS official, the form didnot include dependents due toa short time frame for implementation, space constraints on the form, anda desire not to overburden employers with additional reporting

requirements, As of December 26, 2000, as shown in appendix IV, IRS had received approximately 162,000 retuens from employers claiming about

$505 milion in COBRA credits"

[Before September 30, 209, IRS's 2000 FTHBC information was Imnersiated—it dd not show the fll dollar amount ofthe eredits claimed Initially, IRS only reported the difference between the maximum benefits

‘ofthe 2008 and 2000 PTHBCs as the total benefit of the 2009 FTHBC That

Js, the data only reflected an estimated increment above the 2008 FTHBC's

‘maximum benefit of $7,500 asthe amount of ered claimed forthe 2009 THBC, rathe than up tothe fll amount of the edit, & maximnm of

$8,000, ina September 3, 2008, report on the Recovery Act, Treasury also reported this estimated incremental amount, On September 4, 2000, we pointed out to IRS officials thatthe increment did not consider that {axpayers might have decided to buy a house because the 38,000 maximum benefit offered with the 2009 FTHBC generally would not have co be paid back o the federal government—unlike the 2008 credit for which the

$7,300 would have to he repaid over 1S years, IRS revised ts data and provided information reflecting the full amount ofthe ered claimed ina September 39, 2009, report As shown in appendix IV,as of November 21,

2009, IRS data show that bout 1.1 milion flrs laitned about $7.3 bilo

‘ofthe 2008 ered, while about 630,000 filers claimed about 84.7 billion of the 9000 PTHBC Ê

thea data ou ke inept sini ome concen ext ont i iy,

An Speemlo ho, TTA poor tht vuane xe coi xa ii EENRC cmy

‘ce cin ioc 8 18 RE oy tơ tan

HICTO Data Overstate the

Number of New Enrollees

Aitributable to the Recovery

‘would be inclined to engol given the higher subsidy However, according {o.fune 2006 IRS daa, IRS would only mail HCTC progeam Ki and registration formsto uxpayers after other agencies spent 1 to many months determining if taxpayer wasn fat eligible forthe eredit in the frst place Thus, to be enrolled in Apr! 2008, mang taxpayers would hve tohave started the HCTC process before the Recovery Act sas signed I oifcials acknoseledged some of the enrolies counted as new cond have Deen in the pipeline for enroliment on February 17 Ofieials also said cheir callection of dats in general was not intended to See whether the Recovery

‘Act actualy motivated someone to change bebatlor, inthis ease to enroll

Ôn the UTC program

The Beonomie Stimulus

Effect of the Tax

Provisions Cannot Be

Precisely Isolated

‘he data IRS has collected about che tax provisions itis adwinistering are

‘ot designed to isolate or aifecentite the stimahis effect of these provisions from that of axher Recovery Act provisions To assess the effects of stimulus policies such as tax incentives, economists use

‘evidence fran macroceonometre Forecasting modes and models that

‘extrapolate from historia data, The forecasting movtels are based angely

‘on historical evidence, andthe analyses estimate behavior based on how

‘economic variables sueh a8 gross domestic product (GDP) have responded to stimulus policies in the past Neier type of model ses

‘current data to assess the effect ofthe sting The models are set to estimate “mulipliers” whieh represent the cumulative effect of particular incentive, such as a tax eut, on GDP overtime For example, a 2nuhipher of LO means a dolar of stimulus Nranced by borrowing rests

‘wan additional dolar of GDP Generally, multipliers ean provide insights {na the potential effect on GDP of diferent types of publte spending Because ofthe lied historical experience wih aise saimuls of the aagnitide ofthe Recovery Act, there is uncertainty about the extent to

‘wich malipliers based on historical evidence about che effect of previous

‘business eveles will accurately reflect the simuis effet this ime

However, economists use the models asa basis for constructing reasonable ranges of values for multipliers.” Drawing on analyses based

‘on past experience with the results of government spending, CBO has estimated mukipliens for Recovery Act provisions that include tax expenditures (se table 3)

‘Taove Estmoted Muliplor for elected Recovery Act Provisions

provisions” According to CEAS analysl the bonus deprecation provision, which allows businesses to recover the east of acquired property ata faster rate than they otherwise would, benefited businesses land may have led toa slower investment decline in the second quarter of

2000 than would have oceurted inthe absence of such provisions

[Additionally CEA concluded that although the MWPC, along with other provisions of the Recovery Act and other economic recovery policies,

[pio Report faa Dota Provide Some Dnt ine Cn Roe A Ft but Bat Quatity wad Reporting Ire Nod Ateton, GAO 1089 (Washiatn, De Nowa)

eget Oi othe Poses Come of eon Alvin, Te Zone pct the Amerson acer and Reinverinen At af 208 Quynedự Raper (Gain: Svar: te Bini pct of he Arion ary and ersten! D.C See 10,300) Hace ie of the Presents Coun eons Ato 290

‘Std Guero port angen, isan 1820103

‘elped stabilize consumption, a small drop in consumption inthe second

‘quarter could indicate that households were using the MWPC mainly to Increase savings and pay off debt In addition, thelr analysis suguests that, inauldtion to other policy actions afecting residential realestate, the Recovery Act's FTHEC may have moderated job losses in the construction industry

‘We have previously reported that evaluating isk is important because allows an organization to identify potential problems before they oceur so

‘that mitigating activites ean be planned and implemented over a projects life to minimize adverse effects on objectives and outcomes." Risk

‘management includes executive oversight, preparing for risk management, Identifying and analyzing risks, and mitigating risks Organiaatsons prepare {or risk management by establishing a strategy for identifying, analyzing, and mitigating risks Hentifying and analyzing risks involves identifying

"sks fom internal and external sources and evaluating each tsk to determine its likelihood and consequences, Mitigating risks involves developing risk-mitigation plans that outline the techniques and methods that will be used to void, reduce, and control the probability of risk

Consistent with these activities, IRS established an exeeutive steering committee to oversee Recovery Act implementation The committe,

"whieh was formed before the sets enactment, inde the heads ofall

RS operating divisions It met regularly to discuss issues such asthe resources needed to implement the ax provisions changes to be made to {orms and information systems, information to be posted onthe Internet, and compliance challenges

IRS also completed eight risk assessments—questionnaires that identified potential isk, ther likelihood of occurrence, and their effect—that

a, in ince Sat Dart Fin Ioan pn Hae

‘Practices, G00 (Wain, bes Now 21908) an GAO nimmaiem Seri ak same Pros i ating ans, GAĐNINI0038

‘covered 12 provisions inmediately avalable to taxpayers The Ask assessments considered rornion Fisk areas sie a8 the adequacy of Internal contrel procedures, agency-specife risks such asthe extent of management oversight overthe riskemanagemtent process, and prom specific risks such as resource availability The risk assessments resulted

In of the 12 provisions heing cousidesed as medium risk and 328 low risk IRS plans to evaluate liese assessments aad camplete assessments bof the remaining Recovery Act tax provisions in 2010 Following Treasury policy, IRS completed mitigation plans forthe 9 provisions it found tobe

‘at medium iste

IRS Has Addressed Some

Compliance Challenges,

with the FTHBG, and

Alternatives Exist That

May Alleviate a Remaining

Challenge

[Despite is elforisto assess and mitlante potential sks, TRS sll

‘eneountened compliance challenges with he ETHIDC # addressed some of them Bor example, IS used prerefund filters to ensure that taxpayer income an the anotnt of ere claimed on a return do not exceed Sarntory lis, TRS iso used an eletzoniefrautdetection system with filers co detect and prevent fraudulent refund seems However 1S and TIGA reviews of early FTHBC filings identified additional compliance sssues, suchas instances where taxpayers who lad previously owned a Thome elainved the ered, ased om is review of early lings, IRS inplemented additional computer fers to hetcer determine taxpaver

‘hasinlty before refols were issued For example, IRS developed Miles {o check for indications of prior homseownership within the past 3 years

‘Asa resull ofits prerefund checks, as of February 1.2010, IRS had frozen

2008 ETHEC, as individuals wha sell their ines or othervse cease to tse their home as thelr prinelpal residence before uly epaying thei ered up

£037,300 have to accelerate their repayment [RS rosified Porm 5108 for taxpayers to report the disposition of their home or a change in its use, but

as of December 200 had not deed how it wil identify mdi

‘sho fal (0 report ™

LAN IRS form already exists that could help resolve this compliance sie, boat wether IRS is auhorzed to use it for this purpose wold have to be determined Currently, IRS znnnally receives some Forms 10805,

“Proceeds from Real Estate Transaction,” from agents closing real estate transactions sich as hone sales." The form provides information sch 2 fhe seller's nance and Social Security nuznber and the sale price of the home andi to be used hy IRS to determine a taxpayers have filed returns and reparced al of their proceeds from realestate transactions However closing agents are generally exempt fron reporting information on the sale

‘of princial residences sold for $250,000 or les ifthe agent receives twntten certification from the seller that certain assurances ace tse” Moreover, s isnot clear whether IRS as the authority to requte Bort 10/8: be Bled by third parties currently exempted for purposes of

“the WuAder Wemeownenlip, nổ Hoince Aantnce Ae of 0, Pa Ne L4)

Teeapture trom PTHBG recipients: I For 1009 information reporting

‘could be required forall home sles oF for those taxpayers who do not certify that they had no claimed the FTHBC, IRS might be better able co

‘deat the taxpayers who need to repay part oral ofthe ere Because Form 1004S cartains te seller's Scial Security number, IRS could mateh the identification numbers on the Forms 1990'S to those reported on returns elaiming the FTHBC, isolating Fotm 1099-8 fers who should have reported their home sale on the PTHIC form, but did not

‘As we were completing our review, IRS officials Menifed an alternative

‘way Co analyze whether homebuyer credit recipients sell their homes at are, therefore, posibly subject co payback requirements, This atermative Involves acquiring access to third-party data in the form of pablily available real estate wsformation fom local governments, This information

‘ould include individual propeeves’ addresses, previous and recent sales prices, snd sales cates IRS coll se these dala in matehes against Form

5408 or oer IRS daca to Mentfy taxpayers wio claimed the FTHBC and then sold their property without repaying any required part ofthe FTHC benefit shey received IS expects fo purchase the use ofthese dal, use

‘hem, and then evaluate how wel thes help IRS enforce the FTHBC provisions The evaluation isnot Yet designed but should be able co caver sues like data reliability, eomprehensiveness, and cost effectiveness

COBRA Compl ince Issties

‘The Recovery Aet provides eligible axpayers with COBRA peemluny assistance—a 65 percent reduction in health insurance premiums for Individuals who were mvoluncriy terminated between September 1, 2008, and December 31, 2008,” An employer pays 65 percent of former

‘employees’ insnranee peemlum costs and s eimbursed in the form of 2 agtall tax eve” This tx provision is only the secand refundable ts eredic administered by IRS's Small BusinessSeleEmployed (SESE)

“ission.” Unlike the ofher credit, SRSE’s compliance strategy for COBRA focuses on the employer and the Form 941, not on individuals recelving

‘To identify fraudulent or erroneous COBRA claims made by employers,

RS instituted a number of prepayment ehecks, such as looking for leregulartes in COBRA claims and in the dollar value of subsidies As of September 2, 2009, the prepayment checks had stopped about 1,500, or2 percent, of COBRA claims for further review:

Other compliance challenges have not been resolved For example, IRS docs not know who receives the COBRA subsidies, which limits its ability

to determine ifa taxpayer is qualified to receive a subsidy and to ensure that employers do not receive the cred for ineligible individuals In an effort to reduce employer burden, IRS didnot require employers to submit lists ofall people revelving COBRA Asaresul, i was only aware ofthe jumber of individuals an employer reported on Form 941 andthe total amount ofthe subsidy claimed Employers are required by IRS to keep records of the COBRA assistance including the names and Social Security

‘numbers of covered employees, hut IRS would see this information only ding any examinations,

Another challenge facing IRS verifying that those taxpayers who are required to repay par ofthe COBRA subsidy they receive do so Those Individuals and marvied couples filing joine tax retms with modified adjusted incomes above $125,000 aul $250,000, respectively, are required toreport on their tax return that they received COBRA assistance This xeghiremtentisin place because the COBRA subsidy phases out for those taxpayers with higher incomes, and those abave the phaseowt range are Ineligible IRS plans to conduct a review of filed returns to identity high- Income taxpayers who did not report the subsidy a an addition to tax However, rather than rely solely on audits to determine if these taxpayers

ˆ De Ahanes Patellieume Tx i (AEIT wo the fe ne es be

Tecnve Tax Credit n thet paychecks, ateud of recsving al oft whe fing their pear

‘fou hatte was wo an high renee acted wih the EITC Por

‘ad Inpode I ioe to duce High Nonompiance GAOT A110 (ashgron, EA 1,201) alo em ae the Present econo SHS ayo atest guna the ABTS program terminated