Audit Finds IRS Sent $1.1 Billion in Child Tax Credit Payments to Ineligible Taxpayers, Failed to Send $3.7 Billion to Eligible Taxpayers

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The Treasury inspector general for Tax Administration issued an audit last week that examined the accuracy of IRS child tax credit disbursements between July 2021 and November 2021. The audit found that the IRS sent $1.1 billion to ineligible taxpayers, and did not send $3.7 billion to eligible taxpayers.

In 2021, the American Rescue Plan Act was passed. It increased child tax credit payments by $3,000 for children under 18, and $3,600 for children under 16.

Incorrectly, the IRS distributed 3.3 Million payments to 1.5 Million ineligible households. The IRS also failed to deliver 8.3 Million payments to eligible households.

The audit found that 98% of child tax credit payments made between July 2021 and November 2021 by the IRS were correct, despite millions of misdirected or unsuccessful disbursements.

Kenneth C. Corbin, a commissioner of the investment and wage divisions, wrote in response to the audit: “To achieve this level of accuracy in the short timeframe provided required significant collaboration between several agencies within the Department of Treasury.”

Incorrectly receiving payments from taxpayers was later disqualified. This was because the children were either deceased or did not meet the age requirements.

The audit revealed that ineligible taxpayers could be required to repay the funds. The audit directed those who should have received payments but didn’t claim the amount on tax returns.

The IRS management said that there were several programming mistakes that led to the non-payment of the payments to qualified households.

One error, for example, “erroneously excluded taxpayers with an Individual Taxpayer ID Number”, and another occurred when one spouse did not update their bank account information in the tax credit portal.

According to the audit, multiple programming errors were also corrected by IRS that prevented certain taxpayers from receiving periodic payments.

Five recommendations were made by the inspector general to the IRS to prevent similar errors in the future. These included preventing further improper payments, informing taxpayers of any advance payments that may have been sent into another account, and validating files received from third-party sources.

The report states that the IRS accepted all the recommendations.