Creating a new system to administer periodic child tax credit payments in lieu of a single annual payment may spur fraud and errors, the committee's ranking member, Rep. Kevin Brady, R-Texas, and Rep. Mike Kelly, R-Pa., said in a letter sent Sunday. This is especially true because the changes to the tax credit are temporary and will end at the end of this year, they said.
"Our concern focuses on the problem of improper payments and the IRS' ability to create a secure and effective payment system in such short period of time, given that this program expires at the end of 2021," the letter said. "Expanding advanceable tax credits such as these without safeguards to address payment integrity problems will surely lead to expansions in improper payments."
The child tax credit, which falls under Section 24 of the Internal Revenue Code, previously allowed a credit for up to $2,000 per child under the age of 17, with up to $1,400 in refundable credits. However, the newest coronavirus stimulus bill, the American Rescue Plan Act , temporarily boosted the amounts parents could claim.
Before the plan, parents needed to earn at least $2,500 to qualify, but now people who earn no money may claim the credit, which has been made fully refundable. In addition, the credit has increased to $3,600 per child for children under age 6 and $3,000 per child between ages 6 and 17.
The American Rescue Plan specifically provides for advanced payments of the credit that can be made as frequently as monthly from July 1, 2021, through Dec. 31, 2021, equal to 50% of the estimated full value of the credit. The law directs the Treasury Department to establish a program to make periodic payments to taxpayers and is determined based on 2020 tax filings, or 2019 tax filings if information from 2020 is not available.
Brady and Kelly said they're worried the IRS is being asked to create a new payment program in an extremely rushed manner, which is especially difficult since former Taxpayer Advocate Nina Olsen estimated it would take 12 to 18 months to create a sufficient monthly system.
Given the potential fraud and error problems in making a new periodic payment system, Brady and Kelly asked Rettig what the estimated time frame would be to make it and whether the IRS has created a complex system like this in the past. The lawmakers also asked whether the IRS could guarantee the improper payment rate won't increase and what the agency is doing to reduce the current high rate of error and fraud for current refundable tax credit payments.
The letter asked for answers by April 24.
The IRS did not immediately respond to questions.
In a separate letter to Gene L. Dodaro, the comptroller general of the U.S. Government Accountability Office, Brady and Kelly said they are concerned that developing a completely new information gathering and payment system so quickly will worsen the agency's already high improper payment rate.
In 2016, the GAO reported that credits such as the earned income tax credit and the additional child tax credit have had a long history of improper payment rate because of errors and fraud. The GAO recommended that the IRS develop a comprehensive compliance strategy that includes all refundable tax credits and use available data to identify potential sources of noncompliance.
In light of these concerns, Brady and Kelly asked the GAO to provide a brief review of the extent of improper payments for the two credits and to analyze what, if any, safeguards the IRS might include in its new child tax credit periodic payment system. They also called for a report on the implementation of the new child tax credit periodic payment system with a focus on improper payment rates and payment integrity.
A representative of the GAO confirmed that it had received the letter from Brady and Kelly. The GAO said it plans to go through the usual review process before any decisions are made, which typically takes a couple of weeks, the spokesperson said.
In a separate letter to the White House American Rescue Plan coordinator, Gene Sperling, Brady and Kelly asked the administration of President Joe Biden to provide a written certification to the tax-writing committees of Congress that the new child tax credits cash payments will be implemented with safeguards to reduce improper payments. They also requested an explanation of "how the new CTC program will be implemented without costly IRS burdens or intrusions into taxpayer privacy, such as constant monitoring of changing family status," the letter said.
Representatives of the White House did not immediately respond to questions.
Brady and Kelly also called on Treasury Inspector General for Tax Administration J. Russell George and his office to examine the new periodic payment program that is created to pay child tax credits.
In 2015, the IRS made $15.6 billion in improper payments, which was 23.8% of all payments, according to the letter. In 2019 that increased to $17.4 billion in improper EITC payments, which was 25.3% of all payments, according to the letter. Then in a 2020 report, TIGTA said while auditing earned income tax credit recipients continues at higher rates than most other taxpayers, that audit rate had decreased over five years, from 1.6% in 2015 to 1% in 2019.
"Given these concerns, we ask that TIGTA conduct robust oversight of the implementation of this program by the IRS and provide regular updates to the committee," the letter said.
Representatives of TIGTA did not immediately respond to questions.
--Additional reporting by Vidya Kauri, Andrew Kragie and Theresa Schliep. Editing by Neil Cohen.
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