By Nick Thornton
The IRS is failed to purse millions in potentially improper deduction claims for qualified retirement savings contributions, an audit by the Treasury Inspector General for Tax Administration has found.
The federal government since 2002 has allowed for a “savers credit” for certain low- to middle-income workers who contribute to a qualified retirement plan
. Approximately $1.1 billion in saver’s credits were claimed in 2011.
The objective of the TIGTA’s audit was to assess how well IRS "controls" over saver credit claims are working. In processing claims, the IRS generally looks at age limits, income levels and credit limits. For tax-year 2011, the audit found $53 million in false or overstated claims.
An average of 6.3 million returns claimed the savers credit between 2009 and 2011. In 2011, 280,542 of the 6.4 million saver claims filed were potentially falsified or overstated.
A better vetting system could result in the recovery of $264 million in claims over five years, the auditors said.
Certain improvements were recommended to the IRS Wage and Investment division, which oversees saver credit claims. The IRS responded to the report by saying that, while improvements could be made, it didn’t believe there were cost-effective alternatives to the compliance measures already in place.
The amount of credit available is based on the taxpayer’s AGI, tax liability and the amount contributed to the retirement plan. Contributions are capped at $2,000 for individuals in determining the credit. The amount of credit is as low as 10 percent, and as high as 50 percent, meaning a single filer’s tax credit can never exceed $1,000 ($2,000 for joint filers).
In order to qualify, filers must complete and attach Form 8880 to their 1040
. The forms calculated contributions, and are the IRS’s primary gauge over the claims.
Originally published on BenefitsPro.com