As Christian groups (including the Billy Graham Evangelistic Association and Samaritan's Purse) continue to claim they were inappropriately targeted for IRS audits, debate over the scandal's scope has drawn attention to problems with how the IRS audits adoptive families.
"The IRS's misguided procedures, and its failure to adequately adjust these processes when it learned its approach was seriously flawed, have caused significant economic harm to thousands of families who are selflessly trying to improve the lives of vulnerable children," concludes a government report spotlighted by the Tennessean.
The lengthy report from the IRS's Taxpayer Advocate Service (TAS) details how the IRS audited nearly 7 in 10 adoptive families who claimed the adoption tax credit in 2012. Of those, nearly 80 percent had "missing, invalid, or insufficient information;" however, only 2 percent of potential credits were disallowed, signaling no widespread fraud.
The report concludes:
The IRS, facing a sizeable refundable credit, reacted with an enforcement strategy that was focused on stopping nearly all returns claiming the credit and subjecting a large percentage of them to an audit, instead of reaching out to stakeholders (including states) to understand the impacted taxpayer population. When problems emerged, the IRS simply continued selecting returns for audit. This approach forced taxpayers to withstand lengthy delays and the IRS to expend valuable resources with very little to show for them. As the IRS faces a new refundable credit in the form of the Premium Tax Credit, it should study and learn from its mistakes to avoid repeating them again, when there will be even more at stake.
The IRS responded:
Our experiences and lessons learned from other refundable credits taught us that high dollar credits have high risk and the potential for fraud. We must ensure delivery of the credit to those entitled while protecting the government's interest in minimizing exposure to fraud.
...
In FY2012, we found errors in 44 percent of the returns we examined and closed, protecting revenue of almost $135.5 million.
To which the TAS responded:
This means that in 56 percent of its adoption credit audits, the IRS found no errors. This no-change rate is among the highest the National Taxpayer Advocate has ever seen since she was appointed to this position. For the IRS to say, with a straight face, that this is a positive result of any audit strategy makes a mockery of effective tax administration. It also signals that the IRS continues to underestimate or ignore the true burden it placed on taxpayers who are legitimately claiming a tax benefit to which they are entitled and sorely need.
CT noted that the adoption tax credit was in danger of being allowed to expire, but survived the so-called fiscal cliff in January.
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