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IRS Loses Billions – really? Crappy Data leads to these ridiculous claims.

By August 26, 2014IRS

Accounting Today posted an article by Michael Cohn early July 2014.  The article summarizes a report from the Treasury Inspector General for Tax Administration(TIGTA).  (A position created in 1998 to provide independent oversight of IRS activities.)  http://www.accountingtoday.com/news/irs_watch/irs-loses-billions-on-erroneous-amended-tax-returns-71263-1.html

I have four major issues with this report.

First

The title itself is a sign of everyone’s misunderstanding of the IRS.  The IRS collects money for the treasury department.  They are collectors and enforcers for the government.  So it is not possible for the IRS to lose billions. So the title should be more like, “IRS fails to collect billions.”

Second

The emphasis of the report is on the wrong team.  He’s worried about what the IRS is failing to collect.  The TIGTA provides oversight to IRS activities.  That oversight should be focused on helping the taxpayer.  Have you ever got a letter from the IRS saying you owe them more money?  Lots of taxpayers do.  In our experience with our clients, most of those letters are wrong.  And by most, I mean more than 80%.  Why isn’t this TIGTA fellow investigating why the IRS sends millions of false claims to taxpayers?

Third –

I hate how statistics are so easily manipulated.  In 2012, IRS received 4 million amended tax returns.  The sample size the TIGTA used was 259.  That is .0001%.  A sample size of 40,000 would be 1% to put that in perspective.  Of the 259 they looked at, 44 of them issued “potentially erroneous tax refunds” totaling $103,270.  That’s an average of $2,347.05.  I’m ok with that average number because in most cases, if your refund from an amended return wasn’t more than $2,000, it might not be worth the headache to amend in the first place.  I digress.  That is 17% of their sample selection had errors.

Then they get fancy with some extrapolation activity and say that based on the finding that 44 out of 259 amended tax returns had potential errors, the IRS may have issued more than $439 million tax refunds that they shouldn’t have.  That means over the next five years, the IRS could issue an estimated $2.1 billion in bad refunds.

I wonder if they pulled another 259 amended returns they would come up with the same result.  Statistically, that is very unlikely.  The more likely result is that they would have drastically different results every single time they just look at 259 amended returns out of a pool of 4 million.

Fourth

The other issue with this part of the report is that they are “potential” errors.  Not actual errors.  Just like those nasty grams you get from the IRS saying you owe them more money are generally wrong, I bet the “potential” errors are also way off.

You may not realize this, but the IRS does not have your best interest in mind.  The IRS mission is to “provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.”  I can tell you that I have seen an IRS auditor exhibit that statement never.

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