TIGTA Highlights Improvements To Identify Fraudulent Individual International Tax Returns

TIGTA initiated this audit to evaluate IRS processes to identify and prevent potentially fraudulent individual international tax returns. Nonresident aliens (hereafter referred to as nonresidents) are generally required to file a tax return to report their U.S. source income and pay any tax due. In contrast, residents of a U.S. territory generally report their U.S. source income on their territory tax return (i.e., do not have a U.S. tax return filing requirement), unless these individuals have self-employment income of $400 or more, or are eligible to claim certain tax credits.

The IRS does not have sufficient processes in place to identify potentially fraudulent individual international tax returns at the time these returns are filed. TIGTA’s review of Tax Year 2018 tax returns identified 8,332 international tax returns with potentially erroneous or fraudulent refunds totaling nearly $20.6 million that were not identified by the IRS. The IRS currently has no processes and procedures in place to ensure the legitimacy of ****** at the time returns are filed. ****** are taxed at a reduced rate or are exempt from U.S. taxes on certain U.S. source income. TIGTA identified 130,448 international tax returns with a ****** or which the IRS These Individuals Reduced or Eliminated The Federal Income Tax Paid On Nearly $2 Billion In Income. The IRS also has not implemented processes to verify that international taxpayers ****** at the time the return is filed. TIGTA identified 50,297 ******, that were incorrectly filed by residents of a U.S. territory and nonresidents. As a result of incorrectly filing *** ***, these individuals received erroneous Earned Income Tax Credits, Additional Child Tax Credits, and American Opportunity Tax Credits totaling more than $83.7 million. TIGTA made 15 recommendations. TIGTA recommended that the IRS improve the identification and prevention of potentially fraudulent individual international tax returns, require individuals who report a ****** to provide documentation ******, and develop processes to address claims for which the documentation is not provided. TIGTA also recommended that the IRS develop processes to systemically identify and address international taxpayers who are potentially filing ****** to receive refundable tax credits. The IRS agreed with 12 of the 15 recommendations. The IRS did not agree to require ****** documents for ****** or to work with the Department of Education to obtain and perfect eligible educational institution Employer Identification Number data.

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