In a number of our posts we highlighted how private debt collectors would be dispatched to collect on dormant taxes as a result of the PATH legislation. It was created to generate and divert tax revenue for infrastructure projects. In addition to new collection efforts, the law would close a number of loopholes and limit tax credits that many taxpayers currently enjoy.
With many new pieces of legislation, it is not always implemented correctly when first released. A recent accountingtoday.com report described how the IRS did not properly implement PATH provisions that would reduce several refundable tax credits. Essentially, the IRS allowed improper payments under the Child Tax Credit, American Opportunity Tax Credit, and Earned Income Tax Credit when taxpayers filed amended returns for prior years or original returns for such years.
The PATH provisions eliminated credits requested in this fashion. As a result, the IRS allowed an estimated $152 million in credits when it should not have. The Treasury Inspector General for Tax Administration (TIGTA) reported that the IRS did not have the technology and processes in place to catch such claims in time to properly refuse them.
The question now is, will the IRS send notices to recoup those reductions, especially if they resulted in refunds being issued. Also, will taxpayers be held liable for following the law that they genuinely believed to be right at the time? These are both questions that should be posed to an experienced tax attorney.
The preceding is for informational purposes only and is not legal advice.