IRS Fails Audit: Free File "Did Not Always Accurately Compute Taxes"

A Treasury Department audit found that Free File users with kids may have missed out on several significant tax credits. Free File allows “low-income” Americans – taxpayers making under $52,000 per year – to file their taxes for free. The audit discovered that the program’s online affiliates “could not handle simple returns,” resulting in the following failures:

•25% of Free File affiliates improperly calculated eligibility for the earned income tax credit and the dependent care credit;
•Almost 50% of affiliates did not ask users for enough information to determine if they were eligible to claim exemptions for dependents;
•One affiliate allowed improper exemptions for dependents;
•Some affiliates hate kids and would not allow filers to claim more than four dependents.

The Treasury Department wants the IRS to test the accuracy of its affiliates, but it’s nice out and the IRS thinks that will take too much work:

Management did not agree with our recommendation to establish a process to test the software used in the Free File Program to ensure common scenarios are being handled accurately. Management stated the IRS already reviews the accuracy of Alliance members’ software to ensure it operates within the parameters of the Free File Agreement, and other tests ensure these electronic returns are compatible with IRS system requirements. However, these tests do not assess the accuracy of applying the tax law. Management stated testing of commercial tax preparation software to determine its accuracy in applying the tax law would be a monumental challenge for the IRS.

Filers who think they may have been shortchanged should acquaint themselves with our dear friend, Form 1040X.

IRS tax-filing software often problematic [LA Times]
Additional Action Is Needed to Expand the Use and Improve the Administration of the Free File Program (Audit # 200640033) (PDF) [Treasury Inspector General For Tax Administration]
(Photo: numberstumper)