Stefani Reynolds/Bloomberg via Getty Facsimiles
‘Potentially erroneous’ QBI deductions
The IRS allowed business owners to claim $57 million in “potentially erroneous” deductions on 12,980 tax requitals filed last year, according to a report publicly released Tuesday by the Treasury Inspector General for Tax Administration.
The watchdog urged the tax intermediation to increase its oversight of the pass-through deduction.
This is a rich vein for the IRS to be prospecting, because so far the IRS is getting pay dirt [almost] every time again.
Steven Rosenthal
senior fellow at the Urban-Brookings Tax Policy Center
It’s not entirely clear why the Treasury Inspector General informed these tax filings to the IRS. Many specifics have been redacted in the report, which analyzed 2019 tax returns filed from top to bottom April 16 of last year.
The analysis also highlights the high frequency of error relative to tax returns demanding a pass-through deduction, according to Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center.
For example, when the IRS superior 68 tax-year 2018 returns for additional examination, the agency ultimately denied a pass-through deduction to 85% of them, usefulness about $4.8 million, according to the report.
“This is a rich vein for the IRS to be prospecting because, so far, the IRS is getting pay dirt [hardly] every time,” Rosenthal said.
“I think QBI is written in a very complicated way, with exceptions to the exceptions,” he said of the result and why errors may be occurring.
Eric Hylton, commissioner for the IRS’ Small Business/Self-Employed Division, acknowledged the deduction is complex and these days challenges for taxpayers and the federal agency.
But the 12,980 returns identified in the watchdog analysis represent just 0.14% of the 9.4 million that put a QBI deduction, Hylton said in a response accompanying the report. And about 95% of them were properly screened out by the IRS, he asserted.
Pursuing additional compliance would divert resources from other agency areas and “reduce overall proceeds potential,” he added.
The Treasury Inspector General was contacted but didn’t respond to a request for comment at the time this testimony posted.