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“Possibly Bad” QBI prints

According to a report released Tuesday by the Inspector General of Financial Management, the IRS allowed business owners to claim “potentially erroneous” deductions of $ 57 million on 12,980 tax returns filed in the past year.

The watchdog asked the tax authorities to tighten control over the pass-through deduction.

This is a rich vein for the IRS to prospect because the IRS is getting pay grime so far [almost] every time.

Steven Rosenthal

Senior Fellow at the Urban-Brookings Tax Policy Center

It’s not entirely clear why the Treasury Inspector General reported these tax returns to the IRS. The report, which analyzed tax returns for 2019 filed as of April 16 last year, worked out many details.

The analysis also shows the high level of error in tax returns that claim a pass-through deduction, said Steven Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center.

For example, when the IRS selected 68 tax returns for the 2018 tax year for additional scrutiny, the agency ultimately denied 85% of them a pass-through deduction worth approximately $ 4.8 million, the report said.

“This is a rich vein for the IRS to prospect because the IRS is getting wage filth so far [almost] every time, “said Rosenthal.

“I think QBI is written in a very complex way, with exceptions to the exceptions,” he said of the trigger and why errors can occur.

Eric Hylton, Commissioner for the IRS Small Business / Self Employed Division, acknowledged that withholding is complex and challenging for taxpayers and federal agencies.

However, the 12,980 returns identified in the Watchdog analysis account for just 0.14% of the 9.4 million who applied for a QBI deduction, Hylton said in a response attached to the report. And about 95% of them were duly selected by the IRS, he said.

The pursuit of additional compliance would divert resources away from other agency areas and “reduce the overall revenue potential,” he added.

The Treasury Inspector General has been contacted but did not respond to a request for comment at the time this story was published.