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entitled 'Recovery Act: IRS Quickly Implemented Tax Provisions, but 
Reporting and Enforcement Improvements Are Needed' which was released 
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Report to Congressional Addressees: 

United States Government Accountability Office: 
GAO: 

February 2010: 

Recovery Act: 

IRS Quickly Implemented Tax Provisions, but Reporting and Enforcement 
Improvements Are Needed: 

GAO-10-349: 

GAO Highlights: 

Highlights of GAO-10-349, a report to congressional addressees. 

Why GAO Did This Study: 

The American Recovery and Reinvestment Act of 2009 (Recovery Act), was 
enacted to bolster the struggling U.S. economy at an estimated cost of 
$787 billion, of which more than a third was in the form of tax relief 
to the public. 

This report (1) describes the status of the Internal Revenue Service’s 
(IRS) implementation of Recovery Act tax provisions; (2) examines 
whether IRS captured or planned to capture data on the use of the 
provisions; (3) assesses IRS’s efforts to determine potential abuse of 
the provisions; and (4) discusses possible lessons learned for future 
tax administration. GAO analyzed IRS’s implementation and data-
collection plans for each provision; reviewed IRS and Department of 
the Treasury (Treasury) risk-management documents; interviewed federal 
and industry officials; and focused on five provisions implemented in 
2009: Build America Bonds (BAB), Consolidated Omnibus Budget 
Reconciliation Act (COBRA), First-Time Homebuyer Credit (FTHBC), 
Making Work Pay Credit, and Net Operating Loss carrybacks. 

What GAO Found: 

The Recovery Act posed significant implementation challenges for IRS 
because it had more than 50 provisions, many of which were immediately 
or retroactively available and had to be implemented during the tax 
filing season—IRS’s busiest time. Some provisions affected the 2009 
filing season (2008 tax year), while others mainly will affect the 
2010 and 2011 filing seasons. IRS responded quickly to its challenges. 
For instance, within about 6 months of the Recovery Act’s enactment, 
IRS had issued guidance or instructions for more than 80 percent of 
the provisions. 

Figure: Categorization of the Tax Provisions That IRS Had a Role in 
Administering: 

[Refer to PDF for image: vertical bar graph] 

Categorization: Individual credits; 
Number of provisions: 12; 
Value of provisions: $247 billion. 

Categorization: Bond incentives; 
Number of provisions: 14; 
Value of provisions: $27 billion. 

Categorization: Consolidated Omnibus Budget Reconciliation Act; 
Number of provisions: 1; 
Value of provisions: $25 billion. 

Categorization: Energy incentives; 
Number of provisions: 14; 
Value of provisions: $20 billion. 

Categorization: Business incentives; 
Number of provisions: 11; 
Value of provisions: $6 billion. 

Categorization: Health coverage improvement; 
Number of provisions: 1; 
Value of provisions: 0[A]. 

Categorization: Withholding on government contractors; 
Number of provisions: 1; 
Value of provisions: 0[A]. 

Total: 
Number of provisions: 54; 
Value of provisions: $325 billion[B]. 

Source: GAO analysis of IRS and Joint Committee on Taxation data. 

[A] The actual value is nonzero but is rounded down to zero. 

[B] This dollar total differs from the $288 billion used by the 
administration and posted on recovery.gov; it includes COBRA premium 
subsidies and economic recovery payments, because IRS is involved in 
administering them. 

[End of figure] 

However, responding quickly entailed tradeoffs, such as not making 
some computer changes to collect data, and subsequent improvements 
were required. For example, because of the compressed time to 
implement the 2009 FTHBC, IRS did not make computer changes to collect 
data, including the home purchase date. Without such information, IRS 
was unable to easily distinguish 2008 and 2009 FTHBCs. Distinguishing 
between the two credits is critical because they involve different 
requirements, including whether and how the credit is to be repaid. 
IRS plans to verify the date of purchase on past claims and make any 
necessary adjustments when it begins enforcing 2008 FTHBC repayment 
provisions. IRS also plans to make the computer changes needed to 
collect all significant data, including the home purchase date, from a 
revised form for 2009 claims. 

IRS’s Data-Collection Efforts Have Limitations 

IRS went beyond its typical data-collection efforts and plans to 
collect some data to track many Recovery Act provisions. Specifically, 
IRS currently has detailed data-collection plans for 17 or about 31 
percent of the provisions and 63 percent of the total estimated cost 
of the tax provisions. Initial collections did not fully or accurately 
capture the use of some provisions. In addition, very little of the 
data that IRS has collected on the tax provisions has been released 
publicly. 

As one example of limited data, neither IRS nor any other federal 
agency is collecting for publication the sort of information on BABs 
that the Congress required for the act’s spending projects. BAB 
projects can be very similar to those funded by Recovery Act spending 
projects, but the same transparency and accountability do not apply. 
If IRS were to collect such information, then it would need the 
Congress to grant it the authority to publish the information. State 
and local governments may issue an unlimited number of BABs through 
December 31, 2010, and all BAB proceeds must be used for qualified 
capital expenditures. As of January 1, 2010, state and local 
governments reported 443 BABs, which raised about $32.4 billion. One 
hundred and thirty-one BABs were issued for education, which were more 
issuances than for any other specified type of BAB. 

As another example, COBRA data will understate the number of 
individuals receiving health insurance. For instance, if COBRA premium 
assistance was paid for a former employee, his or her spouse, and one 
child, an employer would count that as one person provided assistance. 
According to IRS officials, the relevant form did not include 
dependents due to a short implementation time frame, space constraints 
on the form, and a desire not to overburden employers with additional 
reporting requirements. 

Provisions’ Economic Stimulus Effect Cannot Be Precisely Isolated: 

Similar to what GAO has found about the act’s spending projects, the 
tax provisions’ economic stimulus effect cannot be precisely isolated. 
Economists use evidence from macroeconomic forecasting models and 
models that extrapolate from historical data to assess stimulus 
effects. These approaches, however, are imprecise because historical 
experience may not apply well given the magnitude of the Recovery Act. 
The effect of some provisions on specific aspects of the economy may 
be described in general terms. For example, the Council of Economic 
Advisers noted that in addition to other policy actions affecting 
residential real estate, the FTHBC may have moderated construction-
industry job losses. 

IRS Took Steps to Mitigate Abuse of Provisions, but Some Compliance 
Challenges Arose and Others Remain: 

As a result of IRS’s FTHBC prerefund compliance reviews, as of 
February 1, 2010, IRS had frozen about 140,000 refunds pending civil 
or criminal examination, and, as of December 2, 2009, had identified 
175 criminal schemes and had 123 criminal investigations open. 
Although IRS addressed some challenges with the FTHBC in these ways, 
it still needs to finalize a way to identify individuals who fail to 
report home sales and might be required to repay part of the credit 
because their homes ceased to be their principal places of residence 
within 3 years of purchase. A form already exists that could be used 
for this purpose—Form 1099-S, “Proceeds from Real Estate Transactions,”
but it is not clear IRS could use the form for this purpose under 
current legislative authority. As GAO’s review ended, IRS identified 
third-party data that it expected to use and then evaluate the results. 

Similarly, IRS had not finalized actions to ensure that employers stop 
claiming the credit for COBRA premium subsidies when former employees 
are no longer eligible. A cost-effective option to help IRS with 
unresolved compliance issues exists—expanding a planned project to 
determine if employers are claiming the subsidies for longer than 
allowed. If they are, IRS could send all employers letters reminding 
them of their obligations and urging them to correct any errors they 
have made. 

Documenting IRS’s Recovery Act Lessons Learned and Expanding Its 
Authority, with Appropriate Controls, Could Improve Future Tax 
Administration: 

Issues IRS encountered in its Recovery Act experience could provide 
useful guidance for the future. Officials intend to do a lessons-
learned study after the 2010 filing season but have yet to develop 
plans for doing so. 

In addition, IRS and taxpayers would have benefited if IRS had more 
statutory “math error authority” (MEA) to correct errors during tax-
return processing when the Recovery Act was first implemented, rather 
than only after problems were identified. Authorizing such authority 
on a broader basis rather than case-by-case, with appropriate 
controls, could have several benefits to IRS and taxpayers; for 
example, it is an automated and low-cost means to protect revenue and 
avoid audits that are costly to IRS and burdensome to taxpayers. 

Agency Comments: 

The Commissioner of Internal Revenue agreed fully with two 
recommendations and agreed with the benefit of the third. He noted 
that the benefit of more BAB information would have to be balanced 
with the burden on BAB issuers but said IRS stood ready to implement 
the recommendation if the Congress authorized publication of the data. 
GAO believes this burden could be tempered by having a minimum 
reporting threshold or delaying the onset of requirements, as was done 
when similar reporting for charitable organizations was instituted. He 
also said that in those cases in which more MEA could be effectively 
deployed, IRS would welcome it. 

What GAO Recommends: 

GAO suggests that the Congress consider (1) authorizing IRS to publish 
more BAB information and (2) granting IRS broader authority to correct 
errors during tax-return processing. GAO also recommends IRS obtain 
more information on BABs, enhance compliance with the COBRA provision, 
and prepare a report on Recovery Act lessons learned. 

View [hyperlink, http://www.gao.gov/products/GAO-10-349] or key 
components. For more information, contact Michael Brostek at (202) 512-
9110 or brostekm@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

IRS Moved Quickly to Address the Recovery Act's Significant 
Implementation Challenges: 

IRS's Data-Collection Efforts Have Limitations, and the Tax 
Provisions' Economic Stimulus Effect Cannot Be Precisely Isolated: 

IRS Took Steps to Mitigate Abuse of Provisions, but Some Compliance 
Challenges Arose and Others Remain: 

Documenting IRS's Recovery Act Lessons Learned and Expanding Its 
Authority, with Appropriate Controls, Could Improve Future Tax 
Administration: 

Conclusions: 

Matters for Congressional Consideration: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Background and Requirements of Selected Provisions: 

Appendix II: Objectives, Scope, and Methodology: 

Appendix III: The 54 Recovery Act Tax Provisions That IRS Has a Role 
in Administering: 

Appendix IV: IRS Data Collected on Four Tax Provisions in the Recovery 
Act: 

Appendix V: Comments from the Internal Revenue Service: 

Appendix VI: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Implementation Status of IRS's 54 Provisions as of January 
12, 2010: 

Table 2: Results of IRS's Recovery Act Data-Collection Planning Effort: 

Table 3: Estimated Multipliers for Selected Recovery Act Provisions: 

Table 4: Eligibility Requirements for the FTHBC: 

Table 5: Characteristics of the Five Provisions GAO Selected for 
Analysis Plus the HCTC: 

Table 6: Information about the 54 Recovery Act Provisions That IRS Has 
a Role in Administering: 

Table 7: Recent Selected IRS Data Collected on BABs: 

Table 8: Recent Selected IRS Data Collected on COBRA: 

Table 9: Selected IRS Data Collected on the FTHBC through November 21, 
2009: 

Table 10: Selected IRS Data Collected on the HCTC through November 
2009: 

Figures: 

Figure 1: Categorization of the Tax Provisions That IRS Had a Role in 
Administering, with Number and Dollar Value of Provisions: 

Figure 2: Total JCT-Estimated Budget Effects of the 54 Recovery Act 
Provisions That IRS Has a Role in Administering, from Fiscal Year 2009 
through 2019: 

Figure 3: Number of BAB Issuances by Type of Issue as of January 1, 
2010: 

Abbreviations: 

AEITC: Advance Earned Income Tax Credit: 

AGI: adjusted gross income: 

AMT: alternative minimum tax: 

BAB: Build America Bond: 

CBO: Congressional Budget Office: 

CEA: Council of Economic Advisers: 

COBRA: Consolidated Omnibus Budget Reconciliation Act: 

FMS: Financial Management Service: 

FTHBC: First-Time Homebuyer Credit: 

GDP: gross domestic product: 

HCTC: Health Coverage Tax Credit: 

IRA: individual retirement account: 

IRS: Internal Revenue Service: 

JCT: Joint Committee on Taxation: 

MAGI: modified adjusted gross income: 

MEA: math error authority: 

MWPC: Making Work Pay Credit: 

NOL: Net Operating Loss: 

PBGC: Pension Benefit Guaranty Corporation: 

SB/SE: Small Business/Self-Employed: 

TAA: Trade Adjustment Assistance: 

TIGTA: Treasury Inspector General for Tax Administration: 

Treasury: Department of the Treasury: 

WOTC: Work Opportunity Tax Credit: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

February 10, 2010: 

Congressional Addressees: 

The American Recovery and Reinvestment Act of 2009 (Recovery Act) is 
an estimated $787 billion initiative intended to address the most 
serious economic crisis since the Great Depression.[Footnote 1] 
Although the Recovery Act primarily consists of new funding for 
programs and other investments designed to stimulate the economy, more 
than a third of the act consists of tax relief to the American public. 
The Recovery Act calls for unprecedented levels of transparency and 
accountability in how Recovery Act dollars are being spent, but 
information on the tax provisions is generally not included in 
mandatory Recovery Act reporting. We raised the issue of providing 
similar oversight of the tax provisions in previous testimony. 
[Footnote 2] GAO reports and testimonies on the Recovery Act are 
available at [hyperlink, http://www.gao.gov/recovery]. 

As part of an effort to provide the Congress and others with relevant 
oversight information on the tax provisions in the Recovery Act, we 
performed this review under the Comptroller General's authority to 
conduct evaluations. Our objectives were to (1) describe the status of 
the Internal Revenue Service's (IRS) implementation of Recovery Act 
tax provisions; (2) analyze IRS's plans to collect data on the 
provisions, examine whether and how IRS captured data on the use of 
selected provisions, and discuss the provisions' overall effect; (3) 
assess IRS's efforts to determine potential abuse of the provisions 
and IRS's steps for minimizing it; and (4) discuss possible lessons 
learned for future tax administration. To meet our objectives, we 
obtained and analyzed IRS's implementation and data-collection plans 
for each provision; reviewed IRS, Department of the Treasury 
(Treasury), and Treasury Inspector General for Tax Administration 
(TIGTA) planning, implementation, risk management, and other 
documents; and interviewed federal officials and industry 
representatives. 

We reviewed IRS's plans and actions for 54 provisions that it had a 
role in administering. Of these, we focused our analysis on five 
provisions--Build America Bonds (BAB), Consolidated Omnibus Budget 
Reconciliation Act (COBRA) premium subsidies, the First-Time Homebuyer 
Credit (FTHBC), the Making Work Pay Credit (MWPC), and net operating 
loss (NOL) carrybacks. We selected these provisions because they were 
all being implemented in 2009; included some that were among the 
largest in terms of estimated revenue loss; most were refundable, 
meaning that taxpayers may receive a tax refund even if they do not 
have any tax liability; and covered most of IRS's categories of 
Recovery Act provisions.[Footnote 3] We also reviewed a sixth 
provision--the Health Coverage Tax Credit (HCTC)--but limited our work 
to data-collection issues because we are doing a separate review of 
the HCTC, which is due in March 2010 as mandated by the Recovery Act. 
See the Background section or appendix I for a description of the 
provisions we reviewed. See appendix II for a full description of our 
scope and methodology. 

We conducted this performance audit from June 2009 through February 
2010 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives and found 
the IRS data we used reliable for the purposes of this report. 

Background: 

IRS received approximately $197 million to implement 54 Recovery Act 
provisions.[Footnote 4] The Joint Committee on Taxation (JCT) 
estimated that these 54 provisions would cost about $325 billion 
between fiscal year 2009 and fiscal year 2019. (Appendix III shows the 
estimated cost of each provision.) JCT's estimate can be reconciled 
with the Congressional Budget Office's (CBO) estimate of $212 billion 
in reduced revenue and the administration's $288 billion in tax relief 
shown on its Recovery Act Web site, recovery.gov.[Footnote 5] JCT's 
estimate includes the effect on the budget of provisions of the act 
administered through the tax code, but CBO's $212 billion estimate, 
which is based on JCT's estimate, includes only the effect on revenue 
collections. The primary difference is that CBO's estimate does not 
include some provisions that result in additional federal outlays 
rather than only reduced tax collections. This occurs under several 
provisions when taxpayers can receive a refund even if they do not 
have any tax liability. On recovery.gov, the administration includes 
both categories to arrive at its estimate of $288 billion in tax 
relief. The JCT estimate of $325 billion also includes the cost of 
COBRA and economic recovery payments provisions that IRS administers. 

IRS had a role in administering 54 Recovery Act provisions. However, 
IRS is not responsible for implementing all provisions included in the 
tax section of the Recovery Act, such as grants in lieu of credits and 
the New Markets Tax Credit. Grants were authorized because the 
effectiveness of particular credits was thought to be undermined by 
economic conditions; the grant provisions are administered elsewhere 
in Treasury. In a recent report, TIGTA's count of Recovery Act 
provisions also differed from ours; for example, it included the New 
Markets Tax Credit, which is being administered by Treasury's 
Community Development Financial Institutions Fund.[Footnote 6] 

To facilitate management of the provisions, as shown in figure 1, IRS 
grouped the provisions into six categories, with individual credits as 
the largest category by far in terms of dollars. A seventh category, 
withholding on government contractors, appears in the figure because 
it is being administered by IRS; however, IRS did not consider it to 
be a category because the Recovery Act only delayed the effective date 
for the withholding. 

Figure 1: Categorization of the Tax Provisions That IRS Had a Role in 
Administering, with Number and Dollar Value of Provisions: 

[Refer to PDF for image: vertical bar graph] 

Categorization: Individual credits; 
Number of provisions: 12; 
Value of provisions: $247 billion. 

Categorization: Bond incentives; 
Number of provisions: 14; 
Value of provisions: $27 billion. 

Categorization: Consolidated Omnibus Budget Reconciliation Act; 
Number of provisions: 1; 
Value of provisions: $25 billion. 

Categorization: Energy incentives; 
Number of provisions: 14; 
Value of provisions: $20 billion. 

Categorization: Business incentives; 
Number of provisions: 11; 
Value of provisions: $6 billion. 

Categorization: Health coverage improvement; 
Number of provisions: 1; 
Value of provisions: 0[A]. 

Categorization: Withholding on government contractors; 
Number of provisions: 1; 
Value of provisions: 0[A]. 

Total: 
Number of provisions: 54; 
Value of provisions: $325 billion[B]. 

Source: GAO analysis of IRS and Joint Committee on Taxation data. 

[A] The actual value is nonzero but is rounded down to zero. 

[B] This dollar total differs from the total $326 billion reported by 
JCT because it excludes seven provisions that IRS is not responsible 
for administering. These seven provisions are two grants-in-lieu-of-
credits provisions, coordination of low-income housing credit and low-
income housing grants, the New Markets Tax Credit, the public debt 
limit, a prohibition on the collection of certain payments, and 
executive compensation oversight. 

[End of figure] 

The bulk of the stimulus to be provided by the tax provisions is 
expected to be in fiscal year 2010, as shown in figure 2. 

Figure 2: Total JCT-Estimated Budget Effects of the 54 Recovery Act 
Provisions That IRS Has a Role in Administering, from Fiscal Year 2009 
through 2019: 

[Refer to PDF for image: line graph] 

Fiscal year: 2009; 
Estimated budget effects of 54 provisions (including reduced revenue 
and outlays): -$92.6 billion. 

Fiscal year: 2010; 
Estimated budget effects of 54 provisions (including reduced revenue 
and outlays): -$221.7 billion. 

Fiscal year: 2011; 
Estimated budget effects of 54 provisions (including reduced revenue 
and outlays): -$39.8 billion. 

Fiscal year: 2012; 
Estimated budget effects of 54 provisions (including reduced revenue 
and outlays): $9.2 billion. 

Fiscal year: 2013; 
Estimated budget effects of 54 provisions (including reduced revenue 
and outlays): $1.8 billion. 

Fiscal year: 2014; 
Estimated budget effects of 54 provisions (including reduced revenue 
and outlays): $4.5 billion. 

Fiscal year: 2015; 
Estimated budget effects of 54 provisions (including reduced revenue 
and outlays): $6 billion. 

Fiscal year: 2016; 
Estimated budget effects of 54 provisions (including reduced revenue 
and outlays): $4.6 billion. 

Fiscal year: 2017; 
Estimated budget effects of 54 provisions (including reduced revenue 
and outlays): $3.9 billion. 

Fiscal year: 2018; 
Estimated budget effects of 54 provisions (including reduced revenue 
and outlays): $3.8 billion. 

Fiscal year: 2019; 
Estimated budget effects of 54 provisions (including reduced revenue 
and outlays): -$1 billion. 

Source: JCT. 

[End of figure] 

As previously mentioned, we focused our work on five provisions and 
performed limited work on a sixth. A brief description of each 
provision follows. (See appendix I for a more thorough description of 
these provisions, including provision requirements.) 

* Build America Bonds (BAB): BABs are taxable government bonds that 
can be issued with federal subsidies for a portion of the borrowing 
costs delivered either through nonrefundable tax credits provided to 
holders of the bonds (tax credit BAB) or as refundable tax credits 
paid to state and local governmental issuers of the bonds (direct 
payment BAB). Direct payment BABs are a new type of bond that provides 
state and local government issuers with a direct subsidy payment equal 
to 35 percent of the bond interest they pay. Tax credit BABs provide 
investors with a nonrefundable tax credit of 35 percent of the net 
bond interest payments (excluding the credit), which represents a 
federal subsidy to the state or local governmental issuer equal to 
approximately 25 percent of the total return to the investor. State 
and local governments may issue an unlimited number of BABs through 
December 31, 2010, and all BAB proceeds must be used for capital 
expenditures. 

* Consolidated Omnibus Budget Reconciliation Act (COBRA): Recently 
extended, the COBRA provision originally provided a 65 percent health 
insurance subsidy for up to 9 months for individuals who lost health 
insurance coverage due to involuntary termination between September 1, 
2008, and December 31, 2009.[Footnote 7] Former employers, or in some 
cases multiemployer health plans or insurers, pay 65 percent of 
insurance premium costs and are reimbursed through a tax credit 
against their payroll tax liability or through a tax refund if the 
credit exceeds their payroll tax liability. 

* First-Time Homebuyer Credit (FTHBC): The Recovery Act expanded the 
FTHBC, which was initially established under the Housing and Economic 
Recovery Act of 2008,[Footnote 8] to provide taxpayers a refundable 
tax credit of up to $8,000 for the purchase of a home.[Footnote 9] 
Taxpayers are generally not required to repay the credit unless the 
home ceases to be the taxpayer's principal residence within 3 years of 
purchase.[Footnote 10] Several of the issues with the FTHBC that are 
discussed in this report include differences between the 2008 and 2009 
credits. The 2008 credit differs from the 2009 credit in that it 
provided taxpayers up to $7,500, which has to be repaid in $500 
increments over the course of a 15-year period. We testified on the 
use of the FTHBC and implementation and compliance challenges in 
October 2009.[Footnote 11] 

* Making Work Pay Credit (MWPC): The MWPC is a refundable tax credit 
that provides up to $400 and $800, respectively, to working 
individuals and married couples who file joint returns. Taxpayers may 
receive the credit throughout the year in the form of lower amounts of 
tax withheld from their paychecks. Taxpayers who do not have taxes 
withheld throughout the year will not benefit from the credit until 
they claim it on their annual tax return. 

* Net Operating Loss (NOL) Carryback: The NOL carryback provision 
allows eligible small businesses--those that had a 3-year gross 
receipts average of no more than $15 million--to apply for a refund 
for taxes paid in up to 5 previous years if the business experienced a 
loss in 2008.[Footnote 12] 

* Health Coverage Tax Credit (HCTC): The HCTC can be claimed (1) by 
workers who have lost manufacturing or service jobs due to 
international trade or have lost public agency jobs and are eligible 
for a form of Trade Adjustment Assistance or (2) by those who are 
receiving payments from the Pension Benefit Guaranty Corporation. 
Among other things, the Recovery Act increased the health insurance 
premium subsidy rate from 65 percent to 80 percent of the premiums for 
an eligible taxpayer's qualified health insurance plan. 

IRS Moved Quickly to Address the Recovery Act's Significant 
Implementation Challenges: 

While IRS has implemented major pieces of legislation in the past, the 
Recovery Act posed significant implementation challenges because it 
was a large piece of legislation and many provisions were immediately 
or retroactively effective and had to be implemented during the tax 
filing season--IRS's busiest time of year. IRS officials moved quickly 
to implement the Recovery Act, aided by their efforts to organize 
internally and consult externally with lawmakers and industry groups 
before the act's passage. IRS put its highest priority on implementing 
14 of the 54 IRS provisions in 2009 because they required immediate 
action.[Footnote 13] Some of these provisions, such as the FTHBC and 
NOL carrybacks, were retroactive and could be claimed on a 2008 tax 
return. IRS started taking action on many of the remaining 40 
provisions in 2009 as well. Some provisions affected the 2009 filing 
season (for tax year 2008), while others mainly will affect the 2010 
and 2011 filing seasons. 

To implement the provisions, IRS quickly issued forms and guidance, 
communicated with taxpayers and tax return preparers, and made 
computer programming or processing changes. For example, within days 
of the act's passage, IRS issued revised withholding tables for the 
MWPC and produced new or updated tax forms and instructions for it and 
COBRA. As shown in table 1, as of January 12, 2010, IRS either 
completed or initiated steps to issue new forms and instructions and 
revise many others for 48 of the 54 provisions, or 89 percent of the 
total. When we first checked on progress, as of August 20, 2009, or 
about 6 months after the Recovery Act's enactment, the percentage was 
also greater than 80 percent. In addition, as of January 12, 2010, IRS 
communicated with taxpayers and tax return preparers through a variety 
of avenues, such as news releases, postings on irs.gov, podcasts, and 
You Tube videos for 47 of the 54, or about 87 percent of the 
provisions. IRS also made computer programming changes to enable 
processing for paper and electronically filed returns for 39, or about 
72 percent of the provisions. IRS did not plan to engage in guidance 
and instruction for 6 provisions or education and outreach activities 
for 7 provisions, or make processing and programming changes for 15 
provisions because, according to IRS officials, some did not require 
activities to inform the public or ready IRS systems. We agree with 
this decision because, as we saw, some of the tax provisions without 
implementation activities were extensions or expansions of previously 
existing tax provisions, modified previously existing tax rules, or 
gave additional guidance. For example, one provision amended the Work 
Opportunity Tax Credit (WOTC) to create two new categories of targeted 
groups, and as a result, IRS updated the instructions to the related 
tax form to be filed with IRS but did not isolate amounts related to 
these categories on the form itself or make any substantive processing 
and programming changes. 

Table 1: Implementation Status of IRS's 54 Provisions as of January 
12, 2010: 

Provision category: Individual credits; 
Number of provisions: 12; 
Number of provisions with guidance or instruction: 12; 
Number of provisions with education or outreach: 11; 
Number of provisions with processing or programming changes: 12. 

Provision category: Business incentives; 
Number of provisions: 11; 
Number of provisions with guidance or instruction: 10; 
Number of provisions with education or outreach: 9; 
Number of provisions with processing or programming changes: 6. 

Provision category: Energy incentives; 
Number of provisions: 14; 
Number of provisions with guidance or instruction: 14; 
Number of provisions with education or outreach: 14; 
Number of provisions with processing or programming changes: 12. 

Provision category: COBRA provision; 
Number of provisions: 1; 
Number of provisions with guidance or instruction: 1; 
Number of provisions with education or outreach: 1; 
Number of provisions with processing or programming changes: 1. 

Provision category: Bond incentives; 
Number of provisions: 14; 
Number of provisions with guidance or instruction: 10; 
Number of provisions with education or outreach: 10; 
Number of provisions with processing or programming changes: 7. 

Provision category: Health coverage improvement; 
Number of provisions: 1; 
Number of provisions with guidance or instruction: 1; 
Number of provisions with education or outreach: 1; 
Number of provisions with processing or programming changes: 1. 

Provision category: Withholding on government contractors; 
Number of provisions: 1; 
Number of provisions with guidance or instruction: 0; 
Number of provisions with education or outreach: 1; 
Number of provisions with processing or programming changes: 0. 

Provision category: Total; 
Number of provisions: 54; 
Number of provisions with guidance or instruction: 48; 
Number of provisions with education or outreach: 47; 
Number of provisions with processing or programming changes: 39. 

Source: GAO analysis of IRS data. 

[End of table] 

Responding Quickly Entailed Tradeoffs, and Subsequent Improvements 
Were Made: 

IRS management had to make tradeoffs, often balancing other factors, 
such as not making some computer changes to collect data, against the 
need to quickly process claims and get tax information and assistance 
out to the public, in order to implement the Recovery Act. For 
provisions we reviewed in detail, IRS's initial actions were at times 
later substantively adjusted. 

As a first example of a tradeoff, because IRS needed to quickly issue 
a new set of withholding tables so taxpayers could immediately benefit 
from the MWPC through reduced federal tax withholding, Treasury 
decided not to fully account for the effect of the MWPC on taxpayers 
whose incomes were in the MWPC phaseout range.[Footnote 14] As a 
result, taxpayers with incomes in the phaseout range did not receive a 
precisely calculated tax reduction. In November 2009, IRS issued new 
withholding tables for 2010 that included two new brackets to better 
recognize the effect of the MWPC on taxpayers in the phaseout range. 

The withholding changes for the MWPC may also have unfavorable 
consequences for some other taxpayers. For instance, TIGTA recently 
reported that over 15 million taxpayers, such as those receiving 
pensions and joint filers with two or more jobs between them, may be 
negatively affected by the MWPC.[Footnote 15] These taxpayers may owe 
taxes or receive a lesser or no refund because not enough taxes were 
withheld from their paychecks to satisfy their eventual tax obligation 
or maintain previous withholding levels. IRS and Treasury have taken 
steps to deal with potential underwithholding for these taxpayers. IRS 
has conducted outreach to encourage taxpayers to look more closely at 
their tax withholding and plans to do more outreach. IRS's Web site 
contains publications and other guidance, including a tax withholding 
calculator, instructing taxpayers how to adjust their withholding in 
light of the MWPC. To address potential underwithholding for 
pensioners, Treasury developed supplemental withholding tables that 
pension administrators can use in conjunction with the previously 
issued tables to offset the effect of the MWPC. 

In addition, because of the MWPC, some taxpayers could be subject to 
tax penalties as a result of the credit.[Footnote 16] TIGTA estimated 
that over 1 million taxpayers could be assessed a tax penalty or have 
their tax penalty increased because of the MWPC. IRS has taken steps 
to address these concerns as well, as it will allow taxpayers to use 
Form 2210, "Underpayment of Estimated Tax by Individuals, Estates, and 
Trusts," to request that the penalties be waived. IRS has alerted 
taxpayers to this option and how to exercise it by adding information 
to the instructions for the Form 1040, "U.S. Individual Income Tax 
Return," and, according to TIGTA, also plans to add information to 
Publication 505, "Tax Withholding and Estimated Tax." 

A second tradeoff involved the FTHBC. Because of the compressed time 
to implement the revised credit, IRS did not make computer changes to 
easily collect data, including the home purchase date, from the Form 
5405, "First-Time Homebuyer Credit," the form used to claim the 
credit.[Footnote 17] This was problematic because without the home 
purchase date IRS was unable to easily distinguish 2008 and 2009 FTHBC 
claims, a problem we noted in our October 2009 testimony.[Footnote 18] 
Distinguishing between the two credits is critical because the acts 
establishing them contain different requirements, including whether 
and how the credit is to be repaid.[Footnote 19] In studying FTHBC 
claims, TIGTA found that, as of May 29, 2009, IRS had not properly 
categorized more than 43,000 returns, considering them as 2008 claims 
instead of 2009 claims.[Footnote 20] According to TIGTA, if further 
action is not taken, some taxpayers who bought a home in 2009 could 
receive a letter from IRS incorrectly indicating that they must repay 
the credit. IRS plans to verify the date of purchase on past claims 
and make any necessary adjustments when it begins enforcing the 2008 
FTHBC repayment provisions. IRS also plans to make the computer 
changes needed to collect all significant data for 2009 claims, 
including home purchase date, from a revised Form 5405. 

As a third example of a tradeoff, because of the limited time to make 
necessary computer programming changes that would have enabled 
payments by direct deposit, IRS issued BAB direct payments by paper 
check instead of electronic payments. According to IRS officials, 
IRS's use of paper checks possibly increased the costs of issuing BAB 
direct payments at least nominally. For 2010, IRS plans to change Form 
8038-CP, "Return for Credit Payments to Issuers of Qualified Bonds," 
to include bank routing numbers so that payments can be made 
electronically. 

Also, because of the limited time, IRS used an existing tax-exempt 
government bond form, Form 8038-G, "Information Return for Tax-Exempt 
Government Obligations," for state and local governments to report 
2009 BAB information. Governmental issuers were required to submit a 
copy of Form 8038-G, to identify the issue as a BAB and to record 
information on the issue price, weighted average maturity, yield 
percentage, and the use of bond proceeds. However, unlike what is 
required for other bond issues, BAB issuers were also required to 
attach a separate schedule to identify the type of bond issue. For 
2010, IRS plans to use a new form specifically designed for BABs. The 
new form will collect the same information that was collected in 2009, 
but issuers will be able to identify the type of BAB and provide 
information on the type of bond issue all on the form itself, 
requiring no attachment. 

Another effect of the limited time available to implement BABs was 
that BAB work took priority over already-existing bond projects, 
delaying the other projects somewhat, according to Treasury and IRS 
officials. 

As a final example, IRS also made tradeoffs when implementing NOL 
carrybacks. 

* As soon as the Recovery Act was enacted, taxpayers began filing 3-, 
4-, and 5-year NOL carryback claims, which allowed them to use 2008 
small business losses to reduce taxable income from 3, 4, or 5 years 
before and get tax refunds quickly. Because taxpayers made claims 
before IRS issued its guidance on March 16, 2009, taxpayers made what 
IRS officials considered invalid or unclear elections on their NOL 
carryback claims.[Footnote 21] Despite the March 16th guidance, 
taxpayers continued to file unclear carryback claims because they 
appeared to have not followed the instructions in the guidance, which 
told taxpayers to attach a statement to their tax return indicating 
certain information. Officials processed the claims and decided to 
issue on May 11, 2009, a second piece of guidance superseding the 
March 16th one in order to make the process easier for taxpayers. The 
May 11th guidance reduced the burden on taxpayers by allowing them to 
file the appropriate NOL carryback form without having to attach an 
election statement. By reviewing the computations on the appropriate 
form, IRS was able to find the information it needed to process the 
claim. 

* When processing takes more than 45 days, IRS has to pay interest on 
NOL refunds, just as it must for other refunds taking more than 45 
days to process. In order to process the claims on time, IRS initially 
took one to two revenue agents at seven campus locations away from 
examination cases for 1 to 2 days per week to determine whether small 
businesses' 3-year average gross receipts were under a $15 million 
ceiling, making them eligible for the NOL carryback refunds. This 
lasted for about 2 months until IRS developed a Gross Receipts Average 
Calculator tool. This tool replaced the need for extensive revenue 
agent involvement by automatically calculating a taxpayer's average 
gross receipts. 

IRS's Data-Collection Efforts Have Limitations, and the Tax 
Provisions' Economic Stimulus Effect Cannot Be Precisely Isolated: 

Collecting data on the tax provisions is important to (1) ensure 
Recovery Act funds are used efficiently, (2) ensure program 
compliance, and (3) determine program effectiveness. Without 
appropriate data, it may be either impossible or costly to determine 
the extent to which the tax benefits were used, when they were used, 
whether they were used effectively and as intended, and whether any 
lessons could be learned. In previous reports, we noted that IRS did 
not collect sufficient information to determine the use and 
effectiveness of certain tax provisions.[Footnote 22] In the report on 
Indian reservation depreciation, we noted that the lack of sufficient 
data impeded IRS's ability to ensure program compliance.[Footnote 23] 

IRS Has Plans to Collect Some Data to Track Many Provisions: 

In the past, IRS officials said that IRS's role is to collect data 
only to the extent that the data help it to administer the tax code. 
However, for the Recovery Act, IRS went beyond its typical efforts in 
order to provide transparency over the use of the tax provisions and 
to collect more reportable data on the tax provisions. For example, 
IRS did not collect any additional data related to the 5-year NOL 
carryback for the Job Creation and Worker Assistance Act of 2002, but 
it is collecting carryback data for the Recovery Act's NOL provision. 

Throughout the year after the Recovery Act was enacted, IRS developed 
plans for collecting data. For example, as shown in table 2, of the 54 
provisions that IRS has a role in implementing, IRS had detailed data- 
collection plans for 17, or about 31 percent. These 17 provisions 
cover about $207 billion, or 63 percent, of the $325 billion total 
cost that JCT estimated for the 54 provisions. For about 33 percent of 
the 54 provisions, covering about $96 billion, or 30 percent, of the 
total cost, IRS had identified preliminary data sources, but not what, 
if any, data it will compile and report. 

Table 2: Results of IRS's Recovery Act Data-Collection Planning Effort: 

Calculation category: Number of provisions; 
Detailed plans[A]: 17; 
Preliminary data sources identified[B]: 18; 
No data available from tax forms[C]: 9; 
No reporting planned[D]: 10; 
Total: 54. 

Calculation category: Percent of number of provisions; 
Detailed plans[A]: 31; 
Preliminary data sources identified[B]: 33; 
No data available from tax forms[C]: 17; 
No reporting planned[D]: 19; 
Total: 100. 

Calculation category: JCT total estimated revenue loss (in billions); 
Detailed plans[A]: 207; 
Preliminary data sources identified[B]: 96; 
No data available from tax forms[C]: 5; 
No reporting planned[D]: 18; 
Total: 325[E]. 

Calculation category: Percent of JCT total estimated revenue loss; 
Detailed plans[A]: 63; 
Preliminary data sources identified[B]: 30; 
No data available from tax forms[C]: 1; 
No reporting planned[D]: 6; 
Total: 100. 

Source: GAO analysis of IRS data. 

[A] IRS started or plans to have its nonresearch units create weekly 
or monthly reports or estimates, or it has noted the specific data it 
plans to collect. 

[B] IRS has identified forms from which data could be collected by its 
research unit but has not identified the specific data it plans to 
compile and report. 

[C] IRS does not plan to modify tax forms to collect data. 

[D] IRS does not plan to collect data or report any information. 
According to IRS officials, this category includes nine provisions 
related to guidance or reflecting rule changes where there is nothing 
for them to report and one provision that Treasury's Financial 
Management Service (FMS) took the lead in administering, although IRS 
had a minimal role. 

[E] Numbers do not add to $325 billion due to rounding. 

[End of table] 

For the remaining 19 provisions covering about 7 percent of the total 
cost, IRS does not plan to compile or report any data. For 9 of these 
provisions, covering about $5 billion, or 1 percent of total cost, IRS 
officials stated that no data are available on tax forms and IRS does 
not plan to modify tax forms to enable data collection. As an example, 
the WOTC is included in this group. The Recovery Act expands the 
credit by adding two categories of eligible individuals. IRS does not 
plan to modify the tax form to enable data collection on the newly 
eligible individuals as it currently does not collect data on any of 
the eligible individuals. For the final 10 provisions, covering about 
$18 billion or 6 percent of total cost, IRS did not plan to collect 
data or report any information because, according to IRS officials, 
this category included 9 provisions relating to guidance or reflecting 
rule changes.[Footnote 24] For the other provision, IRS had a minimal 
role, and Treasury's Financial Management Service (FMS) took the lead 
in administering it.[Footnote 25] We agree with IRS's decision not to 
report on these 10 provisions. 

Very little of the data that IRS has collected on the tax provisions 
has been released publicly. On September 3, 2009, Treasury released 
preliminary data collected on its Recovery Act programs, including the 
use of BABs, economic recovery payments, and the FTHBC. Recovery.gov 
includes a chart on the estimated dollars distributed through the tax 
provisions, but this estimate is not based on actual provision use. 
Rather, it prorates estimates that were created by Treasury's Office 
of Tax Analysis before the act's implementation. Data collected for 
individual tax provisions that specify the number of provision users 
and dollar amount of claims made were not reported on recovery.gov, as 
of January 20, 2010. 

Initial Data Collection Did Not Fully or Accurately Capture the Use of 
Some Recovery Act Provisions: 

During much of our review, IRS focused on collecting and internally 
reporting data on four provisions--BABs, COBRA, the FTHBC, and the 
HCTC. (See appendix IV for information on the use of these 
provisions.) Some of the data IRS collected did not accurately capture 
taxpayers' use of Recovery Act provisions, as provision use was 
sometimes incompletely described or overstated. 

BAB Data Do Not Show Specific Bond Use: 

IRS's reporting requirements for BABs are minimal in contrast to 
requirements for Recovery Act infrastructure and other direct spending 
projects, even though such projects may be similar. For example, 
funding for both Recovery Act spending projects and BABs may be used 
for highway, school, water, sewer, or utility improvements. Currently, 
IRS requires state and local governments to submit an information 
return at the time of bond issuance that describes the type of bond 
issue, issue price, weighted average maturity, yield percentage, and 
the use of bond proceeds. As shown in appendix IV, as of January 1, 
2010, state and local governments reported 443 BAB issuances valued at 
about $32.4 billion. One hundred and thirty-one BABs were issued for 
education, which was more issuances than for any other type, except 
the "other" category. 

Spending projects undertaken under the Recovery Act by state and local 
governments are subject to additional reporting requirements. Section 
1512 of the act requires nonfederal recipients of Recovery Act grants, 
contracts, and loans to provide information on each project or 
activity, including a description of the project and its purpose, an 
evaluation of its status toward completion, the amount of recovery 
funds spent, and the number of jobs created and retained.[Footnote 26] 
The reporting required for spending projects is intended to increase 
accountability and transparency. In addition, federal agencies are 
required to submit reports that describe the amount of Recovery Act 
funds made available and paid out to the states through contracts, 
grants, and loans. Although IRS is not required to publicly report 
data on BAB use, doing so could increase accountability and 
transparency. As part of its bond outreach efforts, Treasury has asked 
governmental issuers to report how their government has used BABs. 
Treasury plans to compile this information for its internal use only. 
There are no efforts by other federal agencies to compile or publish 
BAB information. The limited data collected and publicly reported for 
BABs does not reflect the same emphasis as that for spending projects. 

According to the Director of IRS's Tax-Exempt Bonds division, more 
detailed information reporting on BAB-financed projects, such as that 
required on the Schedule K of Form 990, "Supplemental Information on 
Tax-Exempt Bonds," may increase compliance over the life of bonds 
because government issuers would be reminded of bond requirements each 
year when filing the form and would be more likely to keep and 
maintain required documentation. Charitable organizations are required 
to submit Schedule K annually with their tax returns, although no 
similar yearly bond reporting requirement exists for governmental bond 
issuers. The rationale for the Schedule K was that significant 
noncompliance with recordkeeping requirements for charitable 
organization tax-exempt bonds existed, making it hard for IRS to 
determine if the bonds remained qualified for tax exemption throughout 
their life. Accordingly, Schedule K and its instructions ask for a 
description of the bond's purpose--constructing a hospital or 
acquiring office equipment are examples cited--and the year the 
project was substantially completed, just like the reporting 
requirements for Recovery Act spending projects. 

IRS officials said that yearly BAB reporting similar to the Schedule K 
would help IRS know whether bonds remained qualified for their tax- 
advantaged status. One hundred percent of BAB proceeds are to be used 
for qualified capital expenditures, and yearly reporting by 
governmental issuers would allow IRS to more easily identify issuers 
who have not adhered to this standard or maintained the required 
documentation to show how bond proceeds were used. It could also help 
lawmakers or others in determining the overall effectiveness of the 
newly created bonds. Any additional cost of reporting, such as those 
already borne for spending projects, could be tempered by having a 
minimum reporting threshold or delaying the onset of requirements, as 
was the case when reporting for charitable organizations was 
instituted. However, if IRS required more specific reporting for BABs, 
it could not publicly release it for individual issuers. Currently, 
unlike the case with the Schedule K, IRS is prohibited from disclosing 
BAB-related information collected by IRS. Legislation would be needed 
to allow the BAB information and any similar information related to 
governmental bonds to be disclosed. 

According to Treasury officials, given the periodic direct payments 
that IRS must make for the first time to state and local governments 
for BABs, ongoing safeguards are needed to verify that payments are 
only made on outstanding bond issues that continue to meet BAB 
eligibility requirements. To this end, IRS and Treasury have a working 
group to examine different approaches for acquiring BAB information 
over the life of bonds to verify payments and determine how frequently 
additional bond information reporting by issuers should occur. The 
working group may suggest new bond reporting requirements, such as a 
new tax form, in late 2010. More detailed reporting on BABs to provide 
added transparency and accountability could help with this effort and 
be beneficial if it were compatible with other needs identified by the 
working group. 

COBRA Data Will Not Include the Number of Dependents Benefiting from 
COBRA Assistance: 

As of December 18, 2009, IRS had not reported the number of former 
employees receiving COBRA premium assistance. When the data are ready, 
IRS information on COBRA premium assistance claims will understate the 
total number of individuals receiving health insurance. Employers are 
instructed to list the number of individuals provided COBRA premium 
assistance on Form 941 for 2009, "Employer's Quarterly Federal Tax 
Return." However, the number entered on the form is only the total 
number of former employees receiving COBRA coverage and does not 
include their dependents who may be covered under the same insurance 
plan. For example, if COBRA premium assistance was paid for an 
insurance plan that covered a former employee and his or her spouse 
and child, an employer would count that as one person provided COBRA 
premium assistance on Form 941, not three. Counting this way prevents 
a meaningful comparison with the JCT's estimate that 7 million workers 
and dependents would use the COBRA subsidy. Moreover, the number does 
not provide stakeholders complete information on provision use. 
According to IRS officials, the form did not include dependents due to 
a short time frame for implementation, space constraints on the form, 
and a desire not to overburden employers with additional reporting 
requirements. As of December 26, 2009, as shown in appendix IV, IRS 
had received approximately 192,000 returns from employers claiming 
about $803 million in COBRA credits.[Footnote 27] 

Initial FTHBC Data Did Not Reflect the Credit's Full Dollar Value: 

Before September 30, 2009, IRS's 2009 FTHBC information was 
understated--it did not show the full dollar amount of the credits 
claimed. Initially, IRS only reported the difference between the 
maximum benefits of the 2008 and 2009 FTHBCs as the total benefit of 
the 2009 FTHBC. That is, the data only reflected an estimated 
increment above the 2008 FTHBC's maximum benefit of $7,500 as the 
amount of credit claimed for the 2009 FTHBC, rather than up to the 
full amount of the credit, a maximum of $8,000. In a September 3, 
2009, report on the Recovery Act, Treasury also reported this 
estimated incremental amount. On September 4, 2009, we pointed out to 
IRS officials that the increment did not consider that taxpayers might 
have decided to buy a house because the $8,000 maximum benefit offered 
with the 2009 FTHBC generally would not have to be paid back to the 
federal government--unlike the 2008 credit for which the $7,500 would 
have to be repaid over 15 years. IRS revised its data and provided 
information reflecting the full amount of the credit claimed in a 
September 30, 2009, report. As shown in appendix IV, as of November 
21, 2009, IRS data show that about 1.1 million filers claimed about 
$7.3 billion of the 2008 credit, while about 630,000 filers claimed 
about $4.7 billion of the 2009 FTHBC.[Footnote 28] 

HCTC Data Overstate the Number of New Enrollees Attributable to the 
Recovery Act: 

The roughly 12,000 new enrollees in the HCTC program that IRS has 
attributed to the Recovery Act is overstated, at least for the early 
period soon after the Recovery Act. (Aappendixppendix IV provides more 
detailed data.) The number is overstated because it included some 
taxpayers who were in the pipeline for enrollment before the President 
signed the Recovery Act on February 17, 2009. IRS officials chose 
April 1, 2009, as the first date for attributing HCTC participation to 
the act. They chose this date because, among other things, it was the 
date the health insurance premium subsidy rate rose from 65 percent to 
80 percent, and presumably more people would be inclined to enroll 
given the higher subsidy. However, according to June 2008 IRS data, 
IRS would only mail HCTC program kits and registration forms to 
taxpayers after other agencies spent 1 to many months determining if a 
taxpayer was in fact eligible for the credit in the first place. Thus, 
to be enrolled in April 2009, many taxpayers would have to have 
started the HCTC process before the Recovery Act was signed. IRS 
officials acknowledged some of the enrollees counted as new could have 
been in the pipeline for enrollment on February 17. Officials also 
said their collection of data in general was not intended to see 
whether the Recovery Act actually motivated someone to change 
behavior, in this case to enroll in the HCTC program. 

The Economic Stimulus Effect of the Tax Provisions Cannot Be Precisely 
Isolated: 

The data IRS has collected about the tax provisions it is 
administering are not designed to isolate or differentiate the 
stimulus effect of these provisions from that of other Recovery Act 
provisions. To assess the effects of stimulus policies such as tax 
incentives, economists use evidence from macroeconometric forecasting 
models and models that extrapolate from historical data. The 
forecasting models are based largely on historical evidence, and the 
analyses estimate behavior based on how economic variables such as 
gross domestic product (GDP) have responded to stimulus policies in 
the past. Neither type of model uses current data to assess the effect 
of the stimulus. The models are used to estimate "multipliers," which 
represent the cumulative effect of a particular incentive, such as a 
tax cut, on GDP over time. For example, a multiplier of 1.0 means a 
dollar of stimulus financed by borrowing results in an additional 
dollar of GDP. Generally, multipliers can provide insights into the 
potential effect on GDP of different types of public spending. Because 
of the limited historical experience with a fiscal stimulus of the 
magnitude of the Recovery Act, there is uncertainty about the extent 
to which multipliers based on historical evidence about the effect of 
previous business cycles will accurately reflect the stimulus effect 
this time. However, economists use the models as a basis for 
constructing reasonable ranges of values for multipliers.[Footnote 29] 
Drawing on analyses based on past experience with the results of 
government spending, CBO has estimated multipliers for Recovery Act 
provisions that include tax expenditures (see table 3). 

Table 3: Estimated Multipliers for Selected Recovery Act Provisions: 

Category: Onetime payments to retirees; 
Estimated policy multiplier: High: 1.2; 
Estimated policy multiplier: Low: 0.2. 

Category: 2-year tax cuts for lower-and middle-income people; 
Estimated policy multiplier: High: 1.7; 
Estimated policy multiplier: Low: 0.5. 

Category: 1-year tax cuts for higher-income people; 
Estimated policy multiplier: High: 0.5; 
Estimated policy multiplier: Low: 0.1. 

Category: Extension of the FTHBC; 
Estimated policy multiplier: High: 1.0; 
Estimated policy multiplier: Low: 0.2. 

Category: Tax provisions for businesses primarily affecting cash flow; 
Estimated policy multiplier: High: 0.4; 
Estimated policy multiplier: Low: 0.0. 

Source: CBO. 

[End of table] 

Although the economic effect of each of the Recovery Act tax 
provisions cannot be precisely estimated, the effect of some 
provisions on specific aspects of the economy may be described in 
general terms. For example, reports released by the Executive Office 
of the President's Council of Economic Advisers (CEA) in September 
2009 and January 2010 noted the potential effect of the bonus 
depreciation, MWPC, and FTHBC provisions.[Footnote 30] According to 
CEA's analysis, the bonus depreciation provision, which allows 
businesses to recover the costs of acquired property at a faster rate 
than they otherwise would, benefited businesses and may have led to a 
slower investment decline in the second quarter of 2009 than would 
have occurred in the absence of such provisions. Additionally CEA 
concluded that although the MWPC, along with other provisions of the 
Recovery Act and other economic recovery policies, helped stabilize 
consumption, a small drop in consumption in the second quarter could 
indicate that households were using the MWPC mainly to increase 
savings and pay off debt. In addition, their analysis suggests that, 
in addition to other policy actions affecting residential real estate, 
the Recovery Act's FTHBC may have moderated job losses in the 
construction industry. 

IRS Took Steps to Mitigate Abuse of Provisions, but Some Compliance 
Challenges Arose and Others Remain: 

We have previously reported that evaluating risk is important because 
it allows an organization to identify potential problems before they 
occur so that mitigating activities can be planned and implemented 
over a project's life to minimize adverse effects on objectives and 
outcomes.[Footnote 31] Risk management includes executive oversight, 
preparing for risk management, identifying and analyzing risks, and 
mitigating risks. Organizations prepare for risk management by 
establishing a strategy for identifying, analyzing, and mitigating 
risks. Identifying and analyzing risks involves identifying risks from 
internal and external sources and evaluating each risk to determine 
its likelihood and consequences. Mitigating risks involves developing 
risk-mitigation plans that outline the techniques and methods that 
will be used to avoid, reduce, and control the probability of risk 
occurrence. 

Consistent with these activities, IRS established an executive 
steering committee to oversee Recovery Act implementation. The 
committee, which was formed before the act's enactment, included the 
heads of all IRS operating divisions. It met regularly to discuss 
issues such as the resources needed to implement the tax provisions, 
changes to be made to forms and information systems, information to be 
posted on the Internet, and compliance challenges. 

IRS also completed eight risk assessments--questionnaires that 
identified potential risks, their likelihood of occurrence, and their 
effect--that covered 12 provisions immediately available to taxpayers. 
[Footnote 32] The risk assessments considered common risk areas such 
as the adequacy of internal control procedures, agency-specific risks 
such as the extent of management oversight over the risk-management 
process, and program-specific risks such as resource availability. The 
risk assessments resulted in 9 of the 12 provisions being considered 
as medium risk and 3 as low risk. IRS plans to reevaluate these 
assessments and complete assessments of the remaining Recovery Act tax 
provisions in 2010. Following Treasury policy, IRS completed 
mitigation plans for the 9 provisions it found to be at medium risk. 

The mitigation plans outlined the actions that IRS planned to take to 
address identified risks, and IRS program officials were responsible 
for monitoring their implementation. In addition, Treasury began 
reviewing IRS risk-mitigation plans in July 2009 and told us in 
January 2010 it planned to begin reviewing risk assessments and 
mitigation plans for tax year 2010 provisions that month, taking into 
account GAO, TIGTA, and Treasury Office of Inspector General findings. 

IRS Has Addressed Some Compliance Challenges with the FTHBC, and 
Alternatives Exist That May Alleviate a Remaining Challenge: 

Despite its efforts to assess and mitigate potential risks, IRS still 
encountered compliance challenges with the FTHBC; it addressed some of 
them. For example, IRS used prerefund filters to ensure that taxpayer 
income and the amount of credit claimed on a return do not exceed 
statutory limits. IRS also used an electronic fraud-detection system 
with filters to detect and prevent fraudulent refund schemes. However, 
IRS and TIGTA reviews of early FTHBC filings identified additional 
compliance issues, such as instances where taxpayers who had 
previously owned a home claimed the credit. Based on its review of 
early filings, IRS implemented additional computer filters to better 
determine taxpayer eligibility before refunds were issued. For 
example, IRS developed filters to check for indications of prior 
homeownership within the past 3 years. As a result of its prerefund 
checks, as of February 1, 2010, IRS had frozen about 140,000 refunds 
pending civil or criminal examination, and, as of December 2, 2009, 
had identified 175 criminal schemes and had 123 criminal 
investigations open. 

IRS faces a challenge in knowing whether homebuyer credit recipients 
sell their homes. This is important for the 2009 credit because the 
Recovery Act requires that at least part of the credit up to $8,000 
may have to be repaid if a home is sold or otherwise ceases to be the 
taxpayer's principal residence within 3 years of purchase.[Footnote 
33] Repayment is also an issue for the 2008 FTHBC, as individuals who 
sell their homes or otherwise cease to use their home as their 
principal residence before fully repaying their credit up to $7,500 
have to accelerate their repayment. IRS modified Form 5405 for 
taxpayers to report the disposition of their home or a change in its 
use, but as of December 2009 it had not decided how it will identify 
individuals who fail to report.[Footnote 34] 

An IRS form already exists that could help resolve this compliance 
issue, but whether IRS is authorized to use it for this purpose would 
have to be determined. Currently, IRS annually receives some Forms 
1099-S, "Proceeds from Real Estate Transactions," from agents closing 
real estate transactions such as home sales.[Footnote 35] The form 
provides information such as the seller's name and Social Security 
number and the sale price of the home and is to be used by IRS to 
determine if taxpayers have filed returns and reported all of their 
proceeds from real estate transactions. However, closing agents are 
generally exempt from reporting information on the sale of principal 
residences sold for $250,000 or less if the agent receives written 
certification from the seller that certain assurances are true. 
[Footnote 36] Moreover, it is not clear whether IRS has the authority 
to require Form 1099-S be filed by third parties currently exempted 
for purposes of recapture from FTHBC recipients. If Form 1099-S 
information reporting could be required for all home sales or for 
those taxpayers who do not certify that they had not claimed the 
FTHBC, IRS might be better able to identify the taxpayers who need to 
repay part or all of the credit. Because Form 1099-S contains the 
seller's Social Security number, IRS could match the identification 
numbers on the Forms 1099-S to those reported on returns claiming the 
FTHBC, isolating Form 1099-S filers who should have reported their 
home sale on the FTHBC form, but did not. 

As we were completing our review, IRS officials identified an 
alternative way to analyze whether homebuyer credit recipients sell 
their homes and are, therefore, possibly subject to payback 
requirements. This alternative involves acquiring access to third-
party data in the form of publicly available real estate information 
from local governments. This information could include individual 
properties' addresses, previous and recent sales prices, and sales 
dates. IRS could use these data in matches against Form 5405 or other 
IRS data to identify taxpayers who claimed the FTHBC and then sold 
their property without repaying any required part of the FTHBC benefit 
they received. IRS expects to purchase the use of these data, use 
them, and then evaluate how well they help IRS enforce the FTHBC 
provisions. The evaluation is not yet designed but should be able to 
cover issues like data reliability, comprehensiveness, and cost-
effectiveness. 

An Option Exists to Better Identify Unresolved COBRA Compliance Issues: 

The Recovery Act provides eligible taxpayers with COBRA premium 
assistance--a 65 percent reduction in health insurance premiums for 
individuals who were involuntarily terminated between September 1, 
2008, and December 31, 2009.[Footnote 37] An employer pays 65 percent 
of its former employees' insurance premium costs and is reimbursed in 
the form of a payroll tax credit.[Footnote 38] This tax provision is 
only the second refundable tax credit administered by IRS's Small 
Business/Self-Employed (SB/SE) division.[Footnote 39] Unlike the other 
credit, SB/SE's compliance strategy for COBRA focuses on the employer 
and the Form 941, not on individuals receiving assistance. 

To identify fraudulent or erroneous COBRA claims made by employers, 
IRS instituted a number of prepayment checks, such as looking for 
irregularities in COBRA claims and in the dollar value of subsidies. 
As of September 22, 2009, the prepayment checks had stopped about 
1,500, or 2 percent, of COBRA claims for further review. 

Other compliance challenges have not been resolved. For example, IRS 
does not know who receives the COBRA subsidies, which limits its 
ability to determine if a taxpayer is qualified to receive a subsidy 
and to ensure that employers do not receive the credit for ineligible 
individuals. In an effort to reduce employer burden, IRS did not 
require employers to submit lists of all people receiving COBRA. As a 
result, it was only aware of the number of individuals an employer 
reported on Form 941 and the total amount of the subsidy claimed. 
Employers are required by IRS to keep records of the COBRA assistance, 
including the names and Social Security numbers of covered employees, 
but IRS would see this information only during any examinations. 

Another challenge facing IRS is verifying that those taxpayers who are 
required to repay part of the COBRA subsidy they receive do so. Those 
individuals and married couples filing joint tax returns with modified 
adjusted incomes above $125,000 and $250,000, respectively, are 
required to report on their tax returns that they received COBRA 
assistance. This requirement is in place because the COBRA subsidy 
phases out for those taxpayers with higher incomes, and those above 
the phaseout range are ineligible. IRS plans to conduct a review of 
filed returns to identify high-income taxpayers who did not report the 
subsidy as an addition to tax. However, rather than rely solely on 
audits to determine if these taxpayers are subject to additional tax, 
IRS has taken some steps to obtain this information. For example, IRS 
worked with tax-preparation software companies to ensure that pointed 
questions are asked during tax return preparation to determine if 
individuals received COBRA during the year. IRS also has plans to use 
a compliance initiative project to test whether taxpayers did not 
report the subsidy as an addition to tax and decide if further action 
is needed.[Footnote 40] 

Individuals are allowed to receive a COBRA subsidy for up to 9 months 
after their involuntary termination, but, since IRS does not know from 
the Form 941 who is receiving COBRA subsidies, it also does not have 
the information to know when an individual's eligibility period ends. 
[Footnote 41] Claims beyond 9 months may not be widespread because 
some studies have shown that, even with the subsidy, COBRA is 
generally more expensive to employees than employer-sponsored plans. 
[Footnote 42] Thus, in most circumstances, individuals have an 
incentive to terminate their COBRA coverage when other options exist. 
However, employers may have an incentive to continue claiming the 
credit even when former employees are no longer eligible. A past 
report of ours noted that businesses facing economic hardship may take 
advantage of the tax system by diverting payroll taxes for their own 
uses.[Footnote 43] Employer audits are one of the ways IRS learns if 
an employer claimed the credit for employees for longer than 9 months. 
IRS will not be able to audit all employers. To address this concern, 
IRS has conducted outreach with the employer and payroll communities 
emphasizing the time limit and planned to continue doing so in the 
coming months. Yet, other than relying on costly audits, IRS had not 
finalized actions that it could take to ensure employers stop claiming 
the credit when their former employees are no longer eligible, thus 
safeguarding against invalid COBRA claims that increase costs to the 
federal government. 

A cost-effective option to help IRS with the unresolved compliance 
issues exists. IRS could expand its planned compliance initiative 
project to test whether employers are claiming COBRA subsidies for 
employees for longer than 9 months, or 15 months when considering the 
recent extension. IRS can use existing information to determine if 
significant noncompliance with the 15-month provision is apparent. If 
significant indications of noncompliance are found, IRS could issue 
"soft notices" to employers to remind them of COBRA eligibility 
requirements and the consequences of noncompliance.[Footnote 44] IRS 
officials responded favorably to these ideas and said they would 
consider adopting them. 

Documenting IRS's Recovery Act Lessons Learned and Expanding Its 
Authority, with Appropriate Controls, Could Improve Future Tax 
Administration: 

IRS plans to do a "lessons learned" review of its Recovery Act 
experiences and implementation, most likely after the 2010 filing 
season, but it had not yet developed detailed plans during our review. 
This study would be consistent with a recommendation we have 
previously made. In an August 2002 report on the advance tax refund 
program, which the Congress designed to stimulate the economy, we 
noted that analysis is a key part of understanding performance and 
identifying improvement options.[Footnote 45] We therefore recommended 
that IRS convene a study group to assess its performance with respect 
to the advance tax refund and related rate-reduction credit. We also 
said that to ensure that managers faced with similar challenges in the 
future have the benefit of this assessment, the results should be 
thoroughly documented. IRS implemented this recommendation and later 
said that the resulting internal report was a cornerstone in improving 
administration of the advance child tax credit. 

IRS Could Benefit from Broader Math Error Authority: 

IRS would have benefited from having math error authority (MEA) to 
enforce at least one Recovery Act provision from the outset rather 
than only after problems were identified. The Internal Revenue Code 
provides IRS with MEA to assess additional tax or correct other tax 
return errors in limited circumstances when an adjustment is the 
result of mathematical or clerical errors on the return.[Footnote 46] 
Over the years, the Congress has granted IRS MEA for specified 
purposes.[Footnote 47] For example, when a taxpayer makes an entry on 
a tax return for a deduction or credit in an amount that exceeds the 
statutory limit for that deduction or credit, IRS uses its MEA to 
correct the error during tax return processing. MEA is an automated 
and low-cost means to protect federal revenue and avoid the need for 
costly audits. This is due, in part, to the fact that IRS does not 
have to follow its standard deficiency procedures when using MEA--it 
must only notify the taxpayer that the assessment has been made and 
provide an explanation of the error. 

As described earlier, IRS had problems enforcing some of the 
eligibility requirements of the FTHBC. After learning about the 
compliance problems with the FTHBC, the Congress expanded IRS's MEA in 
the Worker, Homeownership, and Business Assistance Act of 2009. 
[Footnote 48] It followed our suggestion that, to reduce IRS's 
reliance on costly and burdensome audits of the credit, the Congress 
should consider providing IRS with additional MEA.[Footnote 49] 
Specifically, we suggested that the Congress consider giving IRS MEA 
to use tax return information to automatically verify taxpayers' 
compliance with the 2008 FTHBC payback provision and to ensure that 
taxpayers do not improperly claim the credit in multiple years. In 
addition to following these suggestions, based on noncompliance 
identified by TIGTA, the Congress granted IRS MEA to assess additional 
tax without the notice of deficiency otherwise required if a taxpayer 
did not meet the credit's age requirement or did not submit the 
settlement statement used in the home purchase. 

The Congress has been incrementally adding MEA authorizations for 
almost a century. The first basic exemption to the deficiency 
procedures for mathematical errors can be found in the Internal 
Revenue law in 1926. In 1976, the Congress expanded the authority 
beyond mathematical errors to clerical errors and gave taxpayers the 
right to ask that IRS reverse the math error assessment and follow 
IRS's normal deficiency procedures. In the 1990s, the Congress 
extended MEA multiple times to help IRS determine eligibility for 
certain tax exemptions and credits. As a recent example of where MEA 
could also be useful, in 2008 we suggested that the Congress provide 
IRS with the authority to automatically correct returns for individual 
retirement account (IRA) contributions that violated certain dollar or 
age limits.[Footnote 50] In 2004, IRS had found IRA contribution 
overclaims by taxpayers under age 50 resulting in $23.2 million in 
underreported taxes but did not have the MEA to use age-based data to 
check for age-based eligibility. Also, on September 30, 2009, after 
finding more than $600 million of inappropriately claimed Hope Credits 
for higher education, TIGTA recommended that the Congress give IRS MEA 
to disallow claims for the Hope Credit for more years than allowed by 
law.[Footnote 51] In a November 2009 report, TIGTA listed four 
examples of other reports it had issued in fiscal years 2008 and 2009 
with issues related to MEA, three recommending that specific MEA be 
obtained or studied.[Footnote 52] 

Authorizing the use of MEA on a broader basis rather than case-by-
case, with appropriate controls, could have several benefits to IRS 
and taxpayers. It could: 

* enable IRS to correct all or nearly all returns with types of 
noncompliance for which IRS identifies with virtual certainty the 
noncompliance and the needed correction, not just those it can address 
through other enforcement means; 

* be low cost and less intrusive and burdensome to taxpayers than 
audits; 

* ensure that taxpayers who are noncompliant on a particular issue are 
more often treated alike, that is, that a greater portion of them are 
brought into compliance, not just those that IRS could otherwise 
address; 

* enhance equity between compliant and noncompliant taxpayers because 
a greater portion of the noncompliant ones would be brought into 
compliance; 

* provide a taxpayer service as it would generally allow noncompliant 
taxpayers to receive their refunds faster than if IRS had to address 
the error through some other compliance mechanism, have their returns 
corrected without penalty and before interest is accrued, and avoid 
time-consuming interaction with IRS under its other programs for 
resolving noncompliance; 

* help ensure taxpayers receive the tax benefits for which they are 
eligible by identifying taxpayers underclaiming a tax benefit; 

* free up IRS resources to pursue other forms of noncompliance; and: 

* allow IRS to quickly address provisions arising from new and quickly 
moving initiatives like the Recovery Act without waiting for new MEA 
to go through the legislative process. 

Broader authority to use MEA could take several forms; for instance, 
it could be granted for (1) new legislation that had to be implemented 
in short time periods, (2) newly created or revised refundable 
credits, or (3) wherever IRS could check for obvious noncompliance in 
both new legislation and already enacted laws. Refundable credits, 
which entail cash payments to taxpayers irrespective of the amount of 
their tax liabilities, are growing in popularity and automatic 
authority could enable IRS to monitor low-dollar amounts on individual 
returns that would be too labor-intensive and costly to audit. 

Although broader MEA could benefit IRS and taxpayers, controls may be 
needed to ensure broader authority is properly used. While stating 
that IRS generally uses its authority properly, the IRS National 
Taxpayer Advocate's 2006 annual report warned of IRS's implementation 
of MEA impairing taxpayer rights.[Footnote 53] The Taxpayer Advocate 
pointed out that in considering the 1976 legislation mentioned above, 
the Congress was concerned that IRS might use its authority in ways 
that would undermine taxpayer rights. Consequently, the Congress 
incorporated certain taxpayer safeguards into the legislation, such as 
requiring IRS to explain to the taxpayer the errors it asserted. 
Still, the Taxpayer Advocate was concerned that taxpayers, especially 
low-income taxpayers, might not proactively ask, within 60 days after 
being assessed tax by IRS, to have their assessment reversed by IRS, 
and thus might be unable to challenge an IRS notice through normal 
deficiency procedures or in the Tax Court. She was also concerned that 
MEA notices to taxpayers did not contain the type of information the 
Congress envisioned that clearly explained to taxpayers the nature of 
the error that IRS addressed through MEA. 

The Taxpayer Advocate's 2002 annual report recommended that the 
Congress specifically limit the scope of the assessment authority for 
mathematical or clerical errors and provide standards by which to 
judge any proposed expansion of this authority.[Footnote 54] The 
Taxpayer Advocate said that MEA should be limited to situations where 
there are inconsistent items and the inconsistency is determined from 
the face of the return; where required items, such as schedules, were 
omitted from the tax return; and where items on the return are 
numerical or quantitative. 

With these or other standards in mind, the Congress could extend 
broader MEA to IRS but could specify criteria governing when IRS could 
use the authority and require other controls as well. For example, the 
Congress could require IRS to submit a report on a proposed new use of 
MEA. The report could include how such use would meet the standards or 
criteria outlined by the Congress. The report could also describe 
IRS's or the Taxpayer Advocate's assessment of any potential effect on 
taxpayer rights. Or, the Congress could require a more informal 
procedure whereby IRS simply notifies a committee, such as JCT, of its 
proposed use and subsequently submits a report after such use is 
underway. In any case, the Congress could provide IRS broader 
authority to use MEA than is currently authorized, but still provide 
appropriate safeguards by outlining criteria and guidelines and 
requiring IRS to report in order to alleviate concerns of improper use 
of MEA. 

Conclusions: 

A year since the passage of the Recovery Act, IRS's quick 
implementation has allowed billions of dollars to be available to 
bolster the struggling U.S. economy. In the face of significant 
challenges posed by the Recovery Act, IRS traded off the requirements 
for quick implementation against the needs to collect proper data and 
enforce compliance with tax laws. As IRS gained experience with 
Recovery Act implementation, it at times substantively adjusted its 
approach for specific provisions. Following through on its stated 
intention to capture the lessons it learned from the overall 
experience would help IRS the next time it is charged with similar 
tasks. Similarly, the data-collection and enforcement framework IRS 
has created allows room to enhance the data it collects for BABs and 
to strengthen the foundation for enforcing COBRA and FTHBC provisions. 
In terms of the FTHBC, we are making no recommendations concerning the 
payback feature because late in our review IRS identified a 
potentially promising alternative that it expected to pursue to 
enforce it. This alternative will bear watching, and we look forward 
to IRS assessing how well it will work. Finally, receiving broader 
MEA, with appropriate safeguards, from the Congress would give IRS the 
flexibility to respond quickly as new uses emerge in the future. 

Matters for Congressional Consideration: 

The Congress should consider the following: 

* Granting IRS the authority to publicly release information on Build 
America Bonds (BAB), such as project purpose, beginning and ending 
dates, and costs; this approach would be broadly consistent with the 
Recovery Act reporting and transparency provisions for direct spending 
programs. 

* Broadening IRS's ability to use math error authority (MEA), with 
appropriate safeguards against misuse of that authority. 

Recommendations for Executive Action: 

We recommend the Commissioner of Internal Revenue take three actions: 

* Require governmental issuers to submit additional information on 
Build America Bond (BAB)-financed projects, including information on 
project purpose, beginning and ending dates, and costs. This reporting 
could be similar to the bond reporting required for charitable 
organizations on the Schedule K of Form 990, "Supplemental Information 
on Tax-Exempt Bonds." Should the Congress grant the authority, IRS 
should publish the information in a report available to the public. 

* Direct officials to conduct a compliance initiative project to 
determine if individuals are receiving COBRA or employers are claiming 
individual COBRA subsidies for longer than 15 months. IRS can use 
existing information to determine if significant noncompliance with 
the 15-month provision is apparent. If significant noncompliance is 
found, IRS should issue soft notices to all employers to remind them 
of COBRA eligibility requirements and urge them to correct errors that 
may have been made. 

* Prepare a report detailing the lessons learned from its Recovery Act 
experiences and implementation and publish the results of its review, 
in line with the Recovery Act's emphasis on transparency. 

Agency Comments and Our Evaluation: 

We received written comments on a draft of this report from the 
Commissioner of Internal Revenue on February 4, 2010 (for the full 
text of the comments, see appendix V). He agreed with the benefit of 
one of our recommendations and agreed fully with the other two. In 
agreeing that IRS compliance efforts would benefit from requiring more 
information from issuers of Build America Bonds, he noted that the 
benefit would have to be balanced against the burden imposed on state 
and municipal governments issuing the bonds. As we said in our report, 
any additional cost of reporting could be tempered by having a minimum 
reporting threshold or delaying the onset of requirements, as was done 
when similar reporting for charitable organizations was instituted. 
The Commissioner recognized, as we had, that IRS would need statutory 
authority before it could make the information public. He said that if 
granted that authority, IRS stood ready to implement the 
recommendation. In agreeing with our other recommendations, the 
Commissioner said that IRS (1) has plans in place to do a compliance 
project to test the 15-month COBRA rule, and (2) will review and 
publish a report on lessons learned from IRS's management and 
implementation of the Recovery Act. 

The Commissioner added that in those cases in which additional math 
error authority could be effectively deployed, IRS would welcome it. 
He said IRS looked forward to discussing the issue in more detail as 
the Congress considers any new tax legislation. 

We also received technical comments on a draft of this report from 
Treasury's Acting Tax Legislative Counsel and made changes where 
appropriate. 

We plan to send copies of this report to the Secretary of the 
Treasury, the Commissioner of Internal Revenue, and other interested 
parties. The report will also be available at no charge on GAO's Web 
site at [hyperlink, http://www.gao.gov]. 

For further information regarding this report, please contact me at 
(202) 512-9110 or at brostekm@gao.gov. Contacts for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. Individuals making key contributions to this 
report may be found in appendix VI. 

Signed by: 

Michael Brostek: 
Director, Tax Issues: 
Strategic Issues Team: 

List of Addressees: 

The Honorable Nancy Pelosi: 
Speaker of the House of Representatives: 

The Honorable Robert C. Byrd: 
President Pro Tempore of the Senate: 

The Honorable Harry Reid: 
Majority Leader: 
United States Senate: 

The Honorable Mitch McConnell: 
Republican Leader: 
United States Senate: 

The Honorable Steny Hoyer: 
Majority Leader: 
House of Representatives: 

The Honorable John Boehner: 
Minority Leader: 
House of Representatives: 

The Honorable Daniel K. Inouye: 
Chairman: 
The Honorable Thad Cochran: 
Vice Chairman: 
Committee on Appropriations: 
United States Senate: 

The Honorable Dave Obey: 
Chairman: 
The Honorable Jerry Lewis: 
Ranking Member: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Joseph I. Lieberman: 
Chairman: 
The Honorable Susan M. Collins: 
Ranking Member: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

The Honorable Edolphus Towns: 
Chairman: 
The Honorable Darrell E. Issa: 
Ranking Member: 
Committee on Oversight and Government Reform: 
House of Representatives: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Charles E. Grassley: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Charles Rangel: 
Chairman: 
The Honorable Dave Camp: 
Ranking Member: 
Committee on Ways and Means: 
House of Representatives: 

[End of section] 

Appendix I: Background and Requirements of Selected Provisions: 

The sections below provide background and describe requirements of the 
five provisions we selected to review in detail, as well as the Health 
Coverage Tax Credit (HCTC). Appendix II details our objectives, scope, 
and methodology, including why we selected each provision. 

Build America Bonds (BAB): 

BABs are taxable government bonds, with federal subsidies for a 
portion of the borrowing costs, that state and local governments may 
issue through December 31, 2010.[Footnote 55] BAB subsidies can be 
either nonrefundable tax credits provided to holders of the bonds (tax 
credit BABs) or refundable tax credits paid to state and local 
governmental issuers of the bonds (direct payment BABs). Direct 
payment bonds are a new type of bond that provides state and local 
government issuers with a direct subsidy payment equal to 35 percent 
of the bond interest they pay. Because of this feature, state and 
local governments are able to offer the bonds to investors at a higher 
interest rate than they can with tax-exempt bonds. Direct payment BABs 
may appeal to a broader market than traditional tax-exempt bonds 
because a wider range of investors, such as pension funds that pay no 
taxes and therefore have less incentive to invest in tax-exempt bonds, 
are able to take advantage of them and receive a return comparable to 
taxable debt instruments. Tax credit BABs provide investors with a 
nonrefundable tax credit of 35 percent of the net bond interest 
payments (excluding the credit), which represents a federal subsidy to 
the state or local governmental issuer equal to approximately 25 
percent of the total return to the investor. This subsidy is expected 
to make investors indifferent between the tax credit bond and a taxed 
bond that is otherwise similar. As a result, each dollar of federal 
revenue foregone for both direct payment and tax credit BABs benefits 
state and local governments. One hundred percent of the proceeds from 
BABs must be used for capital expenditures. There is no volume 
limitation on the amount of eligible BABs that can be issued during 
this period. 

Consolidated Omnibus Budget Reconciliation Act (COBRA) Premium 
Subsidies: 

COBRA was established in 1985 and provides access to health insurance 
for individuals who lost their employer-sponsored coverage. Before the 
American Recovery and Reinvestment Act of 2009 (Recovery Act), 
[Footnote 56] individuals paid up to 102 percent of the total COBRA 
premium cost--the full cost plus a two percent administration fee--to 
retain their health coverage. The act provided up to 9 months of 
premium assistance at a lower rate to individuals who were 
involuntarily terminated from their jobs. The Department of Defense 
Appropriations Act, 2010 (Pub. L. No. 111-118) extended the duration 
of premium assistance from 9 months to 15 months. Individuals pay no 
more than 35 percent of premium costs and their former employers pay 
the remaining 65 percent. Employers are reimbursed for their COBRA 
subsidies through a tax credit against their payroll tax liability or 
through a tax refund if the credit exceeds their payroll tax 
liability. Employers file Form 941, "Employer's Quarterly Federal Tax 
Return," for a COBRA credit. In some instances, such as for state 
health plans that are subject to COBRA requirements, multiemployer 
group health plans or insurers, instead of the former employer, may 
provide the COBRA subsidy and file for a COBRA credit. 

To be eligible for COBRA premium assistance, individuals must (1) be 
involuntarily terminated between September 1, 2008, and December 31, 
2009 (recently extended to February 28, 2010), (2) not be eligible for 
another group health plan, such as Medicare or a group plan offered 
through a spouse's employer, and (3) have a modified adjusted income 
below $145,000, or $290,000 if married and filing a joint tax return. 

The First-Time Homebuyer Credit (FTHBC): 

The FTHBC initially was established by the Housing and Economic 
Recovery Act of 2008 as a tax credit equal to 10 percent of the 
purchase price of the principal residence, up to $7,500, which took 
the form of an interest-free loan that must be paid back in $500 
increments over 15 years.[Footnote 57] 

The Recovery Act increased the maximum credit for the 2009 FTHBC to 
$8,000, with no payback required unless the home ceases to be the 
taxpayer's principal residence within 3 years.[Footnote 58] This 
$8,000 credit is a refundable tax credit, meaning that it is paid out 
even if there is no tax liability. The 2009 FTHBC was enacted into law 
on February 17, 2009, but eligibility was made retroactive to be 
applied to homes purchased between January 1, 2009, and November 30, 
2009. 

The Worker, Homeownership, and Business Assistance Act of 2009 
extended the FTHBC to home purchases made through April 30, 2010, as 
well as those that are under a binding contract on that date if the 
contract provides for closing the sale on or before June 30, 
2010.[Footnote 59] The act also authorized a credit of up to $6,500 
for individuals who owned and used the same residence as their 
principal residence for any 5 consecutive years during the 8-year 
period ending when they bought another property to use as their 
principal residence. 

The 2008 and 2009 FTHBC, as well as the 2010 credit, have complex 
requirements. Regarding the amount of the credit, taxpayers buying 
their first home can claim the smaller of: 

* $7,500 for the 2008 credit and $8,000 for the 2009 and 2010 credits, 
or: 

* 10 percent of the purchase price of the home. 

Virtually all eligibility requirements for the 2008 and 2009 FTHBC are 
identical, as noted in table 4. However, there are differences--the 
primary one being the purchase date. The 2010 FTHBC contains several 
new requirements. 

Table 4: Eligibility Requirements for the FTHBC: 

Eligibility requirements: Date of purchase must be between April 9, 
2008, and June 30, 2009; 
2008 FTHBC: [Check]; 
2009 FTHBC: [Empty]; 
2010 FTHBC: [Empty]. 

Eligibility requirements: Date of purchase must be between January 1, 
2009, and November 30, 2009; 
2008 FTHBC: [Empty]; 
2009 FTHBC: [Check]; 
2010 FTHBC: [Empty]. 

Eligibility requirements: Date of purchase must be between December 1, 
2009, and April 30, 2010, or it may occur after April 30, 2010 if the 
seller enters into a binding contract by April 30, 2010, that provides 
for closing on the sale before July 1, 2010. These dates are extended 
by a year for those who have served on qualified official extended 
duty outside the United States for at least 90 days between January 1, 
2009, and April 30, 2010; 
2008 FTHBC: [Empty]; 
2009 FTHBC: [Empty]; 
2010 FTHBC: [Check]. 

Eligibility requirements: Home must be principal residence[A]; 
2008 FTHBC: [Check]; 
2009 FTHBC: [Check]; 
2010 FTHBC: [Check]. 

Eligibility requirements: Taxpayer must have no prior homeownership 
within the past 3 years; 
2008 FTHBC: [Check]; 
2009 FTHBC: [Check]; 
2010 FTHBC: [Empty]. 

Eligibility requirements: Taxpayers must have owned and used the same 
residence as their principal residence for any 5 consecutive years 
during the 8-year period ending when they bought another property to 
use as their principal residence to be eligible for a reduced credit 
of $6,500; 
2008 FTHBC: [Empty]; 
2009 FTHBC: [Empty]; 
2010 FTHBC: [Check]. 

Eligibility requirements: Home cannot be a gift or inheritance; 
2008 FTHBC: [Check]; 
2009 FTHBC: [Check]; 
2010 FTHBC: [Check]. 

Eligibility requirements: Home cannot be acquired from a relative; 
2008 FTHBC: [Check]; 
2009 FTHBC: [Check]; 
2010 FTHBC: [Check]. 

Eligibility requirements: Home must be located in the United States; 
2008 FTHBC: [Check]; 
2009 FTHBC: [Check]; 
2010 FTHBC: [Check]. 

Eligibility requirements: Single filers: Modified adjusted gross 
income (MAGI) must be less than $95,000.[B] Between $75,000 and 
$95,000 the credit phases out; 
2008 FTHBC: [Check]; 
2009 FTHBC: [Check]; 
2010 FTHBC: [Empty]. 

Eligibility requirements: Married filing jointly filers: MAGI must be 
less than $170,000. Between $150,000 and $170,000 the credit phases 
out; 
2008 FTHBC: [Check]; 
2009 FTHBC: [Check]; 
2010 FTHBC: [Empty]. 

Eligibility requirements: Single filers: MAGI must be less than 
$145,000. Between $125,000 and $145,000 the credit phases out; 
2008 FTHBC: [Empty]; 
2009 FTHBC: [Empty]; 
2010 FTHBC: [Check]. 

Eligibility requirements: Married filing jointly filers: MAGI must be 
less than $245,000. Between $225,000 and $245,000 the credit phases 
out; 
2008 FTHBC: [Empty]; 
2009 FTHBC: [Empty]; 
2010 FTHBC: [Check]. 

Eligibility requirements: Taxpayer cannot be a nonresident alien; 
2008 FTHBC: [Check]; 
2009 FTHBC: [Check]; 
2010 FTHBC: [Check]. 

Eligibility requirements: Taxpayer must not have been allowed to claim 
the District of Columbia homebuyer credit for the current or any prior 
tax year; 
2008 FTHBC: [Check]; 
2009 FTHBC: [Empty]; 
2010 FTHBC: [Empty]. 

Eligibility requirements: Home financing cannot come from tax-exempt 
mortgage revenue bonds; 
2008 FTHBC: [Check]; 
2009 FTHBC: [Empty]; 
2010 FTHBC: [Empty]. 

Eligibility requirements: Taxpayer must be at least 18 years old 
unless married; 
2008 FTHBC: [Empty]; 
2009 FTHBC: [Empty]; 
2010 FTHBC: [Check]. 

Eligibility requirements: Taxpayer cannot be eligible to be claimed as 
a dependent on someone else's tax return; 
2008 FTHBC: [Empty]; 
2009 FTHBC: [Empty]; 
2010 FTHBC: [Check]. 

Eligibility requirements: Taxpayer must attach a copy of the 
settlement statement to the tax return; 
2008 FTHBC: [Empty]; 
2009 FTHBC: [Empty]; 
2010 FTHBC: [Check]. 

Eligibility requirements: Home price cannot exceed $800,000; 
2008 FTHBC: [Empty]; 
2009 FTHBC: [Empty]; 
2010 FTHBC: [Check]. 

Source: GAO analysis of FTHBC information. 

Notes: The "[Check]" indicates if the related eligibility requirement 
applies to FTHBC for homes purchased in 2008, 2009, or 2010. 

[A] A principal residence is the main home a taxpayer lives in most of 
the time. It can be a house, houseboat, housetrailer, cooperative 
apartment, condominium, or other type of residence. 

[B] MAGI is modified adjusted gross income (AGI), as figured on an 
income tax return, plus various amounts excluded from the income tax 
return, such as some types of foreign income that would have to be 
added to AGI to yield MAGI. 

[End of table] 

The Making Work Pay Credit (MWPC): 

The MWPC provides up to $400 for working individuals and $800 for 
working married couples.[Footnote 60] Taxpayers may receive the credit 
throughout the year in the form of lower amounts of tax withheld from 
their paychecks. The MWPC is completely phased out for single 
taxpayers and for married taxpayers filing jointly with modified 
adjusted gross incomes (MAGI) in excess of $95,000 and $190,000, 
respectively. Taxpayers must have a Social Security number in order to 
claim the credit, and nonresident aliens and dependents cannot claim 
it. 

If a taxpayer received a $250 economic recovery payment or a $250 
government retiree credit, the MWPC is reduced by that amount. Under 
the Recovery Act, individuals receiving Social Security and certain 
other benefits were to receive a onetime payment of $250, as were 
certain government retirees. 

Net Operating Loss (NOL) Carrybacks: 

The NOL carryback provision is available to eligible small businesses--
those that had a 3-year gross receipts average of no more than $15 
million--if their costs and deductions exceeded their income in 2008. 
[Footnote 61] It allowed these businesses to apply for a tax refund 
for taxes paid in up to 5 previous years. The refund is the difference 
between previous taxes paid and the taxes that would have been paid if 
the amount of the 2008 loss were deducted from past profits. The 
Recovery Act increased the small-business gross-receipts limit from $5 
million to $15 million and extended the NOL carryback period for 2008 
NOLs from 2 years to up to 5 years. 

Health Coverage Tax Credit (HCTC): 

The HCTC helps workers pay for health insurance by subsidizing part of 
their health insurance premium when they are between the ages of 55 
and 64 and are receiving payments from the Pension Benefit Guaranty 
Corporation (PBGC) or they are eligible for Trade Adjustment 
Assistance (TAA) benefits because they lost their jobs due to 
international trade. Other eligibility requirements for individuals 
include that they not be entitled to benefits from a government health 
insurance program and that they be enrolled in a qualified health 
plan. IRS administers the HCTC program but relies on the Department of 
Labor and PBGC to identify that workers are potentially eligible for 
the credit. The HCTC can be claimed on a yearly basis on an 
individual's tax return or taxpayers can choose to have advance 
payments sent to their health plans on a monthly basis as health 
insurance premiums are due. 

The Recovery Act made several changes to the HCTC, effective until 
December 31, 2010, including the following.[Footnote 62] First, it 
increased the health insurance premium subsidy rate from 65 percent of 
premiums to 80 percent. Second, it allowed taxpayers to be reimbursed 
for payments they made to their health plans when they were eligible 
for, but not yet enrolled in, the HCTC program. Third, it allowed 
family members of HCTC recipients to continue to receive coverage for 
up to 2 years if the qualified taxpayer becomes eligible for Medicare, 
the taxpayer and the spouse divorce, or the taxpayer dies. Fourth, it 
added a new qualified health insurance plan--one funded by a voluntary 
employees' beneficiary association. Other changes that do not expire 
but will need to be reauthorized in 2010 include broadening 
eligibility for the TAA program to include service sector and public 
agency workers and requiring the Department of the Treasury to conduct 
a biennial survey of HCTC-eligible individuals. 

[End of section] 

Appendix II: Objectives, Scope, and Methodology: 

Our objectives were to (1) describe the status of the Internal Revenue 
Service's (IRS) implementation of American Recovery and Reinvestment 
Act of 2009 (Recovery Act) tax provisions; (2) analyze IRS plans to 
collect data on the provisions, examine whether and how IRS captured 
data on the use of selected provisions, and discuss the provisions' 
overall effect; (3) assess IRS's efforts to determine potential abuse 
of the provisions and IRS's steps for minimizing it; and (4) discuss 
possible lessons learned for future tax administration. 

To address the first objective, we identified from IRS documents 
implementation steps taken and planned for each of the 54 Recovery Act 
provisions that IRS had a role in administering. We focused on 
education and outreach, guidance and instruction, and processing and 
programming activities because they were part of a framework that IRS 
used to implement Recovery Act tax provisions. 

To further address this objective as well as others, we selected five 
Recovery Act tax provisions to review in detail--Build America Bonds 
(BAB), Consolidated Omnibus Budget Reconciliation Act (COBRA) premium 
subsidies, the First-Time Homebuyer Credit (FTHBC), the Making Work 
Pay Credit (MWPC), and net operating loss (NOL) carrybacks. We also 
reviewed the Health Coverage Tax Credit (HCTC), but our analysis of 
the HCTC was limited to data-collection issues because we are doing a 
separate review of the HCTC, which is due in March 2010, as mandated 
by the Recovery Act. 

We chose the five provisions to review in detail using the following 
four criteria: 

* Year of implementation. By choosing provisions being implemented in 
2009, we could study how IRS's forms, guidance, systems, and processes 
were used to implement change relatively quickly. In addition, more 
reliable data would be available than for provisions that could not be 
claimed until the future. 

* Estimated revenue loss. We chose estimated revenue loss as another 
criterion to make sure we included provisions estimated to have a 
large effect on revenue. We were interested in whether a provision's 
estimated revenue loss was among the largest of the 54 provisions. The 
six provisions we selected had total estimated revenue losses of about 
$153 billion over the period from fiscal year 2009 through fiscal year 
2011, almost half the estimated losses for all 54 provisions. 

* Refundable components. We chose refundability as a third criterion 
because IRS has frequently noted that refundable tax provisions are 
more susceptible to abuse than other tax provisions. Further, when IRS 
actually refunds money to taxpayers, recouping it can be difficult if 
the monies were paid erroneously. 

* Coverage. As shown earlier in table 1, IRS grouped Recovery Act 
provisions into the following categories: individual tax credits, tax 
incentives for business, renewable energy, various bond incentives, 
health coverage improvement, and COBRA. We chose coverage as a fourth 
criterion in order to ensure that we considered at least one provision 
from most of the IRS categories. We did not select provisions from the 
Renewable Energy group because none of them was being implemented in 
2009. We selected the BAB and NOL carryback provisions in spite of 
their relatively small dollar estimates to achieve wider coverage of 
IRS categories. 

Table 5 summarizes how the five provisions we selected for further 
study addressed these criteria and also shows how the HCTC relates to 
the criteria. 

Table 5: Characteristics of the Five Provisions GAO Selected for 
Analysis Plus the HCTC: 

Provision: BAB; 
Criterion 1: Was the provision being implemented in 2009? Yes; 
Criterion 2: Was the provision's estimated revenue cost for fiscal 
years 2009 through 2019 among the 10 largest of the 54 provisions? No; 
Criterion 2: What was the estimated revenue cost for that period? 
(dollars in millions): $4,348; 
Criterion 3: Did the provision have a refundable feature? Yes; 
Criterion 4: In what IRS category was the provision? Various bond 
incentives. 

Provision: COBRA; 
Criterion 1: Was the provision being implemented in 2009?: Yes; 
Criterion 2: Was the provision's estimated revenue cost for fiscal 
years 2009 through 2019 among the 10 largest of the 54 provisions? Yes; 
Criterion 2: What was the estimated revenue cost for that period? 
(dollars in millions): $24,677; 
Criterion 3: Did the provision have a refundable feature? Yes; 
Criterion 4: In what IRS category was the provision? COBRA provision. 

Provision: FTHBC; 
Criterion 1: Was the provision being implemented in 2009? Yes; 
Criterion 2: Was the provision's estimated revenue cost for fiscal 
years 2009 through 2019 among the 10 largest of the 54 provisions? Yes; 
Criterion 2: What was the estimated revenue cost for that period? 
(dollars in millions): $6,638; 
Criterion 3: Did the provision have a refundable feature? Yes; 
Criterion 4: In what IRS category was the provision? Individual 
credits. 

Provision: MWPC; 
Criterion 1: Was the provision being implemented in 2009? Yes; 
Criterion 2: Was the provision's estimated revenue cost for fiscal 
years 2009 through 2019 among the 10 largest of the 54 provisions? Yes; 
Criterion 2: What was the estimated revenue cost for that period? 
(dollars in millions): $116,199; 
Criterion 3: Did the provision have a refundable feature? Yes; 
Criterion 4: In what IRS category was the provision?: Individual 
credits. 

Provision: NOL carryback; 
Criterion 1: Was the provision being implemented in 2009? Yes; 
Criterion 2: Was the provision's estimated revenue cost for fiscal 
years 2009 through 2019 among the 10 largest of the 54 provisions? No; 
Criterion 2: What was the estimated revenue cost for that period? 
(dollars in millions): 947; 
Criterion 3: Did the provision have a refundable feature? No; 
Criterion 4: In what IRS category was the provision? Business 
incentives. 

Provision: HCTC; 
Criterion 1: Was the provision being implemented in 2009? Yes; 
Criterion 2: Was the provision's estimated revenue cost for fiscal 
years 2009 through 2019 among the 10 largest of the 54 provisions? No; 
Criterion 2: What was the estimated revenue cost for that period? 
(dollars in millions): 457; 
Criterion 3: Did the provision have a refundable feature? Yes; 
Criterion 4: In what IRS category was the provision? Health coverage 
improvement. 

Source: GAO analysis of IRS and Joint Committee on Taxation 
information. 

[End of table] 

For the second objective, dealing with IRS's collection of data on the 
Recovery Act provisions, we analyzed IRS planning documents for 
collecting data for the 54 provisions. For the 5 selected provisions 
and the HCTC, we analyzed whether IRS would be able to identify 
provision users and the extent of use. To see how these data could 
relate to estimating IRS's Recovery Act provisions' effect on the 
overall economy, we consulted with GAO economics experts, including 
the Chief Economist's office, and studied Council of Economic Advisers 
(CEA) and Congressional Budget Office (CBO) reports. 

To meet the third objective, relating to the potential abuse of 
provisions, we determined what risk assessments and risk-mitigation 
plans IRS had done or planned for the future and discussed them with 
IRS and Department of the Treasury officials. We also assessed IRS's 
risk-management efforts against GAO and other published criteria on 
mitigating abusive noncompliance. For the five selected provisions, we 
examined the potential for abuse by reviewing IRS documentation and 
risk assessments and interviewing Treasury Inspector General for Tax 
Administration (TIGTA) and IRS officials. 

We used the results of our work and TIGTA's to answer our fourth 
objective--discussing possible lessons learned for future tax 
administration. We interviewed responsible IRS officials to obtain 
their views on these observations. 

We found the IRS data we used reliable for the purposes of this 
report. We determined this after interviewing IRS and, where 
appropriate, TIGTA officials, and reviewing various TIGTA reports. 

We conducted this performance audit from June 2009 through February 
2010 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

[End of section] 

Appendix III: The 54 Recovery Act Tax Provisions That IRS Has a Role 
in Administering: 

Table 6 details information about the 54 American Recovery and 
Reinvestment Act of 2009 (Recovery Act) provisions that the Internal 
Revenue Service (IRS) has a role in administering. 

Table 6: Information about the 54 Recovery Act Provisions That IRS Has 
a Role in Administering: 

Provision number: 1001; 
Short provision name: Making Work Pay Credit; 
Original expiration date[A]: 2010; 
Refundable[B]: [Check]; 
IRS category: Individual credits; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$116,199. 

Provision number: 1002; 
Short provision name: Increase in Earned Income Tax Credit; 
Original expiration date[A]: 2010; 
Refundable[B]: [Check]; 
IRS category: Individual credits; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$4,663. 

Provision number: 1003; 
Short provision name: Increase in Child Tax Credit; 
Original expiration date[A]: 2010; 
Refundable[B]: [Check]; 
IRS category: Individual credits; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$14,830. 

Provision number: 1004; 
Short provision name: American Opportunity Tax Credit; 
Original expiration date[A]: 2010; 
Refundable[B]: [Check]; 
IRS category: Individual credits; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$13,907. 

Provision number: 1005; 
Short provision name: Computer equipment allowed as education expense; 
Original expiration date[A]: 2010; 
Refundable[B]: [Empty]; 
IRS category: Individual credits; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $6. 

Provision number: 1006; 
Short provision name: First-Time Home Buyer Credit; 
Original expiration date[A]: 2009; 
Refundable[B]: [Check]; 
IRS category: Individual credits; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$6,638. 

Provision number: 1007; 
Short provision name: Suspension of tax on portion of unemployment 
compensation; 
Original expiration date[A]: 2009; 
Refundable[B]: [Empty]; 
IRS category: Individual credits; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$4,740. 

Provision number: 1008; 
Short provision name: Deduction for state sales tax on the purchase of 
new car; 
Original expiration date[A]: 2009; 
Refundable[B]: [Empty]; 
IRS category: Individual credits; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$1,684. 

Provision number: 1011; 
Short provision name: Increase alternative minimum tax (AMT) relief 
for nonrefundable credits; 
Original expiration date[A]: 2009; 
Refundable[B]: [Empty]; 
IRS category: Individual credits; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$69,759. 

Provision number: 1012; 
Short provision name: Extension of increased AMT exemption amount; 
Original expiration date[A]: 2009; 
Refundable[B]: [Empty]; 
IRS category: Individual credits; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 0. 

Provision number: 1101; 
Short provision name: Extend credit for renewable energy resources; 
Original expiration date[A]: 2013; 
Refundable[B]:[Empty]; 
IRS category: Energy incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$13,143. 

Provision number: 1102; 
Short provision name: Election of investment credit in lieu of 
production tax credits; 
Original expiration date[A]: 2013; 
Refundable[B]: [Empty]; 
IRS category: Energy incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $285. 

Provision number: 1103; 
Short provision name: Repeal of certain limitations on credit for 
renewable energy property; 
Original expiration date[A]: n.a.; 
Refundable[B]: [Empty]; 
IRS category: Energy incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $604. 

Provision number: 1104; 
Short provision name: Coordination with renewable energy grants; 
Original expiration date[A]: 2010; 
Refundable[B]: [Empty]; 
IRS category: Energy incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): No 
revenue effect. 

Provision number: 1111; 
Short provision name: New clean renewable energy bonds; 
Original expiration date[A]: n.a.; 
Refundable[B]: [Empty]; 
IRS category: Bond incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $578. 

Provision number: 1112; 
Short provision name: Qualified energy conservation bonds; 
Original expiration date[A]: n.a.; 
Refundable[B]: [Empty]; 
IRS category: Bond incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $803. 

Provision number: 1121; 
Short provision name: Extension and modification of credit for 
nonbusiness energy property; 
Original expiration date[A]: 2010; 
Refundable[B]: [Empty]; 
IRS category: Energy incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$2,034. 

Provision number: 1122; 
Short provision name: Modification of credit for residential energy-
efficient property; 
Original expiration date[A]: n.a.; 
Refundable[B]: [Empty]; 
IRS category: Energy incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $268. 

Provision number: 1123; 
Short provision name: Increase in credit for alternative fuel vehicle 
refueling property; 
Original expiration date[A]: 2010; 
Refundable[B]: [Empty]; 
IRS category: Energy incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $54. 

Provision number: 1131; 
Short provision name: Application of monitoring requirement for carbon 
dioxide; 
Original expiration date[A]: n.a.; 
Refundable[B]: [Empty]; 
IRS category: Energy incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): No 
revenue effect. 

Provision number: 1141; 
Short provision name: Credit for qualified plug-in electric-drive 
motor vehicles; 
Original expiration date[A]: n.a.; 
Refundable[B]: [Empty]; 
IRS category: Energy incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$2,002. 

Provision number: 1142; 
Short provision name: Credit for certain plug-in electric vehicles; 
Original expiration date[A]: 2011; 
Refundable[B]: [Empty]; 
IRS category: Energy incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 0. 

Provision number: 1143; 
Short provision name: Conversion kits; 
Original expiration date[A]: 2011; 
Refundable[B]: [Empty]; 
IRS category: Energy incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): No 
revenue effect. 

Provision number: 1144; 
Short provision name: Treatment of alternative motor vehicle credit as 
a personal credit allowed against AMT; 
Original expiration date[A]: n.a.; 
Refundable[B]: [Empty]; 
IRS category: Energy incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): No 
revenue effect. 

Provision number: 1151; 
Short provision name: Increased exclusion amount for commuter transit 
benefits and passes; 
Original expiration date[A]: 2010; 
Refundable[B]: [Empty]; 
IRS category: Energy incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $192. 

Provision number: 1201; 
Short provision name: Special allowance for property acquired during 
2009; 
Original expiration date[A]: 2010; 
Refundable[B]: [Empty]; 
IRS category: Business incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$5,879. 

Provision number: 1202; 
Short provision name: Temporary increase in limitations on expensing 
of certain depreciable business assets; 
Original expiration date[A]: 2009; 
Refundable[B]: [Empty]; 
IRS category: Business incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $41. 

Provision number: 1211; 
Short provision name: 5-year carryback of 2008 net operating losses 
(NOL); 
Original expiration date[A]: 2008; 
Refundable[B]: [Empty]; 
IRS category: Business incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $947. 

Provision number: 1212; 
Short provision name: Decreased required estimated tax payments for 
small businesses in 2009; 
Original expiration date[A]: 2009; 
Refundable[B]: [Empty]; 
IRS category: Business incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 0. 

Provision number: 1221; 
Short provision name: Modify the Work Opportunity Tax Credit; 
Original expiration date[A]: 2010; 
Refundable[B]: [Empty]; 
IRS category: Business incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $231. 

Provision number: 1231; 
Short provision name: Allow deferral of income from cancellation of 
indebtedness; 
Original expiration date[A]: 2010; 
Refundable[B]: [Empty]; 
IRS category: Business incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$1,622. 

Provision number: 1232; 
Short provision name: Modification of rules for original issue 
discount; 
Original expiration date[A]: n.a.; 
Refundable[B]: [Empty]; 
IRS category: Business incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): No 
revenue effect. 

Provision number: 1241; 
Short provision name: Increase exclusion for qualified small business 
stock; 
Original expiration date[A]: 2010; 
Refundable[B]: [Empty]; 
IRS category: Business incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $829. 

Provision number: 1251; 
Short provision name: Reduction of recognition period for S 
corporation built-in gain; 
Original expiration date[A]: 2010; 
Refundable[B]: [Empty]; 
IRS category: Business incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $415. 

Provision number: 1261; 
Short provision name: Clarify regulations related to limitations on 
built-in losses; 
Original expiration date[A]: 2009; 
Refundable[B]: [Empty]; 
IRS category: Business incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
-$6,977[C]. 

Provision number: 1262; 
Short provision name: Treatment of change of ownership of automaker 
for NOLs; 
Original expiration date[A]: n.a.; 
Refundable[B]: [Empty]; 
IRS category: Business incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$3,163. 

Provision number: 1301; 
Short provision name: Industrial Development Bonds; 
Original expiration date[A]: 2010; 
Refundable[B]: [Empty]; 
IRS category: Bond incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $203. 

Provision number: 1302; 
Short provision name: Energy Investment Credit; 
Original expiration date[A]: 2011; 
Refundable[B]: [Empty]; 
IRS category: Energy incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$1,647. 

Provision number: 1401; 
Short provision name: Recovery Zone Bonds; 
Original expiration date[A]: 2010; 
Refundable[B]: [Check]; 
IRS category: Bond incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$5,371. 

Provision number: 1402; 
Short provision name: Tribal Economic Development Bonds; 
Original expiration date[A]: n.a.; 
Refundable[B]: [Empty]; 
IRS category: Bond incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $315. 

Provision number: 1501; 
Short provision name: De minimis safe harbor exemption; 
Original expiration date[A]: 2010; 
Refundable[B]: [Empty]; 
IRS category: Bond incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$3,234. 

Provision number: 1502; 
Short provision name: Modification of small-issuer exception; 
Original expiration date[A]: 2010; 
Refundable[B]: [Empty]; 
IRS category: Bond incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): No 
revenue effect. 

Provision number: 1503; 
Short provision name: Temporary modification of AMT limitation on tax-
exempt bonds; 
Original expiration date[A]: 2010; 
Refundable[B]: [Empty]; 
IRS category: Bond incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $555. 

Provision number: 1504; 
Short provision name: Modification to High Speed Intercity Rail 
Facility Bonds; 
Original expiration date[A]: n.a.; 
Refundable[B]: [Empty]; 
IRS category: Bond incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $288. 

Provision number: 1511; 
Short provision name: Delay in application of withholding tax on 
government contractors; 
Original expiration date[A]: 2011; 
Refundable[B]: [Empty]; 
IRS category: Withholding on government contractors; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $291. 

Provision number: 1521; 
Short provision name: Qualified school construction bonds; 
Original expiration date[A]: 2010; 
Refundable[B]: [Empty]; 
IRS category: Bond incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$9,877. 

Provision number: 1522; 
Short provision name: Qualified zone academy bonds; 
Original expiration date[A]: 2010; 
Refundable[B]: [Empty]; 
IRS category: Bond incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$1,045. 

Provision number: 1531; 
Short provision name: Build America Bonds; 
Original expiration date[A]: 2010; 
Refundable[B]: [Check]; 
IRS category: Bond incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$4,348. 

Provision number: 1541; 
Short provision name: Regulated investment companies allow to pass-
thru tax credit bonds; 
Original expiration date[A]: n.a.; 
Refundable[B]: [Empty]; 
IRS category: Bond incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 0. 

Provision number: 1601; 
Short provision name: Application of certain labor standards for 
projects financed with certain bonds; 
Original expiration date[A]: n.a.; 
Refundable[B]: [Empty]; 
IRS category: Bond incentives; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): No 
revenue effect. 

Provision number: 2201; 
Short provision name: Economic Recovery Payments; 
Original expiration date[A]: 2009; 
Refundable[B]: [Empty]; 
IRS category: Individual credits; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$14,225. 

Provision number: 2202; 
Short provision name: Economic Recovery Payments for government 
retirees; 
Original expiration date[A]: 2009; 
Refundable[B]: [Empty]; 
IRS category: Individual credits; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $218. 

Provision number: 3001; 
Short provision name: Consolidated Omnibus Budget Reconciliation Act 
(COBRA); 
Original expiration date[A]: 2009; 
Refundable[B]: [Check]; 
IRS category: COBRA; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$24,677. 

Provision number: 1899 A-J; 
Short provision name: Health Coverage Tax Credit; 
Original expiration date[A]: 2010; 
Refundable[B]: [Check]; 
IRS category: Health coverage improvement; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): $457. 

Provision number: Total; 
Total Joint Committee on Taxation (JCT) estimated revenue cost from 
fiscal year 2009 through fiscal year 2019 (dollars in millions): 
$325,290. 

Source: GAO analysis of IRS and JCT data. 

[A] The expiration date is defined as the last year for which the 
benefit can be claimed or the qualifying purchase or event must occur. 
The notation n.a., not applicable, indicates that no expiration date 
exists. An example of a provision without an expiration date is bonds 
that have volume limits, but not date limits. Original expiration 
dates are cited, but some provisions have already been extended, such 
as the provision 1006, the First-Time Homebuyer Credit. This provision 
was also revised as part of the extension. 

[B] An X denotes that the provision has a refundable feature. 

[C] This provision generates revenue. 

[End of table] 

[End of section] 

Appendix IV: IRS Data Collected on Four Tax Provisions in the Recovery 
Act: 

The Internal Revenue Service (IRS) collected and internally circulated 
data on the use of three of the five provisions we focused on in our 
review, plus the Health Coverage Tax Credit (HCTC). Treasury released 
limited data to the public, but data on the individual provisions' use 
was not posted on recovery.gov, the administration's official Web site 
for monitoring the American Recovery and Reinvestment Act of 2009 
(Recovery Act). As shown in tables 7 through 10, respectively, and in 
figure 3, these provisions were (1) Build America Bonds (BAB), (2) 
Consolidated Omnibus Budget Reconciliation Act (COBRA) premium 
subsidies, (3) the First-Time Homebuyer Credit (FTHBC), and (4) the 
HCTC. IRS has plans to collect data on other provisions in the future, 
as noted in table 2. For example, IRS plans to report data on the 
Making Work Pay Credit (MWPC) in April 2010.[Footnote 63] 

Table 7: Recent Selected IRS Data Collected on BABs: 

Data category: Number of information returns showing BAB issuances[A]; 
Amount: 443. 

Data category: Dollar value of associated issuances[B] (in billions); 
Amount: $32.4. 

Data category: Number of returns requesting a BAB direct payment[C]; 
Amount: 140. 

Data category: Number of returns requesting a BAB tax credit[D]; 
Amount: 0. 

Source: IRS. 

Note: Data on the number of information returns showing BAB issuances 
and the dollar value of associated issuances are as of January 1, 
2010. Information on the number of returns requesting a BAB direct 
payment is as of November 14, 2009. 

[A] The number of filings of Form 8038-G, "Information Return for Tax-
Exempt Government Obligations," which notifies IRS of a BAB issue. 

[B] The dollar value of all BABs issued and reported on Form 8038-G. 

[C] The number of filings of Form 8038-CP, "Return for Credit Payments 
for Issuers of Qualified Bonds," which requests a BAB direct payment. 

[D] The number of filings of Form 8912, "Credit to Holders of Tax 
Credit Bonds," which requests a BAB tax credit. 

[End of table] 

Figure 3: Number of BAB Issuances by Type of Issue as of January 1, 
2010: 

[Refer to PDF for image: pie-chart] 

Education: 131 (30%); 
Transportation: 50 (11%); 
Utilities: 33 (7%); 
Environment: 19 (4%); 
Public safety: 14 (3%); 
Health/hospital: 7; Housing: 1 (2%); 
Other: 188 (42%). 

Source: IRS. 

Note: Percentages do not add to 100 percent due to rounding. 

[End of figure] 

Table 8: Recent Selected IRS Data Collected on COBRA: 

Data category: Number of returns claiming a COBRA credit[A]; 
Amount: 191,618. 

Data category: Number of employees receiving benefits[B]; 
Amount: Not yet available. 

Data category: Amount of credits claimed[C]; 
Amount: $803 million. 

Data category: Amount of outlays made[D]; 
Amount: $254 million. 

Source: IRS. 

Notes: Information on the number of returns claiming a COBRA credit is 
as of December 26, 2009. Data on the amount of credits claimed and the 
amount of outlays made are as of November 14, 2009. 

[A] The number of employer filings of Form 941 with claims for the 
COBRA subsidy. 

[B] The number of employees for which COBRA premium assistance was 
provided. 

[C] The dollar value of all COBRA subsidy claims. 

[D] The dollar value of COBRA subsidy claims that resulted in a tax 
refund to employers. 

[End of table] 

Table 9: Selected IRS Data Collected on the FTHBC through November 21, 
2009: 

Data category: Number of filers claiming the FTHBC; 
2008: 1,068,253; 
2009: 630,045. 

Data category: Amount of credits claimed; 
2008: $7.3 billion; 
2009: $4.7 billion. 

Source: IRS. 

Note: While combined 2008 and 2009 data appear reliable, some concerns 
exist about the reliability of each year's data. In a group of 47,276 
electronically filed returns that appeared not to have claimed the 
whole FTHBC, the Treasury Inspector General for Tax Administration 
(TIGTA) found that 93 percent, or 43,967, were not coded as a 2009 
FTHBC even though the purchase had occurred in 2009. It is likely that 
the errors are a result of (1) taxpayers who purchased a house in 2009 
prior to the passage of the Recovery Act and claimed the 2008 credit, 
when, in fact, they are eligible for the expanded benefits of the 2009 
credit; and (2) IRS's not properly coding the purchase date as a 2009 
FTHBC on some returns. IRS had plans to monitor instances where 
taxpayers claimed the 2008 instead of the 2009 credit. When those 
taxpayers did not file an amended return, IRS had plans to notify them 
of their eligibility for the expanded benefits of the 2009 credit. 
According to IRS officials, IRS planned to correct the other errors 
when it began enforcing the 2008 FTHBC payback provisions. At that 
time, IRS planned to verify the date of purchase and make any 
adjustments. 

[End of table] 

Table 10: Selected IRS Data Collected on the HCTC through November 
2009: 

Data category: Number of new enrollees[A]; 
Amount: 12,116. 

Data category: Payments to enrollees[B]; 
Amount: $26.2 million. 

Source: IRS. 

[A] For April 2009 through August 2009, the monthly number of new 
enrollees was roughly 1,000, ranging between 1,066 and 1,420. In 
September 2009, October 2009, and November 2009, the numbers rose to 
1,930, 2,494, and 1,624 respectively. 

[B] The payments include not only amounts for new enrollees but also 
incremental amounts for current participants because those already 
enrolled had the percentage of their health insurance costs covered by 
the HCTC increased from 65 percent to 80 percent. 

[End of table] 

[End of section] 

Appendix V: Comments from the Internal Revenue Service: 

Department Of The Treasury: 
Commissioner: 
Internal Revenue Service: 
Washington, D.C. 20224: 
	
February 4, 2010: 

Mr. Michael Brostek: 
Director, Tax Issues: 
Strategic issues Team: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, D.C. 20548: 

Dear Mr. Brostek: 

I am writing in response to your report entitled Recovery Act - IRS 
Quickly Implemented Tax Provisions, but Reporting and Enforcement 
Improvements are Needed. I appreciate the GAO's valuable work and 
feedback on the IRS's implementation of the tax provisions of the 
American Recovery and Reinvestment Act of 2009. I appreciate that the 
report recognizes that the IRS moved quickly to implement the 
provisions of the Recovery Act, and delivered much needed support to 
families and businesses struggling in a challenging economy. 

Providing the public with detailed information on how Recovery Act tax 
dollars were used is a top priority for the IRS. The Administration 
developed a comprehensive plan to report on the tax credits claimed 
and the accrual of other benefits provided in the tax provisions of 
the Recovery Act. I agree with your conclusion that increased 
information reporting for Build America Bonds would aid IRS compliance 
efforts. Should Congress choose to pass the legislation needed for us 
to act on this recommendation, we stand ready to implement. 

At the same time that we were conducting outreach to maximize 
participation in Recovery Act programs, we designed and implemented a 
series of programs to minimize errors and fraud in claiming Recovery 
Act benefits. I agree with your assessment that opportunities exist to 
improve compliance efforts, and the IRS is committed to a focused, 
multi-year effort to adapt and enhance our compliance programs as 
these programs evolve. The GAO's continued input will be very helpful 
as we further refine our strategy. 

Finally, as your report notes, increased "math error" authority often 
provides the IRS with an efficient means of improving compliance while 
carrying with it the responsibility to protect taxpayer rights. In 
those cases where this additional authority could be effectively 
deployed, the IRS would welcome it. As Congress considers any new tax 
legislation, we will look forward to discussing this issue in more 
detail. 

A separate enclosure specifically addresses each of your 
recommendations. 

If you have any questions, or if you would like to discuss this 
response in more detail, please contact Frederick W. Schindler, 
Recovery Act Accountable Official, at (202) 283-7650. 

Sincerely, 

Signed by: 

Douglas H. Shulman: 

Enclosure: 

GAO Recommendations and IRS Responses to GAO Draft Report Recovery 
Act: IRS Quickly Implemented Tax Provisions, but Reporting and 
Enforcement Improvements Are Needed: 

Recommendation: 

Require governmental issuers to submit additional information on Build 
America Bond (BAB)— financed projects, including information on 
project purpose, beginning and ending dates, and costs. This reporting 
could be similar to the bond reporting required for tax-exempt 
organizations on the Schedule K of Form 990, "Supplemental Information 
on Tax-Exempt Bonds". Should Congress grant the authority, IRS should 
publish the information in a report available to the public. 

Comment: 

We agree that requiring additional information from issuers of Build 
America Bonds would aid the Service's compliance efforts. That 
benefit, however, must be balanced against the burden that the 
reporting of this information would impose on State and municipal 
governments that issue Build America Bonds. Further, the Service would
need specific statutory authority before it could make public Build 
America Bond return information. 

Recommendation: 

Direct officials to conduct a compliance initiative project to 
determine if individuals are receiving COBRA or employers are claiming 
individual COBRA subsidies for longer than 15 months. If significant 
noncompliance is found in the sample, IRS should issue soft notices to 
all employers to remind them of COBRA eligibility requirements and 
urge them to correct errors that may have been made. 

Comment: 

We agree with the recommendation and have plans in place to conduct a 
compliance project to test the 15 month rule. 

Recommendation: 

Prepare a report detailing the lessons learned from its Recovery Act 
experiences and implementation and publish the results of its review, 
in line with the Recovery Act's emphasis on transparency. 

Comment: 

We agree with this recommendation and will review the management and
implementation of ARRA 2009, evaluating the work accomplished by all 
IRS divisions supporting the effort and capturing the lessons learned. 
This report will then be published, in line with the Recovery Act's 
emphasis on transparency. 

[End of section] 

Appendix VI: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Michael Brostek, (202) 512-9110, brostekm@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Libby Mixon, Assistant 
Director; Amy R. Bowser; Gerardine Brennan; Sherwin D. Chapman; Andrea 
S. Clark; William J. Cordrey; Mary C. Coyle; John E. Dicken; Rachel E. 
Dunsmoor; Shirley A. Jones; Lawrence M. Korb; Susan E. Offutt; John G. 
Smale, Jr.; Steven J. Sebastian; and Anne O. Stevens made key 
contributions to this report. 

[End of section] 

Footnotes: 

[1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[2] GAO, American Recovery and Reinvestment Act: GAO's Role in Helping 
to Ensure Accountability and Transparency, [hyperlink, 
http://www.gao.gov/products/GAO-09-453T] (Washington, D.C.: Mar. 5, 
2009). 

[3] See figure 1 for a categorization of the tax provisions that IRS 
had a role in administering. 

[4] As of January 29, 2010, IRS had obligated about $121 million of 
the $197 million for Recovery Act administrative expenses, with the 
majority of the money thus far used for HCTC. 

[5] Recovery.gov is the official government Web site to help taxpayers 
track how Recovery Act money is being spent. 

[6] TIGTA, Recovery Act: Evaluation of the Internal Revenue Service's 
Capability to Ensure Proper Use of Recovery Act Funds (Washington, 
D.C., Nov. 27, 2009). 

[7] The Department of Defense Appropriations Act, 2010, Pub. L. No. 
111-118, 123 Stat. 3409 (Dec. 19, 2009), extended COBRA premium 
assistance to include individuals involuntarily terminated through 
February 28, 2010. The maximum duration of assistance was also 
increased from 9 to 15 months. 

[8] Pub. L. No. 110-289, 122 Stat. 2654 (July 30, 2008). The 2008 
FTHBC operated similarly to an interest-free loan, which taxpayers 
must pay back over time. The credit originally applied to purchases 
made between April 9, 2008, and June 30, 2009. The Recovery Act 
amended the FTHBC to make it a true refundable credit (taxpayers do 
not repay the credit) and extended the tax credit to purchases made 
between January 1, 2009, and November 30, 2009. 

[9] The Worker, Homeownership, and Business Assistance Act of 2009, 
Pub. L. No. 111-92, 123 Stat. 2984 (Nov. 6, 2009), extended the FTHBC 
to home purchases made through April 30, 2010, as well as those that 
are under a binding contract on that date if the contract provides for 
closing the sale on or before June 30, 2010. The act also authorized a 
credit of up to $6,500 for individuals who owned and used the same 
residence as their principal residence for any 5 consecutive years 
during the 8-year period ending when they bought another property to 
use as their principal residence. The amendments and extensions by 
this act were generally outside the scope of our work. 

[10] A principal residence is the main home a taxpayer lives in most 
of the time. It can be a house, houseboat, housetrailer, cooperative 
apartment, condominium, or other type of residence. Among other 
circumstances, a home ceases to be a principal residence when a 
taxpayer sells it. 

[11] GAO, First-Time Homebuyer Tax Credit: Taxpayers' Use of the 
Credit and Implementation and Compliance Challenges, [hyperlink, 
http://www.gao.gov/products/GAO-10-166T] (Washington, D.C.: Oct. 22, 
2009). 

[12] The Worker, Homeownership, and Business Assistance Act of 2009 
revised the NOL carryback provision by extending the NOLs qualifying 
for the 5-year carryback period to those occurring in 2009 and 
expanding the provision to include all businesses, except for those 
that received funds under the Troubled Asset Relief Program. 

[13] The 14 provisions IRS implemented in 2009 were the MWPC, economic 
recovery payments to recipients of Social Security and other benefits, 
a special credit for government retirees, temporary increases in the 
Earned Income Tax Credit, the FTHBC, NOL carrybacks, COBRA, the HCTC, 
and six bond provisions, including BABs. 

[14] The MWPC is reduced for single filers with modified adjusted 
gross incomes in excess of $75,000 and joint filers with incomes in 
excess of $150,000. 

[15] TIGTA, Recovery Act: Millions of Taxpayers May Be Negatively 
Affected by the Reduced Withholding Associated With the Making Work 
Pay Credit (Washington, D.C., 2009). In a written response to TIGTA's 
report, IRS officials said this estimate was overstated, but they did 
not provide their own estimate. 

[16] If taxpayers have significantly underpaid their taxes at the time 
they file their individual income tax returns, they may be assessed a 
tax penalty. Based on IRS rules for 2008, taxpayers would generally 
not be required to pay a penalty if the total tax shown on their 
return minus the amount they paid through withholding is less than 
$1,000, or if they had no tax liability in the previous year. 

[17] The 2009 FTHBC can be claimed on regularly filed or amended 2008 
tax returns or on 2009 returns, which are filed in 2010. 

[18] [hyperlink, http://www.gao.gov/products/GAO-10-166T]. 

[19] Generally, taxpayers must pay back the 2008 FTHBC in $500 
increments over a 15-year period, whereas the 2009 credit does not 
need to be repaid unless the home ceases to be the taxpayer's 
principal residence within 3 years of the date it was purchased. 

[20] In late March 2009, IRS had begun categorizing incoming tax 
returns as either 2008 or 2009 claims based on the home acquisition 
date reported on the Form 5405. 

[21] The invalid or unclear elections generally refer to taxpayers not 
attaching a statement to their return indicating certain information, 
such as electing to apply the NOL to the taxpayer's taxable year that 
begins in 2008. For these claims, IRS sent a letter to the taxpayers 
that said that IRS assumed they were making an NOL claim under section 
1211 of the Recovery Act and if that was their intent, no further 
action was required. If that was not the taxpayers' intent, they had 
60 days to file an amended return. This guidance was in place until 
May 18, 2009. IRS did not track the number of invalid or unclear 
elections or the number of taxpayers who filed amended returns. 

[22] See, for example, GAO, Tax Expenditures: Available Data Are 
Insufficient to Determine the Use and Impact of Indian Reservation 
Depreciation, [hyperlink, http://www.gao.gov/products/GAO-08-731] 
(Washington, D.C.: June 26, 2008); Empowerment Zone and Enterprise 
Community Program: Improvements Occurred in Communities, but the 
Effect of the Program is Unclear, [hyperlink, 
http://www.gao.gov/products/GAO-06-727] (Washington, D.C.: Sept. 22, 
2006); and Tax Administration: Information Is Not Available to 
Determine Whether $5 Billion in Liberty Zone Tax Benefits Will Be 
Realized, [hyperlink, http://www.gao.gov/products/GAO-03-1102] 
(Washington, D.C.: Sept. 30, 2003). 

[23] [hyperlink, http://www.gao.gov/products/GAO-08-731]. 

[24] Although IRS does not plan to collect or report information on 
certain provisions, it may still engage in enforcement-related 
activities to ensure a credit is lawfully claimed. 

[25] FMS took the lead in administering the economic recovery payments 
for Social Security recipients. IRS's role related to economic 
recovery payments arose from the fact that the MWPC must be reduced by 
the amount of economic recovery payment received. IRS conducted 
outreach related to the provision. 

[26] Section 1512 of Division A of the Recovery Act. Neither 
individuals nor recipients receiving funds through entitlement 
programs, such as Medicaid, or tax programs are required to report. 

[27] Although the Form 941 is filed quarterly, employers were not 
required to submit all COBRA subsidy claims for 2009 until the fourth 
quarter of 2009; therefore, there may be an increase in the total 
number of COBRA filers for the year. 

[28] These data should be interpreted as interim, as some concerns 
exist about their reliability. In September 2009, TIGTA reported that 
43,967 returns were coded as a 2008 FTHBC even though the purchase had 
occurred in 2009. IRS plans to verify the date of purchase and make 
any needed adjustments when it begins enforcing the 2008 FTHBC payback 
provisions. We reported this information to the Congress at a hearing 
on October 22, 2009, [hyperlink, 
http://www.gao.gov/products/GAO-10-166T]. 

[29] For more information on the imprecision of economic forecasting 
and macroeconomic models and multipliers that were created for the 
Recovery Act, see GAO, Recovery Act: Recipient Reported Jobs Data 
Provide Some Insight into Use of Recovery Act Funding, but Data 
Quality and Reporting Issues Need Attention, [hyperlink, 
http://www.gao.gov/products/GAO-10-223] (Washington, D.C.: Nov. 19, 
2009). 

[30] Executive Office of the President's Council of Economic Advisers, 
The Economic Impact of the American Recovery and Reinvestment Act of 
2009: First Quarterly Report (Washington, D.C., Sept. 10, 2009); 
Executive Office of the President's Council of Economic Advisers, The 
Economic Impact of the American Recovery and Reinvestment Act of 2009: 
Second Quarterly Report (Washington, D.C., Jan. 13, 2010). 

[31] GAO, Foreign Assistance: State Department Foreign Aid Information 
Systems Have Improved Change Management Practices but Do Not Follow 
Risk Management Best Practices, [hyperlink, 
http://www.gao.gov/products/GAO-09-52R] (Washington, D.C.: Nov. 21, 
2008); and GAO, Information Security Risk Assessment: Practices of 
Leading Organizations, [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-33] (Washington, D.C.: Nov. 1, 
1999). 

[32] Some risk assessments covered more than one provision. The 12 
provisions were the COBRA provision, the FTHBC, the HCTC, the NOL 
carryback provision, the MWPC, the Advance Earned Income Tax Credit, 
and six bond provisions, including BABs. IRS did not assess the risks 
for two other provisions immediately available to taxpayers--economic 
recovery payments to Social Security recipients, disabled veterans, 
and railroad retirement beneficiaries because Treasury's Financial 
Management Service administered this provision, and a tax credit for 
certain government retirees, because the credit could not be claimed 
until 2009 returns were filed, starting in 2010. IRS planned to 
prepare a risk assessment for this credit in 2010. 

[33] The Worker, Homeownership, and Business Assistance Act of 2009, 
Pub. L. No. 111-92, which extended the credit until April 30, 2010, 
also maintained the requirement that at least part of the credit may 
have to be repaid if the home is sold within 3 years of purchase. 

[34] Form 5405 is the form used to claim the FTHBC. The 2009 FTHBC can 
be claimed on regularly filed or amended tax returns for 2008 or 2009 
returns. 

[35] Section 6045(e) of the Internal Revenue Code generally requires 
some real estate parties such as closing agents to file information 
returns with IRS on Form 1099-S. 

[36] 26 U.S.C. § 6045(e)(5). To be excepted from the information- 
reporting requirements on the sale or exchange of a principal 
residence, the closing agent must obtain from the seller a written 
certification, signed by the seller under penalties of perjury, that 
certain assurances (such as the sale or exchange is of the entire 
residence for $250,000 or less) are true. See Internal Revenue 
Procedure 2007-12. 

[37] The Department of Defense Appropriations Act, 2010 (Pub. L. No. 
111-118) extends premium assistance to those involuntarily terminated 
through February 28, 2010. 

[38] In some instances, such as for state health plans that are 
subject to COBRA requirements, multiemployer group health plans or 
insurers may provide the COBRA subsidy and file for a COBRA credit. 

[39] The Advance Earned Income Tax Credit (AEITC) was the first tax 
credit to be administered by SB/SE. The AEITC allows individuals to 
receive a portion of the Earned Income Tax Credit in their paychecks, 
instead of receiving all of it when filing their year-end tax return. 
Employers report the amount paid on the Form 941, "Employer's 
Quarterly Federal Tax Return," and on the employee's Form W-2, "Wage 
and Tax Statement." In 2007, we found that there was low use and high 
noncompliance associated with the AEITC. For more information, see 
GAO, Advance Earned Income Tax Credit: Low Use and Small Dollars Paid 
Impede IRS's Efforts to Reduce High Noncompliance, GAO-07-1110 
(Washington, D.C.: Aug. 10, 2007). Based on our report, in 2009 the 
President recommended in his fiscal year 2010 budget request that the 
AEITC program be terminated. 

[40] Compliance initiative projects are activities to identify 
potential areas of noncompliance within a group of taxpayers so that 
the noncompliance can be corrected. 

[41] Under the Recovery Act, individual eligibility periods end 9 
months after the employee is involuntarily terminated and subsequently 
elects COBRA continuation coverage or when the employee becomes 
eligible for another group health insurance plan, such as Medicare or 
a plan offered through a spouse's employer. The Department of Defense 
Appropriations Act, 2010 (Pub. L. No. 111-118) extended coverage for 
up to 15 months. 

[42] See Congressional Research Service, Health Insurance Premium 
Assistance for the Unemployed: The American Recovery and Reinvestment 
Act of 2009, R40420 (Washington, D.C., Mar. 6, 2009) and The Kaiser 
Commission on Medicaid and the Uninsured, The COBRA Subsidy and Health 
Insurance for the Unemployed (Washington, D.C., Mar. 2009). 

[43] GAO, Tax Compliance: Businesses Owe Billions in Federal Payroll 
Taxes, [hyperlink, http://www.gao.gov/products/GAO-08-617] 
(Washington, D.C.: July 25, 2008). 

[44] IRS tests have shown that the agency has successfully reduced 
subsequent noncompliance in situations that involve relatively small 
amounts of money by sending letters referred to as "soft notices" that 
ask taxpayers to voluntarily fix their misreporting by filing an 
amended return or not repeating the action in the next year. 

[45] GAO, Tax Administration: Advance Tax Refund Program Was a Major 
Accomplishment, but Not Problem Free, [hyperlink, 
http://www.gao.gov/products/GAO-02-827] (Washington, D.C.: Aug. 2, 
2002). 

[46] 26 U.S.C. § 6213(b). 

[47] Section 6213(g)(2) of the Internal Revenue Code lists the 
circumstances in which MEA may be used. 

[48] Pub. L. No. 111-92, 123 Stat. 2984 (Nov. 6, 2009). 

[49] GAO, Tax Administration: Opportunities Exist for IRS to Enhance 
Taxpayer Service and Enforcement for the 2010 Filing Season, 
[hyperlink, http://www.gao.gov/products/GAO-09-1026] (Washington, 
D.C.: Sept. 23, 2009). 

[50] GAO, Tax Administration: IRS's 2008 Filing Season Generally 
Successful Despite Challenges, although IRS Could Expand Enforcement 
during Returns Processing, [hyperlink, 
http://www.gao.gov/products/GAO-09-146] (Washington, D.C.: Dec. 12, 
2008). 

[51] TIGTA, Improvements Are Needed in the Administration of Education 
Credits and Reporting Requirements for Educational Institutions 
(Washington, D.C., Sept. 30, 2009). 

[52] TIGTA, Recovery Act: Evaluation of the Internal Revenue Service's 
Capability to Ensure Proper Use of Recovery Act Funds (Washington, 
D.C., Nov. 27, 2009). 

[53] IRS, National Taxpayer Advocate 2006 Annual Report to Congress 
(Washington, D.C., Dec. 31, 2006). 

[54] IRS, National Taxpayer Advocate FY 2002 Annual Report to Congress 
(Washington, D.C., Dec. 31, 2002). 

[55] Section 1531 of Title I of Division B of the American Recovery 
and Reinvestment Act of 2009 (Recovery Act). 

[56] Title III of Division B of the Recovery Act. 

[57] Pub. L. No. 110-289, 122 Stat. 2654 (July 30, 2008). The 2008 
FTHBC applied to purchases made between April 9, 2008, and June 30, 
2009. 

[58] Section 1006 of Title I of Division B of the Recovery Act. 

[59] Pub. L. No. 111-92, 123 Stat. 2984 (Nov. 6, 2009). This act was 
generally outside the scope of our work. 

[60] Section 1001 of Title I of Division B of the Recovery Act. 

[61] Section 1211 of Title I of Division B of the Recovery Act. The 
Worker, Homeownership, and Business Assistance Act of 2009, mentioned 
earlier, revised the NOL carryback provision by extending the NOLs 
qualifying for the 5-year carryback period to those occurring in 2009 
and expanding the provision to include all taxpayers, except for those 
that received funds under the Troubled Asset Relief Program. Refunds 
issued for the 5th year are limited to 50 percent of a taxpayer's 
taxable income for that year, with an exception for 2008 small-
business losses. This revision was generally outside the scope of our 
work. 

[62] The Trade Adjustment Assistance Health Coverage Improvement Act, 
sections 1899A-1899L of Title I of Division B of the Recovery Act. IRS 
is responsible for administering sections 1899A-1899J. 

[63] To accelerate the delivery of the credit, IRS issued new 
withholding tables that reduce federal tax withholding. However, IRS 
does not know how many employers used the new tables. 

[End of section] 

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