Tax Administration:

Erroneous Dependent and Filing Status Claims

GGD-93-60: Published: Mar 19, 1993. Publicly Released: Mar 19, 1993.

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Pursuant to a congressional request, GAO reviewed erroneous dependent and tax filing status claims, focusing on: (1) whether the laws on dependents and filing status need to be simplified; (2) what the Internal Revenue Service (IRS) is doing to address any erroneous claims; and (3) any changes that IRS could make in its compliance programs.

GAO found that: (1) taxpayers' failure to meet the dependent support test accounted for 73 percent of the erroneous dependent claims for 1988; (2) alternatives to simplify the laws on dependent exemptions include replacing the dependent support test with the residency test when the dependent lives with the taxpayer, replacing the 50-percent support standard with a fixed minimum amount, limiting the dependent exemption to children, and replacing the dependent exemption and standard deduction with a family support allowance; (3) the burden for taxpayers who claim head of household filing status would not change if IRS replaced the dependent support test with the residency test; (4) the head of household filing status accounted for 82 percent of all filing status errors in 1988; (5) IRS needs compliance programs to identify improper claims; and (6) replacing the dependent support test with the residency test and a 100-percent matching program would address 71 percent of the erroneous dependent claims.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Since 1993, Congress has not deliberated very much on proposals to implement the recommendation. As a result, GAO is closing this recommendation.

    Matter: Congress should consider enacting legislation that would substitute a residency test similar to that used in the Earned Income Credit program for the dependent support test when the dependent lives with the taxpayer. If this legislation is enacted, Congress also should consider eliminating the household maintenance test as a condition for claiming the head of household filing status.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS is doing 100-percent computer match for the 1995 filing season. IRS will code and transcribe SSNs for up to four dependents per return. Dependent SSNs not matching the SSA file will "fall out" in the Error Resolution System for further action.

    Recommendation: The Commissioner of Internal Revenue should correct the operational problems in its limited matching program and implement a 100-percent computer matching program to identify erroneous dependent claims.

    Agency Affected: Department of the Treasury: Internal Revenue Service


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