Recommendation: Congress should consider designating an agency to regularly collect and maintain specified cost-related data from credit allocating agencies and periodically assess and report on LIHTC project development costs. (Matter for Congressional Consideration 1)

Agency: Congress
Status: Open

Comments: As of August 2020, Congress had not designated an agency to regularly collect and maintain data on LIHTC project development costs.

Recommendation: IRS's Associate Chief Counsel, in consultation with Treasury's Assistant Secretary for Tax Policy, should require general contractor cost certifications for LIHTC projects to verify consistency with the developer cost certification. (Recommendation 1)

Agency: Department of the Treasury: Internal Revenue Service
Status: Open

Comments: IRS disagreed with the recommendation and had not taken action to implement it as of August 2020. We maintain that requiring general contractor cost certifications would help address a known fraud risk.

Recommendation: To help allocating agencies analyze development cost trends and drivers and make comparisons to other agencies, IRS's Commissioner of the Small Business/Self-Employed Division should encourage allocating agencies and other LIHTC stakeholders to collaborate on the development of more standardized cost data, considering information in this report about variation in data elements, definitions, and formats. (Recommendation 2)

Agency: Department of the Treasury: Internal Revenue Service
Status: Open

Comments: IRS disagreed with the recommendation and had not taken action to implement it as of August 2020. We maintain that greater standardization of LIHTC cost data would facilitate analysis of cost drivers and cost-management practices.

Recommendation: IRS's Associate Chief Counsel, in consultation with Treasury's Assistant Secretary for Tax Policy, should communicate to credit allocating agencies how to collect information on and review LIHTC syndication expenses, including upper-tier partnership expenses. (Recommendation 3)

Agency: Department of the Treasury: Internal Revenue Service
Status: Open

Comments: IRS disagreed with the recommendation and had not taken action to implement it as of August 2020. We maintain that communicating expectations about the collection and review of syndication expenses would enhance program transparency and allocating agency financial assessments.

Recommendation: Congress should consider legislation to require that returns prepared electronically but filed on paper include a scannable code printed on the return. (Matter for Consideration 1)

Agency: Congress
Status: Open

Comments: Congress introduced the Acting on the Annual Duplication Report Act of 2019 on July 18, 2019. If enacted this legislation would require returns prepared electronically but filed on paper include a scannable code. Congress had not passed the legislation as of February 2020.

Recommendation: Based on the assessment in recommendation 2, the Commissioner of Internal Revenue should implement the most cost-effective method to digitize information provided by taxpayers who file returns on paper. (Recommendation 3)

Agency: Department of the Treasury: Internal Revenue Service
Status: Open
Priority recommendation

Comments: IRS agreed with this recommendation and in December 2019 indicated that it plans to begin scanning and digitizing individual tax returns filed on paper beginning in October 2021. According to IRS, digitizing paper returns at intake would allow IRS to reduce processing time, use the same RRP fraud filters on all paper and electronic forms, and allow more pre-refund audits or investigations, among other benefits.

Recommendation: The Commissioner of Internal Revenue should evaluate the costs and benefits of expanding RRP to analyze individual returns not claiming refunds to support other enforcement activities. (Recommendation 4)

Agency: Department of the Treasury: Internal Revenue Service
Status: Open
Priority recommendation

Comments: IRS agreed with this recommendation and told us expanding the use of RRP is an agency goal. In December 2019, IRS officials reported that internal IRS offices are collaborating on identifying priorities for expanding use of RRP to support other enforcement activities, such as pre-refund audits and investigations, and improve detection and treatment of fraud and noncompliance.

Recommendation: Based on the assessment in recommendation 4, the Commissioner of Internal Revenue should expand RRP to support identified activities. (Recommendation 5)

Agency: Department of the Treasury: Internal Revenue Service
Status: Open

Comments: As of June 2019, IRS has not yet completed its analysis of the costs and benefits of expanding RRP, and therefore has not taken action to expand RRP based on this assessment. IRS agreed with the recommendation but noted that it must first evaluate opportunities to expand RRP. Implementing this recommendation could help IRS streamline the detection and treatment of fraud as well as promote voluntary compliance with tax laws.

Recommendation: HUD's Assistant Secretary for Housing should improve the accuracy of RAD leverage metrics--such as better selecting inputs to the leverage ratio calculation and clearly identifying what the leverage ratio measures--and calculate a private-sector leverage ratio. (Recommendation 2)

Agency: Department of Housing and Urban Development
Status: Open

Comments: This recommendation remains open. HUD has described an ongoing evaluation of its leverage metrics. We will continue to review HUD's progress and post updates as appropriate.

Recommendation: HUD's Assistant Secretary for Housing should determine how it can use available program-wide data from public housing and Section 8 databases, in addition to resident logs, for analysis of the use and enforcement of RAD resident protections. (Recommendation 4)

Agency: Department of Housing and Urban Development
Status: Open

Comments: This recommendation remains open. HUD plans to develop a methodology to track residents through individual HUD systems such as Public Housing program, RAD and Section 8 program databases. We will continue to review HUD's progress in implementing this recommendation and provide updates as appropriate.

Recommendation: The Acting Commissioner of Internal Revenue should assess options for improving enforcement of late W-2 filing penalties, for example, by mailing notices before the next filing deadline. (Recommendation 2)

Agency: Department of the Treasury: Internal Revenue Service
Status: Open

Comments: As of October 2019, IRS continues to disagree with this recommendation. IRS stated that it does not have all the information required for calculating and sending late penalty notifications prior to the beginning of the next filing season. However, in its response, IRS did not consider other options that could be available prior to finalizing penalty calculations, such as communicating with the employers earlier in the process. As noted in our report, quickly responding to employers that filed late increases the potential for compliance, thereby increasing the availability of W-2 data for systemic verification to detect and prevent fraud and noncompliance. We continue to believe that assessing the options for improving enforcement of late W-2 filing penalties, such as through earlier communication, would help IRS identify potential opportunities to encourage compliance with the W-2 filing deadline and verify more wage information before releasing refunds. We will continue to discuss options with IRS regarding this recommendation.

Recommendation: The Acting Commissioner of Internal Revenue should develop an evaluation plan to fully assess the benefits and costs, including taxpayer burden, of modifying the February 15 refund hold, and determine how this effort informs IRS's overall compliance strategy for refundable tax credits and fraud risk management. (Recommendation 3)

Agency: Department of the Treasury: Internal Revenue Service
Status: Open

Comments: As of January 2020, IRS has assessed the benefits of modifying the refund hold, but it has not assessed the costs, as GAO recommended in January 2018. In November 2018, IRS provided its assessment of the February 15 refund hold. In it, IRS reiterated its findings regarding the benefits of the refund hold. These benefits included potential savings if IRS modified the hold to include all taxpayers, extended the hold to a later date when more W-2 data are available, or made both changes. However, IRS did not include any assessment of costs to achieve these potential savings, such as the costs for IRS to review any additional returns that would be identified under a modified refund hold. It did not assess taxpayer burden, either. IRS also did not determine how the February 15 refund hold informs IRS's overall compliance strategy for refundable tax credits and its fraud risk management strategy. In January 2019, IRS took actions to hold more returns beyond the February 15 refund hold date using a risk-based selection method. Nevertheless, without a complete assessment of the benefits and costs, including taxpayer burden, IRS is making a decision based upon incomplete information. Further, if Congress or Treasury considered making any changes, they too would have incomplete information on which to direct IRS's actions.

Recommendation: Based on the benefits and costs assessment in Recommendation 3, the Acting Commissioner of Internal Revenue should use IRS's existing authority to modify the refund hold such that it minimizes the risk of releasing fraudulent or noncompliant refunds. (Recommendation 4)

Agency: Department of the Treasury: Internal Revenue Service
Status: Open

Comments: As of January 2020, IRS has taken actions consistent with our recommendations by modifying its filters to hold more returns claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) beyond the February 15 refund hold date based on a risk-based selection method. In addition, in May 2019, IRS officials told us they are making similar changes for the 2020 filing season to hold more high-risk returns not claiming EITC or ACTC until W-2 data are available. This action, if taken, would be consistent with our recommendations. In 2018, IRS assessed the benefits of modifying the refund hold, however, it did not assess or document the costs, including taxpayer burden, or determine how the February 15 refund hold informs IRS's overall compliance strategy for refundable tax credits and its fraud risk management strategy. Completing these actions, along with the planned modifications, would fully address our recommendations, which would enable IRS to make decisions based on completed information.

Recommendation: The Acting Commissioner of Internal Revenue should assess the benefits and costs of additional uses and applications of W-2 data for pre-refund compliance checks, such as addressing underreporting, employment fraud, and other fraud or noncompliance before issuing refunds. (Recommendation 5)

Agency: Department of the Treasury: Internal Revenue Service
Status: Open

Comments: In September 2019, IRS provided results for a pilot encouraging voluntary compliance through expanded systemic verification using W-2 data. In the pilot, IRS sent soft notices to a targeted group of taxpayers whose returns under-reported income compared to W-2 data. In its analysis, IRS reported that some taxpayers voluntarily amended their returns after receiving the soft notice, resulting in a net increase in tax revenue. If IRS determines that the benefits outweigh the costs of adopting this practice based on the pilot results, or assesses additional options to address other fraud and noncompliance before issuing refunds, it would satisfy our recommendation. We will continue to follow IRS's progress on the pilot and its results.

Recommendation: Based on the assessment in Recommendation 5, the Acting Commissioner of Internal Revenue should implement any identified changes to improve pre-refund compliance checks. (Recommendation 6)

Agency: Department of the Treasury: Internal Revenue Service
Status: Open

Comments: In September 2019, IRS provided an evaluation of a pilot it conducted during tax year 2019. In the pilot, IRS sent soft notices to a targeted group of taxpayers whose returns under-reported income compared to W-2 data. In its analysis, IRS reported that some taxpayers voluntarily amended their returns after receiving the soft notice, resulting in a net increase in tax revenue. IRS told us they intend to continue the pilot during tax year 2020. We will continue to follow IRS's progress on the pilot and its results.

Recommendation: The Commissioner of Internal Revenue should re-establish long-term, quantitative goals for improving voluntary compliance. (Recommendation 1)

Agency: Department of the Treasury: Internal Revenue Service
Status: Open

Comments: IRS reported it does not agree with the recommendation. In September 2018, IRS officials stated that the Fiscal Year 2018-2022 IRS Strategic Plan included six strategic goals and six performance measures. However, none of those performance measures related to a long-term, quantitative goal for improving voluntary compliance. In its 60-day letter, IRS agreed that improving voluntary compliance is core to its mission; however, it stated that creating a quantifying goal will do little to advance that purpose. IRS provided several reasons why it should not create a quantitative measure, including the voluntary compliance rate could rise over time without any help from IRS, or fall despite additional effort from IRS. Further, IRS reported that the voluntary compliance rate is not effective to making strategic and operational decisions. However, as we note in the report, setting long-term strategic goals is essential for results-oriented management, because such goals explain in greater specificity the results an agency is intending to achieve. Further, focusing on intended results can promote strategic and disciplined management decisions that are more likely to be effective because managers who use fact-based performance analysis are better able to target areas most in need of improvement and to select appropriate interventions. As of August 2020, there has been no change in this status.

Recommendation: The Commissioner of Internal Revenue should instruct the appropriate officials to develop and document a strategy that outlines how IRS will use National Research Program data to update compliance strategies that could help address the tax gap. (Recommendation 2)

Agency: Department of the Treasury: Internal Revenue Service
Status: Open

Comments: As of August 2020, IRS stated that it is working on a redesign of the National Research Program (NRP). The outcome of the redesign will determine the scope of the information available from NRP in the future. IRS reported that next steps to address this recommendation is contingent on the completion of the NRP redesign.

Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to annually report improper payment estimates and error rates for the advance PTC program.

Agency: Department of Health and Human Services
Status: Open
Priority recommendation

Comments: The Department of Health and Human Services (HHS) concurred with this recommendation. On May 23, 2018, HHS's Centers for Medicare and Medicaid Services (CMS) stated that it is currently in the process of developing an improper payment measurement for the advance premium tax credit (PTC). The development of the measurement methodologies will be a multi-year process which consists of the development of measurement policies, procedures, and tools. It also includes extensive pilot testing to ensure an accurate and efficient improper payment estimate, as well as, acquisition activities for procurement of improper payment measurement contractors. In January 2020, CMS stated that it is still in the process of developing an improper payment measurement for the advance PTC. Further, CMS stated that it provided progress updates in the fiscal year 2019 HHS agency financial report (AFR), and will continue to do so in future AFRs until an improper payment rate is estimated. We will continue to monitor the agency's actions to address this recommendation.

Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, and until annual reporting of improper payment estimates and error rates for the advance PTC program is performed, the Secretary of Health and Human Services should direct the Administrator of CMS to disclose significant matters relating to the Improper Payments Information Act (IPIA) estimation, compliance, and reporting objectives for the advance PTC program in the agency financial report, including CMS's progress and timeline for expediting the achievement of those objectives and the basis for any delays in meeting IPIA requirements.

Agency: Department of Health and Human Services
Status: Open

Comments: HHS concurred with this recommendation. On February 28, 2018, the Department of Health and Human Services's (HHS) Centers for Medicare and Medicaid Services (CMS) stated that updates on the advance premium tax credit (PTC) program improper payment measurement development were provided in the fiscal year (FY) 2017 Agency Financial Report (AFR), which was published in November 2017. In FY 2018, we reviewed the FY 2017 AFR that HHS's CMS cited in support for closing this recommendation. Based on our review, the FY 2017 AFR does not address our recommendation as it does not provide a timeline for reporting an improper payment estimate. In FY 2019, we reviewed HHS's FY 2018 AFR published in November 2018, which includes a statement that HHS will continue to update its annual AFRs on the status of the measurement program development until the improper payment estimate is reported. However, this latest AFR also does not provide a timeline for reporting an improper payment estimate for HHS's PTC program. In January 2020, CMS stated that it is in the process of procuring federal contractors to perform the improper payment measurement. However, CMS further stated that due to uncertainties surrounding the timing of the procurement, CMS does not anticipate publishing a reporting timeline until the contracts have been awarded. We will continue to monitor the agency's actions to address this recommendation.

Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to design and implement procedures for verifying the identities of phone and mail applicants to reasonably assure that ineligible individuals are not enrolled in qualified health plans in the marketplaces or provided advance PTC.

Agency: Department of Health and Human Services
Status: Open

Comments: The Department of Health and Human Services (HHS) neither agreed nor disagreed with this recommendation. Regarding verification of filer identity, HHS stated, in response to the draft report, that for individuals starting an application via phone, the call center representatives use verbal attestations for verifications from individuals. HHS stated that for paper applications, individuals must provide names and complete addresses as well as other information. In addition, HHS stated that individuals must attest that the information they provide on all applications is accurate by signing under penalty of perjury. However, these steps do not involve the verification of an applicant's identity to a third-party source. In August 2018, HHS officials stated that they are exploring alternatives for assessing risk and ensuring integrity of applicant information that is provided to the program and ways to ensure personal information provided by an individual is accurate through a variety of means. After this analysis phase, they will assess resource requirements, cost, and operational implications for potential implementation approaches with a target date for completion of 2019. As of December 2018, HHS had not designed and implemented procedures for verifying the identities of phone and mail applicants, as GAO recommended. As of January 2020, HHS indicated that it is developing new policy and guidance which could significantly change potential solutions or requirements. However, HHS did not provide us a time frame for when it plans to finalize the new policy and guidance. We will continue to monitor agency's actions to address the recommendation.

Recommendation: To comply with improper payments reporting requirements and improve procedures related to processing PTC information on tax returns, the Commissioner of Internal Revenue should direct the appropriate officials to assess the program against applicable IPIA-defined thresholds and conclude on its susceptibility to significant improper payments, and revise the scope of its improper payments susceptibility assessment for the PTC program to include instances in which advance PTC is greater than or equal to the amount of PTC claimed on the tax return. If the program meets the IPIA definition for being susceptible to significant improper payments based on this assessment, estimate and report improper payments associated with the PTC program consistent with IPIA requirements.

Agency: Department of the Treasury: Internal Revenue Service
Status: Open
Priority recommendation

Comments: The Internal Revenue Service (IRS) partially agreed with this recommendation. On December 13, 2019, IRS provided us a status update and stated that its Research, Applied Analytics and Statistics division completed an analysis of net premium tax credit (PTC) using National Research Program (NRP) tax years 2015 and 2014 data during the 4th quarter of fiscal year 2019 and developed improper payment estimates using two different methodological approaches. However, IRS indicated that it did not publish these improper payment estimates in Treasury's Agency Financial Report for two reasons: (1) there is as yet insufficient NRP data to develop an estimate that is within the confidence interval and margin of error prescribed by the Office of Management and Budget for improper payments sampling, and (2) the Department of the Treasury (Treasury) wishes to engage with Health and Human Services' Centers for Medicare & Medicaid Services on the potential for developing a joint rate estimate for advance PTC and PTC. In addition, IRS noted that it had not yet determined whether this is even possible from a data compatibility standpoint. Further, IRS stated that while the estimates do not meet the statistical precision requirement, they do suggest that Net PTC would meet the criteria to be considered susceptible to significant improper payments. IRS indicated that when it last discussed this recommendation with GAO, it was suggested this recommendation would be closed once improper payment rates are published. However, IRS would now like GAO to consider closing this recommendation at this time given (1) the IRS's efforts to analyze potential improper payments, (2) Treasury's new approach to reporting, and (3) the need for additional years of data before a statistically valid estimate can be developed. We do not believe the recommendation should be closed at this time based on the three reasons IRS has listed above. However, we credit IRS for exploring ways to meet the intent of the recommendation. We will continue to monitor the agency's actions to address this recommendation.

Recommendation: To comply with improper payments reporting requirements and improve procedures related to processing PTC information on tax returns, the Commissioner of Internal Revenue should direct the appropriate officials to assess and document the feasibility of approaches for incorporating information from the marketplaces on individuals who did not demonstrate that they met the eligibility requirements for citizenship or lawful presence in the tax compliance process. If determined feasible, IRS should work with Treasury to require marketplaces to periodically provide such information on individuals and use such information to recover advance PTC made for those individuals.

Agency: Department of the Treasury: Internal Revenue Service
Status: Open

Comments: The Internal Revenue Service (IRS) agreed with this recommendation. In December 2018, an IRS official indicated that IRS conducted a detailed review of the recommendation. IRS informed GAO that it is internally discussing an alternative way to address the recommendation to prevent premium tax credit to noncitizens. The IRS official indicated that IRS is reviewing this alternative with the Department of the Treasury and the Department of Health and Human Services' Centers for Medicare & Medicaid Services. IRS did not provide GAO with a time frame for its implementation. On December 13, 2019, IRS provided us a status update and stated that it had no new information for this recommendation. We will continue to monitor the agency's actions to address this recommendation.

Recommendation: To strengthen efforts to identify and address noncompliance with the EITC, ACTC, and AOTC, the Commissioner of Internal Revenue should direct Refundable Credits Policy and Program Management (RCPPM) to take necessary steps to ensure the reliability of collections data and periodically review that data to (a) compute a collections rate for post-refund enforcement activities and (b) determine what additional analyses would provide useful information about compliance results and costs of post-refund audits and document-matching reviews.

Agency: Department of the Treasury: Internal Revenue Service
Status: Open

Comments: No executive action taken as of December 2019. The Internal Revenue Service (IRS) disagreed with this May 2016 recommendation. IRS raised concerns about the cost of studying collections data for post-refund enforcement activities. GAO recognizes that gathering collections data has costs and the data have limitations, notably that not all recommended taxes are collected. However, use of these data -- once IRS is able to verify their reliability -- could better inform resource allocation decisions and improve the overall efficiency of enforcement efforts. By not taking necessary steps to ensure the reliability of that data and to link them to tax assessments to calculate a collections rate, IRS lacks critical information. Periodic reviews of collections data and analyses could help IRS officials more efficiently allocate limited enforcement resources by providing a more complete picture about compliance results and costs.

Recommendation: To promote further transparency in measuring the federal government's progress against deficit reduction targets required under current law, the Director of the Office of Management of Budget should identify and publicly report the total amount of actual reductions in budget authority government-wide each year as a result of sequestration or the reduction of discretionary spending limits under BBEDCA.

Agency: Executive Office of the President: Office of Management and Budget
Status: Open

Comments: In September 2018, OMB staff maintained their position of disagreement with this recommendation as summarized in our April 2016 report. As of January 2020, OMB has not provided any plans to implement this recommendation.

Recommendation: To better align program goals with agency missions and improve program administration and oversight, Congress should consider designating the Department of Housing and Urban Development as a joint administrator of the program responsible for oversight. As part of the deliberation, Congress also should direct HUD to estimate the costs to monitor and perform the additional oversight responsibilities, including a discussion of funding options.

Agency: Congress
Status: Open

Comments: As of June 2020, Congress had not enacted legislation to give HUD an oversight role for LIHTC.

Recommendation: The Secretary of the Treasury should issue guidance on how funding or assistance from other government programs can be combined with the NMTC including the extent to which other government funds can be used to leverage the NMTC by being included in the qualified equity investment.

Agency: Department of the Treasury
Status: Open
Priority recommendation

Comments: The Department of the Treasury (Treasury) has not issued guidance on how funding or assistance from other government programs can be combined with the NMTC, as GAO recommended in July 2014. However, Treasury has taken steps toward addressing this action. The Community Development Financial Institutions Fund (CDFI Fund), which administers the NMTC program, completed new empirical research assessing the extent to which other government programs are being combined with the NMTC. The findings of this research (issued in August 2017) indicate that some NMTC projects, especially those using other government funds to leverage the NMTC, potentially received more government funds than needed to close a financing gap. As of January 2020, CDFI Fund officials said that they intend to solicit public comments on additional data to be collected from the Community Development Entities before using these data to identify NMTC-financed projects that may have excessive public funding. Once fully implemented, these additional actions could help ensure that low-income community projects do not receive more government assistance than required to finance a project.

Recommendation: The Commissioner of the IRS should direct the appropriate IRS officials to revise the post orders for the service center campuses (SCC) and lockbox bank security guards to include specific procedures for timely reporting exterior lighting outages to SCC or lockbox bank facilities management. These procedures should specify (1) whom to contact to report lighting outages and (2) how to document and track lighting outages until resolved.

Agency: Department of the Treasury: Internal Revenue Service
Status: Open

Comments: IRS's actions to address this recommendation are ongoing. IRS officials stated that during fiscal year 2020, Facilities Management and Security Services (FMSS) will update the Internal Revenue Manual to reflect the necessary guidance for service center guards and FMSS physical security specialists to know (1) whom the guards are to contact to report lighting outages and (2) how lighting outages are to be documented and tracked until resolved.

Recommendation: The Congress may wish to consider broadening IRS's ability to use math error authority (MEA), with appropriate safeguards against misuse of that authority.

Agency: Congress
Status: Open

Comments: Congress has expanded IRS's math error authority in certain circumstances, but not as broadly as we suggested in February 2010. Section 208 of division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113 enacted in December 2015) gave IRS the authority to use math error authority if (1) a taxpayer claimed the Earned Income Tax Credit, Child Tax Credit, or the American Opportunity Tax Credit (AOTC) during the period in which a taxpayer is not permitted to claim such credit as a consequence of either having made a prior fraudulent or reckless claim; or (2) a taxpayer omitted information required to be reported because the taxpayer made prior improper claims of the Child Tax Credit or the AOTC. In addition, Congress expanded math error authority for the First-Time Homebuyer Credit in November 2009. While expanding math error authority is consistent with what we suggested in February 2010, we maintain that a broader authorization of math error authority with appropriate controls would enable IRS to correct obvious noncompliance, would be less intrusive and burdensome to taxpayers than audits, and would potentially help taxpayers who underclaim tax benefits to which they are entitled. If Congress decides to extend broader math error authority to IRS, controls may be needed to ensure that this authority is used properly such as requiring IRS to report on its use of math error authority. The Administration also requested that Congress expand IRS's math error authority as part of the President's budget proposal for fiscal year 2021. Specifically, the Administration requested authority to correct a taxpayer's return in the following circumstances: 1) the information provided by the taxpayer does not match the information contained in government databases; 2) the taxpayer has exceeded the lifetime limit for claiming a deduction or credit; or 3) the taxpayer has failed to include with his or her return certain documentation that is required by statute. As of January 2020, the Congress had not provided IRS with such authority. We continue to believe that Congress should broaden IRS's math error authority with appropriate safeguards in order to help reduce the tax gap, which is the difference between tax amounts that taxpayers should have paid and what they actually paid .

Recommendation: Should the program be extended beyond 2009, to ensure that the maximum amount of capital ends up in low-income community businesses, Congress may wish to consider offering grants to CDEs that would provide the funds to low-income community businesses. If it does so, Congress may wish to require Treasury to gather appropriate data to assess whether and to what extent the grant program increases the amount of federal subsidy provided to low-income community businesses compared to the NMTC; whether the grant program otherwise affects the success of efforts to assist low-income communities; and how costs for administering the program incurred by the CDFI Fund, CDEs, and investors would change. One option may be for Congress to set aside a portion of funds to be used as grants and a portion to be used as tax credit allocation authority under the current structure of the program in a future allocation round to facilitate comparison of the two program structures.

Agency: Congress
Status: Open

Comments: No legislative action has been identified as of March 2020. Section 141 of division Q of the Further Consolidated Appropriations Act, 2020, extended NMTC through 2020 (Public Law 116-94). However, this act did not offer grants in lieu of credits, as GAO suggested in January 2010. The Joint Committee on Taxation estimates the cost of this extension to be approximately $1.5 billion. Offering grants in lieu of NMTCs could result in a greater portion of the federal subsidy reaching low-income community businesses.

Recommendation: To the extent that the CDBG program continues to be the primary vehicle used to provide post-disaster assistance for permanent housing, Congress may wish to consider providing more specific direction regarding the distribution of disaster-related CDBG assistance that states are to provide for homeowners and renters. If Congress wishes to change the proportion of assistance directed to homeowners and rental property owners in future recovery efforts, Congress could, for example, require states to demonstrate to HUD that they are adequately addressing the needs of both homeowners and renters with their CDBG allocation and other resources as a condition for receiving funds. Alternatively, Congress could direct HUD to develop a formula that accounts for the housing needs of both homeowners and renters. Such a formula could be used by states to determine the proportions of their disaster CDBG funds that should be used for housing, specifically rental housing. Further, the formula could also reflect the anticipated production levels of other programs that provide permanent housing assistance, such as the Low-Income Housing Tax Credit program.

Agency: Congress
Status: Open

Comments: Since 1993, Congress has appropriated Community Development Block-Disaster Recovery (CDBG-DR) funding in the wake of numerous presidentially-declared disasters, including, most recently, $2.431 billion in Public Law 116-20, the majority of which amount is for disasters that occurred in 2018 and 2019. Similar to previous CDBG-DR appropriations, the CDBG-DR appropriation in Public Law 116-20, enacted June 6, 2019, neither requires states to demonstrate to HUD that they adequately addressed the needs of both homeowners and renters nor, alternatively, directs HUD to develop a formula that accounts for the housing needs of both homeowners and renters. A bill introduced and reported out of committee in the 115th Congress, HR 4557, required HUD to disapprove a state action plan that detailed a grantee's use of funds if, among other reasons, the plan did not provide an equitable allocation of resources among homeowners, renters, and persons experiencing homelessness. A draft bill, whose provisions were essentially identical to HR 4557, was the focus of a hearing during the 116th Congress.

Recommendation: In order to significantly reduce the uncertainty that some taxpayers have about their ability to earn credits for their research activities, the Secretary of the Treasury should issue regulations clarifying the definition of gross receipts for purposes of computing the research credit for controlled groups of corporations.

Agency: Department of the Treasury
Status: Open

Comments: Treasury issued proposed regulations clarifying the definition of gross receipts on December 13, 2013 and solicited public comments. During the course of 2014, tax practitioners and business executives submitted comments criticizing the regulations and asking for them to be withdrawn. As of March 2020, Treasury has yet to issue final regulations that would include responses to these criticisms. The regulations would not become effective until the tax year beginning after the date on which the regulations are published in final form.

Recommendation: In order to significantly reduce the uncertainty that some taxpayers have about their ability to earn credits for their research activities, the Secretary of the Treasury should provide additional guidance to more clearly identify what types of activities are considered to be qualified support activities.

Agency: Department of the Treasury
Status: Open

Comments: As of March 2020, Treasury has not issued regulations to clarify what types of activities are considered to be qualified support activities.

Recommendation: In order to significantly reduce the uncertainty that some taxpayers have about their ability to earn credits for their research activities, the Secretary of the Treasury should provide additional guidance to more clearly identify when commercial production of a qualified product is deemed to begin.

Agency: Department of the Treasury
Status: Open

Comments: As of March 2020, Treasury has not issued regulations to more clearly identify when commercial production of a qualified product is deemed to begin.

Recommendation: In order to reduce economic inefficiencies and excessive revenue costs resulting from inaccuracies in the base of the research tax credit, Congress should consider eliminating the regular credit option for computing the research credit.

Agency: Congress
Status: Open

Comments: While legislation has been introduced to expand the research tax credit, as of December 2019, Congress had not enacted legislation to eliminate the regular computation option for the research tax credit or to add a minimum base to the ASC option, as GAO suggested in November 2009. The credit is designed to encourage business innovation by providing a subsidy for new research. Continued use of the regular computation credit option, which arbitrarily distributes subsidies across taxpayers, can distort investment decisions so that research spending and economic activity are not allocated to sectors that offer the highest returns to society. These misallocations may reduce economic efficiency and, thereby, diminish any economic benefits of the credit.

Recommendation: In order to reduce economic inefficiencies and excessive revenue costs resulting from inaccuracies in the base of the research tax credit, Congress should consider adding a minimum base to the ASC that equals 50 percent of the taxpayer's current-year qualified research expenses.

Agency: Congress
Status: Open

Comments: While legislation has been introduced to expand the research tax credit, as of December 2019, Congress had not enacted legislation to eliminate the regular computation option for the research tax credit or to add a minimum base to the ASC option, as GAO suggested in November 2009. The credit is designed to encourage business innovation by providing a subsidy for new research. Continued use of the regular computation credit option, which arbitrarily distributes subsidies across taxpayers, can distort investment decisions so that research spending and economic activity are not allocated to sectors that offer the highest returns to society. These misallocations may reduce economic efficiency and, thereby, diminish any economic benefits of the credit. Adding a minimum base for the ASC would reduce the revenue cost of the credit without affecting the average incentive it provides for research.

Recommendation: If Congress nevertheless wishes to continue offering the regular research credit to taxpayers, it may wish to consider reducing inaccuracies in the credit's base and to reduce taxpayers' uncertainty and compliance costs and IRS's administrative costs by updating the historical base period that regular credit claimants use to compute their fixed base percentages.

Agency: Congress
Status: Open

Comments: While legislation has been introduced to expand the research tax credit, as of March 2020, no action has been taken by Congress to update the historical base period that regular credit claimants use to compute their fixed base percentages.

Recommendation: If Congress nevertheless wishes to continue offering the regular research credit to taxpayers, it may wish to consider reducing inaccuracies in the credit's base and to reduce taxpayers' uncertainty and compliance costs and IRS's administrative costs by eliminating base period recordkeeping requirements for taxpayers that elect to use a fixed base percentage of 16 percent in their computation of the credit.

Agency: Congress
Status: Open

Comments: While legislation has been introduced to expand the research tax credit, as of March 2020, no action has been taken to eliminate base period recordkeeping requirements for taxpayers that elect to use a fixed base percentage of 16 percent in their computation of the credit.

Recommendation: If Congress nevertheless wishes to continue offering the regular research credit to taxpayers, it may wish to consider reducing inaccuracies in the credit's base and to reduce taxpayers' uncertainty and compliance costs and IRS's administrative costs by clarifying for Treasury its intent regarding the definition of gross receipts for purposes of computing the research credit for controlled groups of corporations. In particular it may want to consider clarifying that the regulations generally excluding transfers between members of controlled groups apply to both gross receipts and QREs and specifically clarifying how it intended sales by domestic members to foreign members to be treated. Such clarification would help to resolve open controversies relating to past claims, even if the regular credit were discontinued for future years.

Agency: Congress
Status: Open

Comments: While legislation has been introduced to expand the research tax credit, as of March 2020, no action has been taken by Congress to clarify for Treasury its intent regarding the definition of gross receipts for purposes of computing the research credit for controlled groups of corporations. In particular, it may want to consider clarifying that the regulations generally excluding transfers between members of controlled groups apply to both gross receipts and QREs and specifically clarifying how it intended sales by domestic members to foreign members to be treated. Such clarification would help to resolve open controversies relating to past claims, even if the regular credit were discontinued for future years.