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. 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. Some  provisions affected the 2009 filing season (for tax year 2008), while others  mainly will affect the 2010 and 2011 filing seasons. 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. Very little of the data that IRS has collected on the tax provisions has been  released publicly. 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. 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. 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. 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. 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. 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. 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. This alternative  involves acquiring access to third-party data in the form of publicly  available real estate information from local governments. 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. One hundred percent of the proceeds from BABs must  be used for capital expenditures. 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 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.
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. 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. 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. 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. 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.