Audit: IRS could clamp down on retirement credits

The IRS could save hundreds of millions of dollars by ferreting out improper claims of a tax break for retirement used by low- to middle-income workers, according to a new federal audit.

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Treasury's inspector general for tax administration found that taxpayers wrongly claimed roughly $53 million in so-called saver's credits in 2011, out of about $1.1 billion in total credits received.

If the IRS clamped down on those sorts of claims, the inspector general said, it could save the government some $264 million over five years.

Low- to moderate-income taxpayers who contribute to a qualified retirement plan can reduce their tax bill through the saver's credit, though the credit is also not refundable and cannot be pushed forward to future years. 

Taxpayers can't be under 18, a full-time student or claimed as a dependent to take the credit, and the tax administration inspector general said the IRS had generally done a good job enforcing those rules and limiting overpayments. The maximum credit of single taxpayers is $1,000, with married couples able to claim $2,000.

Still, the inspector general also said that tighter controls over the credit could save millions of dollars a year. But the IRS said that those controls could not be implemented in a cost-effective way, effectively saying that its time would be better spent concentrating on potentially more lucrative returns.