IRS Can’t Stop Paying Billions in Bogus EITC Claims

According to a from the Treasury Inspector General for Tax Administration the agency made little improvement in reducing improper Earned Income Tax Credit payments. Government estimates suggest that up to 28% of erroneous EITC payments are made each year, costing taxpayers between $11 and $13 billion per year.

Accounting Today reports:

This is an outrageously high improper payment rate," said Sen. Chuck Grassley, R-Iowa, in response to the report. "It’s higher than Medicare’s improper payment rate. The taxpayers can’t sustain a failure rate of one-fourth and on the way to one-third. For more than eight years, the IRS hasn’t made a dent in this problem. It’s more than enough time to figure out a way to fix it. The report says the IRS doesn’t have the resources to go after all of the improper payments in this program. This is a good indication of how the IRS is poorly equipped to handle the huge new responsibilities of health care reform. If the IRS can’t handle its existing responsibilities, it won’t be able to handle its new responsibilities under health care reform. Maybe if the White House focused more on what’s already owed, it wouldn’t need to propose tax increases, such as the one on employers to pay for unemployment benefits just disclosed this week.”

Executive Order 13520 requires the IRS to intensify its efforts and set targets to reduce EITC improper payments and to report its activities to the Office of Management and Budget and TIGTA.

The order also requires TIGTA to assess the level of risk associated with the EITC program, determine the extent of oversight warranted and provide the IRS with recommendations to reduce EITC improper payments.

In its June 14, 2010 report to the OMB and TIGTA, the IRS did not provide any quantifiable targets to reduce EITC improper payments. IRS management noted that it did not set reduction targets because of the need to balance its enforcement efforts among different taxpayer income levels.

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Workers Urged to Check Eligibility for EITC

On Friday the IRS and partners across the nation encouraged taxpayers across the country to check to see if they qualify for the Earned Income Tax Credit. It marked the 5th annual EITC awareness day. This credit is both one of the most missed and most abused tax breaks on the books, precisely because it is so complicated to determine eligibility and the credit amounts.

IRS.gov reports:

The American Recovery and Reinvestment Act of 2009 created a new category of families with three or more children and increased the maximum benefit of EITC for tax years 2009 and 2010. The Tax Relief and Job Creation Act of 2010 extended these changes through 2012.

The maximum credit for 2010 tax returns is $5,666 for workers with three or more qualifying children. However, workers without qualifying children may also be eligible for a smaller credit amount.

"Millions of workers who did not earn high incomes claimed the EITC last year," said Doug Shulman, IRS commissioner. "The IRS encourages all eligible taxpayers to claim this valuable credit. Together with our partners, we can help taxpayers file their returns and get the EITC."

Workers who earned $48,362 or less from wages, self-employment or farm income last year could receive larger refunds if they qualify for the EITC. Four out of five eligible taxpayers claimed the EITC last year obtaining an extra $2,200 from the credit on average. This represents a critical financial boost to over 26 million workers who earn low to moderate incomes.

Eligibility for the EITC is determined based on a number of factors including earnings, filing status and eligible children. Many people who experienced a change in these factors will qualify for the first time this year and may not be aware of the credit.

Read more at IRS.gov

IRS Promotes EITC Awareness

The Department of Treasury, the IRS, and dozens of other non-government partners are kicking off EITC (Earned Income Tax Credit) Awareness Day to promote the refundable tax credit for low-wage workers and options for free tax preparation.

"Believe it or not, there are many taxpayers who are eligible to receive the Earned Income Tax Credit, but fail to claim it simply because they are not informed," claimed U.S. Treasurer Anna Escobedo Cabral.

According to IRS data, over 22.4 million taxpayers received more than $43.7 billion from the EITC last year. However, they estimate that approximately one in four eligible taxpayers fail to claim the EITC.

"Ensuring that more eligible families receive their EITC is important this year, as it is every year. I encourage people all across America to check to see if you are eligible for the Earned Income Tax Credit," said Treasury Secretary Henry M. Paulson, Jr.