Friday, February 18, 2011

IRS Treading Water In Efforts To Reduce Improper Payments Of The Earned Income Tax Credit

Since 2002, IRS has been treading water in its efforts to reduce improper payments of the Earned Income Tax Credit (EITC), the Treasury Inspector General for Tax Administration (TIGTA) said in a new audit. (Audit Report No. 2011-40-023) Between 23% to 28% of EITC payments are issued improperly each year, according to the agency's own estimates. This means that in fiscal year 2009, between $11 billion and $13 billion was paid out in improper EITC payments, the audit said. The EITC program has been listed by the Government Accountability Office as having the second highest dollar amount of improper payments of all federal programs, the audit noted. Executive Order 13520 requires IRS “to intensify its efforts and set targets to reduce EITC improper payments,” TIGTA said, adding that the agency has not provided “any quantifiable targets to reduce” such payments. “IRS management noted that reduction targets were not set because the IRS has to balance enforcement efforts among different taxpayer income levels,” the audit said. IRS told auditors it expects that its evolving oversight of tax return preparers will have a positive effect on efforts to reduce improper payments. “However, it is unknown whether the regulation of tax return preparers will result in a significant reduction in EITC improper payments,” the audit said. IRS does not anticipate its tax return preparer strategy will be fully implemented until 2014, said J. Russell George, the inspector general. He cited the agency's own estimates that it is likely to issue anywhere from $55 billion to $65 billion in improper payments between 2010 and 2014. “The loss of billions of dollars in improper EITC payments annually calls for aggressive and immediate action,” George said. Sen. Orrin Hatch (R-UT), the new ranking member of the Senate Finance Committee, responded to the audit by saying he is “extremely disappointed with the IRS's failure to effectively confront” improper EITC payments. Hatch described the audit as “an absolute indictment on how badly the IRS has handled this” and called on the agency to fix the problem as soon as possible. The audit is available at

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