The Internal Revenue Service paid up to
$13.6 billion in bogus claims for the Earned Income Tax Credit last
year and as much as $132.6 billion over the past decade, according to an
internal audit that already has some members of Congress questioning
how the agency will be able to administer Obamacare.
IRS problems with the tax credit
aren’t new. In fact, the Treasury inspector general for tax
administration said it warned officials about the problems in 2011 — but
two years later, the agency still hasn’t solved the situation and
remains in violation of one of President Obama’s executive orders.
Indeed, the IRS has not established
annual targets for reducing the payments, which is required by law, nor
is the agency complying with requirements that it report to auditors
each quarter on any EITC payments totaling more than $5,000.
“The IRS should be commended for
implementing numerous processes to educate Americans and identify and
prevent improper EITC payments,” said J. Russell George, Treasury
inspector general for tax administration. “Unfortunately, it is still
distributing more than $11 billion in improper EITC payments each year,
and that is disturbing.”
Mr. George and his investigators said
21 percent to 25 percent of all EITC payments in 2012 were erroneous,
meaning $11.6 billion to $13.6 billion was paid to people who shouldn’t
have received the credit, or received the wrong amount.
The EITC is a refundable tax credit
designed to transfer money to the working poor through the tax system.
It allows the working poor to pay less in taxes or, if they have no tax
liability, to get money.
Both the IRS and the auditors agreed it is a complex program and checking eligibility is difficult.
The program is popular with many
lawmakers on both sides of the aisle who say it’s an effective
anti-poverty tool, rewarding those who work.
But the large error rate left some
lawmakers questioning whether the agency will be able to administer the
tens of billions of dollars in health care tax credits that are part of
the Affordable Care Act.
“That the IRS can’t figure out how to
rein in the improper Earned Income Tax Credit payments doesn’t bode well
for the $1.1 trillion in ObamaCare subsidies,” said Sen. Orrin G. Hatch
of Utah, the ranking Republican on the Senate Finance Committee.
He said if the error rate in Obamacare
subsidies is as big as it is in the EITC, that could mean $250 billion
would be wasted in health care payments.
The size of the erroneous payments was
staggering to lawmakers. At more than $13 billion a year, the bogus tax
claims are more than the entire budget of the Environmental Protection
Agency or the Interior or Labor departments.
“The waste outlined in this report —
more than $13 billion a year — equals or exceeds the annual budgets of
some federal agencies,” said Sen. Tom Coburn, Oklahoma Republican and
Congress‘ chief waste-watcher. “Before we ask taxpayers to send even
more of their own money to Washington, we must do more to prevent these
egregious examples of waste.”
The IRS said it does try to crack down
on bad EITC payments. Americans who claim the tax credit are already
audited at twice the rate of other taxpayers.
“The IRS protects nearly $4 billion in
improper claims each year and is committed to continuing to work to
reduce improper claims,” the agency said in a statement.
The agency said it’s working with the
White House budget office to try to come up with other ways to weed out
bad payments, and promised to soon comply with reporting requirements.
And it’s already shown some progress
in cutting the problem. In 2010, as much as 29 percent of EITC payments
were erroneous, accounting for up to $18.4 billion.
Analysts said the large error rate
stems from the complexity of the program, which leaves taxpayers
confused about who is able to claim it.
Then there are the competing goals Congress and Mr. Obama have set.
For example, in a 2009 executive order
the president told agencies to do more to make sure Americans know they
are eligible for tax credits. But he also told agencies to crack down
on bogus payments, laying out the reporting goals that the inspector
general said the IRS is violating.
Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we
inform you that, to the extent any advice relating to a Federal tax issue is
contained in this communication, including in any attachments, it was not
written or intended to be used, and cannot be used, for the purpose of (a)
avoiding any tax related penalties that may be imposed on you or any other
person under the Internal Revenue Code, or (b) promoting, marketing or
recommending to another person any transaction or matter addressed in this
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