IRS gives out way too much
WASHINGTON — The Internal Revenue Service paid out more than $110 billion in tax credits over the past decade to people who didn’t qualify for them, according to a Treasury report.
The Earned Income Tax Credits were intended for poor working families. In his report, IRS inspector general J. Russell George said more than one-fifth of all credits paid under the program went to people who didn’t qualify.
IRS efforts are hampered by unscrupulous tax preparers as well as honest families that have trouble figuring out how to calculate the complicated credit, the report said.
“The IRS appreciates the inspector general’s acknowledgment of all our work to implement processes that identify and prevent improper EITC payments,” the IRS said in a statement. “Every year, the IRS conducts 500,000 EITC audits as part of a broader enforcement strategy, and EITC claims are twice as likely to be audited as other tax returns.”
The agency said it prevents “nearly $4 billion in improper claims each year and is committed to continuing to work to reduce improper claims.”
The EITC is one of the nation’s largest anti-poverty programs. In 2011, more than 27 million families received nearly $62 billion in credits.
The credit is attractive because, if it is larger than your total income tax bill, the IRS will pay you the difference. This is especially helpful to low-income families because many pay little or no federal income tax.
It also makes the credit more susceptible to fraud.
Using IRS statistics, the inspector general’s report provides an estimated range of improper EITC payments from 2003 through 2012. The report says the IRS paid out at least $110.8 billion in improper payments during the period, and perhaps as much as $132.6 billion.
The IRS says it is impossible to know the exact amount of improper EITC payments without auditing all 27 million taxpayers who received them, which isn’t feasible.
The amount of improper payments ballooned during the recent economic slump, hitting at least $15.3 billion in 2010, the report said. For 2012, the improper payments totaled between $11.6 billion and $13.6 billion.
Families earn the credits by working and earning money, though there are income limits.
The size of the credit depends on your income and the number of children you have.
