The Treasury Inspector General for Tax Administration (TIGTA) today publicly released its most recent review of the Internal Revenue Service's (IRS) Earned Income Tax Credit Program (EITC).
The report concludes that the IRS has successfully developed processes to identify erroneous EITC payments prior to their issuance to taxpayers. However, the IRS estimates that between $10 billion and $12 billion in erroneous EITC payments were made in Tax Year 2006. This estimate was based on data for Tax Year 2006, which was the latest data available at the time the audit was conducted. The IRS received $43.7 billion in EITC claims during that time. (A Tax Year for individuals is the calendar year used to compute a taxpayer's taxable income.)
Reducing erroneous and improper payments has been previously identified by TIGTA as an IRS major management challenge. The current findings are the latest in a series of audits issued by TIGTA since 2002 identifying problems with the EITC.
TIGTA's new report concluded that while the IRS has improved its oversight and management of the EITC program, it is still unable to stop the majority of erroneous EITC claims. The report found that the IRS's compliance resources are limited and additional alternatives to traditional compliance methods have not been developed, resulting in the majority of the potentially erroneous EITC claims identified being paid in error.
"The IRS has numerous compliance priorities in addition to the EITC Program, which it must balance against its limited resources. However, this is a significant revenue loss to the Federal Government and that must be addressed," said J. Russell George, Inspector General, Treasury Inspector General for Tax Administration. "Closing the nation's estimated $345 billion annual Tax Gap requires taking steps on a number of levels."
TIGTA made several recommendations including that the IRS conduct a study to identify alternative processes that will expand its ability to effectively and efficiently identify and adjust erroneous EITC claims for which data show that the taxpayer does not meet EITC requirements. The IRS should also work with the Department of the Treasury to obtain the authority necessary to implement alternative processes to adjust erroneous EITC claims.
The IRS agreed with TIGTA's recommendations.