There is nothing new under the sun....
Earlier this week the Treasury Inspector General for Tax Administration (TIGTA) issued a report stating that the IRS issued undeserved refunds of between $11.6B and $13.6B for the Earned Income Tax Credit (EITC, or sometimes just EIC) in fiscal 2012. This is the only program that the IRS has identified as having improper-payment reporting. These erroneous refunds constitute between 21% and 25% of the total amount given out under the EITC program!
In spite of our federal financial problems, and the large tax gap that would address much of that fiscal problem, most members of Congress hold that the EITC program is working well! The purpose of the program is to provide additional incentive to unemployed or marginally employed to find work and earn more money. (Do we really have to provide incentives for people to earn money? Maybe those incentives are necessary if we provide for their needs without them having to work....)
But Congress does acknowledge that there are abuses in the system. As a revenue raising offset, Congress included in the US-Korea Free Trade Agreement Implementation Act a stiff penalty ($500 per tax return) for preparers who fail to ask for documentation to substantiate income and living situations for taxpayers receiving EITC and keep copies of those taxpayer's records (e.g., children's medical records) in the preparer's files. Congress also funded IRS audits of tax return preparation business to seek out situations for penalty assessment. Unfortunately, that net does not catch preparers who are not following other filing rules. Specifically, many preparers who regularly prepare fraudulent returns simply indicate that the return is "self-prepared" thus avoiding the visibility. Some have suggested that much of the fraud is from this group of preparers.
The TIGTA report also points out that the IRS is not in compliance with the Improper Payments Elimination and Recovery Act (IPERA) of 2010, which requires the IRS to make improvements in such areas. But I confess to having some sympathy for the IRS. It is a difficult situation to be in when your "boss" tells you to both jump left and jump right at the same time. The IRS is mandated by Congress to execute various welfare programs that they were not designed to implement. And they are also told to manage our nation's finances tighter. They are told to expedite the refund process and to improve the checking process before refunds are paid.
Soon the IRS will also be required to police our healthcare insurance system. More on that later....
For more information on the TIGTA report you can visit http://www.treasury.gov/tigta/press/press_tigta-2013-15.htm.
