Improper EITC payments top $11 billion

Introduction

A quarter of earned income tax credit payments are improper, amounting to $11 billion to $13 billion in 2009, the Internal Revenue Service reports.

The program is a refundable federal income tax credit for low to moderate income families and individuals. According to the GAO, the earned income tax credit program ranks second among federal programs in improper payments. According to the inspector general at the Treasury Department, the IRS has not made enough progress in preventing wrongful payments.

The IRS did not have quantifiable targets for reducing the payments, which management attributed to the need to balance tax enforcement among taxpayers at all income levels, and not solely focus on lower-income taxpayers.

The IRS said its new regulations for tax preparers will reduce the number of incorrect payments, but the inspector general warned that the effects of the new regulations are still unknown. The tax preparer regulations just began, and are not expected to be fully implemented until 2014. By that time, the IRS could issue $55 billion to $65 billion in improper payments from the earned income tax credit program the IG said.

FAST FACT: In 2009, 24 million taxpayers received $55 billion in earned income tax credit.

Following are other new watchdog reports released by the Government Accountability Office (GAO), various federal Offices of Inspector General (OIG), and other government entities.

FINANCE

• The international tax system used by the federal government taxes U.S. firms worldwide, while granting foreign tax credits to alleviate double taxation. Some scholars suggest applying the same tax burden on both foreign and domestic investments, while others suggest taxing foreign investment more to encourage domestic investment. There is some debate on how to improve the current system, with globalization demanding changes in international taxation. (Congressional Research Service)
• The Department of Homeland Security made progress in its security systems, but management oversight issues remain. There are concerns with the Coast Guard Intelligence System and the information system for intelligence personnel. (Inspector General DHS)