Report Shows IRS Made Errors on 24% of EITC Payments

Even though the Internal Revenue Service has reported an overall decline in the improper payment rate for the Earned Income Tax Credit since fiscal year 2003, the amount of payments made in error has increased from $10.5 billion in fiscal year 2003 to $14.5 billion in fiscal year 2013, according to a new government report. 


The IRS’s fiscal year 2013 EITC improper payment report to the Treasury Inspector General for Tax Administration estimates that in fiscal year 2013, EITC claims totaled approximately $60 billion, while 24 percent of the EITC payments were paid in error, according to a report released Wednesday by TIGTA.


An earlier TIGTA report last month had reported on the IRS’s high error rate and improper payment amounts for the EITC, along with the Additional Child Tax Credit. Using IRS data, TIGTA estimated that the potential ACTC improper payment rate for fiscal year 2013 was between 25.2 percent and 30.5 percent, with potential ACTC improper payments totaling between $5.9 billion and $7.1 billion.


The new report focused on the IRS’s compliance with Executive Order 13520, Reducing Improper Payments and Eliminating Waste in Federal Programs, which requires TIGTA to assess the IRS’s compliance with the order on an annual basis. Executive Order 13520 aimed to increase federal agencies’ accountability for reducing improper payments while continuing to ensure that their programs serve and provide access to their intended beneficiaries. In the new report, TIGTA acknowledged that the IRS has taken steps to ensure access and participation by eligible individuals. The IRS estimates that the participation rate for individuals who are eligible to receive the EITC was nearly 80 percent for tax year 2010.


TIGTA made no recommendations in the report. In response to the report, IRS CFO Robin Canady wrote, “The Earned Income Tax Credit (EITC) is the Treasury Department’s only high risk program and poses numerous challenges with respect to improper payments and reporting.”


A provision in a report attached to the $1.1 trillion spending bill passed by Congress last month aims to stem the tide of improper payments of refundable tax credits such as the EITC by requiring taxpayers who use consumer tax prep software to self-prepare their tax returns to undergo the same kinds of questions that professional tax preparers are required to answer for their clients’ returns.