IRS wastes bil­lions in un­earned cred­its

The Washington Times Weekly - - National - BY STEPHEN DINAN

The In­ter­nal Rev­enue Ser­vice paid up to $13.6 bil­lion in bogus claims for the Earned In­come Tax Credit last year and as much as $132.6 bil­lion over the past decade, ac­cord­ing to an in­ter­nal au­dit that al­ready has some mem­bers of Congress ques­tion­ing how the agency will be able to ad­min­is­ter Oba­macare.

IRS prob­lems with the tax credit aren’t new. In fact, the Trea­sury in­spec­tor gen­eral for tax ad­min­is­tra­tion said it warned of­fi­cials about the prob­lems in 2011 — but two years later, the agency still hasn’t solved the sit­u­a­tion and re­mains in vi­o­la­tion of one of Pres­i­dent Obama’s ex­ec­u­tive or­ders.

In­deed, the IRS has not es­tab­lished an­nual tar­gets for re­duc­ing the pay­ments, which is re­quired by law, nor is the agency com­ply­ing with re­quire­ments that it re­port to au­di­tors each quar­ter on any EITC pay­ments to­tal­ing more than $5,000.

“The IRS should be com­mended for im­ple­ment­ing nu­mer­ous pro­cesses to ed­u­cate Amer­i­cans and iden­tify and pre­vent im­proper EITC pay­ments,” said J. Rus­sell Ge­orge, Trea­sury in­spec­tor gen­eral for tax ad­min­is­tra­tion. “Un­for­tu­nately, it is still dis­tribut­ing more than $11 bil­lion in im­proper EITC pay­ments each year, and that is dis­turb­ing.”

Mr. Ge­orge and his investigators said 21 per­cent to 25 per­cent of all EITC pay­ments in 2012 were er­ro­neous, mean­ing $11.6 bil­lion to $13.6 bil­lion was paid to peo­ple who shouldn’t have re­ceived the credit, or re­ceived the wrong amount.

The EITC is a re­fund­able tax credit de­signed to trans­fer money to the work­ing poor through the tax sys­tem. It al­lows the work­ing poor to pay less in taxes or, if they have no tax li­a­bil­ity, to get money.

Both the IRS and the au­di­tors agreed it is a com­plex pro­gram and check­ing el­i­gi­bil­ity is dif­fi­cult.

The pro­gram is pop­u­lar with many law­mak­ers on both sides of the aisle who say it’s an ef­fec­tive anti-poverty tool, re­ward­ing those who work.

But the large er­ror rate left some law­mak­ers ques­tion­ing whether the agency will be able to ad­min­is­ter the tens of bil­lions of dol­lars in health care tax cred­its that are part of the Af­ford­able Care Act.

“That the IRS can’t fig­ure out how to rein in the im­proper Earned In­come Tax Credit pay­ments doesn’t bode well for the $1.1 tril­lion in Oba­maCare sub­si­dies,” said Sen. Or­rin G. Hatch of Utah, the rank­ing Repub­li­can on the Se­nate Fi­nance Com­mit­tee.

He said if the er­ror rate in Oba­macare sub­si­dies is as big as it is in the EITC, that could mean $250 bil­lion would be wasted in health care pay­ments.

The size of the er­ro­neous pay­ments was stag­ger­ing to law­mak­ers. At more than $13 bil­lion a year, the bogus tax claims are more than the en­tire bud­get of the En­vi­ron­men­tal Pro­tec­tion Agency or the In­te­rior or La­bor de­part­ments.

“The waste out­lined in this re­port — more than $13 bil­lion a year — equals or ex­ceeds the an­nual bud­gets of some fed­eral agen­cies,” said Sen. Tom Coburn, Ok­la­homa Repub­li­can and Congress’ chief waste-watcher. “Be­fore we ask tax­pay­ers to send even more of their own money to Wash­ing­ton, we must do more to pre­vent th­ese egre­gious ex­am­ples of waste.”

The IRS said it does try to crack down on bad EITC pay­ments. Amer­i­cans who claim the tax credit are al­ready au­dited at twice the rate of other tax­pay­ers.

“The IRS pro­tects nearly $4 bil­lion in im­proper claims each year and is com­mit­ted to con­tin­u­ing to work to re­duce im­proper claims,” the agency said in a state­ment.

The agency said it’s work­ing with the White House bud­get of­fice to try to come up with other ways to weed out bad pay­ments, and promised to soon com­ply with re­port­ing re­quire­ments.

And it’s al­ready shown some progress in cut­ting the prob­lem. In 2010, as much as 29 per­cent of EITC pay­ments were er­ro­neous, ac­count­ing for up to $18.4 bil­lion.

An­a­lysts said the large er­ror rate stems from the com­plex­ity of the pro­gram, which leaves tax­pay­ers con­fused about who is able to claim it.

Then there are the com­pet­ing goals Congress and Mr. Obama have set.

For ex­am­ple, in a 2009 ex­ec­u­tive or­der the pres­i­dent told agen­cies to do more to make sure Amer­i­cans know they are el­i­gi­ble for tax cred­its. But he also told agen­cies to crack down on bogus pay­ments, lay­ing out the re­port­ing goals that the in­spec­tor gen­eral said the IRS is vi­o­lat­ing.

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