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IRS overpaid $100B in earned income credit from ’03-’11

by April 29th, 2012

An audit report from the U.S. Treasury Department’s Inspector General For Tax Administration says the Internal Revenue Service has overpaid U.S. taxpayers between $99 billion and $119 billion in earned income tax credit (EITC) payments, or allowances, from fiscal year 2003 through fiscal 2011. The 2011 estimate was $13.7 billion to $16.7 billion. The EITC is a tax benefit for low- and moderate-income workers. The Treasury audit notes the EITC overpayment estimates actually come from the IRS itself.

The Treasury Department’s special Inspector General For Tax Administration’s office says in the audit that the IRS’s methods of projecting the amounts and rates of overpayment remain accurate and reliable. The estimates and related public reporting of them by the government’s auditor of the IRS are considered an important public accountability measure.

The U.S. Improper Payments Elimination and Recovery Act of 2010 (IPERA) strengthened a 2002 U.S. disclosure law on improper payments by government agencies and gives Treasury’s internal auditors of the IRS powers to evaluate the agency’s annual fiscal reporting including the rate, amount, and causes of improper payments, and improvement targets, for programs at high risk. The EITC program is the IRS’s only designated high-risk program for improper payments.

About one-quarter of EITC payments have been overpayments
According to the audit the excessive EITC payments given to taxpayers by the IRS comprised anywhere from 21 to 26 percent of all EITC payments by the agency in 2011. That percentage has typically ranged from 23 to 28 percent from 2003 through 2011. The total amount of EITC improper payments has risen roughly 50 percent from 2003 to 2011.

The IRS failed to meet two key requirements of the IPERA oversight law, according to the audit: keeping improper payment rates for the EITC program at under 10 percent of the total spent; and giving reduction targets and related progress reports. The IRS has also failed to estimate EITC underpayments to taxpayers, although the IRS says that amount is likely miniscule.

$35B to $45B more in EITC overpayments expected in next three years
The audit also notes that the IRS’s own estimates are that it will make another $35 billion to $43 billion in improper EITC payments from 2012 through 2014. The audit report states: “Without targets to reduce EITC improper payments as required by the IPERA, there is a lack of acountability for the IRS to eliminate payment error, waste, fraud and abuse.”

Public Data Ferret’s U.S. Government+Management archive

In a response appended to the audit, the IRS’s Chief Financial Officer says the agency in 2011 started a program to “substantially reduce erroneous EITC payments” and that the program will be “fully established” by 2014.

FromThe Internal Revenue Service Is Not In Compliance With All Improper Payments Elimination and Recovery Act Requirements/Treasury Inspector General For Tax Administration

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