By Bernie Becker - 05/25/11 07:12 PM EDT
Russell George, the Treasury Department’s inspector general for tax administration, noted that improper Earned Income Tax Credit payments occurred around 25 percent of the time, amounting to $11 billion to $13 billion in fiscal 2009.
George also noted that refundable credits were an attractive target for potential fraud, and called on the IRS to require that individuals prove their eligibility for the credits.
“This committee has an obligation to investigate all these problems, with all these tax credits,” said Boustany, who also called the EITC a very valuable program. “And I think everybody’s admitted that the refundable tax credits are problematic from a standpoint of complexity.”
“I happen to really believe that if someone is going to get a benefit that they do have a responsibility with documentation,” said Rep. Diane Black (R-Tenn.).
But Democrats charged that their colleagues on the other side of the aisle were disproportionately concerned about the tax credits, and that the GOP was pushing for an enhanced effort from the IRS at the same time it was calling to slice its budget.
At the hearing, Nina Olson, the national taxpayer advocate, said that individuals who received the earned income tax credit were twice as likely as taxpayers in general to be audited – and that, on average, audits of EITC recipients called for far less in additional tax payments than audits of the general taxpayer population.
In all, Olson said, improper EITC payments accounted for 5 percent of the last estimated tax gap.
“Sounds to me like we need to do a lot more research into the 95 percent of other areas where folks aren’t paying their taxes properly or making mistakes before we go after middle-class families and target them,” Rep. Xavier Becerra (D-Calif.) said.
For his part, Steven Miller of the IRS said the agency understood the possibility for fraud when it comes to tax credits, but added that the IRS had faced challenges, including tight deadlines, in implementing recently enacted credits. He also signaled that the agency might not have the resources to require documentation on all refundable credit claims.
And with House Republicans having voted earlier this year to roll back the IRS’ budget by roughly $600 million from enacted 2010 levels, Rep. Ron Kind (D-Wis.) said he sympathized with the agency.
“I just don’t think they can have it both ways,” Kind told Miller. “Demanding greater compliance and better enforcement while at the same time drastically cutting your budget, which you need in order to accomplish what you’re being asked to do.”
After the hearing, Boustany said that lawmakers, especially in times of tight budgeting, had to make sure that oversight dollars were being properly used.
Miller also said that a new IRS program that will register and mandate additional education for tax preparers would help reduce EITC fraud, and lawmakers from both parties appeared optimistic about the agency’s initiative.
Still, George, the tax administration inspector general, found earlier this year that the program will not be fully implemented until 2014.