Audit: IRS Doled Out $14.5 Billion in Erroneous Tax Credits
M.D. Kittle /
A recent audit showing the Internal Revenue Service handed out $14.5 billion in improper earned income tax credits in 2012 came as little surprise to budget watchers such as Alan Cole.
The fact that the erroneous payouts amounted to about 24 percent of the $63 billion Uncle Sam sent out in refundable earned income tax credits was nothing new as well.
“I was not surprised at all,” Cole, economist for the Tax Foundation, a tax policy research organization. “I have seen this report in many incarnations … Over the decade, between 22 and 29 percent are improper payments. Hearing 24 percent, that’s pretty much what we expect.”
So does the IRS, to the ire of taxpayers.
The audit by the Treasury Inspector General for Tax Administration, or TIGTA, the IRS’ auditor, notes that, once again, the IRS is opting not to follow recommendations to lower the rate of improper payments.
Auditors also found that the IRS made between $5.9 billion and $7.1 billion in improper additional child tax credits, representing between 25.2 percent and 30.5 percent of all payments issued in fiscal year 2013.
In 2013, the EITC lifted about 6.2 million people out of poverty, including about 3.2 million children, according to Center on Budget and Policy Priorities, a progressive think tank.
“The number of poor children would have been one-quarter higher without the EITC. The credit reduced the severity of poverty for another 21.6 million people, including 7.8 million children.”
But there are a lot of people who abuse or simply do not understand the complicated tax credits, leading to fraud and errors that have proved costly to taxpayers.
The ultimate question, Cole said, is how successful is a program with a waste rate of 25 percent.
“Rather than trying to reform a broken program, Congress could replace the EITC with a spending-side wage subsidy,” the Tax Foundation’s Kyle Pomerleau wrote earlier this year. “Although administrative costs are generally higher for spending programs, the huge reduction in payment errors may be worth it.“