IRS loses billions to improper EITC payments

Another year, another report from the inside watchdog at the Internal Revenue Service, which finds that the feds are losing billions each year to improper payments for the Earned Income Tax Credit, a tax break meant for poor working families.

The IRS has made little improvement in reducing improper Earned Income Tax Credit (EITC) payments since being required to report estimates of these payments to Congress," read the latest report from the Inspector General for Tax Administration.

How much money is at stake? The feds estimate that EITC payments totaled $62 billion in Fiscal Year 2012.

"The IRS estimated that 21 to 25 percent of the EITC payments made in Fiscal Year 2012 were paid in error," the report stated.

That means the feds lost between $11.6 and $13.6 billion in 2012.

That is actually the second year of a slight improvement, after improper payments spiked dramatically in 2010, to between $15.3-$18.4 billion.

The report estimates that since 2003 - a period of nine years - Uncle Sam has wrongly paid out between $110.8 and $132.6 billion in errant EITC payments.

And there seems to be little hope in reducing those numbers.

"As we reported previously, despite numerous efforts, the IRS is unlikely to achieve any significant reduction in EITC improper payments," the report stated somewhat glumly.

Here is a rundown of 2003-2012 on the level of improper payments by the IRS on EITC claims:

          Fiscal Year Minimum % of improper payments Maximum Minimum total of improper payments (in billions)             Maximum total             (in billions)
2003 25% 30%                                  $9.5                                 $11.5
2004 22% 27% $8.6 $10.7
2005 23% 28% $9.6 $11.4
2006 23% 28% $9.8 $11.6
2007 23% 28% $10.4 $12.3
2008 23% 28% $11.1 $13.1
2009 23% 28% $11.2 $13.3
2010 24% 29% $15.3 $18.4
2011 21% 26% $13.7 $16.7
2012 21% 25% $11.6 $13.6
Total     $110.8 $132.6

As the table shows, IRS inspector general J. Russell George says the tax agency has made internal changes to reduce the level of improper payments, but he says much more work needs to be done.

"Unfortunately, it is still distributing more than $11 billion in improper EITC payments each year and that is disturbing," George said in a statement.

Read the report on improper payments for EITC at  http://www.treasury.gov/tigta/auditreports/2013reports/201340084fr.pdf

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