TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, April 22, 2013

TIGTA: IRS Fails to Comply With Mandated Reduction in Improper Payments -- 25% EITC Fraud Costs $14 Billion/Year

TIGTA The Treasury Inspector General for Tax Administration today released The Internal Revenue Service Was Not in Compliance With All Requirements of the Improper Payments Elimination and Recovery Act for Fiscal Year 2012 (2013-40-024):

The Improper Payments Elimination and Recovery Act (IPERA) of 2010 increased agency accountability for reducing improper payments in Federal programs. The only program the IRS has identified for improper payment reporting is the Earned Income Tax Credit (EITC) Program. The IRS estimates that 21 to 25 percent of EITC payments were issued improperly in Fiscal Year 2012. The dollar value of these improper payments was estimated to be between $11.6 billion and $13.6 billion.

TIGTA’s analysis of the information the IRS provided to the Department of the Treasury showed that the IRS is not in compliance with all IPERA requirements. Specifically, the IRS has not established annual EITC improper payment reduction targets and has not reported an improper payment rate of less than 10 percent. This is the second consecutive year that the IRS is not in compliance with the IPERA. Although the IRS has implemented a number of programs over the years to address EITC improper payments, the IRS faces significant challenges to becoming compliant with the IPERA. Specifically, the process the Department of the Treasury uses to assess the risk of improper payments within its bureaus does not effectively assess the risk of improper payments in tax administration. In addition, the ever-changing population of EITC claimants makes it difficult for the IRS to gain lasting improvements in EITC compliance through outreach, education, and enforcement.

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I've always been curious about EITC "fraud" -- how much of it is REALLY fraud, and how much is really honest errors? I feel like I'm having to use every bit of my excellent University of Chicago education in mathematics, and 3 decades of experience as a software developer reading program specs, in order to understand the instructions for answering the questions in TurboTax. I do wonder how these folks manage... And how many people who are eligible for the EITC don't get it because they can't figure out that they are eligible or how to get it?

Posted by: cathyf | Apr 22, 2013 10:44:32 AM

What good is it to have a goal and no resources to achieve the goal?
The funding to reduce this fraud has never been provided.
These stories are a joke.

Posted by: Ray | Apr 23, 2013 7:01:04 AM

EITC fraud is so simple your average junior high school student could do it. You look at the EIC table, find the income which maximizes the credit, then report enough additional cash income (Schedule C babysitting, housekeeping, or anything else credible) so that your total income reaches that number. If you're using software, you just keep bumping your income until the displayed refund amount drops.

The IRS is aware of how easy this is. See page 2 of In principle the IRS should be able to detect the simple-minded EITC fraud I described above. They must not be succeeding in practice.

Posted by: AMTbuff | Apr 23, 2013 12:51:42 PM