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Republicans Chide IRS for Refunds to Ineligible Taxpayers

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May 25 (Bloomberg) -- U.S. House Republicans say the Internal Revenue Service isn’t doing enough to prevent refundable tax credits from going to taxpayers who aren’t eligible to receive them.

About one-quarter of payments of the earned income tax credit are issued to people who are ineligible for them, which cost the government more than $11 billion in fiscal 2009, according to the Treasury’s inspector general for tax administration. The earned income tax credit is designed to assist low-income taxpayers by providing an incentive for people to enter and remain in the workforce.

“Not enough is being done to stem the tide of improper payments,” Representative Charles Boustany, a Louisiana Republican, said at a Ways and Means subcommittee hearing today. “The agency has also failed to implement years of inspector general recommendations that, if accepted, could save taxpayers billions of dollars.”

Democrats said Republicans were focusing too much on EITC recipients and ignoring other understatements of income. Representative Ron Kind, a Wisconsin Democrat, said Republicans are trying to have it both ways by demanding more enforcement and supporting a budget that would cut the IRS’s funding.

“Republicans appear to believe the rich pay too much in taxes and the middle class not enough,” said Representative Joseph Crowley, a New York Democrat.

Administrative Headache

The EITC, the child tax credit and the first-time homebuyer tax credit are refundable, meaning that taxpayers can receive payments from the government that exceed their income tax liability.

Steve Miller, the deputy commissioner for services and enforcement at the IRS, said refundable credits present a significant administrative problem in part because of the complexity of the tax code and changes to tax law that require the agency to implement new credits quickly.

“The IRS must deliver the promised refunds in the intended time frames while ensuring that appropriate controls are in place,” he said.

Miller said new IRS regulations of tax return preparers, along with its request for more enforcement resources, should help limit improper payments. To prevent some refunds from being issued, Congress would need to grant the IRS additional authority.

Noncompliance Rates

Boustany said after the hearing that he wanted to examine the issue further.

Nina Olson, the independent national taxpayer advocate within the IRS, said EITC noncompliance rates have declined over the past decade. She also said EITC recipients are twice as likely to be audited, compared with other taxpayers, and those audits yield fewer dollars than other audits of individuals.

Representative Diane Black, a Tennessee Republican, said EITC recipients should be required to provide more documentation to claim the benefit, particularly to prove that children live with them.

Miller said the IRS has resisted a documentation requirement in part because of budget constraints.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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