Audit: IRS allowing billions in improper tax payments

Sen. Orrin Hatch (Utah), the top Republican on the Finance Committee, called on the IRS to “aggressively crack down on these erroneous payments,” insisting the agency’s issue with the EITC “doesn’t bode well” for its oversight of subsidies for President Obama’s healthcare law.

“Refundable tax credits are a nightmare to administer and lead to far too much of the American people’s money going out to those who aren’t eligible,” Hatch said in a statement.

For its part, the IRS said it is doing its best to balance the need to target mistaken payments and to ensure that eligible taxpayers know to claim the EITC, which is aimed at helping low-income workers. Improper payments have also declined since 2010, the IRS added in a statement.

Democrats successfully fought to extend expanded versions of the EITC and other refundable tax breaks in the fiscal-cliff deal signed early this year. Taxpayers who claim the EITC or other refundable tax breaks receive payments from the government if those credits are worth more than their tax burden.

IRS officials told the inspector general that they were meeting with the Office of Management and Budget to search for ways to supplement their efforts to reduce improper EITC payments. 

The 21 percent to 25 percent figure the IRS uses includes payments that should have never been made and both over- and underpayments.

“The IRS appreciates the Inspector General’s acknowledgment of all our work to implement processes that identify and prevent improper EITC payments,” the agency said in its statement. “The IRS protects nearly $4 billion in improper claims each year and is committed to continuing to work to reduce improper claims.”

Still, the IRS acknowledges that complexities in the tax law, and confusion and high turnover among those claiming the EITC have hampered its efforts to reduce those payments.

Fraud and dishonest tax preparers have also driven up the number of improper payments, the IRS says.

Those sorts of issues have led the tax administration inspector general to say that the IRS probably won’t make any “significant” reduction in erroneous EITC payments – especially given that limited resources have already eaten into the effectiveness of the agency’s current methods.

And while the agency said it is working with the Obama administration to “better gauge the impact of IRS’ compliance and outreach efforts,” the inspector general also noted that the IRS has yet to say when those measures would be implemented.