Rand Paul says Earned Income Tax Credit has 25% fraud rate that costs up to $30 billion

[NACBA]

Since 2002, the IRS has been required to report estimates of improper payments to Congress. In that time, "the IRS has made little improvement in reducing improper Earned Income Tax Credit payments," the inspector general wrote in 2013.

The Earned Income Tax Credit is the only IRS program that is considered a high-risk for improper payments, the inspector general said in 2014. At the root of the problem is the complex nature of the tax credit: It is available to only low-income individuals, and it fluctuates based on earnings, number of children and other factors. The churn into and out of the program is high — about one-third of all recipients are first-timers, or their eligibility changes year-to-year due to swings in their income. This creates confusion among both recipients and administrators.

The IRS said it is difficult to balance reducing improper benefits with encouraging people who qualify to use the credit.

How prevalent are these improper payments? According to the inspector general, 22 to 26 percent of all payments are improper.

And how much does that cost taxpayers? The entire program totaled $63 billion in 2013, meaning improper payments ranged from $13.3 billion to $15.6 billion.

So Paul’s percentage was right, but he overstated the actual annual cost.

Paul’s statement, his spokesman Brian Darling said, also included another tax credit highlighted by the auditor’s 2014 report, the Additional Income Tax Credit, which similarly provides refunds for some working families with children. The inspector general found improper payments between $5.9 billion and $7 billion in 2013. Combined, improper payments from the two programs would likely top $20 billion.

http://www.politifact.com/truth-o-me...it-has-25-per/

[angelatc]

The Earned Income Tax Credit is the only IRS program that is considered a high-risk for improper payments, the inspector general said in 2014. At the root of the problem is the complex nature of the tax credit: It is available to only low-income individuals, and it fluctuates based on earnings, number of children and other factors. The churn into and out of the program is high — about one-third of all recipients are first-timers, or their eligibility changes year-to-year due to swings in their income. This creates confusion among both recipients and administrators.

I am doing income taxes this year, and so I get to see these people up close and personal. I will not deny that a lot of the fraud comes right from the taxpayers, but some of it comes from people who guarantee big returns. The customers don't actually work, but have kids, so the preparers create imaginary self employment income so they qualify for the EIC. Then if the IRS questions it, the preparers are suddenly nowhere to be found.

Or the preparers will give bad advice, like allowing the credit for children who aren't actually related to the taxpayer. Think - a guy with 2 kids making $30k a year. He won't qualify for the EITC, so the preparer will let his babysitter-McD's cashier-live-in GF put the kids on her return. I am in a little town in rural Michigan and I've heard "they let me do it last year!" several times already. OR, "My friend with 3 kids doesn't work and she got back $6000. "

ON top of that, these people are paying $400 to get their income taxes done. It's really hard for me to believe a Flat Tax would be the worst thing that could happen to this country, although it might indeed cramp the incomes of any of the players in this racket.