The Internal Revenue Service has made "no significant improvements" toward ending massive improper payments under the Earned Income Tax Credit program, according to an audit released Tuesday, which shows the agency issued more than $132 billion in wrongful tax credits over the past decade.
It's also "unlikely that the IRS will significantly reduce those improper payments in the future, in part because it does not want to discourage low-income earners who qualify from applying for the credit, according to the audit by the office of the Treasury Inspector General for Tax Administration.
The IRS failed to implement required safeguards against improper tax credits and, as of 2012, was annually handing out at least $11 billion to those who did not qualify for the benefit, the audit showed
"And that is disturbing," Treasury Inspector General J. Russell George said in a statement.
The IRS defended itself in a statement, noting that improper payments have declined since 2010 and that privacy laws hamper agency efforts to produce the quarterly reports on such payments.
"The IRS continues to work with [the Office of Management and Budget] to develop supplemental measures to better gauge the impact of IRS’ compliance and outreach efforts," the statement said.
The Earned Income Tax Credit offsets income tax owed by low-income earners. But the audit found that about 21 percent of all refunds are "improper," meaning they "should not have been made or were made in an incorrect amount."
The 40-page audit, written on Aug. 28 but released nearly two months later because of confidentiality laws, measures the department's compliance with the Obama administration's 2009 executive order, "Reducing improper payments and eliminating waste in federal programs."
Apparently the IRS is failing miserably at this task, particularly when it comes to the required quarterly reporting of questionable "high dollar" tax credits of more than $5,000. When auditors dug into those high-dollar refunds themselves, they found that improper payments remained rampant.
Auditors reviewed 60,793 high-dollar tax credit payments issued in 2009 alone and found that more than 10,400 payments worth $52.8 million should have been reported as improper high-dollar payments
The report concluded that overall, the IRS has not established annual targets to reduce improper payments.
The report found that the IRS has over the past decade wrongfully handed out as much as $132 billion in earned income tax credits, a situation not likely to improve soon.
The IRS blames "the complexity of the [Earned Income Tax Credit Program] as well as the need to balance the reduction of improper payments while still encouraging eligible individuals to use the credit," the audit shows. The IRS actually works to ensure that as many low-income earners as possible know about the credit and apply for it, reaching out to more than 1.8 million taxpayers through print media, conference calls and radio interviews in Spanish and English.
The credit allows those who qualify to receive a lump sum payment when the Earned Income Tax Credit amount is more than what an individual or family owes in taxes.
Auditors recommended that the IRS develop a program to identify high-dollar improper payments. The IRS agreed to the recommendation, auditors said, and "will develop quarterly reports."