IRS Handing Out Free Candy

February 24, 2011

Two recent audits conducted by the Internal Revenue Service’s inspector general find that the agency continues to do a poor job of making sure tax credits go to intended beneficiaries. 

The first audit finds that 23 to 28 percent of Earned Income Tax Credit payments are going to ineligible recipients. That amounts to $11 billion to $13 billion in improper EITC payments in fiscal 2009 alone. The inspector general estimates that between $70 billion and $84 billion in improper EITC payments were made from fiscal 2003 to fiscal 2009. 

The inspector general notes that this has been a consistent problem: 
The IRS has made little improvement in reducing EITC improper payments since being required to report estimates of these payments to Congress in 2002. Based on our review of the IRS report provided in response to Executive Order 13520, we believe there is a high risk the IRS will continue to pay billions of dollars in EITC improper payments annually. 
The second audit finds problems with tax credits created by the 2009 stimulus bill to incentivize people to purchase alternative energy vehicles, such as plug-in electric cars. Of $164 million in credits claimed over a six month period, $33 million or 20 percent, were erroneously claimed. In addition, the $33 million in erroneously claimed credits are just from returns that were filed electronically. According to the inspector general, “the IRS is unable to track and account for plug-in electric vehicle credits claimed on paper-filed tax returns.”
These latest problems with IRS administration of the tax code come on the heels of the late homebuyer tax credit program, which was plagued by fraud and abuse.
While it is easy to castigate the IRS, it’s important to remember that the monstrous tax code it administers is a creation of Congress. Our absurdly complex and complicated tax code is a direct result of policymakers engaging in social engineering and economic micromanagement. While there are murmurs that Congress might take up tax reform this year, policymakers need to understand that it is the federal government’s excessive involvement in our personal and economic affairs that fuels this tax code insanity.    


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