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The Treasury Department and the Internal Revenue Service announced today a new task force that will examine the administration and complexity of the Earned Income Tax Credit (EITC). The task force, headed by Treasury Assistant Secretary for Tax Policy Mark Weinberger and IRS Commissioner Charles O. Rossotti, will focus on compliance and administrative issues stemming from the complexity of the EITC.
The EITC has been an instrumental program in helping many low-income families transition out of welfare, Weinberger and Rossotti stated. This new task force on the EITC will help us make the program even better for those taxpayers in need by identifying ways to reduce complexity and improve administration. The EITC provides a tax credit to low- and moderate-income working families.
The task force has been created to thoroughly examine the complexity and compliance issues of the EITC program identified in two recent IRS reports on the EITC. The focus of the joint Treasury-IRS task force will be on finding new ways of improving the accuracy of the EITC program, while reducing its complexity. The task force will identify a range of solutions based upon its independent review and the information available in the IRS's reports.
A report entitled Compliance Estimates for Earned Income Tax Credit Claimed on 1999 Returns found $31.3 billion in earned income tax credits claimed on 1999 tax returns. Of the $31.3 billion, the report estimated that $8.5 billion to $9.9 billion should not have been paid to claimants.
The estimates in the report do not reflect the impact of recent legislative and administrative changes designed to improve compliance rates. The Economic Growth and Tax Relief Reconciliation Act of 2001 substantially changed the rules applying to individuals who have the same qualifying child. It also changed the definitions of foster child and income.
In addition, the IRS recently implemented the Dependent Database for identifying returns with potential EITC errors before refunds are issued.
This includes data from the Federal Case Registry of Child Support Orders and a Social Security Administration file linking parent and child social security numbers. Beginning in 2004, the Economic Growth and Tax Relief Reconciliation Act of 2001 gives the IRS expanded authority to deny EITC claims by noncustodial parents before refunds are paid.
Another IRS report released today on the EITC Compliance Initiative found that the $716 million appropriated by Congress resulted in the protection or collection of $5 billion in EITC funds over five years.
Clearly, more needs to be done to reduce errors. The new task force will develop recommendations for achieving the objectives of the EITC program while reducing taxpayer confusion and increasing the accuracy of the administration of the tax credit.