Earned Income Credit Fraud
About Earned Income Credit Fraud
The Earned Income Tax Credit has one of the highest improper payment rates of any federal program, estimated at 24 percent or approximately 19 billion annually. The fraud typically involves claiming children who do not exist or who do not live with the taxpayer. Some tax preparers facilitate EITC fraud by fabricating income or dependents. The IRS has implemented various controls, including stricter due diligence requirements for tax preparers and verification of dependents. However, the complexity of EITC eligibility rules makes enforcement difficult. Some researchers argue that much of the improper payment is due to complexity rather than fraud. Proposals to simplify the EITC have been put forward but have not been enacted. The tradeoff between simplicity and targeting remains a fundamental tension in tax policy.
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