The Earned Income Tax Credit Program Has Made Advances - However, Alternatives to Traditional Compliance Methods Are Needed to Stop Billions of Dollars in Erroneous Payments

Sep 19, 2026

Upload by Paura

Final Audit Report on the IRS’s progress in administering the Earned Income Tax Credit (EITC) program since Fiscal Year 2003, including oversight and efforts to improve compliance and participation. The IRS introduced initiatives to educate taxpayers, support tax preparers, and strengthen pre-issuance identification of erroneous payments, yet limited compliance resources mean most potentially erroneous claims continue to be paid in error. IRS reports $10 billion to $12 billion annually in erroneous EITC payments.

LanguageEnglish

CategoryGeneral

FormatPDF

Pages40

Reading Time14 min

AccessFree to download

Background

Results of Review

Although Some Improvements Have Been Made in the Administration of the Earned Income Tax Credit Program, a Process to Measure Progress in Meeting Program Goals Is Still Needed

Alternatives to Traditional Compliance Methods Are Needed to Reduce the Billions of Dollars in Identified Erroneous Earned Income Tax Credit Payments

Recommendation 1

Recommendation 2

Appendices

Appendix I – Detailed Objective, Scope, and Methodology

Appendix II – Major Contributors to This Report

Appendix III – Report Distribution List

Appendix IV – Prior Audit Report Recommendations

Appendix V – Glossary of Terms

Appendix VI – Management’s Response to the Draft Report

TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION The Earned Income Tax Credit Program Has Made Advances; However, Alternatives to Traditional Compliance Methods Are Needed to Stop Billions of Dollars in Erroneous Payments December 31, 2008 Reference Number: 2009-40-024 This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document. Redaction Legend: 2(a) = Law Enforcement Criteria 2(d) = Law Enforcement Technique(s) 2(e) = Law Enforcement Procedure(s) 2(f) = Risk Circumvention of Agency Regulation or Statue Phone Number | 202-622-6500 [Email Address | inquiries@tigta. treas.gov](Email Address | inquiries@tigta. treas.gov) Web Site | [http://www. tigta.gov](http://www. tigta.gov) DEPARTMENT OF THE TREASURY WASHINGTON, D.C. 20220 TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION December 31, 2008 MEMORANDUM FOR COMMISSIONER, WAGE AND INVESTMENT DIVISION FROM: (for) Michael R. Phillips Deputy Inspector General for Audit SUBJECT: Final Audit Report – The Earned Income Tax Credit Program Has Made Advances; However, Alternatives to Traditional Compliance Methods Are Needed to Stop Billions of Dollars in Erroneous Payments (Audit \# 200740029) This report presents the results of our review to assess the Internal Revenue Service’s (IRS) progress in improving administration of the Earned Income Tax Credit (EITC) Program since Fiscal Year 2003. Our review included assessing oversight of the Program and efforts taken to improve compliance with and participation in the Program. This review was part of the Treasury Inspector General for Tax Administration Fiscal Year 2007 Annual Audit Plan and relates to the Fiscal Year 2007 Major Management Challenge of addressing erroneous and improper payments. Impact on the Taxpayer The IRS has implemented a number of initiatives designed to 1) educate taxpayers on the EITC requirements and assist them in determining EITC eligibility, 2) provide information and guidance to tax preparers, and 3) improve its examination processes to reduce burden on taxpayers. In addition, the IRS has successfully developed a number of processes to identify erroneous EITC payments prior to issuance. However, because compliance resources are limited and alternatives to traditional compliance methods have not been developed, the majority of the potentially erroneous EITC claims identified continue to be paid in error. The IRS reports $10 billion to $12 billion annually in erroneous EITC payments. | | The Earned Income Tax Credit Program Has Made Advances; However, Alternatives to Traditional Compliance Methods Are Needed to Stop Billions of Dollars in Erroneous Payments | | --- | --- | | Response
IRS management agreed with all of our recommendations. The IRS will continue its ongoing efforts to identify new alternatives to effectively expand its treatment of EITC errors while protecting taxpayer rights and minimizing taxpayer burden. As part of these efforts, management will conduct a study of Federal Case Registry information to determine its accuracy and applicability for exercising existing math error authority to deny the EITC during upfront processing of the tax return. The IRS will communicate any relevant results from its study to the Assistant Secretary of the Treasury for Tax Policy for his or her consideration. Management’s complete response to the draft report is included as Appendix VI.
Copies of this report are also being sent to the IRS managers affected by the report recommendations. Please contact me at (202) 622-6510 if you have questions or
Michael E. McKenney, Assistant Inspector General for Audit (Returns Processing and Account Services), at (202) 622-5916.
4 | | The Earned Income Tax Credit Program Has Made Advances; However, Alternatives to Traditional Compliance Methods Are Needed to Stop Bill

FAQs

What was the purpose of the audit review?

To assess IRS progress in improving administration of the Earned Income Tax Credit (EITC) program since Fiscal Year 2003, including oversight and efforts to improve compliance with and participation in the program.

What initiatives has the IRS implemented to reduce EITC errors?

The IRS has focused on educating taxpayers on EITC requirements, assisting eligibility determinations, providing guidance to tax preparers, and improving examination processes to reduce taxpayer burden. It has also developed processes to identify erroneous EITC payments prior to issuance.

Why do erroneous EITC payments continue despite improvements?

The report states that because compliance resources are limited and alternatives to traditional compliance methods have not been developed, most potentially erroneous EITC claims continue to be paid in error, with IRS reporting $10 billion to $12 billion annually.

Sep 19, 2026

Upload by Paura