IRS tightening rules for EITC

Published 12:00 am Wednesday, May 28, 2003

For some people qualifying for the Earned Income Tax Credit will not be as easy as in the past, thanks to a series of new Internal Revenue Service guidelines aimed at cracking down on fraud.

The new guidelines are aimed at reducing the estimated $6.5 to $10 billion lost each year because of improper payments.

IRS officials claim the new guidelines are necessary because efforts to correct these payouts through after-the-fact audits have not worked.

The new guidelines, which are expected to go into effect in July, ultimately will affect more than 4 million people whom the IRS categorizes as high error claimants.

This represents roughly a fifth of the 19 million Americans who claim these tax credits.

In July, roughly 45 thousand taxpayers who fit into this category will be asked to provide proof of their eligibility within six months.

High error claimants will include all claimants except married taxpayers filing joint returns and single mothers.

The new requirements are considered more rigid than those required to apply for food stamps, which require only statements from neighbors, building managers, and others likely to be familiar with the applicant's living arrangements.

Moreover, these individuals are not required to swear under penalty of prosecution for perjury.

The new IRS requirements have sparked criticism among some supporters of the Earned Income Tax Credit who believe the rules unfairly single out working poor rather than more egregious violators.

Critics of the new guidelines argue that the same IRS study undertaken to measure tax fraud reveal that the biggest tax dodgers were people running their own businesses.

The Earned Income Tax Credit was enacted in 1975 and expanded several times.

Conservative and liberal legislators alike have been credited with lifting large numbers of people out of poverty.

The credit is designed to provide an offset to Social Security taxes that low-income workers already have paid along with a credit for their earnings.