Back in the Spotlight: Arrival of Obamacare puts focus on IRS tax-credit scandal

irsThere’s no doubt congressional investigators have their hands full probing allegations the Internal Revenue Service targeted conservative nonprofit groups. But now a different IRS scandal — involving the chronic, ongoing, mind-bogglingly wasteful mismanagement of a popular tax credit program — demands Congress’ attention because it has taken on new importance with the arrival of Obamacare.

The program is the Earned Income Tax Credit, through which the federal government gives out between $60 billion and $70 billion to low-income working Americans each year. It’s known as a “refundable” tax credit, but it is basically a transfer payment, in which the IRS sends a check — perhaps even $5,000 every year — to workers who have little or no tax liability.

The problem is, the IRS does little to determine whether recipients actually qualify for the money. A recent report by the IRS inspector general says the agency has given out somewhere between $110 billion and $132 billion in improper Earned Income Tax Credit payments in the last decade. In that time period, between 21 and 30 percent of tax credit payments went to people who didn’t qualify for them.

That is bad enough. But what infuriates lawmakers is that the IRS refuses to do anything about it. Agency officials told the inspector general they couldn’t fix the problem because the tax credit program is very complicated, and also because they are afraid vigorous enforcement would discourage legitimately qualified recipients from applying for credits. And the IRS is not only not working to reduce improper payments, it is refusing to report those payments to Congress as required. The bottom line, in the words of inspector general Russell George: “The IRS is unlikely to achieve any significant reduction in Earned Income Tax Credit improper payments.”

Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee, has heard that before. “The IRS has repeatedly ignored the fraud and abuse in the Earned Income Tax Credit program, which has already cost Americans over $100 billion,” Camp said in a statement Monday. “Americans should be confident that their tax dollars are being used properly, but that confidence has been shattered by the blatant disregard this agency has shown for monitoring refundable tax credits and better protecting taxpayers.”

The flow of money has continued despite the Improper Payments Elimination and Recovery Act, which Congress passed and President Obama signed in 2010. The law “requires agencies to achieve an improper payment rate of 10 percent or less for each high-risk program,” says a recent compilation of IRS reports prepared by the Ways and Means Committee. “The Earned Income Tax Credit’s improper payment rate has been above 20 percent since 2003.”

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