How Many Fraudulent EIC Claims are Prepared by Paid Preparers?

Image courtesy of user Geralt on
Image courtesy of user Geralt on

This is something I’ve wanted to research for a long time.

Paid preparers are saddled with increasing IRS requirements and scrutiny regarding the earned income credit. The IRS says this is justified because $14.5 billion EIC claims are paid in error. This represents 24% of all EIC claims.

But how many of those claims are prepared by tax pros?

I dug into the most-recent TIGTA report on the EIC to try and find an answer.

I couldn’t find anything in the report that specifically addresses how many improper EIC claims come from returns prepared by tax pros. There’s a chart on page 36 of the report which shows the results of a Fiscal Year 2013 tax preparer compliance program. The report shows $368.7 million of EIC revenue protected.

I don’t know how statistically relevant this information is in the overall scheme of the EIC. But if we take $368.7 million from paid preparers and compare it to $14.5 billion, we see that it’s a drop in the bucket.

The point I’m trying to make is: the IRS can put all the requirements they want on paid preparers, but it’s not going to stop EIC fraud.

The root cause goes beyond anything the IRS can handle: refundable credits are going to be fraud magnets. Only Congress can change the tax code to get rid of refundable credits.

As my tax blog buddy Robert Flach at The Wandering Tax Pro blog says: the IRS (and by proxy, tax preparers) are not social welfare workers. Neither the IRS nor tax pros should be responsible for administering or verifying payments of the EIC, child tax credit, or education credits. These funds should be disbursed in some other manner other than through the tax code. (Robert most recently wrote about this topic in this post from November 9th.)