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.)
Join the discussion and tell us your opinion.
[…] Dinesen, How Many Fraudulent EIC Claims are Prepared by Paid Preparers? “The point I’m trying to make is: the IRS can put all the requirements they want on paid […]
Refundable tax credits are social welfare? Really? As a tax preparer, you ARE a public servant in a private practice. Having said that, when you accepted this role for compensation, you agreed to certain standards and the ethics that come with performing the job. As tax preparers, we are responsible for making sure that our clients Qualify for all tax breaks, not just the refundable one’s. For a thorough preparer, due diligence applies to every return, not just those with EITC and refundable credits. Tax fraud happens on All Kinds of tax returns, and probably moreso on high income returns, for those who are looking for more tax breaks than they deserve.
Nina – you make a good point. As preparers, we often talk about people who receive refundable credits as being “those people.” In truth — at least in my experience — the clients who scare me the most are the small business owner. Especially the small business that operates heavily in cash transactions. The local bar or restaurant. There’s a 100% chance that that business is not reporting a large portion of their cash receipts. How is this any different from the things people might try to pull with refundable credits? It’s probably not different at all. This is a good topic to delve into in a post down the road.