Tightening Rules for Earned Income Tax Credit
May 9, 2003
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.
guidelines, according to a recent New York Times article, are
aimed at reducing the estimated $6.5 to $10 billion lost each year
because of improper payments.
claim the new guidelines are necessary because efforts to correct
these payouts through after-the-fact audits have not worked,” says
Barbara Mobley, an Alabama Cooperative Extension System family
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. The program will
encompass roughly 2 million claimants by 2004, ultimately reaching
some 4 million people within the next few years.
claimants will include all claimants except married taxpayers filing
joint returns and single mothers. Those falling under this category
will include fathers with sole custody of their children and
grandparents, aunts and uncles, foster parents and others.
They will have to
provide papers proving that their claims of guardianship are accurate
and that the children lived with them for at least six months of the
Only a few types
of evidence will be acceptable.
In some cases, for
example, proving their relationship to children will require marriage
Some will even be
required to document marriages that took place abroad. In some
instances, claimants even will have to document proof of
great-grandparents and even great-great grandparents.
To provide proof
of where a child lived, claimants also will have to provide school,
medical records, leases or similar documentation showing both the
applicant’s and child’s name, along with their joint address. In cases
where these can’t be provided, they will be required to produce a
sworn affidavit from a school official, employer or other similar
person claiming personal knowledge of the claimant’s guardianship.
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 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,” Mobley says.
“Likewise, a study
economist Hihir Desai revealed that corporations managed to sidestep
as much as $54 billion by hiding about $155 billion in profits in tax
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.
The average tax
credit for households with children in 2001 was $1,976, while the
average food-stamp benefit for the same category of households was
Barbara Mobley, Extension
Family Programs Specialist, 334-844-2225.)
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