Earned Income Credit: Qualifying Child Certification Test Appears Justified, but Evaluation Plan Is Incomplete
Highlights
The Earned Income Credit (EIC), a tax credit available to the working poor, has experienced high rates of noncompliance. Unlike many benefit programs, EIC recipients generally receive payments without advance, formal determinations of eligibility; the Internal Revenue Service (IRS) checks some taxpayers' eligibility later. IRS estimated that tax year 1999 EIC overclaim rates, the most recent data available, to be between 27 and 32 percent of dollars claimed or between $8.5 billion and $9.9 billion. To address overclaims, IRS plans to test a new certification program. Because IRS's plans have garnered much attention, Congress asked us to (1) describe the design and basis for the EIC qualifying child certification program, (2) describe the current status of the program, including significant changes, and (3) assess whether the program is adequately developed to prevent unreasonable burden on EIC taxpayers and improve compliance so that the test should proceed.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | Given that the qualifying child certification program is a key part of IRS's plans for reducing EIC overclaims and that certification is intended to help reduce overclaims while minimizing the burden on taxpayers and maintaining the EIC's participation rate, the Commissioner of Internal Revenue should, to the extent possible, accelerate development of the evaluation plan for the test. The plan should demonstrate how each of the certification's objectives will be evaluated, including milestones for such critical steps as defining the specific data that will be collected, who will collect the data, and how the data will be analyzed in time to support decisions about the future of the program. |
Closed – Implemented
In December 2003, IRS issued its evaluation plan for the Earned Income Tax Credit qualifying child certification program. The plan demonstrated how each of the certification's objectives would be evaluated and included critical milestones.
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