Roskam Calls for Attack on Earned Income Tax Credit Fraud

A press release from Congressman Peter Roskam:

In Response to IG Report, Subcommittee Chairs Call on SSA to Work with the IRS to Stop EITC Fraud

WASHINGTON — Today, Human Resources Subcommittee Chairman Charles Boustany (R-LA), Social Security Subcommittee Chairman Sam Johnson (R-TX), and Oversight Subcommittee Chairman Peter Roskam (R-IL) called on the Social Security Administration (SSA) to protect the American taxpayer and take commonsense steps to end fraud involving important benefits.

A recent report by the Social Security Inspector General (IG) showed the agency failed to report suspicious self-employment income to the Internal Revenue Service (IRS), permitting tens of thousands of individuals to illegally retain Earned Income Tax Credit (EITC) payments they did not deserve.

The Earned Income Tax Credit is an important tool to help people move from welfare to work, and it must be protected from fraud.

Chairmen Boustany, Johnson, and Roskam called on the SSA to take corrective action immediately and work with the IRS to eliminate this scheme, which just landed on the IRS’s “dirty dozen” list of tax scams.

The SSA and the IRS need to develop the electronic reporting system that the SSA claimed it was developing seven years ago when the IG initially reported the possibility of fraudulent self-employment income earnings.

This call comes after the Secretary of the Treasury acknowledged the significant amount of fraud in the EITC program, stating in testimony before the Ways and Means Committee on February 3, 2015, “compliance needs to be improved.”

The IG found that when the SSA asked individuals about their earnings—which could make them ineligible for payments under the Supplemental Security Income program—thousands of individuals disclaimed those earnings.

Over the course of four years, the IG found that nearly 50,000 individuals reported—but later disclaimed—$742 million in self-employment earnings on their tax returns that had previously made them eligible for the EITC or other payments.

In over half of these cases, involving $399 million in self-employment earnings, SSA failed to report the disclaimed earnings to the IRS, effectively preventing the IRS from investigating or recovering EITC mispayments averaging $4,053.

In response, Chairman Boustany made the following statement:

“In an era of innovation, it is unacceptable that our federal welfare system allows applicants to claim earnings when applying for one government benefit while denying those same earnings to apply for another.

“Government agencies like the Social Security Administration must be held to a higher technological standard to put a stop to the millions of taxpayer dollars that are wasted on this practice each year.”

Chairman Johnson added:

“Social Security was warned by the Inspector General as far back as 2007 that individuals were defrauding the system by lying about their income.

“This latest report is yet further proof of Social Security’s lack of commitment to preventing fraud.

“It is long past time for Social Security to ensure that hard-working American taxpayers’ dollars are protected. Failing to act is simply not an option.”  

And Chairman Roskam stated:

Roskam looking at camera neutral“The Earned Income Tax Credit has helped lift millions of families and children out of poverty, while the Supplemental Security Income program provides critical income support and a linkage to essential health care coverage for individuals with disabilities.

“The federal government cannot turn a blind eye to rampant fraud and abuse that costs these programs hundreds of millions of dollars annually.

“We will not let another year pass with no action from the Executive Branch to implement common-sense reforms to stop fraudsters from gaming these two programs off of one another in order to receive taxpayer funded benefits they are not entitled to.

“We know data sharing between these two programs can put an end to these deceptive practices and ensure greater integrity and financial stability for both programs—protecting both taxpayers and beneficiaries at the same time. 

“This Administration must do better to end false and conflicting income reporting.”

This is not the first time the IG directed the agency to report potentially falsified earnings to the IRS. In 2007, Inspector General Pat O’Carroll alerted SSA to the issue of fabricated self-employment income submitted on tax returns and to the SSA. The IG urged the two agencies to install an electronic reporting process enabling SSA to forward questionable SEI to the IRS for investigation.

But eight years later, SSA has no electronic system and has failed to report half of the suspicious earnings.

The Treasury Inspector General for Tax Administration has estimated that erroneous EITC claims have cost American taxpayers as much as $132 billion over ten years, with an error rate of roughly 25 percent.


Comments

Roskam Calls for Attack on Earned Income Tax Credit Fraud — 12 Comments

  1. Was the electronic system that was ordered for the IRS ever fully funded?

    I want to stop tax fraud, but no matter which laws are passed another congress comes in and does not fully fund the mandate.

  2. Here is what this looks like in real life to real hard working people.

    A woman, who has two dependents, cleans houses for a living.

    She is ‘earning’ income and is compliant with IRS laws by voluntarily reported said wages.

    Let’s say she makes $15,000 annually basically working for herself.

    Hardly an annual amount that this mom is getting rich on.

    Now comes tax season.

    She is provided with a 1099 Miscellaneous Income form NOT a W-2 from those whose homes she cleans.

    This basically knocks her out of her ability to claim any EIC credits, basically taking 7,000 off her table as she could have claimed her two dependent children had she been provided with W-2 forms rather than the 1099.

    The question is, was her income “Earned.”

    Of course it was and she was honest enough to disclose it all.

    Keep in mind the only governmental assistance this mom asked for was insurance for her children under the Illinois “All Kids Covered” program.

    I think if the IRS needs to fix something, it is the very situation I painted above.

    Mr. Roskam, if you want to fix something, look into this truth.

    An “Undocumented” worker living and working in the U.S. Illegally, files his/her income tax return.

    He/she has six children living in Mexico.

    DO any of you reading this know that our government provides this undocumented worker with a federal Tax ID number, akin to a social security number for filing income tax deductions for his/her children living in Mexico?

    It it a fact.

    The undocumented worker then uses these legally provided tax ID numbers to claim EIN tax credits on his six children….. multiply those six kids by the 3,500 tax credit. Nice extra income wouldn’t you say folks?

    Fix the immigration system and all the freebees flying out of U.S. tax payers wallets to aid illegal’s and we won’t have to worry about an American mom or dad who works hard LEGALLY and CLAIMS all of his/her income as an honest American trying to do the right thing.

    What do you say about this Mr. Roskam?

  3. P.S. To clarify my statement above.

    EACH child of the undocumented worker is provided a tax ID number.

    Not only are the undocumented workers children provided the tax ID number so they can be claimed as dependents, but, the undocumented workers Parents and sisters and brother can also be claimed on their U.S. tax returns.

    Anybody the undocumented worker wants to claim is “Dependent” upon them for survival.

    Try that American citizens. Try to claim a son or daughter age 25 or more who depends upon you for more than 50 percent of his/her living expenses, see what happens.

    Just sickening.

    We need to make those working in Congress, a four year term position.

    This way, these public servants can work for the people and not always having to worry about campaigning for their jobs.

    We are at a crossroads my friends.

    A very serious crossroad in our nations history.

    WHY aren’t law makers stripping down to the essentials of the fundamentals so they can use that base to begin rebuilding our nation?

    There are no “Up and Coming” leaders……why?

    Fear that is why!

    “What about us,” should be every American who is struggling to maintain the very basics of subsidence, cry.

    “What about us?”

  4. People receiving self-employment income are eligible to claim EIC in the same manner as someone receiving W-2 income.

    The 1099-MISC merely verifies the amount of income paid to the individual.

    It’s those who claim self-employment income without having received a 1099-MISC who are the problem.

    Once they receive the check for the credit, they amend the return upon which the credit was claimed and get a refund of any tax paid on that return. It’s quite easy to do, especially with off-the-shelf tax programs like Turbo Tax.

    Treasury usually issues the refund automatically upon processing the amended return, and it’s only later that the return is examined for possible fraud.

    I prepare over 200 returns a year, and for every one eligible for the EIC, I have to fill out a 4 page due diligence questionnaire, and if the person is found to have fraudulently claimed the credit, I can lose my license.

    If there’s a way for the IRS to snag these people at the outset, it’s good for all concerned.

  5. STEVE thanks for the feed back.

    Perhaps this is why it is best to go to a CPA to have your taxes done.

    All the tax programs I have used will kick out the EIC credit if I use the tax payers 1099 Misc form as their only form of income.

    A window pops up stating that this in not “Earned Income” and states you are not qualified to receive earned income credits.

    When I put that 1099 Misc income in the W-2 bracket instead, the programs instantly allows for the EIC credit.

    Perhaps you might explain for us why this is please.

    Thank you.

  6. Steve, since you are a man who has tried to help by running for office, are you willing to comment on how you feel about undocumented workers being provided with tax ID numbers to they can claim relatives NOT living in the U.S. as tax deductions?

    Thank you.

  7. I really don’t know why a 1099-MISC doesn’t allow the EIC. Box 7 on the form is for earned income (non-employee compensation).

    I use a professional program that’s got a few more bells and whistles than Turbo Tax.

    Don’t get me wrong, overall it’s a good product.

    I don’t have a problem with undocumented workers having to get an ITIN, it’s a far better solution than buying a stolen SS# off the street.

    Having the ITIN itself doesn’t qualify non-resident dependents for the credit.

    They still have to have their own identifying number.

    However, with the demand for fast processing, returns don’t get looked at until long after the refund check is cut.

    If you’re willing to wait 2-3 months for a refund check while the system checks all the identifying numbers, then maybe it’d work.

    I will say the IRS has gotten better at holding up returns with incorrect social security numbers or catching duplicate filings.

    They have a long way to go, but they have come a long way.

    This is a Federal issue, but I’d like to think the states can be used as a fallback for verification.

    Just yesterday Turbo Tax shut down its processing of state returns because the State of Minnesota found something wrong with returns they were processing.

    The problem here in Illinois is that the processing system is horribly outdated and we just don’t have the money to upgrade it.

    We need to develop a better way of budgeting for capital improvements in the technology field.

    It’ll pay for itself in the long run.

  8. Illinois has an EIC of its own, which is a refundable credit equal to 10% of the Federal EIC.

    A refundable credit is one that isn’t limited by the amount of your tax liability, it reduces whatever tax liability you may have, with the balance, as much as $614, being refunded to the taxpayer.

    The state therefore has a strong interest in assisting Rep. Roskam in his effort to curb EIC abuse at the Federal level.

  9. Steve, thanks again.

    What I found might be a bad glitch in the H&R Block software.

    Perhaps I have misread a part of your kind response to my question.

    The dependents of “Undocumented Workers” each, DO receive their own Tax ID number akin to what our own children receive. I’ve helped many of these folks file returns and they bring me a number for each dependent they want to claim.

    Like emails, perhaps I have misunderstood as things tend to get lost via this modem.

    Thank you for taking your time to help me with this issue.

    I agree Rep. Roskam is taking on an important issue to be sure.

    I believe however that the entire tax code needs to be overhauled. Each year there seems to be changes that only a tax professional can keep up on.

    I was not so much against Obama Care UNTIL I did my taxes.

    What a mess this program is when you see it laid out in real dollars.

    People are paying out the nose as their tax refunds are being stripped away from them for ‘forced’ healthcare premium assistance.

    Getting off message so I will move on. Thanks Steve!

    Dave

Leave a Reply

Your email address will not be published. Required fields are marked *