IRS Wants Proof From Earned Income Credit Recipients

The Internal Revenue Service has devised a new program whereby certain recipients of the Earned Income Credit (EIC) will be required to offer proof of their relationship to the child that qualifies them for the credit as well as proof of the fact that the child lived with them for more than six months during the tax year.

The EIC has been a thorn in the side of the IRS for years. The credit is confusing to the taxpayers who try to claim it, and evidence would suggest that it is equally confusing to professional tax preparers. According to a recent article in The New York Times, the IRS estimates that 70 percent of those claiming the EIC pay a tax preparer to file their taxes and yet it is estimated that the IRS loses $6.5 to $10 billion per year due to amounts paid out erroneously under the EIC program. ["I.R.S. to Ask Working Poor for Proof on Tax Credits," The New York Times, April 25, 2003]

To counteract that loss, the IRS will require certain taxpayers to provide proof in advance of filing a claim for the credit. Affected taxpayers include all taxpayers claiming the EIC other than married couples filing joint tax returns and single mothers. It is estimated that this group represents approximately one fifth of the 19 million taxpayers who claim the credit each year.

To prove eligibility for the credit, taxpayers will have to offer proof of their relationship with the child, such as copies of marriage certificates. To prove that the child lived with the taxpayer for more than six months, the taxpayer may have to produce legal documents such as a lease or school records with the taxpayer and the child's name at the same address on the specified dates.

Opponents to the proof requirement claim that this places an undue burden on the low-income taxpayers who may not understand what they need to do to be eligible for the credit. Senate Democrats, including Senator Edward Kennedy (D-MA), have indicated they will not support Mark Everson, President Bush's nominee for IRS commissioner, unless Mr. Everson gives written assurances that the eligibility requirements will not be so burdensome that they serve as a deterrent for eligible people to file for the credit.

You may like these other stories...

OECD calls for coordinated fight against corporate tax avoidanceDavid Jolly of the New York Times reported that dozens of countries with the most advanced economies have agreed on principles for concrete action to prevent...
Plan ahead before you buy some shares in a stock mutual fund near yearend, when the fund is about to pay a dividend. It might be better to wait until after the fund goes "ex-dividend," that is, wait until after the...
AgFeed agrees to pay $18 million to settle SEC accounting fraud caseMichael Rapoport of the Wall Street Journal reported on Monday that AgFeed Industries Inc. has agreed to pay $18 million to settle US Securities and...

Already a member? log in here.

Upcoming CPE Webinars

Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.
Oct 30
Many Excel users have a love-hate relationship with workbook links. For the uninitiated, workbook links allow you to connect one Microsoft Excel spreadsheet to other spreadsheets, Word documents, databases, and even web pages.