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.

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