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...

School tax breaks get House support as Democrats objectRichard Rubin of Bloomberg reported that the House of Representatives on Thursday voted to expand and simplify tax breaks for education as Republicans continue to pass...
Many senior US tax professionals believe that a streamlined audit process will be the top benefit resulting from the IRS Transfer Pricing Audit Roadmap, a new toolkit organized around a notional 24-month audit timeline,...
Tax accounting to be simplified for money-market fundsThe US Securities and Exchange Commission (SEC) voted 3-2 on Wednesday for sweeping changes to institutional money-market funds, Emily Chasan, senior editor of...

Upcoming CPE Webinars

Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.