There is a growing amount of fraud related to claiming the EITC with the IRS. The IRS is aware of this and is taking great steps to avoid EITC fraud by catching taxpayers committing these acts. The IRS estimates that between 21 percent to 26 percent of EITC claims are paid in error. Some of the errors are unintentional caused by the complexity of the law, but some of the claims are intentional disregard of the law. Here are the questions preparers frequently ask concerning fraud.
Example of EITC Fraud
For example, one common ETIC fraud practice that the IRS has cracked down on is when married couples split their qualifying children. The will then both file as head of household to to gain greater EITC benefits on their tax returns.
EITC Fraud by Claiming Head of Household Splitting Children
The IRS uses an advanced system in place to catch these and other fraudulent returns. The IRS reviews all EITC tax returns filed to identify returns with errors or misinformation. There are a variety of statistical information that they can use to detect fraud in tax returns. For example, the IRS uses both internal information and information from external sources such as other government agencies. Information from other welfare organizations can be cross-referenced to ensure that the taxpayer is being truthful when claiming EITC benefits. The information on the tax return is matched with information already on file with the IRS from prior years as well. It will look suspicious if family circumstances change frequently.
IRS Holding EITC Payment From Taxpayer
If the IRS review shows questionable or incomplete information, the IRS holds the EITC portion of the taxpayer’s refund from them. Next, the IRS usually contacts the taxpayer to verify the information. If all the information is found to be truthful and accurate, the IRS will release the information EITC check to the taxpayer through a bank deposit or check.
Checking for EITC Fraud
The EITC also uses a screening process to detect fraud based on historical information to select random returns for audit examination. At this time, IRS identifies errors and examines returns both pre and post refund. However, IRS does not have the resources to examine all of the questionable EITC returns. Even though the risk is small, there is a growing number of tax returns audited from EITC fraud and taxpayers await possible criminal charges.