IRS Taking Action Against Fraud Potential in EIC & AOC

The IRS has been working with the Treasury Inspector General for Tax Administration (TIGTA) to make improvements to the tax system in 2019. The plan is that working together they will be able to find ways to prevent erroneous payments to taxpayers who incorrectly or fraudulently claim refundable credits that they are not entitled to. Some of the refundable tax credits, such as the American Opportunity Credit (AOC) for education and the Earned Income Credit for low income earners, require little to no verification. Without systems in place to prove the claim, the return gets accepted with the credit and the IRS pays out. TIGTA has recommended that controls such as claim indicators be added to the system. For example, the AOC is only available for the first four post-secondary years of education, however, a taxpayer can claim it every year and receive those funds without verification. This indicator would cause a red flag and let the IRS know that this person is not entitled to such a credit.  Earned Income Credit will also receive such controls to prevent taxpayers who have been banned from getting the credit again. This will save all taxpayers money through a reduction in audits and fewer erroneous payments going out.  It is estimated that $2.3 billion in erroneous refundable tax credits during tax years 2006 through 2009 went out and of that total, only 1.3 billion has been recovered.