Without Expanded Error CORRECTION Authority, Billions of Dollars IN Identified Potentially
Erroneous Earned Income Credit Claims Will Continue to go Unaddressed Each Year

Final Report issued on April 27, 2016

Highlights of Reference Number:  2016-40-036 to the Internal Revenue Service Chief Financial Officer.


The Improper Payments Elimination and Recovery Act (IPERA) of 2010 and subsequent legislation strengthened agency reporting requirements and redefined “significant improper payments” in Federal programs.  The Office of Management and Budget has declared the Earned Income Tax Credit (EITC) Program a high-risk program that is subject to reporting in the Department of the Treasury (Treasury) Agency Financial Report.  The IRS estimates that 23.8 percent ($15.6 billion) of EITC payments were issued improperly in Fiscal Year 2015.


This audit was initiated because TIGTA is required to assess the IRS’s compliance with the reporting requirements contained in the IPERA; Executive Order 13520, Reducing Improper Payments and Eliminating Waste in Federal Programs; and the Improper Payment Elimination and Recovery Improvement Act of 2012.  The objective of this review was to determine whether the IRS complied with the annual improper payment reporting requirements for Fiscal Year 2015.


The IRS provided all required improper payment information to Treasury for inclusion in the Department of the Treasury Agency Financial Report Fiscal Year 2015 with the continued exception of not reporting an overall EITC improper payment rate of less than 10 percent.

The Consolidated Appropriations Act of 2016 provides the IRS with additional tools to reduce EITC improper payments.  However, it did not expand the IRS’s authority to systemically correct the erroneous claims it identifies.  Without this authority, the IRS continues to be unable to address the majority of potentially erroneous EITC claims it identifies.  The IRS can audit potentially erroneous EITC claims; however, the number of claims the IRS can audit is limited by resources.  As a result, billions of dollars in potentially erroneous EITC claims go unaddressed each year.

In addition, although the IRS completed risk assessments of the 22 program fund groups identified by the Treasury, the risk assessment process still does not provide a valid assessment of refundable credit improper payments.  The IRS continued to rate the risk of improper payments associated with the Additional Child Tax Credit and the American Opportunity Tax Credit in Fiscal Year 2015 as low. 

However, based on the IRS’s own enforcement data, TIGTA estimates that the potential Additional Child Tax Credit improper payment rate for Fiscal Year 2015 is 24.2 percent, with potential improper payments totaling $5.7 billion, and estimates that the potential American Opportunity Tax Credit improper payment rate for Fiscal Year 2015 is 30.7 percent, with potential improper payments totaling $1.8 billion.


TIGTA recommended that the IRS ensure that the revised Additional Child Tax Credit improper payment risk assessment process includes a quantitative assessment.  TIGTA also recommended that the IRS ensure that the results of the American Opportunity Tax Credit Improper Payment risk assessment accurately reflect the high risk associated with American Opportunity Tax Credit payments.  The IRS agreed with the recommendations.



To view the report, including the scope, methodology, and full IRS response, go to:


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