EITC Recipients Are More Likely to be Audited Than Wealthier Taxpayers

By Devin Simpson

Households who claim the Earned Income Tax Credit (EITC) are more likely to be audited and have their tax refunds withheld by the IRS than higher-income households, according to a recent ProPublica piece.

Federal cuts to the IRS’ budget have led to a decrease in audits across all tax brackets. However, the audit rate has not fallen as quickly for low-income taxpayers. IRS data found that EITC recipients account for 36 percent of all IRS audits conducted in 2017. The IRS’ shrinking enforcement staff has made the audit process longer, increasing its damaging impact on EITC recipients who depend on receiving their credit at tax time to meet financial obligations.  

The IRS has targeted EITC recipients due to mounting pressure from conservative lawmakers to reduce the credit’s error rate. However, the IRS and taxpayer advocate groups attribute most improper EITC payments to the credit’s complex eligibility requirements and unintentional mistakes made by tax preparers, not deliberate tax fraud. Advocates have also pointed out that, according to IRS studies, the credit’s improper payments are not the largest source of lost revenue for the IRS.  

Taxpayer advocates argue that the IRS should instead focus its resources on addressing tax fraud committed by wealthy taxpayers and business owners, which costs the U.S. hundreds of billions of dollars in revenue each year. To better address improper EITC payments, lawmakers could consider expanding access to Volunteer Income Tax Assistance (VITA), a program that offers free tax preparation to low-wage workers and has a 93% rate of accuracy, according to Prosperity Now.

U.S. Senator Ron Wyden (D-Ore.), ranking member of the Senate Finance Committee, told ProPublica, “Those struggling to make ends meet are being unfairly audited while the fortunate few dodge taxes without consequence. The IRS needs more manpower to go after tax cheats of all sizes, and working Americans need a simpler way of obtaining a tax credit they’ve earned.”