The IRS Audits EITC Recipients More Than All But The Richest Americans

Courtesy of Greater Berks Food Bank

Low-income individuals claiming the earned income tax credit are much more likely to face IRS audits than the wealthy.

Last year, Natassia Smick, 28, filed her family's taxes like she did every year. She already had plans for the tax refund that she and her husband expected to get: she would spend most of it on her credit card debt and save the rest of it for the second child that she and her husband were expecting, ProPublica reports.

Smick, a part-time student, and her husband, a chef, earned around $33,000 together in 2017, and that meant that they expected to get $2,000 from the earned income tax credit back from the government. The EITC is one of the largest anti-poverty programs in America, with 25 million households claiming the EITC in 2018.

But instead of the refund, she received an IRS letter saying that the government organization was "conducting a thorough review" of her tax return. Four months later, the IRS told her to give "supporting documentation" for almost everything—proof of her and her husband's income, proof that her child was hers, and more. And after that, they asked her to wait an additional six months, but that would be too late, she said.

The credit card company was pestering her for payment, and she didn't know what to do. “We have nothing,” she said, “and it’s just frustrating knowing that we have nothing.”

She told the IRS her problem, but she recalled them telling her there was nothing they could do either. They were "extremely short staffed," the IRS representative said.

Over the past eight years, the size of the IRS staff has shrunk by 33 percent. And while fewer audits are being performed each year, they affect the rich and poor disproportionately.

Wealthy taxpayers have had their audit rates dropped by a whopping 50 percent, and the ones that do get performed tend to be less thorough. But for people receiving the EITC, audit rates have seen less of a decline, and the audits that do get performed are much more punishing. A 2015 law made EITC recipients much more likely to have their refund delayed, a potentially devastating predicament for people living paycheck-to-paycheck.

“Those struggling to make ends meet are being unfairly audited while the fortunate few dodge taxes without consequence,” said Oregon Senator Ron Wyden. “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.”

Read the full story here.