Proof needed now on tax credit
By Kathy M. Kristof
Los Angeles Times
Got kids? If you're using them to claim a tax break targeted at the working poor, the Internal Revenue Service soon might ask you to prove it.
• The IRS pledged yesterday to cut the EITC audit backlog and work on outreach and communication efforts so that low-income taxpayers who get audited aren't "completely stupefied" over how to respond to IRS notices. The details of that effort are also under consideration. In the meantime, the agency has opened the issue to public comment. • Interested parties can submit comments electronically to notice.comments@irscounsel.treas.gov or in writing to P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
In the first step of a widely anticipated crackdown on errors and cheating involving the earned income tax credit, the IRS said yesterday that it will ask 45,000 low-income taxpayers — mainly single dads and nonparental caregivers — to "pre-certify" that the children they intend to claim on their tax forms next year lived with them for at least six months of 2003.
IRS seeks comment
This residency test is required to claim the earned income tax credit, which can provide thousands of dollars in tax refunds to poor, working families. This residency test is not required to simply claim a child as a dependent.
Taxpayers tapped by the tax-credit pilot program will be expected to provide school or childcare records, as well as affadavits from doctors, ministers, landlords or property managers.
They'll also be required to complete a new tax form — Form 8836 — to "pre-certify" the child's residency before the child is used to claim the tax credit on 2003 returns.
The IRS is encouraging everyone who receives the forms to fill them out before January. If they do, tax-credit refunds will be prompt, the agency promised. But if contacted taxpayers wait to file the form and ancillary documents with their tax returns, the tax-credit portion of their refund will be delayed "until the residency documentation is processed." The agency did not say how long that might take.
"The whole reason that we want to go to pre-certification is that, if this works, we will be able to make the audit rate in the EITC program drop dramatically," said John Dalrymple, IRS deputy commissioner for operations support.
Currently, EITC accounts for nearly half of the individual taxpayers who are audited. About 7 percent of these audits take more than a year, during which time the EITC claims are frozen, the agency said.
The audit rate is high because Congress ordered the IRS to scrutinize the program, which is believed responsible for roughly $8 billion to $10 billion in unwarranted refunds, agency officials added.
Next year, the agency expects to launch a second pre-certification program, which will require individuals who are believed to be understating income or misrepresenting their marital status to claim the EITC to also prove their claims. The IRS hasn't worked out details of how this will be done.
