Addressing Noncompliance with Advance Earned Income Tax Credit
In a review of the use of the Advance Earned Income Tax Credit (AEITC), GAO found low use of the advance credit and high levels of noncompliance, with noncompliant taxpayers receiving tens of millions of credit. Accordingly, GAO recommended that the Commissioner of Internal Revenue
- analyze whether any of the following options could cost-effectively and significantly reduce AEITC noncompliance: (1) sending soft notices to potentially noncompliant AEITC recipients, (2) requiring employers to verify the Social Security number of employees seeking AEITC, (3) requiring employers to submit Form W-5 to the Internal Revenue Service (IRS), and creating and maintaining an IRS database for these forms.
To better identify the costs and implementation issues, as well as the likelihood for these or other options to reduce AEITC noncompliance, GAO also recommended that, where practical, the Commissioner of Internal Revenue should
- test these options to make a more fully informed judgment about whether any would be worthwhile.
If the Commissioner determines that none of these options would be cost-effective and no other remedies are viable, GAO recommends that the Secretary of the Department of the Treasury should
- inform Congress that the AEITC noncompliance could not be cost-effectively reduced and provide an opinion about whether the AEITC should be retained.
IRS agreed with GAO's recommendations and outlined steps to implement them.
^ Back to topKey Reports
- Advance Earned Income Tax Credit: Low Use and Small Dollars Paid Impede IRS's Efforts to Reduce High Noncompliance
- GAO-07-1110, August 10, 2007
- Summary (HTML) Highlights Page (PDF) Full Report (PDF, 104 pages) Accessible Text Recommendations (HTML)
