Earned Income Credit:

Noncompliance Relative to Other Components of the Income Tax Gap

GGD-97-120R: Published: Jun 13, 1997. Publicly Released: Jun 13, 1997.

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GAO compared noncompliance and associated Internal Revenue Service (IRS) enforcement issues for Earned Income Credit (EIC) claimants and other taxpayer groups, such as the self-employed.

GAO noted that: (1) IRS estimated that 25.8 percent of EIC, or $4.4 billion, was overclaimed in tax year 1994; (2) this is a relatively high error rate, but the gross dollar amount is lower than that of some other taxpayer groups; (3) for example, underreporting of income by self-employed individuals accounted for nearly $30 billion of the estimated $128 billion in taxes owed but not voluntarily paid for tax year 1992; (4) in general, the simpler the tax rules and the more visible tax information is to the IRS, the higher the compliance; (5) consistent with this, the overclaim rate among EIC recipients is relatively high, in large part, because taxpayers determine their own eligibility; and (6) similarly, noncompliance among the self-employed is relatively high because their business income is neither subject to withholding nor generally covered by information reporting.

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