Earned Income Credit: Targeting to the Working Poor

GAO discussed the Earned Income Credit (EIC), a major federal effort to assist the working poor. GAO noted that: (1) noncompliance, in the form of negligence, mistakes, confusion, and fraud, has been and continues to be a problem for EIC; (2) the Internal Revenue Service (IRS) estimates that about 34 percent of total EIC awarded in 1988 was erroneous; (3) IRS has expanded its efforts to ensure EIC compliance by verifying social security numbers, delaying refunds to give IRS staff time to identify problems, and verifying claimants' eligibility before processing refunds; (4) although EIC is intended to assist the working poor, IRS does not consider all of the resources recipients may have to support themselves and their families; (5) EIC eligibility determination approaches that could generate significant revenue savings include testing for claimants' wealth and expanding taxpayers' adjusted gross income; and (6) although currently illegal immigrants may receive EIC if they meet eligibility criteria, legislation is under consideration to deny EIC to illegal immigrants who are barred from lawful employment in the United States.