WASHINGTON – The Internal Revenue Service (search) plans to ask thousands of low-income earners to submit proof this year that they qualify for a tax credit designed to lift working people out of poverty.
A group of Senate Democrats say they will not confirm President Bush's nominee for IRS commissioner until they have assurances the new certification requirements will not be too burdensome.
Pamela Olson, assistant treasury secretary for tax policy, said that asking some recipients to certify their eligibility early should make it easier and faster for those people to get their refunds.
"If it is unduly burdensome, we will have failed," she said, adding that they will redesign the program if that proves true.
Sen. Edward Kennedy, D-Mass., (search) may propose an amendment to this year's tax cut legislation that would keep the burdens on low-income taxpayers applying for the credit the same as those placed on the average taxpayer.
The earned income tax credit, launched in 1975, returns some of the payroll taxes paid by the working poor to encourage them to continue working instead of applying for welfare.
The Treasury Department (search) convened a task force last year to study ways to reduce fraud, which leads to billions in erroneous payments each year.
The task force determined that much of the fraud can be traced to someone other than a married couple or a single mother -- such as a single father, a grandparent or other relative -- who claims that they cared for a child for more than six months in order to qualify for the credit. Nearly all the program's benefits go to low-income working taxpayers with children.
The IRS will ask 45,000 people in this high-risk category to submit proof later this year that they are related to the child and that the child lived with them for more than half the year. A preliminary list of documents that can be used as proof include marriage certificates, medical or school records, or an affidavit from an employer, landlord, school official, child care provider, cleric or other local official.
Critics say it can be extremely difficult to obtain public records or to find someone willing to submit a legal statement to the IRS to meet this burden of proof.
"They've designed it in a way that significant numbers of honest, eligible people will not be able to supply information required," said Robert Greenstein, executive director of the Center on Budget and Policy Priorities.
The Treasury Department continues to work on the forms and instructions. Olson said the program has the potential to reduce fraud without putting everyone in the high-risk group through an audit.
"Audits are expensive, inefficient and cause a great deal of anxiety for the taxpayer who has to go through them," she said.
A group of Senate Democrats want Mark Everson, Bush's nominee to head the IRS, to send them a letter promising the new requirements will not be so burdensome that they deter eligible taxpayers from applying.
"We fully expect he will be confirmed," said Ranit Schmelzer, spokeswoman for Senate Minority Leader Tom Daschle, D-S.D. (search) "The letter is a necessary item."
At least 80 percent of the 19 million people who claim the credit fall do not fall into the high-risk category and will not be asked to submit additional paperwork to qualify.
The IRS had hoped to launch the program this summer, but it will be delayed. The agency expects to apply the new certification requirements to as many as 2 million taxpayers for the 2005 filing season.
The earned income tax credit gives back about $32 billion a year to the working poor.
The only statistics available on fraud are from 1999 tax returns. The Treasury Department determined that $8.5 billion to $10 billion in payments were made erroneously that year. No study has been done to see whether the fraud rate declined after Congress and the Treasury acted to reduce fraudulent claims.
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