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Why the EITC may increase your chances of an IRS audit

If you are one of the many Missouri families who live a simple life on a small income, you may look forward to your income tax refund to catch up on bills, replace a failing appliance or splurge on something fun for the family. Part of what makes that refund possible is the Earned Income Tax Credit, a tax benefit that offers a refundable credit to low-income earners.

However, the very tax credit that makes you and about 28 million other households anticipate your refund is also the factor that may place your tax return in the crosshairs of IRS auditors. In fact, about 36 percent of audits last year involved taxpayers claiming the EITC.

Why was my tax return flagged?

The IRS has suffered from budget cuts over the past few years, and this has resulted in fewer overall audits. Nevertheless, audits of the tax returns of those receiving the EITC benefit have not declined while cases involving wealthy taxpayers have dropped by half. Because the staff of IRS auditors is one-third its normal size, if IRS computers flag your tax return for an audit, it may take more than a year before you get your refund.

While the EITC does wonders to boost families out of poverty, some reasons why you may be a target of an audit include these:

  • Claiming the credit requires no application like other government programs, making it ripe for fraud.
  • The rules for qualifying for EITC are complicated, and many wrongfully claim the credit because they do not understand the 41 pages explaining eligibility.
  • Over $17 billion of the $74 billion paid for EITC goes to those who do not qualify, either through fraud or error.
  • A 2015 law requires the IRS to delay refunds of those seeking the EITC to allow agents time to check for errors.

The government decided it is easier to suspend refunds than try to recoup the money if an audit shows you received the EITC improperly. You may continue to struggle while waiting for your refund. However, if the IRS refuses to issue your refund due to legitimate credits you claimed, you may still have recourse. You would be wise to seek an evaluation of your case to determine if your tax returns were properly prepared and your refund unfairly withheld. A skilled and highly experienced tax attorney can assist you.

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