I.R.S. Limited Tax Refunds of Poor, Congress Is Told – New York Times
I.R.S. Limited Tax Refunds of Poor, Congress Is Told
By DAVID CAY JOHNSTON
Published: January 10, 2006
Tax refunds sought by hundreds of thousands of poor Americans have been frozen and their returns labeled fraudulent, blocking refunds for years to come, the Internal Revenue Service’s taxpayer advocate told Congress today.
The taxpayers, whose average income was $13,000, were not told that they were suspected of fraud, the advocate said in her annual report to Congress. The advocate, Nina Olson, said her staff sampled suspected returns and found that, at most, one in five was questionable.
A computer program selected the returns as part of the questionable refund program run by the criminal investigation division of the Internal Revenue Service. In some cases, the criminal division ordered that taxpayers be given no hint that they were suspected of fraud, the report said.
Most of the poor people whose returns the computer flagged as fraudulent were seeking the earned income tax credit, a benefit for the working poor. The credit can return all of the income taxes and Social Security taxes withheld from the paychecks of poor people. Without the credit, many poor people coming off welfare and going to work would receive less money because of taxes taken out of their paychecks and the loss of health benefits, I.R.S. data and other government documents show.
The average refund sought was $3,500, which under the rules for obtaining the credit means that the vast majority of those suspected of fraud were single parents or married couples with children. The maximum benefit for singles is less than $400.