Wednesday, Jan. 21, 2004 | 11:04 a.m.
The Internal Revenue Service gave low-income Nevada residents more than $238 million in Earned Income Tax Credits last year.
Nationally, that figure topped $36 billion, and the IRS is working to increase the number of participants this year. The first step in that effort is an attempt to increase awareness among Spanish-speaking tax filers, said David Williams, EITC director for the IRS.
"Our goal is to try to figure out if we can be more effective with a market we haven't had good success with in the past," he said.
Williams estimated that about 25 percent of the eligible American population is not taking advantage of the credit, losing out on as much as $3 billion a year.
Despite those numbers, Williams said the EITC remains "the single largest means-tested, low-income support program in the federal government today."
In the same year that Americans received $36 billion through the tax-credit program, the federal food stamps program -- the next-largest such assistance effort -- paid out a much smaller $21.3 billion.
To be eligible for the EITC, taxpayers must earn less than $33,692 if they have two or more children, $29,666 with one child or $11,230 with no children. The income limits are $1,000 higher if a married couple is filing a joint return.
The maximum credit is $4,204 for a family with two children, $2,547 with one child and $382 with no children. So instead of paying taxes, these low-income families can receive financial assistance with the credit.
The EITC was established in 1975 as a means to encourage people to work. With the credit, holders of low-paying jobs don't have to worry about paying taxes, so the tax issue won't discourage them from seeking work.
"It was designed to reward low-income workers," Williams said.
The problem, he added, is that calculating the credit can be difficult. Local tax preparers agree.
"It is," Gary Lein, president of Hilburn & Lein CPAs. "If you do it manually yourself, there are a lot of chances for mathematical errors."
With that, there is a concern that families who know they will not be paying taxes will not file, failing to recover the refundable credit.
"If they had the knowledge of how it works, they would take advantage of it," Lein said.
The money involved, however, has attracted fraud. Williams and Lein agreed that it most often happens among tax preparers who shift dependents from families with more than two children to families with no children, artificially inflating the credit.
"That's the most common fraud," Lein said, adding that unscrupulous preparers will often pay the client a small refund in advance and collect the larger refund check, reaping enormous profit.
Williams said that a 1999 study indicated that erroneous payments were made through the program in 27 percent to 32 percent of EITC qualifying returns. He said that number has been disputed, and rules changes have eliminated some of the pitfalls since 1999.
Still, Williams said that as the IRS moves to increase awareness in the program, it also is working to eliminate fraud.
"We know there's a significant error rate in this program," he said. "We have a burden to do two things, one is to educate taxpayers about the program ... The other is to aggressively go after fraudulent tax preparers."
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