E-file, tax credits hot topics at IRS forum

Kevin Rademacher

Thursday, Sept. 16, 2004 | 10:39 a.m.

The Internal Revenue Service wants taxpayers to get all of the money that is coming to them as quick as possible.

At a gathering of 5,300 tax preparers in Las Vegas this week, IRS officials were eager to explain the ins and outs of claiming the Earned Income Tax Credit (EITC) and the E-file system.

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.

Nationally, 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.

The Internet-based E-file system now allows taxpayers to get refunds faster than with paper returns. About 60 million of the 130 million annual returns are submitted through E-file. Congress, however, has set a mandate of 80 percent of returns filed electronically by 2007.

Not all the news at the Las Vegas Tax Forum was pleasant. IRS officials also warned preparers to expect more audits.

Following a series of embarrassing congressional hearings in the late 1990s into abusive IRS enforcement tactics, the budget for pursuing fraud was gutted in favor of feel-good educational efforts.

New IRS Commissioner Mark W. Everson is changing things. For the first time since 1998, the commission has stepped up its enforcement budget. Specifically, Everson has allocated $300 million, the majority of the IRS' $490 million annual budget increase, for enforcement initiatives in its fiscal 2005 budget.

The goal of the enforcement efforts -- as laid out to the tax preparers this week -- are identifying and stopping abusive tax shelters, improving methods for identifying fraud, cracking down on illegal tax schemes and abusive tax preparers, and increasing the number and effectiveness of audits.

One such scheme involved the EITC that the IRS was touting. While officials want it used by eligible taxpayers, the credit also has become a frequent target of unscrupulous tax preparers who shift dependents from families with more than two children to those without children, artificially inflating the credit and taking a percentage of the ill-gotten gains.

Getting that message out to tax preparers gives the IRS the most bang for the buck, officials said.

The Las Vegas Tax Forum was the final -- and largest -- stop in a summer series of six conventions held across the country. Total attendance this year was expected to be about 17,000, said Beanna Whitlock, director of the National Public Liaison division of the IRS.

"Those 17,000 tax preparers reach 8 million tax returns," she said. The IRS processes about 130 million tax returns each year. "From an outreach point of view, the more knowledge that is provided is the more compliant the returns will be."

Tax preparers generally gave the forum high marks for setting highlighting areas of interest.

"Basically we come here to see how the other side thinks," said David Tidball, a tax preparer from White House, Tenn. "The content is helpful. The sessions I have made it to already have been better than last year's (forum)."

He added that more stringent enforcement is easier to accept when the IRS is providing direction on problem topics.

"It makes sense," he said, adding that fraud will continue to fester as long as the nation's tax code remains so complex.

Whitlock said Tidball's observations fit with the IRS commissioner's perspective that tax compliance comes from a combination of enforcement and education. She said if the new enforcement effort works it will close a so-called tax gap of about $300 billion. That's the amount of tax improperly dodged by American taxpayers.

She said that loss is ultimately made up by increased levies against the rest of the U.S. taxpayers.

"Moving the agency forward in enforcement sends a message," Whitlock said. "It goes out to taxpayers and such that are not paying and it validates those that are paying."

Taxpayers who are following the rules are easily discouraged by the knowledge that other are manipulating the system.

"It's the stories told around the Thanksgiving Day table, when you have the uncle that hasn't paid taxes in seven years that cause problems," Whitlock said. "If you are going to keep people compliant, there must be enforcement."