A fraud crackdown by the Internal Revenue Service has held up tens of thousands of tax refunds averaging $1,200 apiece to low-income working families, and the tax-preparation industry fears millions of people could be affected in the coming weeks.
“You just can’t have this many poor people depending on this money and have it not be there - it’s like saying we’re not going to pay welfare this month,” said Harry Buckley, president of H&R; Block Tax Services Inc.
The problem involves the earned income tax credit (EITC), a cornerstone of President Clinton’s effort to “make work pay” for low-income families.
The EITC is not welfare but a government payment to the working poor, administered through the income tax system.
Working people with children can get EITC money even if they don’t make enough to pay income taxes. This tax season, the maximum credit for a family with two or more children is $2,528. Families with one child can get up to $2,038. Childless workers with very low incomes can qualify for up to $306.
In 1993, 224,145 people claimed $215 million in EITC money in Washington state, and 64,264 people claimed $65 million in Idaho.
People count on their EITC check to help pay bills or provide a little breathing room in tight budgets.
The EITC, which helped more than 15 million families last year, also has a history of overpayments and outright fraud. At congressional hearings last year, IRS and Treasury officials warned that a crackdown was coming. Tax industry officials say they were prepared for some delays, but the level has gone beyond their expectations.
Angry customers are bombarding H&R; Block with complaints. Beneficial National Bank, which makes refund-anticipation loans to EITC recipients, has received over one million calls from concerned customers, said Beneficial lobbyist Gary Perkinson.
“These are real taxpayers, and they are getting harmed,” said Perkinson. “The industry is also getting harmed, because they are losing millions of customers.” The EITC is an estimated $350 million-a-year line of business for the tax-preparation industry.
Beneficial Management Corp. Vice President Ross Longfield said about one-third of the EITC claims handled by his company at this early stage of the tax season had been delayed for further checking by the IRS, affecting 60,000 families.
Among them is Linda Hillock of Waterford, Mich., a 51-year-old woman striving to raise her 7-year-old granddaughter. Hillock held two jobs last year and is now unemployed and in debt. She was counting on an $1,800 EITC payment to cover rent and other bills.
But she found out last weekend her EITC has been held up. She said she had no idea why, because she received the credit last year. “I just don’t understand it at all,” she said.
“It could affect millions of people eventually,” said Longfield. “It appears that what they’re doing is a wholesale withholding of refunds.”
Longfield said the IRS had told some tax filers they could face an eight- to 12-week wait for their EITC claims to be resolved.
Most of the disputed claims involve computerized tax returns. In past years, taxpayers filing electronically only had to wait two or three weeks for their money. The wait could be cut to two or three days by getting a refund-anticipation loan from a company like Beneficial.
IRS spokesman Anthony Burke said he had no information on delays involving the EITC. He said the IRS warned tax preparers it would be checking EITC claims more carefully this year for incomplete or inaccurate information.Begun in 1975, EITC is popular with liberals and conservatives alike and has been greatly expanded under Clinton. The program is expected to cost the government $19.6 billion for the 1994 tax year.
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