SUMMARY

The Earned Income Tax Credit is a refundable credit designed to assist working families with children; especially those who are considered to be living at or close to the poverty level. Over the last decade billions of dollars have been lost due to the improper application and fraudulent claims of the Earned Income Tax Credit (EITC). Critics believe that the program no longer serves its intended function because of the cumulative increase in the amounts lost each year; the legislation needs a major overhaul. The IRS have claimed that over 60 percent of the overpayments of EITC is due to manipulation of self-employed income and expenses, unqualified dependents being claimed, and misuse of single and head of household filing status. Even though the penalties for fraud and the lack of exercising due diligence are severe, these crimes continue to occur. While the tax authorities and other legislative bodies explore ways to combat these fraudulent claims, CPAs and other tax-preparers can assist in the fight against these crimes. As the de facto gatekeepers of the tax revenues, they are encouraged to exercise intensive due diligence and professional skepticism when claiming EITC for their clients.