Academic journal article Journal of Accountancy

CPAs Recommend Simplifying Earned Income Tax Credit

Academic journal article Journal of Accountancy

CPAs Recommend Simplifying Earned Income Tax Credit

Article excerpt

The Republican majority has stepped up pressure to find ways to revamp the tax system, cut social spending and reduce government, and CPAs are making contributions to the debate. At a Senate Governmental Affairs Committee hearing in April, scrutiny focused on the earned income tax credit (EITC)--A tax credit enacted in 1975 to offset the impact of Social Security taxes on low-income workers and encourage low-income individuals to seek employment rather than welfare.

According to the Internal Revenue Service, the EITC rule affects 15 million individual taxpayers. IRS commissioner Margaret Milner Richardson told the committee that an IRS study of 1000 returns with the EITC filed electronically through january 28, 1994, showed that 35% to 45% of the returns contained errors. Fifty percent of those errors are suspected to be intentional. Richardson said that compliance initiatives for the 1995 filing season, including electronic Social Security number verification, should result in better EITC compliance.

But Deborah Walker, chair of the American Institute of CPAs tax executive committee, told the Senate committee that poor EITC compliance was the result of complicated eligibility tests and "a maze of worksheets." She said EITC rules had been changed 10 times since 1976 and that the frequent changes contributed greatly to the EITC's high error and noncompliance rates. "We strongly urge the committee and Congress to rewrite the EITC rules to be understandable and usable by the taxpayers that this provision is intended to benefit--low income wage earners," Walker said. Some of Walker's recommendations to rewrite the EITC rules include

* Simplifying the definitions and calculations. …

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