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In Response to IG Report, Subcommittee Chairs Call on SSA to Work with the IRS to Stop EITC Fraud

February 06, 2015

WASHINGTON — Today, Human Resources Subcommittee Chairman Charles Boustany (R-LA), Social Security Subcommittee Chairman Sam Johnson (R-TX), and Oversight Subcommittee Chairman Peter Roskam (R-IL) called on the Social Security Administration (SSA) to protect the American taxpayer and take commonsense steps to end fraud involving important benefits. A recent report by the Social Security Inspector General (IG) showed the agency failed to report suspicious self-employment income to the Internal Revenue Service (IRS), permitting tens of thousands of individuals to illegally retain Earned Income Tax Credit (EITC) payments they did not deserve.

The Earned Income Tax Credit is an important tool to help people move from welfare to work, and it must be protected from fraud.

Chairmen Boustany, Johnson, and Roskam called on the SSA to take corrective action immediately and work with the IRS to eliminate this scheme, which just landed on the IRS’s “dirty dozen” list of tax scams. The SSA and the IRS need to develop the electronic reporting system that the SSA claimed it was developing seven years ago when the IG initially reported the possibility of fraudulent self-employment income earnings.

This call comes after the Secretary of the Treasury acknowledged the significant amount of fraud in the EITC program, stating in testimony before the Ways and Means Committee on February 3, 2015, “compliance needs to be improved.”
The IG found that when the SSA asked individuals about their earnings—which could make them ineligible for payments under the Supplemental Security Income program—thousands of individuals disclaimed those earnings. Over the course of four years, the IG found that nearly 50,000 individuals reported—but later disclaimed—$742 million in self-employment earnings on their tax returns that had previously made them eligible for the EITC or other payments. In over half of these cases, involving $399 million in self-employment earnings, SSA failed to report the disclaimed earnings to the IRS, effectively preventing the IRS from investigating or recovering EITC mispayments averaging $4,053.

In response, Chairman Boustany made the following statement: 

“In an era of innovation, it is unacceptable that our federal welfare system allows applicants to claim earnings when applying for one government benefit while denying those same earnings to apply for another. Government agencies like the Social Security Administration must be held to a higher technological standard to put a stop to the millions of taxpayer dollars that are wasted on this practice each year.”

Chairman Johnson added:

“Social Security was warned by the Inspector General as far back as 2007 that individuals were defrauding the system by lying about their income. This latest report is yet further proof of Social Security’s lack of commitment to preventing fraud. It is long past time for Social Security to ensure that hard-working American taxpayers’ dollars are protected. Failing to act is simply not an option.”  

And Chairman Roskam stated:

“The Earned Income Tax Credit has helped lift millions of families and children out of poverty, while the Supplemental Security Income program provides critical income support and a linkage to essential health care coverage for individuals with disabilities. The federal government cannot turn a blind eye to rampant fraud and abuse that costs these programs hundreds of millions of dollars annually. We will not let another year pass with no action from the Executive Branch to implement common-sense reforms to stop fraudsters from gaming these two programs off of one another in order to receive taxpayer funded benefits they are not entitled to. We know data sharing between these two programs can put an end to these deceptive practices and ensure greater integrity and financial stability for both programs—protecting both taxpayers and beneficiaries at the same time. This Administration must do better to end false and conflicting income reporting.”

This is not the first time the IG directed the agency to report potentially falsified earnings to the IRS. In 2007, Inspector General Pat O’Carroll alerted SSA to the issue of fabricated self-employment income submitted on tax returns and to the SSA. The IG urged the two agencies to install an electronic reporting process enabling SSA to forward questionable self-employment income to the IRS for investigation.

But eight years later, SSA has no electronic system and has failed to report half of the suspicious earnings.  

The Treasury Inspector General for Tax Administration has estimated that erroneous EITC claims have cost American taxpayers as much as $132 billion over ten years, with an error rate of roughly 25 percent.