Audit: IRS paid $6B in bogus child tax credits in 2013

Washington • The IRS paid at least $6 billion in child tax credits in 2013 to people who weren't eligible to receive them, a government investigator said Tuesday.

Payments went to families that mistakenly claimed the tax credit or claimed the wrong amount, as well as taxpayers who committed fraud, according to an audit by J. Russell George, the Treasury inspector general for tax administration.

The audit highlights problems with a tax credit that President Barack Obama has championed as a way to help low-income working families.

Obama's 2009 economic stimulus package temporarily expanded the credit to more families that don't make enough money to pay federal income tax. These families receive the $1,000-per-child credit in the form of a tax refund. The report released Tuesday focused on payments to these families.

The expanded tax credit expires at the end of 2017. For years the IRS has said the risk is low for improper payments related to the child tax credit. But the report says that assessment is incorrect.

In a statement, the IRS said it "continues to aggressively explore new ways to detect and stop potentially fraudulent claims while maximizing the use of limited compliance resources."

But the agency said budget cuts are hurting compliance efforts.

"Since 2010, the IRS budget has been reduced by $850 million and we have 13,000 fewer employees," the agency statement said.

Earlier this year, the IRS said fewer agents are auditing tax returns than at any time since at least the 1980s.

More than 36 million families claimed about $57 billion in child tax credits in 2013, according to the nonpartisan Joint Committee on Taxation.

The inspector general's report estimates that taxpayers improperly claimed between $5.9 billion and $7.1 billion in child tax credits that year. The report, however, does distinguish between fraud and credits that were claimed by mistake.

Sen. Orrin Hatch of Utah criticized efforts to expand the tax credits without improving oversight.

"Working families deserve responsible tax relief, not a broken system that wastes hard-earned dollars due to bureaucratic incompetence," said Hatch, the top Republican on the Senate Finance Committee.