"The IRS can and must do more to protect taxpayer dollars from waste, fraud and abuse," said J. Russell George, the Treasury inspector general for tax administration.
The IRS said it is aggressively fighting tax fraud, and is improving its efforts to police EITC payments. The agency said it has stopped nearly 15 million suspicious returns since 2011, blocking more than $50 billion in fraudulent refunds.
"The IRS remains deeply concerned about the level of improper payments, and a major review currently underway is exploring a wide range of options to distinguish valid claims from excessive ones," the IRS statement said.
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The Earned Income Tax Credit is one of the nation's largest anti-poverty programs. In 2011, more than 27 million families received nearly $62 billion in credits.
The credit is attractive because, if it is larger than your total income tax bill, the IRS will pay you the difference. This is especially helpful to low-income families because many pay little or no federal income tax.
But it also makes the credit more susceptible to fraud.