EITC Noncompliance: the Misreporting of Children and the Size of the EITC

A revised version of this paper appears as "EITC Noncompliance: The Determinants of the Misreporting of Children." National Tax Journal 53(4) (part 2): 1135-1164. For more information see www.ntanet.org. <p>Internal Revenue Service data indicate that $4.4 billion in excess EITC was claimed for tax year 1994, largely due to violations of the qualifying child eligibility criteria. I find that the probability of misreporting a child is increasing in the size of the EITC and tax benefit. The estimated effect of the EITC on compliance is statistically significant, but modest in size. Reducing the size and scope of the EITC could improve compliance somewhat, but it would also reduce benefits to compliant taxpayers. Efforts to reduce the frequency of unintentional errors and enhance the effectiveness of enforcement activities might bring about greater improvements in EITC error rates, at a lower cost to compliant taxpayers.