Report: IRS Paid Out $6 Billion in Bogus Child Tax Credits

According to a government investigator, the IRS paid out more than $6 billion in "bogus" tax credits to people who were not eligible to receive them. "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 tax credit originates from a 2009 economic stimulus package that temporarily expanded the credit to families who do not make enough money to pay taxes. These folks receive the tax credit in the form of a cash refund rather than as a credit.

The expanded tax credit program is set to expire at the end of 2017, but Democrats were trying to expand the program and cut a deal before they leave town for Christmas. Negotiations were unsuccessful to keep the program alive.

The report contradict the IRS' position that there is a relatively low risk for improperly paying out money for child tax credits. "It is imperative that the IRS take action to identify and address all of its programs that are at high risk for improper payments," George said in a statement.

The IRS responded that it "continues to aggressively explore new ways to detect and stop potentially fraudulent claims while maximizing the use of limited compliance resources."

Predictably, the IRS says budget cuts have interfered with their compliance efforts. "IRS funding limitations severely hamper our efforts on these and other compliance areas," the agency statement said. "Since 2010, the IRS budget has been reduced by $850 million and we have 13,000 fewer employees."

Earlier this year, the IRS said they have fewer agents auditing tax returns than any times since the 1980s. Perhaps their agents are busy snooping in the personal business of people associated with the tea party movement.

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.