EARN Act

Summary: Earnings Advancement and Recovery Now Act or the EARN Act - Amends the Internal Revenue Code to: (1) increase the penalty on paid tax preparers who engage in willful or reckless conduct in understating tax liability or in disregarding tax rules or regulations, (2) extend from two to five years the period during which a taxpayer who claimed an earned income tax credit based on reckless or intentional disregard of rules and regulations is prohibited from receiving such credit, and (3) make applicable to the earned income tax credit the penalty for an erroneous claim for a tax refund or credit. Directs the Comptroller General (GAO) to conduct a study of, and report on, the effectiveness and impact of the earned income tax credit and the incidence and cause of improper payments with respect to such credit, with recommendations to improve the efficiency and effectiveness of the credit and reduce improper payments.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Earnings Advancement and Recovery 
Now Act'' or the ``EARN Act''.

SEC. 2. DEDICATION OF EITC COMPLIANCE SAVINGS TO EXPANDING THE EITC.

    (a) Findings.--The Congress finds the following:
            (1) The March 2014 report of the Treasury Inspector General 
        for Tax Administration on the Internal Revenue Service's 
        compliance with the Improper Payments Elimination and Recovery 
        Act of 2010 highlights significant improper payments related to 
        the earned income tax credit under section 32 of the Internal 
        Revenue Code of 1986.
            (2) The Improper Payments Elimination and Recovery Act of 
        2010 defines an improper payment as ``any payment that should 
        not have been made or that was made in an incorrect amount . . 
        . under statutory, contractual, administrative, or other 
        legally applicable requirements''.
            (3) The Internal Revenue Service estimates that 22 percent 
        to 26 percent of earned income tax credit payments were issued 
        improperly in fiscal year 2013, with the dollar value of these 
        improper payments estimated to be between $13.3 billion and 
        $15.6 billion.
            (4) The Treasury Inspector General for Tax Administration 
        has concluded that the Internal Revenue Service has made little 
        improvement in reducing improper earned income tax credit 
        payments since being required to report estimates of these 
        payments to Congress, and as a result, the earned income tax 
        credit program remains at high risk for improper payments.
            (5) The Joint Committee on Taxation estimates that for tax 
        year 2014 there will be 28.5 million filers that will receive 
        the earned income tax credit.
            (6) Billions of dollars of improper payments will continue 
        to made unless reforms and improvements take place with respect 
        to the earned income tax credit and its administration by the 
        Internal Revenue Service.
    (b) Sense of Congress.--Any budgetary savings resulting from the 
reforms and improvements enacted by this Act with respect to the earned 
income tax credit should be dedicated to expanding the credit for 
working families eligible for the earned income tax credit.

SEC. 3. INCREASE THE PENALTY APPLICABLE TO PAID TAX PREPARERS WHO 
              ENGAGE IN WILLFUL OR RECKLESS CONDUCT.

    (a) In General.--Section 6694(b)(1)(B) of the Internal Revenue Code 
of 1986 is amended by striking ``50 percent'' and inserting ``75 
percent''.
    (b) Effective Date.--The amendment made by this section shall apply 
to returns prepared for taxable years ending after the date of the 
enactment of this Act.

SEC. 4. EXPANSION OF DISALLOWANCE PERIOD FOR TAXPAYERS WHO IMPROPERLY 
              CLAIM EITC BASED ON RECKLESS OR INTENTIONAL DISREGARD OF 
              THE RULES.

    (a) In General.--Section 32(k)(1)(B)(ii) of the Internal Revenue 
Code of 1986 is amended by striking ``2 taxable years'' and inserting 
``5 taxable years''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2013.

SEC. 5. EXPANSION OF MATH-ERROR AUTHORITY TO COVER EITC CLAIMS DURING 
              PERIOD WHEN TAXPAYER IS BARRED FROM CLAIMING THE CREDIT.

    (a) In General.--Section 6213(g)(2)(K) of the Internal Revenue Code 
of 1986 is amended by striking ``section 32(k)(2)'' and inserting 
``section 32(k)''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years ending after the date of the enactment of this Act.

SEC. 6. PENALTY FOR ERRONEOUS CLAIM OF CREDIT MADE APPLICABLE TO EARNED 
              INCOME CREDIT.

    (a) In General.--Section 6676(a) of the Internal Revenue Code of 
1986 is amended by striking ``(other than a claim for a refund or 
credit relating to the earned income credit under section 32)''.
    (b) Effective Date.--The amendment made by this section shall apply 
to claims filed after the date of the enactment of this Act.

SEC. 7. STUDY ON EARNED INCOME CREDIT AND IMPROPER PAYMENTS.

    (a) In General.--The Comptroller General of the United States shall 
conduct a study on--
            (1) the effectiveness and impact of the earned income tax 
        credit under section 32 of the Internal Revenue Code of 1986, 
        and
            (2) the incidence and cause of improper payments made by 
        the Internal Revenue Service with respect to the credit.
    (b) Recommendations.--The study required under subsection (a) shall 
include recommendations to--
            (1) improve the efficiency and effectiveness of the earned 
        income tax credit, and
            (2) reduce the improper payments made by the Internal 
        Revenue Service with respect to the credit.
    (c) Report.--Not later than 6 months after the date of the 
enactment of this Act, the Comptroller General shall submit to the 
Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate a report with the results of the 
study conducted under subsection (a) and recommendations required under 
subsection (b).