United States Government Accountability Office

GAO Report to the Joint Committee on 

Taxation 

ADVANCE EARNED 

INCOME TAX CREDIT

Low Use and Small 

Dollars Paid Impede 

IRS’s Efforts to 

Reduce High 

Noncompliance 

August 2007 

 

GAO-07-1110 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

August 2007

ADVANCE EARNED INCOME TAX CREDIT

Low Use and Small Dollars Paid Impede 

IRS’s Efforts to Reduce High 

Noncompliance 

Highlights of GAO-07-1110, a report to the 

Chairman and Vice Chairman of the Joint 

Committee on Taxation 

The Advance Earned Income Tax

Credit (AEITC) allows individuals 

to receive a portion of the Earned 

Income Tax Credit (EITC) in their

paychecks, instead of receiving all 

of it when filing their year-end tax 

return. Limited research has been 

conducted on the AEITC since

GAO last examined it in the early

1990s. 

GAO was asked to determine 

(1) how many individuals received

the AEITC compared with the EITC 

in tax years 2002 through 2004, 

what actions, if any, have been 

taken to increase use, and the 

potential for increases in use in the 

future; (2) the extent of

noncompliance, if any, associated 

with the AEITC; and (3) how well 

the Internal Revenue Service’s 

(IRS) procedures address the areas 

of noncompliance. To address 

these questions, GAO analyzed

Forms W-2 and tax return data and 

interviewed IRS and Social Security 

Administration (SSA) officials. 

What GAO Recommends

GAO recommends that the Acting

Commissioner of Internal Revenue 

analyze options to reduce AEITC 

noncompliance such as 

implementing a “soft notice” test. 

If these options are deemed

ineffective, and no other options

are viable, the Treasury Secretary 

should provide an opinion to the 

Congress as to whether the AEITC 

should be retained. IRS agreed 

with our recommendation and 

outlined the actions IRS plans to 

take. 

AEITC use was low—only about 3 percent of EITC recipients potentially 

eligible for the advance received it in tax years 2002 through 2004, or about 

514,000 of the 17 million potentially eligible individuals each year. About half 

of all recipients received $100 or less in AEITC and 75 percent received $500

or less for the year, with a total benefit paid of about $146 million each year. 

Several efforts have been aimed at increasing use over the last 

approximately15 years, such as sending notices to individuals informing 

them that they were potentially eligible for the AEITC and making changes

to IRS forms. Despite these efforts, use did not substantially increase and, 

for several reasons, it may be difficult to increase it in the future. For 

example, IRS officials, other experts, and prior GAO work suggests that 

individuals often do not elect the AEITC because they prefer receiving the 

entire EITC as a lump sum after filing their tax return. 

As many as 80 percent of AEITC recipients did not comply with at least one 

of the program requirements GAO reviewed, and some were noncompliant 

with more than one during the 3 years we reviewed. In tax years 2002

through 2004, about 20 percent, or more than 100,000 AEITC recipients, may 

not have been eligible for the AEITC because they had an invalid Social 

Security number (SSN). These individuals received a total of $37 million to 

$39 million each year. Almost 40 percent (about 200,000 recipients) did not 

file the required tax return; these individuals received $42 million to $50 

million each year. Of the about 60 percent (more than 300,000) AEITC 

recipients who did file a return, about two-thirds misreported the amount 

received. 

AEITC Use, Dollars, and Compliance in Tax Years 2002-2004 

IRS’s procedures have limited effectiveness in addressing AEITC 

noncompliance. For example, Automated Underreporter (AUR) staff worked 

on only a fraction of AEITC cases because of resource constraints and 

criteria limiting case selection. IRS could address AEITC noncompliance by 

sending “soft notices” to recipients, requiring employers to verify employee

SSNs before providing the AEITC, or creating a Forms W-5, “EITC Advance 

Payment Certificate,” database. Each of these options have advantages, 

however, they also have potential disadvantages that could limit their 

effectiveness. 

www.gao.gov/cgi-bin/getrpt?GAO-07-1110.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Michael 

Brostek at (202) 512-9110 or 

brostekm@gao.gov 
Contents 

Letter 1

Results in Brief 3

Background 6

AEITC Use Low and May Be Difficult to Increase 9 

High Noncompliance Exists with AEITC Requirements 15 

IRS’s AEITC Compliance Procedures Have Limited Effectiveness 

and Options to Better Address Noncompliance Have Advantages 

and Disadvantages 21 

Conclusions 44

Recommendations for Executive Action 45 

Agency Comments 46 

Appendix I IRS’s Implementation of Recommendations from 

GAO’s 1992 Report on the Advance Earned Income 

Tax Credit 47 

Appendix II Scope and Methodology 49 

Appendix III Demographic Characteristics of Advance Earned 

Income Tax Credit Recipients and Their Employers 56 

Appendix IV Administrative and Legislative Changes to the 

Advance Earned Income Tax Credit Since 1990 76 

Appendix V Additional Analyses of Advance Earned Income Tax 

Credit Noncompliance 78 

Appendix VI Comments from the Internal Revenue Service 92 

Page i GAO-07-1110 Advance Earned Income Tax Credit
Appendix VII GAO Contacts and Staff Acknowledgments 96 

Tables 

Table 1: EITC Requirements for 2006 That All AEITC Recipients 

Must Also Expect to Meet 8 

Table 2: Percentage of AEITC Recipients Receiving an Amount of 

AEITC, Tax Years 2002 through 2004 11 

Table 3: Frequency of Individuals Electing the EITC and AEITC, 

Tax Years 2002 through 2004 14 

Table 4: AEITC Recipients and Recipients with Invalid SSN on

Form W-2, Individuals and Dollars, Tax Years 2002 through

2004 17 

Table 5: AEITC Recipients and Recipients Who Did Not File a Tax 

Return, Individuals and Dollars, Tax Years 2002 through 

2004 18 

Table 6: AEITC Recipients, Recipients Who Did Not File a Federal 

Tax Return, and Recipients Who Did Not File a Tax Return 

and Had an Invalid SSN on the Form W-2, Individuals and 

Dollars, Tax Years 2002 through 2004 19 

Table 7: AEITC Matches and Mismatches between Form(s) W-2 

and Filed Tax Returns, Tax Years 2002 through 2004 20 

Table 8: IRS Implementation of Recommendations from GAO’s 

1992 Report on the Advance Earned Income Tax Credit 47 

Table 9: Number of Forms W-2, Number of Individuals, and the 

Dollars for Each Subpopulation, Tax Years 2002 through 

2004 51 

Table 10: Number of Forms W-2 Received by Subpopulation, Tax 

Years 2002 through 2004 58 

Table 11: AGI for AEITC and EITC Recipients, Number, Average, 

and Sum, for Tax Year 2002 62 

Table 12: AGI for AEITC and EITC Recipients, Number, Average, 

and Sum, for Tax Year 2003 63 

Table 13: AGI for AEITC and EITC Recipients, Number, Average, 

and Sum, for Tax Year 2004 63 

Table 14: Wages Reported for AEITC and EITC Recipients, 

Number, Wage Amount, and Average Dollars Received for 

Tax Years 2002 through 2004 65 

Table 15: Filing Status of AEITC and EITC Recipients, Number and 

Percentage, Tax Years 2002 through 2004 66 

Page ii GAO-07-1110 Advance Earned Income Tax Credit
Table 16: Age of AEITC and EITC Recipients, Tax Years 2002

through 2004 68 

Table 17: Gender of AEITC and EITC Recipients, Number and 

Percentage, Tax Years 2002 through 2004 70 

Table 18: Number of Qualifying Children for AEITC and EITC 

Recipients, Number and Percentage, Tax Years 2002 

through 2004 72 

Table 19: Filing Method of AEITC and EITC Recipients, Number 

and Percentage, Tax Years 2002 through 2004 72 

Table 20: Employer Size, Number of Employers, Number of Forms 

W-2 Employers Issued to AEITC Recipients and Total 

Dollars Reported on Forms W-2, Tax Years 2002 through 

2004 75 

Table 21: Administrative Changes to the AEITC since 1990 76 

Table 22: Number of Individuals and AEITC Dollars Received by 

AEITC Recipients and Individuals Who Elected the AEITC 

Consecutively Using an Invalid SSN and an Invalid SSN 

and Not Filing, Tax Years 2002 through 2004 79 

Table 23: Number of AEITC Consecutive Recipients with Matches 

and Mismatches between Forms W-2 and Filed Tax 

Returns, Tax Years 2002 through 2004 80 

Table 24: Amount of AEITC Received Per Invalid Form W-2, 

Number and Percentage, Tax Years 2002 through 2004 81 

Table 25: Number of Individuals Receiving a Form(s) W-2, Total 

Number of Form(s) W-2 Reporting AEITC, Total 

Associated and Average Dollars Received Relative to 

Number of Form(s) W-2 Reporting AEITC for AEITC 

Recipients with an Invalid SSN on the Form(s) W-2, Tax 

Year 2002 82 

Table 26: Number of Individuals Receiving a Form(s) W-2, Total 

Number of Form(s) W-2 Reporting AEITC, Total 

Associated and Average Dollars Received, Relative to 

Number of Form(s) W-2 Reporting AEITC for AEITC 

Recipients with an Invalid SSN on the Form(s) W-2, Tax 

Year 2003 83 

Table 27: Number of Individuals Receiving a Form(s) W-2, Total 

Number of Form(s) W-2 Reporting AEITC, Total 

Associated and Average Dollars Received, Relative to 

Number of Form(s) W-2 Reporting AEITC for AEITC 

Recipients with an Invalid SSN on the Form(s) W-2, Tax 

Year 2004 84 

Page iii GAO-07-1110 Advance Earned Income Tax Credit
Figures 

Figure 1: AEITC Process for Employees and Employers 7 

Figure 2: Number of EITC Recipients, EITC Recipients Potentially 

Eligible for the AEITC, AEITC Recipients, and Total 

Dollars They Received, Tax Years 2002 through 2004 10 

Figure 3: Percentage of AEITC Recipients Compliant and 

Noncompliant with at Least One AEITC Requirement, Tax 

Years 2002 through 2004 15 

Figure 4: Submission Processing Procedures for Paper and 

Electronic Tax Returns Reporting AEITC 22 

Figure 5: AUR Program Procedures to Resolve Discrepancies 

between AEITC Amounts on Forms W-2 and Tax Returns 26 

Figure 6: Average Amount of AEITC Received by Consecutive and 

AEITC Recipients, Tax Years 2002 through 2004 61 

Figure 7: Geographic Location of AEITC Recipients in the Valid 

Subpopulation, Tax Years 2002 through 2004 74 

Figure 8: Geographic Location of AEITC Recipients in the Invalid 

Name Subpopulation, Tax Years 2002 through 2004 87 

Figure 9: Geographic Location of AEITC Recipients in the Invalid 

Number Subpopulation, Tax Years 2002 through 2004 89 

Figure 10: Number of Forms W-2 Received with Amounts above the 

Yearly AEITC Maximum, Tax Years 2002 through 2004 90 

Figure 11: AEITC Dollars Reported on Form W-2s above the Yearly 

AEITC Maximum, Tax Years 2002-2004 91 

Abbreviations 

AEITC Advance Earned Income Tax Credit

AGI Adjusted Gross Income 

AUR Automated Underreporter 

DM-1 Data Master File 

EITC Earned Income Tax Credit 

ERS Error Resolution System 

IRS Internal Revenue Service 

OBRA ’93 Omnibus Budget Reconciliation Act of 1993 

SSA Social Security Administration 

SSN Social Security number 

SSNVS Social Security Number Verification System 

TIN Taxpayer Identification Number 

Page iv GAO-07-1110 Advance Earned Income Tax Credit
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Page v GAO-07-1110 Advance Earned Income Tax Credit
United States Government Accountability Office

Washington, DC 20548 

August 10, 2007 

The Honorable Charles B. Rangel 

Chairman 

The Honorable Max Baucus 

Vice Chairman 

Joint Committee on Taxation 

Beginning in 1979, eligible taxpayers could elect to receive the Earned 

Income Tax Credit (EITC), a refundable credit available to low income 

workers, as an advance payment—an option currently found in only one 

other federal tax credit.1

 Individuals who elect this option receive a 

portion of the EITC from their employer throughout the year with their 

regular pay, instead of receiving only a lump sum refund or tax credit 

when filing their year end federal income tax returns.2

 The Advance 

Earned Income Tax Credit (AEITC) provides employees an immediate 

benefit from the credit, which may help them meet their daily expenses by

increasing their take-home pay. 

Little has been known about the individuals who receive the AEITC, the 

employers who pay it, and compliance with its requirements. Neither the

Internal Revenue Service (IRS) nor the employer is required to confirm the 

eligibility of those who elect the AEITC before they receive it. Thus, the 

extent of compliance problems related to the AEITC may depend on 

factors such as how knowledgeable individuals applying for the AEITC are 

about eligibility requirements and how well the IRS addresses various 

kinds of noncompliance that the agency may identify only after AEITC 

payments have been made. 

Limited research has been conducted on the AEITC since we last 

examined it in the early 1990s. In 1992, we reported that the percentage of 

individuals receiving the EITC in 1989 who also received the AEITC was 

 1

 The other credit with an advance option is the Health Coverage Tax Credit, which pays 65 

percent of qualified health plan premiums for eligible trade-affected workers and certain 

Pension Benefit Guaranty Corporation benefit recipients. 

2

 In tax year 2004, about 22 million individuals received about $40 billion in EITC payments 

from the IRS. Any portion of the EITC that an individual did not obtain as an advance can 

be obtained when he or she files a tax return, assuming qualifications are maintained. 

Page 1 GAO-07-1110 Advance Earned Income Tax Credit
low and that many eligible workers were not aware of it.3

 We estimated 

that almost half of those who received the AEITC in 1989 and filed a tax

return did not report receiving it and that 45 percent of people whom IRS 

records show may have received the AEITC never filed a tax return, 

meaning that IRS would have no way of determining their eligibility. We 

made six recommendations to the Commissioner of Internal Revenue 

designed to increase awareness of the AEITC among eligible individuals 

and improve compliance among those who receive it. Appendix I 

discusses IRS’s implementation of the recommendations from our 1992 

AEITC report. 

To provide current information on the AEITC, the Committee asked us to 

answer the following questions: (1) How many individuals received the 

AEITC compared with the EITC and how much did they receive in tax 

years 2002 through 2004? What actions, if any, have been taken to increase 

use since 1992 and what is the potential for significant increases in the 

future? (2) What is the extent of noncompliance, if any, associated with

the AEITC? (3) How well do IRS’s procedures address any areas of 

noncompliance? In addition, the Committee asked us to provide basic 

demographic characteristics of AEITC recipients and their employers and 

to identify legislative and administrative changes made since our 1992

report, some of which were discussed by IRS in its response to that 

report’s recommendations. The information is presented in appendixes I 

and III through V. 

To answer these questions, we obtained a data file from IRS containing all 

Form W-2 “Wage and Tax Statements” that reported AEITC in tax years 

1999 through 2004. We performed data reliability tests on this file to 

determine whether the data were sufficiently reliable for our intended 

purposes and determined that they were. This process involved, among 

other things, checking the validity of the Social Security number (SSN) on 

the Form W-2, determining whether the AEITC amount was above the 

yearly maximum limit, and creating subpopulations in which to conduct 

our analyses. Using the Form W-2 data and data from other sources, such 

as IRS’s Individual Return Transaction File that contains tax return 

information, we compiled relevant demographic characteristics data and

compared AEITC data with EITC data when possible. We also reviewed 

administrative and legislative changes as well as relevant reports and 

 3

 GAO, Earned Income Tax Credit: Advance Option Is Not Widely Known or Understood

by the Public, GAO/GGD-92-26 (Washington, D.C.: Feb. 19, 1992). 

Page 2 GAO-07-1110 Advance Earned Income Tax Credit
considered these along with our data analyses. To examine actions 

intended to increase use and determine the potential for increases in 

future AEITC use, we reviewed various reports and literature and 

interviewed IRS officials and individuals we determined to be experts. We 

also used the Form W-2 and other data to identify areas of noncompliance 

by comparing the data to the AEITC requirements. In addition, we 

examined IRS’s procedures for processing individual income tax returns 

with AEITC and interviewed IRS officials to determine how IRS addressed 

noncompliance. Finally, we explored possible remedies for the 

noncompliance we identified through literature searches and interviews 

with various Department of the Treasury, IRS, and Social Security 

Administration (SSA) officials. It was not within the scope of our work to 

fully evaluate the potential cost and benefits of these options for reducing 

noncompliance. We conducted our work in accordance with generally

accepted government auditing standards from December 2005 through 

July 2007. Appendix II provides more detail on the scope and methodology 

we used to conduct our work. 

AEITC use and the amount paid out by employers was low in tax years 

2002 through 2004—only about 3 percent of the EITC recipients 

potentially eligible for the advance received it and about half of the 

recipients received $100 or less per year. In total, approximately 514,000 

individuals received about $146 million of AEITC in each of the 3 years. 

Several federal efforts, including two legislative and several administrative 

changes, have been aimed at increasing AEITC use in the last

approximately 15 years. For example, the Omnibus Budget Reconciliation 

Act of 1993 (OBRA ’93), directed IRS to send notices to taxpayers during 2 

tax years informing them that they were potentially eligible for the 

advance. Similarly, IRS made changes to its forms and increased speaker 

seminars to inform the public about the AEITC. Despite these efforts, use 

has not substantially increased and, for several reasons, it may be difficult

to significantly increase it in the future. For example, IRS officials, other 

experts, and our prior work suggest that individuals often do not elect the

AEITC because they prefer receiving the entire EITC as a lump sum when 

filing their tax return. An IRS-funded study revealed that low use is also 

attributed to concerns that prospective recipients would receive more in 

advance than they would ultimately be entitled to, thus owing the 

difference when filing their tax return. 

Results in Brief 

As many as 80 percent of recipients did not comply with at least one 

AEITC requirement, while some individuals were noncompliant with more 

than one requirement. Approximately 20 percent (more than 100,000) of all 

Page 3 GAO-07-1110 Advance Earned Income Tax Credit
AEITC recipients each year may not have been eligible for the advance 

because they did not have a valid SSN, that is, a SSN that has been 

assigned by the SSA or a SSN/name combination that could be matched to

SSA records. These individuals received $37 million to $39 million in each 

tax year from 2002 through 2004. Almost 40 percent (about 200,000 

recipients) did not file the required tax return; they received between $42 

million and $50 million of AEITC for each of these years. When individuals 

do not file a return, IRS cannot readily identify whether they were eligible

for AEITC and whether they owed IRS any of the amounts they received. 

Conversely, by not filing a tax return, some individuals did not receive 

additional EITC monies that they could only receive had they filed. Of the 

60 percent of AEITC recipients who did file a return, about 300,000 

individuals in each of the 3 years, two-thirds misreported the amount they 

received—the majority did not report receiving any AEITC. As a result, 

these AEITC recipients who claimed the EITC when filing their return 

collectively received an excess amount of EITC of about $64 million for 

the 3 years. 

Although IRS has processing and enforcement procedures in place to 

monitor the AEITC, the agency has limited effectiveness in addressing 

AEITC noncompliance, in large part because it targets most of its 

enforcement efforts at more widely used programs that involve larger 

amounts of money. For example, Automated Underreporter (AUR) staff 

worked only a fraction of the AEITC underreporting cases because 

resource constraints and criteria limited case selection. Moreover, AUR 

and other IRS enforcement programs use revenue collection potential as a

primary criterion in identifying cases on which to work, and AEITC cases 

generally have low revenue potential. Although all AEITC nonfiler cases 

are eligible to be worked on by various enforcement programs, IRS 

officials said they work on only a limited number for similar reasons. 

One means to improve AEITC compliance might be to send “soft notices.” 

Recent IRS tests have shown that the agency has successfully reduced 

subsequent noncompliance in situations that involve relatively small 

amounts of money by sending soft notices that ask taxpayers to 

voluntarily fix their misreporting by filing an amended return or not 

repeating the action in the next year. However, high annual turnover in the 

AEITC population could undermine this approach. Another means to 

improve AEITC compliance would be to partially verify individuals’ 

eligibility before they receive the advance by verifying their SSNs. IRS 

operates the Taxpayer Identification Number (TIN) Matching service and

SSA maintains the Social Security Number Verification System (SSNVS), 

both of which are open to registered public users for the purpose of 

Page 4 GAO-07-1110 Advance Earned Income Tax Credit
determining the validity of an SSN. Both have unique advantages and 

disadvantages that would come into play if employers were required to use 

them to verify the SSNs of individuals seeking AEITC. SSA emphasized 

that verifying eligibility for the AEITC is most appropriate for IRS because

it is a tax administration issue and therefore outside the scope of SSA’s 

mission. Separately, IRS could verify individuals’ SSNs and take other 

enforcement steps if it had a database of AEITC applicants. However, IRS 

cannot create such as database because it does not require employers to 

send copies of the Form W-5, “Earned Income Credit Advance Payment 

Certificate,” to them when an employee requests receipt of the AEITC. 

Despite some benefits, IRS officials questioned the effectiveness of such a 

requirement due to (1) the low anticipated return on investment of AEITC 

compared with other areas with noncompliance problems and (2) their 

experience with the prior Questionable W-4 program, which required 

employers to submit information to IRS on taxpayers claiming more than 

10 withholding allowances or exemptions, that showed employers did not 

adhere to similar requirements imposed by the agency. 

We recommend that the Acting Commissioner of Internal Revenue analyze 

whether it could cost effectively and significantly reduce AEITC 

noncompliance by sending soft notices to potentially noncompliant AEITC 

recipients, requiring employers to verify the SSN of employees seeking the 

AEITC, or requiring employers to submit Forms W-5 to IRS to create an 

AEITC database. To better identify the costs and implementation issues as 

well as the likelihood for these or other options to reduce AEITC 

noncompliance, where practical, the Acting Commissioner of Internal 

Revenue should test these options to make a more fully informed 

judgment about whether any would be worthwhile. If the Acting 

Commissioner of Internal Revenue determines that none of these options 

would be cost effective and that no other remedies are viable, then the 

Treasury Secretary should inform the Congress of this and provide 

Treasury’s opinion about whether the AEITC should be retained. 

In providing written comments on a draft of this report (see app. VI), the 

Acting Commissioner of Internal Revenue agreed with our 

recommendation and outlined the actions IRS would take to address that 

recommendation, including conducting further analyses and possible 

testing of proposed options for reducing AEITC noncompliance. He also 

stated that IRS will conduct its cost-benefit analyses in conjunction with a 

congressional requirement to study the impact of expanding eligibility of 

Page 5 GAO-07-1110 Advance Earned Income Tax Credit
the AEITC to all EITC recipients.4

 We also provided a draft of this report to 

the Department of the Treasury and SSA and incorporated technical 

comments where appropriate. SSA emphasized that verifying eligibility 

for the AEITC is most appropriate for IRS because it is a tax

administration issue and outside the scope of SSA’s mission. 

The EITC was enacted in 1975 and was originally intended to offset the 

burden of Social Security taxes and provide a work incentive for lowincome taxpayers.5

 It is a refundable federal income tax credit, meaning 

that qualifying working taxpayers may receive a refund greater than the 

amount of income tax they paid for the year. For tax year 2006, the 

maximum amount of EITC a taxpayer could receive was $4,536. 

Background 

Beginning in 1979, individuals could elect to receive the EITC in advance 

payments from their employer during the year along with their regular 

pay.6

 One purpose of the advance payment is to provide employees with 

an immediate reward for their work effort rather than forcing them to 

postpone receiving the credit until they file their tax returns. To get the 

credit, at any time during the year, an employee would complete the Form

W-5 and provide it to his or her employer.7

Upon receiving a completed Form W-5, the employer calculates the 

amount of the AEITC payment to include with the employee’s pay by 

considering (1) the employee’s wages, (2) whether the employee is 

married or single, and (3) if married, whether the employee’s spouse has a 

Form W-5 in effect with an employer. The AEITC payment to the employee

is considered to be equivalent to the employer making a payment to IRS 

for employee income tax withholding and employee and employer Social 

Security and Medicare tax. When employers file their quarterly tax 

returns, they show the total payments made to employees on the AEITC 

payment line on Form 941, “Employer’s Quarterly Federal Tax Return.” 

 4

 U.S. Troop Readiness, Veteran’s Care, Katrina Recovery, and Iraq Accountability 

Appropriations Act of 2007, Pub. L. No. 110-28. 

5

 26 U.S.C. Sec. 32. 

6

 Pub. L. No.103-66 (1993). The Omnibus Budget Reconciliation Act of 1993 limited the 

amount of advance payments that eligible individuals can receive to 60 percent of the EITC

available with one qualifying child. 

7

 The Form W-5, completed by the employee, expires at the end of each calendar year.

Therefore, employees must resubmit the form each year if they want to receive the AEITC. 

Page 6 GAO-07-1110 Advance Earned Income Tax Credit
This amount is then subtracted from the total amount of tax the employer

owes. 

At the end of the calendar year, the employer indicates the total AEITC 

payments the employee received on the employee’s Form W-2. Employees 

are then required to report this amount either on their Form 1040 or Form 

1040A tax return. Assuming the employee qualified for the EITC, the 

AEITC amount received should be reported on the tax return as other 

taxes, which, in effect, subtracts the amount received from the total 

amount of any EITC. If the employee did not qualify for the EITC, he or 

she is still required to file a tax return, regardless of income level, and the 

AEITC amount paid is added to any taxes owed. Figure 1 illustrates this 

process and notes the major forms involved. 

Figure 1: AEITC Process for Employees and Employers 

Page 7 GAO-07-1110 Advance Earned Income Tax Credit
An individual must meet certain requirements to qualify for the AEITC. 

Specifically, an individual must expect to (1) be able to claim the EITC for 

the current year (EITC requirements for 2006 are shown in table 1), (2) 

have at least one qualifying child, and (3) have earned income and 

adjusted gross income below a certain amount for that year. There are 

additional requirements that an individual may only have one Form W-5 in 

effect at a time and that he or she informs their employer if their spouse 

also has a Form W-5 in effect.8

 AEITC recipients can receive up to 60 

percent of the EITC benefits for one qualifying child. The maximum 

AEITC amount for 2006 was $1,648. 

Table 1: EITC Requirements for 2006 That All AEITC Recipients Must Also Expect to Meet 

First, an individual must meet all the rules in this 

column. 

Second, an individual must meet all the rules in one 

of these columns, whichever applies. 

Third, an individual must 

meet the rules in this 

column. 

Rules for everyone

Rules if have a 

qualifying child 

Rules if do not have a 

qualifying child 

Figuring and claiming 

the EITC 

1. Adjusted gross

income (AGI) 

must be less than: 

• $36,348 ($38,348 

for married filing

jointly) if more 

than one 

qualifying child.

• $32,001 ($34,001 

for married filing

jointly) if one 

qualifying child, or 

• $12,120 ($14,120 

for married filing

jointly) if no 

qualifying child.

2. Must have a valid 

Social Security

number. 

3. Filing status cannot be 

“Married filing 

separately.” 

4. Must be a U.S. citizen 

or resident alien all 

year. 

5. Cannot file Form 2555 

or Form 2555-EZ

(relating to foreign 

earned income). 

6. Investment income 

must be $2,800 or less.

7. Must have earned 

income. 

8. Child must meet the 

relationship, age, 

and residency tests.

9. Qualifying child

cannot be used by 

more than one 

person to claim the 

EIC. 

10. Cannot be a 

qualifying child of 

another person. 

11. Must be at least age 

25 but under age 65. 

12. Cannot be the 

dependent of 

another person.

13. Cannot be a 

qualifying child of 

another person.

14. Must have lived in 

the United States 

more than half of the 

year. 

15. Earned income must 

be less than: 

• $36,348 ($38,348 for 

married filing jointly) 

if more than one 

qualifying child

• $32,001 ($34,001 for 

married filing jointly) 

if one qualifying

child, or 

• $12,120 ($14,120 for 

married filing jointly) 

if no qualifying child. 

Source: Excerpt of IRS Publication 596, Earned Income Credit. 

 8

 When both spouses have a Form W-5 in effect, the amount each person can receive is 

reduced to below 60 percent of the EITC maximum. 

Page 8 GAO-07-1110 Advance Earned Income Tax Credit
A change in an individual’s personal circumstances after submitting the 

Form W-5 could affect their eligibility for both the EITC and the AEITC. 

For example, an individual who received the AEITC, separated from his or 

her spouse during the year, and used the married filing separately filing 

status would not be eligible for the AEITC (or EITC). In such cases, when

the individual files their tax return and reports the AEITC amount 

received, the amount would be added to any taxes due or subtracted from 

any refund. 

About 3 percent of the EITC recipients potentially eligible for the advance, 

about 514,000 individuals on average, elected it in each year, tax years 

2002 through 2004, according to data employers reported on the Form W-2. 

As shown in figure 2, about 21 million taxpayers received the EITC each 

year and of these recipients, about 17 million were eligible for the AEITC.9

AEITC Use Low and 

May Be Difficult to 

Increase

 9

 Individuals who receive the EITC without a qualifying child are not eligible for the AEITC.

Page 9 GAO-07-1110 Advance Earned Income Tax Credit
Figure 2: Number of EITC Recipients, EITC Recipients Potentially Eligible for the AEITC, AEITC Recipients, and Total Dollars

They Received, Tax Years 2002 through 2004 

Note: This figure includes the valid, invalid name, and invalid number subpopulations. (see app. II). 

In total, AEITC recipients received an average of about $146 million in 

AEITC for each tax year from 2002 through 2004. Yet, those who elected it 

often received relatively few dollars from their employers. As table 2 

indicates, about half of all individuals who got AEITC received $100 or less 

each year and about 75 percent received $500 or less. Even at $100 per 

year, this equates to about $8 a month, or $4 every 2 weeks, and even at 

$500 per year, this equates to about $42 a month or $19 every 2 weeks. The 

amounts most individuals received were significantly less than the yearly 

maximum, and were consistent for the 3 years we reviewed. 

Page 10 GAO-07-1110 Advance Earned Income Tax Credit
Table 2: Percentage of AEITC Recipients Receiving an Amount of AEITC, Tax Years 

2002 through 2004

Percentage of AEITC recipients 

Amount of AEITC received 2002 2003 2004

$1—$100 50 50 48

$101—$250 17 17 17

$251—$500 13 13 13

$501—$750 7 7 8

$751—$1,000 5 5 5

$1,001—yearly maximum 7 8 8

 Source: GAO analysis of IRS data. 

Note: The AEITC yearly maximum was $1,503, $1,528, and $1,563 for tax years 2002, 2003, and 

2004, respectively. This table includes the valid, invalid name, and invalid number subpopulations. 

The number of individuals who have elected the AEITC has remained low 

for many years. For example, between 1990 and 1997, AEITC use never 

exceeded 2 percent of qualifying EITC recipients. IRS calculated use based 

on tax returns showing receipt of the AEITC divided by the EITC 

population that reported at least one qualifying child. Using this same 

methodology, use for tax years 2002 through 2004 was relatively the same 

at an average of 0.8 percent. Our figures for 2002 through 2004 are higher 

than these prior AEITC figures because our figures are based upon the 

Forms W-2 that reported AEITC (see fig. 2). Historically, AEITC use has 

been based upon the number of individual federal tax returns that 

reported an amount on the AEITC line. The historic method excludes 

individuals who did not file a federal tax return and individuals who filed a 

federal tax return but did not report the AEITC. 

Additional demographic data about individuals who elected the AEITC are 

included in appendix III. These additional data represent new analysis that 

has not been previously available, including each recipient’s filing method, 

age, and gender, and each employer’s size. 

AEITC Use Has Not

Increased Significantly 

Despite Several Targeted 

Efforts 

Use of the AEITC has remained low for many years despite several 

targeted efforts to increase it. There have been several federal efforts 

targeted to increase AEITC use over the last approximately 15 years, 

including both legislative and administrative changes. (A full description 

of these changes is included in app. IV.) One significant piece of legislation 

was OBRA ’93, which involved the AEITC in two ways: it (1) reduced the 

maximum amount of EITC an individual could receive in advance and (2) 

Page 11 GAO-07-1110 Advance Earned Income Tax Credit
required IRS to conduct outreach directly to potentially eligible AEITC 

recipients. First, OBRA ’93 reduced the AEITC maximum from 100 percent 

to 60 percent of the maximum credit available to a taxpayer with one 

qualifying child. This change was made to improve compliance and lessen 

concerns that recipients would owe the difference when filing their federal 

tax return, which was thought to discourage AEITC use. 

Second, OBRA ’93 directed IRS to send notices to taxpayers who were 

likely to be eligible for the AEITC for 2 years and directed the Secretary of 

the Treasury to study the effect of the notice program on AEITC use. Only 

some information is available about the first notice mailing, which 

occurred in 1994.

10 For the first notice mailing, IRS mailed Publication 

1235, “Advance Earned Income Tax Credit Brochure,” and the Form W-5 to 

about 13.5 million taxpayers who were potential AEITC candidates during 

tax year 1993 informing them about the AEITC. AEITC use increased 

about 1 percent following this effort; however, because other outreach 

efforts were ongoing during this time, IRS could not conclude that the 

increase was attributable to the notice or any other effort specifically. 

In 1997, IRS mailed the notice to about 6 million taxpayers who claimed 

the EITC in tax year 1996, but did not report receiving AEITC on their 

federal tax return. With this second mailing, IRS created two groups, a test

group of about 60,000 taxpayers that received the notice and a control 

group of about 60,000 taxpayers with similar characteristics who did not. 

Results from the IRS report indicated that about 1.27 percent (771 

taxpayers) of the tax returns in the test group reported the AEITC 

compared to 0.51 percent (309 taxpayers) of returns in the control group. 

The summary report concluded that further efforts to increase AEITC use 

substantially are unlikely to succeed.

11 Further, the study recommended 

that notification of EITC recipients about the advance not be repeated. 

Some of IRS’s administrative changes include outreach to specific groups 

and changes to publications. For example, after our 1992 report, the White

House, the Treasury Department, and IRS conducted extensive EITC and 

AEITC outreach efforts, including a 1993 announcement of the AEITC by 

President Clinton. Other outreach efforts included IRS contacts with 

 10For the first notice mailing, specific information on how the population was selected, for 

example, is not known. 

11IRS, National Research Office, Advance Earned Income Tax Credit 1994 and 1997 

Notice Study, A Report to Congress (Washington, D.C.: August 1999). 

Page 12 GAO-07-1110 Advance Earned Income Tax Credit
charitable, social welfare, and minority groups to encourage awareness of 

the EITC and AEITC among their memberships. IRS also contacted a 

number of employer organizations to encourage them to publicize the 

AEITC with their memberships. IRS also made changes to its forms, 

developed print and video products, and increased speaker seminars to 

inform the public about the AEITC. For example, IRS developed publicity 

materials, such as grocery bag and milk carton art, brochures, and posters; 

provided information in the Small Business Taxpayer Education Program 

guide; and increased outreach speaker seminar efforts.12

Presently, IRS continues to conduct outreach about the AEITC as part of 

its EITC outreach efforts. IRS focuses its outreach to large employer 

organizations or to specific large employers, which then promote the 

AEITC to employers or employees. 

Future AEITC Growth Is 

Unlikely 

Increasing AEITC use in the future is unlikely for several reasons, but 

perhaps primarily because of potential recipients’ preferences and high 

AEITC turnover. Interviews with IRS officials, other experts, and our prior 

AEITC work suggest that those eligible for the AEITC prefer receiving the

EITC in a lump sum after they file their federal tax return instead of 

receiving relatively small portions spread throughout the year.13 Another 

reason is that, despite the reduction in the yearly AEITC maximum to 60 

percent of the maximum credit available to a taxpayer with one qualifying 

child, results from an IRS-funded study using focus groups of EITC 

participants and interviews we conducted with experts indicated that 

potential recipients continue to have concerns that they would receive

more AEITC than they were ultimately entitled to and that they would owe 

the difference when filing their federal tax return. 

In addition, AEITC growth is adversely affected by individuals who elect 

the AEITC and fail to elect it again, i.e., turnover. As table 3 indicates, 

more than half of the individuals who elected the AEITC did so for the first 

 12The Small Business Taxpayer Education Program provides help to those who are starting 

or already have a small business and need information in such areas as taxes,

recordkeeping, accounting practices, and completing federal business and employment tax

returns. Much of the assistance is free. 

13We identified other studies with limited populations that also found taxpayers preferred

receiving a lump sum instead of smaller periodic AEITC payments; for example, Jennifer 

Romich and Thomas Weisner, “How Families View and Use the EITC: Advance Payment vs.

Lump Sum Delivery,” National Tax Journal (December 2000). 

Page 13 GAO-07-1110 Advance Earned Income Tax Credit
time since 1999 in either tax year 2002, 2003, or 2004. With the overall

AEITC use remaining relatively constant over the 3 years, this indicates 

the large number of yearly first-time recipients was almost equally offset 

by existing recipients forgoing the AEITC in a following year.14 The 

percentage of AEITC first-time recipients is much higher than the 

percentage of first-time EITC recipients, which is slightly less than onethird. Also, of the individuals who elected the AEITC for the first time in 

2002 or 2003, about 28 percent elected it again in the following year, 2003 

or 2004, respectively, while the remainder did not elect it again in the 

subsequent year. Conversely, only about 98,000 (9 percent) individuals 

elected the AEITC consecutively in all 3 years, 2002 through 2004. 

Table 3: Frequency of Individuals Electing the EITC and AEITC, Tax Years 2002 

through 2004 

 Tax year 2002 Tax year 2003 Tax year 2004

EITC recipients 20,918,823 21,431,377 21,721,218

First-time EITC recipients 

(percentage) a, b

6,077,104 

(29%) 

5,313,089

(25%)

4,842,922

(22%)

AEITC recipients 531,799 503,382 507,957

First-time AEITC recipients 

(percentage) a, c

271,600 

(51%) 

259,579

(52%)

259,282

(51%)

First-time AEITC recipients who 

did not elect the advance in the 

subsequent year (percentage) d

 198,096 

(73%) 

187,871

(72%) N/A

First-time AEITC recipients who 

elected the advance in the 

subsequent year (percentage) d

73,504 

(27%) 

71,708

(28%) N/A

Number of individuals who 

consecutively received the AEITC 

(percentage) e

97,998 

(9%) 

Source: GAO analysis of IRS data. 

Note: N/A means not applicable. Tax year 2004 data are not applicable because we did not look at 

any subsequent years. All AEITC figures include the valid, invalid name, and invalid number 

subpopulations. 

a

First-time EITC recipients are based upon how often a primary or secondary taxpayer filed a federal 

tax return receiving EITC for the first year since 1999. First-time AEITC recipients are based upon the 

first year an individual (defined by unique SSN) received AEITC since 1999. IRS officials agreed this 

approach is a reasonable method to compare AEITC and EITC first-time use. 

 14 One reason an AEITC recipient may not elect the advance in a subsequent year is 

because he or she no longer meets the eligibility requirements. 

Page 14 GAO-07-1110 Advance Earned Income Tax Credit
b

Percentage is out of EITC recipients. 

c

Percentage is out of AEITC recipients. 

d

Percentage is out of first-time AEITC recipients. 

e

Number of individuals who consecutively received the AEITC are individuals who received the 

advance each year in tax years 2002 through 2004. Percentage is of individuals who received the 

AEITC each year in tax years 2002 through 2004 out of all recipients who received it at least once 

during these same years (1,133,908 individuals). The percentage who received it twice during these 

years is 19 percent (213,234) and once is 73 percent (822,676). Percentages may not add due to 

rounding. 

Overall, as many as 80 percent of all AEITC recipients did not comply with 

or made errors involving one of the three AEITC requirements that we 

reviewed, and they received about $282 million when the 3 years, 2002 

through 2004, are aggregated. Some taxpayers were noncompliant with 

more than one requirement. Those requirements are having a valid SSN, 

filing a federal tax return, and reporting the proper amount of AEITC 

received on the tax return (see fig. 3). 

High Noncompliance 

Exists with AEITC 

Requirements 

Figure 3: Percentage of AEITC Recipients Compliant and Noncompliant with at 

Least One AEITC Requirement, Tax Years 2002 through 2004 

Note: The pie chart includes the valid, invalid name, and invalid number subpopulations. 

a

This includes the invalid name and invalid number subpopulations.

Page 15 GAO-07-1110 Advance Earned Income Tax Credit
b

This includes the valid, invalid name, and invalid number subpopulations. 

c

This is of individuals who filed a federal tax return in the valid, invalid name, and invalid number 

subpopulations. 

Specifically, in tax year 2002, we found that individuals were 

noncompliant with at least one of three requirements we reviewed 79 

percent of the time and they received about $93 million of AEITC. For tax 

year 2003 and 2004, individuals were noncompliant with at least one 

requirement 78 percent (about $91 million) and 79 percent (about $98 

million) of the time, respectively. 

Some of the noncompliance we identified could have resulted from IRS or 

employer clerical errors or improper reporting by the taxpayer. Therefore, 

some of the errors may be correctible or were corrected by filing an 

amended return. IRS cannot readily identify the number of amended 

returns specifically associated with the AEITC because such returns 

combine several credits onto one line. The explanation attached to the 

amended return would provide details on the change and any analysis of 

the explanation would be a manual process. 

About 20 Percent of AEITC 

Recipients Had an Invalid 

SSN 

AEITC recipients are required to provide their employer with a valid SSN 

for the Form W-2.15 As table 4 illustrates, about 20 percent (more than 

100,000) of AEITC recipients each year may not have been eligible for the

advance because they did not have a valid SSN on their Form W-2. 

Collectively, these individuals received between $37 million and $39 

million in AEITC each year. The data are consistent over the 3 years 

reviewed.16

 15 AEITC recipients must expect to be able to claim the EITC, which requires that taxpayers 

and their spouses, if filing a joint return, have valid SSNs issued by SSA to all U.S. citizens 

or individuals eligible to work. 

16If any portion of the invalid SSNs is attributable to aliens not currently authorized to work

in the United States, the number of invalid SSNs could be affected if the Congress changes

policies regarding such aliens. See Treasury Inspector General for Tax Administration, The 

Internal Revenue Service’s Individual Taxpayer Identification Number Creates

Significant Challenges for Tax Administration, 2004-30-023 (January 2004), for more

information about aliens’ use of invalid SSNs.

Page 16 GAO-07-1110 Advance Earned Income Tax Credit
Table 4: AEITC Recipients and Recipients with Invalid SSN on Form W-2, Individuals and Dollars, Tax Years 2002 through 

2004 

Tax year 2002 Tax year 2003 Tax year 2004

Individuals Dollars Individuals Dollars Individuals Dollars

AEITC recipients 531,799 $145 million 503,382 $143 million 507,957 $150 million

AEITC recipients with an invalid SSN on 

Form W-2 (percentage)a

113,025

(21%)

$37 million

(26%)

104,856

(21%)

$37 million 

(26%) 

109,622

(22%)

$39 million

(26%)

Source: GAO analysis of IRS data. 

a

Percentage is out of AEITC recipients. This analysis includes the invalid name and invalid number 

subpopulations. 

For purposes of this report, invalid SSNs include instances where the SSN 

did not match SSA’s records (i.e., the number was never assigned by SSA)

and the SSN/name combinations reported on the Form W-2 did not match

SSA records.17 Some of these individuals were likely eligible for the AEITC. 

For example, a name/SSN mismatch could include instances when a 

woman who receives the AEITC marries and changes her name with her 

employer but not with SSA. This could result in the employer issuing a 

Form W-2 in the new name, but IRS and SSA only identifying her by the 

former name.18

Individuals who file a federal tax return are required to include a valid SSN 

on their return.19 An individual who provides an invalid SSN on the tax 

return is not compliant in meeting AEITC requirements and may also 

violate the Social Security Act.20 Such an individual is also required to 

provide a valid SSN to their employer for income tax withholding purposes 

and for purposes of certifying eligibility for the AEITC and could be 

subject to a penalty for failure to do so.21 Further, if the individual does not

file a valid SSN, IRS is unable to assess the recipient’s federal tax liability 

 17There could be some instances where the SSN reported on the Form W-2 does not match 

the SSN the taxpayer used on the tax return. Even still, IRS uses the SSN on the Form W-2

and other third party forms for document matching to identify noncompliance such as 

wage underreporting. 

18 Of the more than 100,000 AEITC recipients with an invalid SSN, most involved a SSN that

did not match the individual’s name on the Form W-2. 

19 IRC § 6109(a)(1). 

20 42 U.S.C. § 408. 

21 IRC §6723. 

Page 17 GAO-07-1110 Advance Earned Income Tax Credit
and SSA cannot credit the recipient for money withheld for Social Security 

purposes.22 Also, because taxpayers often do not report receipt of the 

advance on their tax return, IRS cannot determine whether the taxpayer 

owes money or deserves a refund. 

Almost 40 Percent of 

AEITC Recipients Did Not 

File the Required Federal 

Tax Return

All AEITC recipients are required to file a federal tax return, regardless of 

the amount of their income, which is generally the primary basis for 

determining whether a return is required to be filed. Table 5 shows that 

between 36 and 40 percent, about 200,000 AEITC recipients, did not file a 

required federal tax return each year. Collectively, these individuals 

received between $42 million and $50 million of AEITC benefits.23

Table 5: AEITC Recipients and Recipients Who Did Not File a Tax Return, Individuals and Dollars, Tax Years 2002 through 

2004 

Tax year 2002 Tax year 2003 Tax year 2004

Individuals Dollars Individuals Dollars Individuals Dollars

AEITC recipients 531,799 $145 million 503,382 $143 million 507,957 $150 million

AEITC recipients who did not file a 

federal tax return (percentage)

a

192,857

(36%)

$42 million

(29%)

186,423

(37%)

$44 million 

(31%) 

200,706

(40%)

$50 million

(33%)

Source: GAO analysis of IRS data. 

a

Percentage is of AEITC recipients. This analysis includes the valid, invalid name, and invalid number

subpopulations. 

About 56,000 to 60,000 of the about 200,000 individuals who did not file the 

required tax return (about 30 percent) had an invalid SSN on the Form W-2 

each year, as shown in table 6. Having a valid SSN is another AEITC 

requirement, discussed previously, which means these individuals were 

noncompliant or made an error with at least two AEITC requirements. 

 22 IRS can file a substitute return for people who do not voluntarily file. IRS assesses a tax 

liability and notifies the taxpayer of any tax due based on the substitute tax return, which is 

created from available Form W-2 and other information. 

23 There could be instances where our methodology did not detect a filed tax return; for 

example, when a taxpayer’s SSN on the Form W-2 might have been incorrect. See our 

scope and methodology (app. II). 

Page 18 GAO-07-1110 Advance Earned Income Tax Credit
Table 6: AEITC Recipients, Recipients Who Did Not File a Federal Tax Return, and Recipients Who Did Not File a Tax Return

and Had an Invalid SSN on the Form W-2, Individuals and Dollars, Tax Years 2002 through 2004 

Tax year 2002 Tax year 2003 Tax year 2004

Individuals Dollars Individuals Dollars Individuals Dollars

AEITC recipients 531,799 $145 million 503,382 $143 million 507,957 $150 million

AEITC recipients who did not file a 

federal tax return (percentage) a

192,857

(36%)

$42 million

(29%)

186,423

(37%)

$44 million 

(31%) 

200,706

(40%)

$50 million

(33%)

AEITC recipients who did not file a 

federal tax return and had an invalid 

SSN on Form W-2 (percentage) b

59,607

(31%)

$20 million

(48%)

55,601

(30%)

$20 million 

(45%) 

58,370

(29%)

$21 million

(42%)

Source: GAO analysis of IRS data. 

a

Percentage is of AEITC recipients. This analysis includes the valid, invalid name, and invalid number

subpopulations. 

b

Percentage is of AEITC recipients who did not file a federal tax return. An unknown portion of these 

recipients may have corrected the SSN error and subsequently filed a tax return. This analysis 

includes the invalid name and invalid number subpopulations. 

There are several reasons why a significant number of AEITC recipients 

might not have filed a federal tax return. For example, depending on their

filing status, age, and type of income they receive, recipients may not have 

had a filing responsibility other than for the AEITC and they may not have 

remembered or understood they must file a return. In addition, AEITC 

recipients may not have filed because they were not initially eligible or 

they became ineligible for the AEITC because of a change in their personal 

circumstances, and filing would require them to pay back the AEITC they 

received. 

When individuals are required to file a federal tax return and do not, IRS 

cannot readily identify whether the individual was eligible for the advance 

or whether they owed IRS any of the amounts they received. Conversely, 

by not filing a federal tax return, some individuals did not receive 

additional EITC monies that they could only receive had they filed. 

About Two-Thirds of 

AEITC Recipients Who 

Filed a Federal Tax Return 

Misreported the Amount of 

AEITC They Received 

All AEITC recipients are required to report on their federal tax return the 

amount of AEITC they received according to the Form(s) W-2. Reporting 

this amount allows the IRS to determine whether the taxpayer received

too much AEITC, and owes money back to the IRS, or whether the 

taxpayer is entitled to additional amounts of the EITC. 

Of the approximately 60 percent (about 300,000) AEITC recipients who 

filed a federal tax return, two-thirds misreported the amount they received 

Page 19 GAO-07-1110 Advance Earned Income Tax Credit
in tax year 2002 through 2004, as shown in table 7. Misreported means that 

the total amount of AEITC reported on the Form W-2 does not match the 

AEITC amount reported on the federal tax return. Approximately onethird of the federal tax returns correctly matched to the Form(s) W-2 

AEITC amount. Of those that misreported, the vast majority did not report 

receiving any AEITC. 

Table 7: AEITC Matches and Mismatches between Form(s) W-2 and Filed Tax Returns, Tax Years 2002 through 2004 

Tax year 2002 Tax year 2003 Tax year 2004

Number Dollars Number Dollars Number Dollars

Number of individuals who filed federal

tax returnsa

342,841 $108,189,196 320,588 $101,078,453 309,724 $102,512,732

Number of returns that matched the 

Form(s) W-2 AEITC amount 

(percentage)b

112,421

(33%)

$51,457,254

(48%)

111,266

(35%)

$52,246,111 

(52%) 

106,980

(35%)

$52,338,650

(51%)

Number of mismatches between 

Form(s) W-2 and filed federal tax 

return (percentage)b

230,420

(67%)

$56,731,942

(52%)

209,322

(65%)

$48,832,342 

(48%) 

202,744

(65%)

$50,174,082

(49%)

 

Number of mismatches due to 

nonreporting of AEITC (percentage)c

222,691

(97%)

$53,343,102

(94%)

202,152

(97%)

$45,487,033 

(93%) 

195,571

(96%)

$46,806,223

(93%)

Number of mismatches due to 

underreporting of AEITC (percentage)c

4,996

(2%)

$2,349,197

(4%)

4,779

(2%)

$2,389,854 

(5%) 

4,881

(2%)

$2,337,603

(5%)

Number of mismatches due to 

overreporting AEITC (percentage)c

2,733

(1%)

$1,039,643

(2%)

2,391

(1%)

$955,455 

(2%) 

2,292

(1%)

$1,030,256

(2%)

Source: GAO analysis of IRS data. 

Note: Percentages may not add due to rounding. This table includes individuals who filed a tax return 

in the valid and invalid name subpopulations. 

a

The total number of filed federal tax returns is greater than the total number of AEITC recipients who 

filed a return because there were some dependents who received AEITC and were listed on more 

than one federal tax return. The total number of AEITC recipients who filed a federal tax return can be

calculated using table 5 by subtracting the number of AEITC recipients who did not file a federal tax 

return from the number of AEITC recipients. 

b

We considered a match to be anything plus or minus a dollar on the Form W-2 in order to allow for 

taxpayer rounding. We tested the sensitivity of this result by using a difference between the AEITC 

reported on the Form W-2 and the tax return of up to $100 and the results were similar. Percentage is 

of number of individuals who filed federal tax returns. 

c

Percentage is of number of mismatches between Form(s) W-2 and filed federal tax returns. 

Taxpayers may not report the amount of AEITC they received because 

they either forget or do not know they are required to do so. 

Underreporting can occur when there is a computation error involving 

multiple Forms W-2, a taxpayer disagrees with the amount reported on the 

Page 20 GAO-07-1110 Advance Earned Income Tax Credit
Forms W-2, or there is willful noncompliance. IRS officials in the AUR 

program pursue some AEITC cases where taxpayers either underreport or 

do not report receipt of the AEITC. These procedures are discussed in 

detail in a following section. 

Due to the high number of mismatches, many of the AEITC recipients who 

also claimed the EITC likely received excess benefits. For example, of the 

222,691 taxpayers who did not report receipt of the AEITC on their tax 

return in tax year 2002, almost half went on to claim the EITC. We 

determined that those taxpayers received nearly $22 million in excess 

AEITC benefits. For the 3 years, 2002 through 2004, taxpayers received a 

total of about $64 million in excess AEITC benefits. 

Additional noncompliance or errors existed with other program 

requirements, such as receiving excess AEITC. Details and demographic 

information on the noncompliant individuals are in appendix V. 

IRS’s Submission Processing is responsible for receiving, processing, and

archiving the nation’s federal tax returns, payments, and information 

returns. In the context of AEITC, Submission Processing attempts to catch 

mismatches between both paper and electronic tax returns and Forms W-2

(see fig. 4). 

AEITC Recipients Were 

Noncompliant with Other 

Program Requirements 

IRS’s AEITC 

Compliance 

Procedures Have 

Limited Effectiveness 

and Options to Better 

Address 

Noncompliance Have 

Advantages and 

Disadvantages 

Page 21 GAO-07-1110 Advance Earned Income Tax Credit
Figure 4: Submission Processing Procedures for Paper and Electronic Tax Returns Reporting AEITC 

a

After some initials checks, such as comparing the EITC/AEITC line of a tax return to the Form W2(s), all paper returns go to Submission Processing staff, who enter select data from the Form 1040 

into an electronic database. 

b

Effective January 2, 2007, at our suggestion, Submission Processing changed its selection criteria to

include filing status. 

Between 32 percent and 22 percent of tax returns reporting an AEITC 

amount were filed on paper between tax years 2002 and 2004, respectively. 

If a paper tax return has an entry on either the AEITC or EITC lines on the 

Form 1040, Submission Processing tax examiners are required to ensure 

that the AEITC amount reported on the return matches the amount in box 

Page 22 GAO-07-1110 Advance Earned Income Tax Credit
9 of the Form(s) W-2, which records the amount of AEITC paid by the 

employer to the employee.

24

If the amounts on the AEITC line of the tax return and Form W-2(s) match, 

the tax examiner takes no further action. If the amounts differ (e.g., the 

tax return reports a lesser amount than is reflected on the Form(s) W-2) 

the examiner is required to adjust the entry on the return to equal the total 

AEITC amount from the Form(s) W-2. All paper returns then go to staff 

who enter data from the Form 1040 into an electronic database. 

After an examiner makes an adjustment, IRS sends a letter to the taxpayer 

explaining that an adjustment was made and it was based on the mismatch 

between the tax return and the Form(s) W-2. IRS sent 282 and 220 such

letters in tax years 2003 and 2004, respectively.

25 Submission Processing’s 

role is to ensure that the return amount is consistent with the Form W-2, 

not to determine which of the differing numbers accurately reflects the 

amount of AEITC actually paid to the employee. If the taxpayer disagrees 

with the adjustment, e.g., believes that the amount on the Form(s) W-2 is 

incorrect, the taxpayer can dispute it. 

Between 68 percent and 78 percent of returns reporting an AEITC amount 

were filed electronically between tax years 2002 and 2004. Submission 

Processing runs a computer check to find any mismatches between the 

amounts on the electronic tax returns and the electronic Form(s) W-2. 

When mismatches are found, Submission Processing rejects the return and 

sends it to the taxpayer or preparer to correct and retransmit to IRS. 

In most tax preparation software, once a user enters an amount from the 

Form(s) W-2, the amount is automatically transferred to the appropriate 

line of the tax return. Thus, if the user errs in entering the proper amount 

from the Form W-2, the software would enter this erroneous number on 

the tax return. As a result, Submission Processing rarely identifies AEITC 

tax return/Form(s) W-2 mismatches because the original Form(s) W-2 

from the employer(s) is rarely included in electronic filings.26 IRS rejected 

 24 Because AEITC is an advance payment of the EITC, filers who claim the EITC are 

required to reduce the EITC by any AEITC received. By examining the Form(s) W-2 of 

EITC claimants for AEITC payments, the IRS attempts to ensure that excess amounts of

EITC are not claimed. 

25 Submission Processing did not have tax year 2002 data available. 

26 The electronic Form (s)W-2, which is an iteration of a user’s entries into the tax 

preparation software, is generally included in the electronic filing submission. 

Page 23 GAO-07-1110 Advance Earned Income Tax Credit
172 electronically filed returns reporting AEITC in tax year 2004 and 147 in 

tax year 2003. Adding these mismatches to the paper return mismatches, 

Submission Processing found 392 mismatches in tax year 2004 and 429 in

tax year 2003. 

Next, Submission Processing sends the return through its Error Resolution 

System (ERS) when the AEITC amount on the Form 1040 meets certain 

selection criteria.27 If ERS finds that AEITC exceeds this amount, a tax 

examiner matches the Form 1040 AEITC amount to the Form W-2(s). If 

they match, no action is taken, and the return is posted in IRS’s Masterfile, 

the agency’s central repository for taxpayer information. If there is a 

mismatch, IRS adjusts the return to match the Form(s) W-2, and IRS sends 

a letter to the taxpayer describing the error and the ERS correction. 

Taxpayers who disagree with the change can dispute it. The ERS process 

thus serves as a back-up check in case the earlier physical or electronic

processes missed these AEITC mismatches. ERS examined 3,380 tax 

returns with AEITC in tax year 2004. IRS was not able to tell us how many 

of these returns involved mismatches. 

Prior ERS selection criteria would not have identified some returns for 

individuals when the Form(s) W-2 had AEITC amounts that were above 

the legal maximums, but below the ERS selection criteria. While 

interviewing Submission Processing officials, we suggested that the 

criteria be modified and associated with filing status. IRS made such 

changes to the criteria, effective January 2, 2007. 

IRS’s Procedures to Verify 

SSNs Have Limited 

Effectiveness for AEITC 

Recipients Due to 

Taxpayer Noncompliance 

in Reporting and Filing 

Submission Processing’s procedures have limited effectiveness in verifying

that AEITC recipients have a valid SSN because, as previously noted, many

individuals do not file the required tax return and, for those who do, most 

do not report receipt of the advance.

For both paper and electronically filed returns, Submission Processing 

checks IRS’s Data Master (DM-1) file, which is a database that includes, 

among other things, all validly issued SSNs and the individual’s name 

associated with each SSN. Submission Processing rejects electronically

filed tax returns with an invalid SSN on the Form 1040, including those 

 27 ERS is the system for examining and correcting electronic and paper individual income

tax returns rejected due to taxpayer and processing errors. ERS treats paper and electronic 

returns in the same way. 

Page 24 GAO-07-1110 Advance Earned Income Tax Credit
from taxpayers who received the AEITC, and sends back the tax return to

the taxpayer for correction before processing. For returns filed on paper 

with an invalid SSN on the Form 1040, Submission Processing processes 

the return, but disallows certain credits and exemptions, such as the EITC. 

If the taxpayer’s SSN is invalid and the AEITC is claimed on a paper 

return, Submission Processing processes any AEITC reported. Since the 

AEITC is reported as tax, it will either offset all or part of any refund due 

or, if no refund is due, require the taxpayer to pay back the full AEITC 

amount. 

Thus, of the approximately 514,000 individuals who received the AEITC 

each year between tax years 2002 through 2004, Submission Processing’s 

procedures would apply to about 118,000 taxpayers—those who filed and 

reported receipt of the advance. For nonfilers, Submission Processing 

cannot verify SSNs because there are no tax returns—-the basis of its 

examination. While Submission Processing performs a SSN verification for 

those who file and do not report receipt of the AEITC, it is not effective for

the advance since the advance is not reported on the return. 

Many Taxpayers 

Underreported AEITC and 

IRS Worked on a Limited 

Number of These Cases, 

Some of Which Submission 

Processing Did Not Find 

After a return has been processed, the next point when IRS might identify 

and correct AEITC noncompliance is when it matches tax returns to other 

documents it receives. Overall, each year AUR identifies about 14 million

discrepancies between taxpayer income and deduction information 

submitted by third parties and amounts reported on individual income tax 

returns. AUR has the resources to only work on a fraction of these cases 

each year and uses criteria, such as revenue collection potential, for case 

selection. 

For AEITC, AUR compares the amount of AEITC that employers report on 

a taxpayer’s Form W-2 to the amount reported on an individual’s tax 

return (see fig. 5). AUR receives this information in separate databases 

from SSA and undertakes these comparisons in August and December of 

each year—well after Submission Processing has completed its review of 

the returns and associated Forms W-2.

Page 25 GAO-07-1110 Advance Earned Income Tax Credit
Figure 5: AUR Program Procedures to Resolve Discrepancies between AEITC Amounts on Forms W-2 and Tax Returns 

Generally, AUR does not take action when the AEITC amounts match the 

amounts reported on the return or when the discrepancy does not meet 

IRS case selection criteria. For example, for tax year 2003, our data show 

that there were about 209,000 tax returns where the AEITC amount did not 

match the amount on taxpayers’ Forms W-2, primarily because the returns 

failed to report any AEITC or underreported the amount. AUR identified 

about 25,000 of those cases in tax year 2003 as potential cases on which to 

work. 

In tax year 2003, Submission Processing identified 429 instances where the 

amount of AEITC reported on the tax return was less than the amount on

the Forms W-2, which was much fewer than the about 25,000 mismatches 

detected by AUR that year. The mismatches involving individuals who 

filed paper returns and reported receiving the AEITC should have been 

caught by Submission Processing because its examiners are supposed to 

match the amount reported on the return with the Form(s) W-2. However,

Submission Processing examiners review huge volumes of returns and it 

can be a challenge to identify the relatively few with AEITC. 

Because AUR does not break down its AEITC cases by filers who 

underreport and filers who fail to report any AEITC amount or by filers of 

paper versus electronic returns, it is not possible to determine exactly how 

many AUR cases should have been caught by Submission Processing. AUR 

officials told us that it would be difficult for them to routinely break out 

this information in this way because this would require new computer 

Page 26 GAO-07-1110 Advance Earned Income Tax Credit
programming and the budget for new programming requests was reduced 

for fiscal year 2007. 

In accordance with return processing procedures, if Submission 

Processing identifies an underreporter, it reduces the size of the refund 

that will be sent to the taxpayer. Thus, using Submission Processing, 

rather than AUR, better protects revenue because the erroneous EITC 

amounts are never paid to the taxpayer. If AUR works on the case, it 

assesses the tax owed, but further IRS action is required to collect the 

actual overpayment—through a future refund offset or a current effort to 

collect the refund paid erroneously. 

Although catching AEITC underreporting in Submission Processing would 

better protect revenue than do AUR processes, the benefits to improving 

Submission Processing to catch AEITC errors may already be small and 

could get smaller. This is because the number of EITC returns filed 

electronically is more than 68 percent and has been growing and, as 

previously noted, Submission Processing identifies few mismatches for 

returns that are filed electronically because the electronic Form W-2 is an 

iteration of the user’s entries. In its July 2006 report, the Treasury 

Inspector General for Tax Administration recommended that IRS 

reemphasize the use of the current AEITC review procedures for paper 

returns, but agreed with IRS that it could not implement additional 

procedures for electronic returns because IRS is unable to fully verify the 

accuracy of the Form(s) W-2 during electronic processing of returns. 

AUR worked on about twice as many AEITC cases in tax year 2003 as in 

the previous year. The total amount of tax assessed in these cases in tax 

year 2003 was more than three times the amount in the previous year, and 

the amount assessed per case increased about 71 percent, from $555 to 

$947, which is near the average AUR assessment of about $1,000.28 These 

trends were either holding steady or improving for the 84 percent of tax

year 2004 cases for which we had data when we completed our review. 

The number of cases in which the taxpayer fully agreed with the 

assessment rose from about 29 percent in tax year 2002 to about 41 

percent in tax year 2003. The number of cases in which IRS withdrew the 

assessment, generally after the taxpayer provided documentation that it 

 28 AUR categorizes a case as an AEITC case if AEITC is the primary issue, responsible for at

least 80 percent of the increased tax liability. Thus, the total amount assessed in each 

AEITC case may include other underreported amounts. The total amount assessed is not 

necessarily the total amount that IRS collects from the taxpayer. 

Page 27 GAO-07-1110 Advance Earned Income Tax Credit
was erroneous, dropped from about 15 percent in tax year 2002 to about 4 

percent in tax year 2003.

IRS Works on a Limited 

Number of AEITC Nonfiler 

Cases 

As previously noted, from tax years 2002 through 2004, about 40 percent of 

the individuals who had a Form W-2 reporting that they received AEITC 

did not file a tax return as required by law. 

All nonfiler cases, including AEITC nonfiler and other lower dollar nonfiler 

cases, are eligible to be worked on by IRS’s Wage and Investment and 

Small Business/Self Employed divisions. IRS’s policy dictates that some 

lower dollar cases and even some cases in which nonfilers are due a 

refund may be worked on to ensure that all kinds of cases have the 

possibility of being worked on. Still, a key criterion that IRS uses to 

determine cases on which to work is potential revenue or the anticipated 

net balance due. The higher this amount, the more likely the case will be 

worked on. IRS does not track the total number of nonfiler cases worked 

on or the kinds of income or credits taken by the nonfilers whose cases 

were worked on. Because IRS selects cases based on these criteria, IRS 

officials said they worked on few AEITC nonfiler cases. 

Beyond AEITC nonfiler cases potentially being worked on by Wage and 

Investment and the Small Business/Self Employed divisions, these cases 

are also eligible to be worked on by other IRS programs. For example, the 

automated collection system involves calls from IRS staff to taxpayers 

asking them to file a return or explain why they believe filing is not 

required.29 IRS’s automated substitute for return program involves 

collection staff preparing a tax return on behalf of a nonfiler based on 

third-party and other information that IRS has available. Once a return has 

been created, IRS can act to collect any taxes due. 

During 2005 through 2006, IRS conducted a test to determine whether 

receipt of AEITC should be a criterion to determine nonfiler cases on 

which to work. The test involved working on cases from tax years 2000

through 2003 for 433 taxpayers drawn from a sample of taxpayers who did 

not file a return in tax year 2002, but did receive the AEITC that year, and 

 29 The automated collection system primarily focuses on collecting taxes from taxpayers 

who are delinquent in paying assessed taxes. 

Page 28 GAO-07-1110 Advance Earned Income Tax Credit
whose income was between $35,000 and $50,000 for that year.30 The cases 

were worked on in the same way that IRS works on other nonfiler cases.

In interviews with IRS officials about the AEITC nonfiler test, we found 

that the agency’s test plan lacked documentation and detail, such as test 

justification, likely costs and benefits, and implementation details. It also

lacked a rationale for some important decisions underlying the test and 

some changes implemented after the test began were also not well 

documented. In our report on three tests conducted by IRS in 2004 to 

address leading sources of EITC errors, we noted that the lack of such 

documentation hindered monitoring and oversight and did not foster a 

common understanding of the tests among management and staff.31 One of 

our recommendations was that the rationale for key decisions on such 

tests be documented, and the Commissioner of Internal Revenue agreed 

with that recommendation. 

Because IRS had not completed its evaluation of the test as of June 2007,

the agency has not decided whether AEITC should be a criterion to 

determine nonfiler cases on which to work. Regardless of the agency’s 

decision, however, it is unlikely to significantly reduce the number of 

AEITC nonfilers because any increase in cases worked on would likely 

represent only a small number of such nonfilers, relative to both the total

number of AEITC nonfilers and all nonfiler cases worked on by IRS. 

Collection Handles Few 

AEITC Cases 

All AEITC cases are eligible to be worked on in IRS’s collection program; 

however, it generally does not work on cases involving AEITC because the 

amounts involved are below selection criteria that determine which cases 

to pursue. 

Collection does not keep track of the specific types of income and credits 

claimed by the individuals whose cases they handle. Still, collection 

officials stated that they worked on few, if any, cases involving the AEITC. 

Instead, these cases go into “deferral status,” which means any refund the 

 30 IRS officials said they decided to work on the cases for all 4 years, even if they did not 

involve the taxpayer receiving the AEITC in some of those years so as to bring taxpayers in 

these cases into full compliance. 

31 GAO, Earned Income Tax Credit: Implementation of Three New Tests Proceeded

Smoothly, but Tests and Evaluation Plans Were Not Fully Documented, GAO-05-92 

(Washington, D.C.: Dec. 30, 2004). 

Page 29 GAO-07-1110 Advance Earned Income Tax Credit
taxpayer is due will be reduced until the balance due has been paid off. 

Like other taxpayers with an outstanding tax liability, these taxpayers 

would also get a notice stating how much they owe. 

Collection had an effort under way to work on cases under its selection 

criteria by setting up automatic monthly installment arrangements and 

notifying taxpayers that they were expected to begin paying what they 

owed. Officials said that too many taxpayers ignored the arrangements, 

and as a result, the program was determined to be cost prohibitive. The 

program was therefore discontinued.

IRS annually audits about 500,000 of the more than 21 million tax returns 

that claim the EITC. With only about 3 percent of EITC recipients 

potentially eligible for the advance receiving it, only a small number of the 

audited returns are likely to involve the AEITC.32 When IRS audits tax 

returns claiming the EITC, an examiner is required to determine if the 

taxpayer was eligible for it, whether the taxpayer took the AEITC and, if 

so, whether the taxpayer reported the correct amount. If the examiner 

determines that the taxpayer was not eligible for the EITC, then the AEITC 

is disallowed. 

In addition, Criminal Investigation, which investigates potential criminal 

violations of the tax code and related financial crimes, has identified six 

cases associated with the AEITC since 2001. Five of the six cases involved

refund fraud based on individuals creating fake businesses in order to 

obtain the AEITC. The other case involved a business owner attempting to 

evade employment tax by falsely signing up employees for the AEITC, but 

not including the credit in their paychecks. 

Because IRS’s enforcement resources cannot fully cover all areas of 

noncompliance, including AEITC noncompliance, the agency has tried to 

cost effectively increase voluntary compliance in some areas that involve 

relatively small amounts of money by mailing taxpayers soft notices. Soft

notices are letters that ask taxpayers to comply with a certain requirement 

in the future or, if the notice informs them that they are not entitled to a 

benefit that they received, to file an amended return. 

IRS Audits and Criminal 

Investigation Identified a 

Small Number of AEITC 

Cases 

Soft Notices Have 

Increased Compliance in 

Situations Similar to 

AEITC, but Turnover and 

Difficulty Locating 

Recipients May Limit 

Effectiveness for AEITC 

 32 IRS does not track the number of AEITC cases that are audited. 

Page 30 GAO-07-1110 Advance Earned Income Tax Credit
While IRS officials said there have not been any soft notices specifically

targeting AEITC noncompliance, we reviewed the results of three tests 

that involved taxpayers who were not filing accurately—many of whom 

would not otherwise be subject to an enforcement action. Additionally, 

IRS has modified one soft notice test that includes cost estimates. Each of

the completed soft notice efforts show some benefits in improving 

compliance, however, they may be less effective for AEITC recipients. 

The First Soft Notice Test: The first soft notice—called the “Duplicate

TINs” test—involved different taxpayers claiming the same, or a duplicate, 

TIN for a dependent or qualifying child in order to obtain an exemption, 

the EITC, or child tax credit benefits. In tax year 2002, IRS identified a 

total of about 2.4 million taxpayers who used a duplicate TIN. IRS sent soft 

notices to about 820,000 taxpayers. 

In November 2005, IRS reported that after receiving the soft notice, 11.4 

percent of the population amended their tax year 2002 returns.33 Other 

results focused on taxpayers who received the notice for tax year 2002 and 

whether they repeated the use of a duplicate TIN on their tax years 2003 

and 2004 tax returns. The results were as follows: 

• 84.9 percent did not repeat their behavior in either of the 

ensuing years; 

• 7.7 percent repeated the behavior in 2003, but not again in 2004; 

• 4.0 percent did not repeat the behavior in 2003, but did so in

2004; and 

• 3.4 percent repeated the behavior for both ensuing years. 

Although IRS did not report the costs associated with this test, it did 

estimate the revenue that would have been lost without the soft notices. 

IRS reported that it protected a total of $218.3 million using the Duplicate

TINs test. Due to limitations in the research design, such as not using a 

control group, IRS reported that it was uncertain whether these results 

were solely influenced by the receipt of a soft notice or if other factors 

may have contributed to the change in taxpayer behavior and subsequent 

revenue protected. IRS no longer considers this a test and continues to 

send out soft notices for Duplicate TINs issued each year. 

 33 IRS, Wage and Investment Research Group, Soft Notice for Duplicate TINS for Tax 

Years 2002, 2003, and 2004, 6-05-12-2-030E (Nov. 29, 2005). 

Page 31 GAO-07-1110 Advance Earned Income Tax Credit
The Second Soft Notice Test: The second soft notice test—called the 

“AUR Soft Notice” test—involved filers who underreported small amounts 

of certain categories of income, such as wages, unemployment insurance,

or sales of securities. In December and January 2004 and 2005, 

respectively, IRS sent 500 soft notices to randomly selected taxpayers who 

underreported income on their tax year 2003 returns. IRS also randomly 

selected a control group of 500 taxpayers who underreported small 

amounts, but did not send notices to this group. 

An outside consultant that IRS hired to determine the effectiveness of the 

test reported in October 2005 that (1) soft notices appeared to have a 

beneficial result in reducing repeat behavior and (2) IRS resources were 

not overburdened by the notices.34 Their conclusion was based on several 

results. First, after receiving the soft notice, 71 out of the 500 taxpayers 

(14.2 percent) filed an amended return. Second, only 33 taxpayers (6.6 

percent) who received the notice repeated the underreporting the 

following year. In contrast, 174 taxpayers in the control group (34.8 

percent) repeated their underreporting. Third, the consultants did not 

consider IRS resources to be burdened because only 45 of 500 taxpayers 

(9 percent) called IRS with questions. Similarly, the study found there was 

limited undeliverable mail—only for 3 taxpayers (0.6 percent). An 

additional test was conducted for fiscal year 2006 and had similar positive 

results. IRS is in the process of determining whether it will send out soft 

notices for AUR in the future. 

The Third Soft Notice Test: The third soft notice test—called the 

“Dependent Database” test—involved cases selected for three EITC 

related issues, including qualifying child, filing status, and Schedule C, 

“Profit or Loss from Business,” errors. IRS found that 2.4 million taxpayers 

appeared to have had errors on their tax returns. In November 2005, IRS 

selected about 12,500 taxpayers to determine the impact of soft notices on 

taxpayers’ behavior when filing their tax year 2005 return. About another 

12,500 taxpayers were selected as a control group not to receive the 

notice. 

In its October 2006 report, IRS found that, although there was a difference 

between the test group of taxpayers who received the soft notice and the 

control group that did not, the direct relationship between receiving a soft 

 34 Booz Allen Hamilton, AUR Soft Notice Test Results (Oct. 6, 2005). 

Page 32 GAO-07-1110 Advance Earned Income Tax Credit
notice and taxpayers’ subsequent filing behavior was weak.35 Specifically, 

the report cited that 88 percent of the test group and 86 percent of the 

control group changed their subsequent tax year filing behavior, including 

not breaking the same rule, amending the prior year return, or not filing a 

2005 return. Specific noteworthy results were: 

• 84 percent of the test group and 83 percent of the control group 

filed a return in the subsequent year;

• 46 percent of the test group and 44 percent of the control group 

broke no rules at all; 

• 26 percent of the test group and 25 percent of the control group 

broke a different rule; 

• 12 percent of the test group and 14 percent of the control group 

repeated their behavior the next year by breaking the same rule; 

and 

• 1 percent of the test group and 0.4 percent of the control group 

amended their prior-year return. 

Also in October 2006, IRS modified the Dependent Database test in both 

the Wage and Investment and Small Business/Self Employed divisions to 

target notices to another population, i.e., noncustodian person(s) claiming 

a child. IRS prepared a preliminary cost analysis for this soft notice test 

based on a sample of 300,000 taxpayers. It estimated the total costs of 

sending out 300,000 soft notices to be about $533,000, which included 

$449,000 for the labor to process amended returns and answer telephone 

calls and $84,000 for mailing. Additional information, including the results 

of this test, was not available as of mid-June 2007.

Although IRS did not develop criteria for these soft notice tests about 

what would constitute a success, such as a self-correction percentage, an

IRS official knowledgeable about the tests said the agency considers the 

three completed tests a success, despite the few shortcomings. The first 

and second tests were considered successes because they led to 

noteworthy changes in taxpayer behavior. The third test was considered a 

success because, although taxpayer behavior did not change significantly,

officials considered it a cost-effective way to have an enforcement 

presence among these taxpayers. Officials thought that a soft notice test 

could be beneficial for reducing AEITC noncompliance as well, 

 35 IRS, Wage and Investment Research Group, Dependent Database Soft Notice Report for 

Tax Year 2005, 6-06-12-2-0280E (Oct. 31, 2006). 

Page 33 GAO-07-1110 Advance Earned Income Tax Credit
particularly since the amount of money involved with AEITC is low and 

the noncompliance might not otherwise be addressed by IRS. 

Although soft notices may have some potential to address certain AEITC 

noncompliance, characteristics of the AEITC population might make such 

notices less effective or more costly than for the test populations for two 

reasons. First, AEITC turnover is high. In each tax year 2002 through 2004,

more than half of the individuals were first time recipients. Moreover, 

about 73 percent of first-time AEITC recipients in tax years 2002 and 2003 

did not elect the AEITC the following year and, thus, would not repeat 

noncompliance related to the AEITC.36 Second, almost 40 percent of 

AEITC recipients do not file a tax return, which means that IRS may not 

have a current address for those taxpayers. If IRS were to send soft 

notices to AEITC nonfilers using the last known address, a significant 

number of individuals may no longer reside there. This means IRS might 

not be able to locate them or it might spend additional resources trying. 

Federal On-Line SSN 

Verification Services Could 

Be Used to Determine 

AEITC Eligibility, but IRS 

and SSA Have Raised 

Concerns

More than 100,000 AEITC recipients had invalid SSNs and reported 

receiving millions of dollars in total benefits for each tax year 2002 

through 2004 without any substantial check of their eligibility. Because of 

the low-dollar amounts involved per taxpayer, IRS worked on only a small

number of these cases. IRS does not have an up-front control or procedure 

in place to require employers to verify that an employee seeking the 

AEITC has a valid SSN, which could address this noncompliance. Two 

federal on-line services have the potential to be used to implement such 

controls. Although the services could be used for this purpose, IRS and 

SSA officials raised several concerns about implementing such a 

requirement. 

The TIN Matching service and SSNVS are federal on-line services that 

some private organizations may use voluntarily to verify whether federal 

 36 There are different ways to calculate turnover. We considered it to be first time use 

within a 6-year period. To provide additional information, we also compared the number of 

first-time AEITC recipients who did not elect the advance in tax year 2003 with the total

number of first-time AEITC recipients in tax year 2002. We made the same comparisons 

for the following year. 

Page 34 GAO-07-1110 Advance Earned Income Tax Credit
records show that the name and SSN provided by an individual match.37

TIN Matching is a pre-return filing service offered by IRS that allows those 

payers whose income is subject to backup withholding, who submit any of 

six Form 1099 information returns (e.g., financial institutions), to match 

the TIN of the 1099 payee against IRS records.38 It is one of several eservice products offered by IRS. The goal of TIN Matching is to improve 

the accuracy of Form 1099 data and reduce subsequent inappropriate 

penalties and error notices. SSNVS is a service offered by SSA that allows 

registered users (i.e., employers or, in certain instances, their third-party 

representatives) to verify the names and SSNs of employees against SSA 

records.39 The AEITC is outside the scope of SSA’s responsibilities, and 

SSNVS is a voluntary service that is currently used only to increase the 

accuracy of wage reporting on Forms W-2. 

IRS and SSA officials identified a number of challenges that the agencies 

and employers may face if the TIN Matching service or SSNVS were used 

to verify AEITC eligibility. 

Accuracy: Both the TIN Matching service and SSNVS are based on SSA

records and have high rates of accuracy in terms of determining whether 

submitted names and SSNs match. Still, IRS and SSA officials had 

concerns about whether these rates were high enough for purposes of 

verifying AEITC eligibility. IRS officials told us that the TIN Matching 

service is about 98 percent accurate. A December 2006 report by the SSA 

Office of Inspector General sampled more than 2,000 determinations by 

SSA’s Numident file—the database upon which SSNVS is based—and 

 37 The Department of Homeland Security operates a voluntary program known as

Employment Eligibility Verification, formerly known as Basic Pilot, through which 

participating employers enter employee information, such as name and SSN, into the Web

site to verify newly hired employees’ work authorization status. The program then attempts 

to match that information against SSA and, if necessary, Department of Homeland Security

databases. We did not examine Employment Eligibility Verification as part of this report

because we have identified several weaknesses in the program’s implementation that could 

adversely impact increased use. See GAO, Immigration Enforcement: Weaknesses Hinder

Employment Verification and Worksite Enforcement Efforts, GAO-06-895T (Washington,

D.C.: June 19, 2006). 

38 Financial institutions and other businesses that make certain payments must file a Form

1099 with IRS. Generally, these payments are not subject to withholding unless certain 

conditions exist, one of which is an invalid taxpayer identification number. 

39For the purposes of this report, SSN validity with regard to SSNVS includes instances

where a name matches its SSN as verified by SSA records. 

Page 35 GAO-07-1110 Advance Earned Income Tax Credit
found a name and SSN match accuracy rate of more than 99 percent.40 Still, 

SSA officials said that if SSA records were used to verify AEITC eligibility, 

they might want to subject an employee’s name and SSN to more 

“routines”—procedures such as correcting for transposed numbers that 

SSA uses to increase the likelihood of a match—than is currently done by

SSNVS. IRS officials told us that when the agency was informally 

considering a proposal to charge a fee for using the TIN Matching service, 

several IRS officials knowledgeable about the database opposed the idea 

because they did not believe it was accurate enough that users should 

have to pay for it. 

Accuracy concerns, however, do not preclude IRS or SSA from using SSA 

records to make an initial determination about whether individuals who 

may claim credits or benefits have demonstrated that they are entitled to 

them. For example, as previously noted, IRS rejects electronically filed tax 

returns with a name/SSN mismatch and returns them to the taxpayer for 

correction. For paper returns reporting AEITC receipt that have a 

name/SSN mismatch, IRS processes the returns, but since the AEITC is 

reported as tax, it will either offset all or part of any refund due or, if no 

refund is due, require the taxpayer to pay back the full AEITC amount. 

Similarly, SSA instructs its claims representatives that if the identity of a

claimant for Social Security benefits or Supplemental Security Income 

benefits remains questionable because the individual has not provided 

sufficient proof to establish his or her identity, the claim will be denied 

even if other factors of eligibility are met.41

Additional employer responsibilities: IRS and SSA officials said a 

major concern about employers using either service was whether a 

name/SSN mismatch would create new responsibilities for employers 

beyond informing the employee and denying the AEITC. IRS officials also 

expressed concern that requiring employers to use the services for AEITC 

 40 SSA, Office of Inspector General, Accuracy of the Social Security Administration’s

Numident File A-08-06-26100 (December 2006). When SSA assigns an SSN to an individual, 

the agency creates a master record in its Numident file, which contains information about

the number holder, including the person’s name. Thereafter, the Numident record for each

number holder identifies any changes to the original information provided by the number 

holder, including name changes.

41 Supplemental Security Income is a federal program administered by SSA designed to 

provide cash for food, clothing, and shelter to aged, blind, and disabled people who have 

little or no income. 

Page 36 GAO-07-1110 Advance Earned Income Tax Credit
would discourage them from promoting the AEITC and perhaps encourage 

them to dissuade employees from seeking it. Under current procedures for 

using the TIN Matching service and SSNVS, employers are not required to

take any action based on the results they receive.

IRS officials expressed concern that a June 2006 regulation proposed by 

the Department of Homeland Security could expressly list employer 

receipt of a “no match” letter from SSA as possible evidence that the 

employer knew or should have known that it was employing an individual

not authorized to work in the United States.42 Under the proposed 

regulation, if the employer fails to take reasonable steps to resolve the 

discrepancy after receiving the letter, the Department of Homeland 

Security may find that the employer had such knowledge and assess civil 

monetary penalties against the employer. 

The proposed Department of Homeland Security regulation describes 

“safe harbor” procedures that the employer can follow in response to the 

letter. Those steps include the employer promptly checking its records for 

clerical errors and obtaining required documentation by working with the 

employee, SSA, and the Department of Homeland Security. If the 

name/SSN mismatch cannot be resolved, the employer would have to

choose between terminating the employee or facing the risk that the 

Department of Homeland Security may find that the employer knew that 

the employee was not authorized to work and, by continuing to employ the 

individual, violated the law. 

While the proposed Department of Homeland Security regulation covers 

only no match letters, IRS and SSA officials expressed concern that the 

regulation could be expanded to include name/SSN mismatches disclosed 

by the TIN Matching service or SSNVS. Under current law, existing and 

prospective users who are concerned that matching could be used for 

purposes beyond improving the accuracy of Form 1099 data or wage 

reporting can voluntarily cease using, or not start using, the systems. IRS 

and SSA officials noted, however, that employers would no longer have

this choice if they were required to use one of these services to verify an

AEITC applicant’s SSN. 

 42 As of June 2007, this proposal was still outstanding. SSA sends “no match” letters to 

employers who submit more than 10 Forms W-2 to SSA or when more than 0.5 percent of

these wage reports consist of a name and SSN combination that do not match SSA records. 

Page 37 GAO-07-1110 Advance Earned Income Tax Credit
In addition, existing Department of Homeland Security guidance for 

employers on the interaction between antidiscrimination laws and legal

requirements for verifying employment eligibility states that employers 

must treat all employees in the same manner. Employers cannot set 

different employment eligibility verification standards or require that 

different documents be presented by different groups of employees. If 

mandatory verification of AEITC applicants’ SSNs created additional 

employer responsibilities under employment eligibility verification 

requirements, this result could be inconsistent with efforts to ensure that 

verification procedures apply to all employees. 

SSA’s position on SSNVS is that a name/SSN mismatch does not make any 

statement about an employee’s immigration status and should not be a 

basis for taking any adverse action against the employee. SSA officials also

expressed reservations about SSNVS results being used to terminate 

employees. 

Capacity and User Access: IRS and SSA officials said changes to the 

capacity and user access of the TIN Matching service or SSNVS would 

either be unnecessary or minor if employers used them to verify SSNs of 

employees seeking AEITC, although the officials said their agencies might

favor creating a new service for this purpose instead. They told us that 

their systems have the capacity to handle the increased volume of requests 

that would result from this expanded use. Because both services already 

are used to verify SSNs, IRS and SSA said any changes to how the services 

are accessed and used would also probably not be extensive.

Both SSNVS and TIN Matching are Web-only services.43 To use one of the 

services, the employer designates one or more employees or third-party 

representatives to register on behalf of the employer. The initial 

registration for both the TIN Matching service and SSNVS is handled in a 

similar way and may take as long as 4 weeks: 

• Registrants go to the agency’s Web site and provide information 

about themselves and their employers on a form, which they 

send electronically to the agency. 

 43 Both IRS and SSA have toll-free telephone numbers listed on their Web sites that those 

looking for help with the particular service can call to speak with agency staff and get help. 

Page 38 GAO-07-1110 Advance Earned Income Tax Credit
• The agency sends the employer of the registrant a unique code. 

The letter directs the employer to provide that code to the 

registrant. 

• After receiving the code, the registrant can go back to the 

agency Web site and input the code to activate use of the 

service. 

TIN Matching registrants who do not use it for 6 months must reregister, 

primarily to receive a new password and update any of the information 

provided during the registration. SSNVS requires registrants to change 

their password once a year to keep it from expiring, which also requires 

reregistration. 

IRS and SSA officials told us that the great majority of users of their 

respective services generally report that they are not difficult to use for 

either the registration process or ongoing use. IRS officials said users 

access TIN Matching voluntarily and that some, particularly from smaller 

organizations, appear more likely to find it burdensome than users from

larger organizations. We found that more than half the employers that 

provided the AEITC in tax years 2002 through 2004 were small businesses 

or self- employed and about one-quarter were tax exempt and government 

entities. In addition, despite IRS’s efforts to outreach to large employers, 

fewer than one-fifth were large and midsize employers (see table 20 in app. 

III). IRS officials said TIN Matching service users who found the 

registration process burdensome were generally those who reported to 

IRS that they were not use to filling out forms on-line and creating and 

using passwords. The officials also said that some TIN Matching users 

reported being uncomfortable having to provide personal information to 

register. 

SSA officials said SSNVS is used mostly by larger employers, and a 

relatively small number of them reported that they found the service 

burdensome. SSA officials did say, however, that SSA received about 

89,000 calls through June 2007 from individuals about registration. And, an 

SSA official said that small business representatives with whom he has 

recently spoken expressed frustration with the overall number of tasks 

that the federal government was already requiring them to perform and, 

therefore, might be reluctant to verify SSNs. 

IRS officials also told us that the TIN Matching service is not programmed 

to track users, which likely would be useful to IRS for enforcement 

purposes. Still, IRS officials added, that the service could be modified to 

track employers that used the services for AEITC purposes and report on 

Page 39 GAO-07-1110 Advance Earned Income Tax Credit
the results. SSNVS tracks its users to determine whether the service is 

being properly used. 

Additional resources: IRS and SSA officials said that if employers were 

required to begin using their respective services to verify the SSNs of 

employees seeking the AEITC, the agencies would need additional 

resources. For example, officials from both agencies cited the need to

handle questions from new users, particularly in the first year when all 

individuals seeking the AEITC would be required to have their names and 

SSN’s matched.44

When we told IRS officials that our data showed that about 50,000 

employers had at least one AEITC recipient, they said such an increase in

the number of registrants could require IRS to increase the number of staff 

available to answer user questions. But they said they could not estimate 

how many more staff would be necessary. 

IRS officials also said they were trying to make the reregistration process 

easier because they received a substantial number of calls from users who

needed to reregister. This would be important for AEITC-related use of 

TIN Matching because employers with only one or two employees seeking 

the AEITC would only need to use the service once or twice a year, 

making it likely that they would have to reregister. 

SSA officials told us that if the agency was considering or was directed to 

make its SSN records available for the purpose of verifying AEITC 

eligibility, SSA would have to devote additional resources to conduct a 

comprehensive assessment to determine the changes necessary to SSNVS 

to properly achieve this goal, including possibly creating a different 

service for assessing AEITC eligibility and buying a new database server to 

handle the increased volume of users. Again, SSA officials could not 

estimate how many more staff would be necessary. 

New federal legislation: Enactment of federal legislation would be 

needed for employers to begin using the TIN Matching service to verify the

 44 The higher volume of questions in the first year assumes that employees whose name and 

SSN matched and who sought the AEITC from the same employer in a subsequent year 

would not be required to undergo a second match. 

Page 40 GAO-07-1110 Advance Earned Income Tax Credit
SSNs of their employees seeking the AEITC.45 In 2000, the Department of 

the Treasury recommended to the Congress that TIN verification be 

expanded to include other payers subject to an IRS reporting requirement, 

such as employers who file Forms W-2.46

It is uncertain whether IRS could require employers to use SSNVS to verify 

the SSNs of employees seeking the AEITC. SSA officials said they would 

need to determine whether SSA’s disclosure of SSN data is compatible 

with the reason it collected the information and, if so, whether verifying

SSNs via SSNVS for purposes of AEITC eligibility is consistent with SSA’s 

legal obligations. Both Treasury and SSA officials said their agencies 

would strongly prefer enactment of legislation before requiring employer 

or any verification of SSNs of employees seeking the AEITC. 

Employee appeal of mismatch: One difference between using the TIN 

Matching service or SSNVS would occur when an employee claimed that a

name and SSN mismatch was inaccurate. IRS and SSA officials said 

employees who questioned a SSN mismatch would presumably contact 

IRS, which would send them to SSA to resolve the issue because the TIN

Matching service is based on SSA records. IRS officials said that, in 

contrast, employees questioning a name and SSN mismatch generated by

SSNVS would presumably go directly to SSA. 

Agency mission: SSA officials also said that verifying eligibility for the 

AEITC is most appropriate for IRS because it is a tax administration issue 

and is therefore outside the scope of SSA’s mission. However, it is not 

unusual for agencies to assist other federal agencies in carrying out their

mission. SSA officials also said that, regardless of which service was used, 

IRS would have full administrative responsibility for overseeing a program 

for employers to verify AEITC applicants’ SSNs. 

 45 Internal Revenue Code Section 6103 prohibits the disclosure of information on tax 

returns, including SSNs, unless permitted by a specific exception. Because there is no

exception for the verification of SSNs by employers, legislation would be needed to use the 

TIN Matching database for this purpose.

46 Office of Tax Policy, U.S. Department of the Treasury, Scope and Use of Taxpayer

Confidentiality and Disclosure Provisions October 2000. Such a provision was included 

in S. 1321, 109 Cong. Sec. 509 (2006). 

Page 41 GAO-07-1110 Advance Earned Income Tax Credit
IRS does not require employers to submit a Form W-5 when an employee 

requests receipt of the AEITC. Several advantages and disadvantages exist 

if IRS creates a Form W-5 database to use in monitoring AEITC 

noncompliance issues. 

IRS could require employers to submit a Form W-5 when an employee 

requests receipt of the AEITC. In turn, IRS could use the Forms W-5 to 

create a database to monitor the AEITC. The database could be used to 

ensure that the SSN provided on the Form W-5 is valid and that it matches 

the individual’s name. Doing such a check could have prevented more than 

100,000 individuals from receiving as much as between $37 million and $39 

million each year in AEITC to which they were potentially not entitled 

because of not meeting the valid SSN requirement. Such a database could

also allow IRS to know which individuals received the AEITC and provide 

the agency with an opportunity to send recipients a notice at the start of 

the next filing season reminding them to file a federal tax return. A 

reminder to file notice could likely reduce noncompliance for up to about 

200,000 individuals who received between $42 million and $50 million each 

year in AEITC without filing a federal tax return. Similarly, IRS officials 

could use a W-5 database to verify other AEITC requirements, such as 

ensuring that each recipient has only one Form W-5 in effect at a time. 

This check could reduce the probability that individuals would receive

more than the yearly AEITC maximum. 

IRS Does Not Require 

Submission of Forms W-5 

from Employers for 

Employees Seeking the 

AEITC 

While acknowledging that potential advantages exist to developing and 

maintaining a Form W-5 database, IRS officials said that the disadvantages 

could outweigh these and any other advantages. Although IRS officials 

said it was too early in the proposal process to calculate the database’s 

potential costs and subsequent return on investment, they said it very

likely would be substantially lower than the return on investment for 

either existing or anticipated future noncompliance programs. For 

example, IRS estimates the current return on investment for EITC 

Examination noncompliance is between $17 to $1 and $19 to $1. Although

these amounts only include labor and do not include overhead such as 

facilities, equipment, and supplies, officials felt confident that the EITC 

return on investment would far exceed that for the AEITC. Their opinion 

was largely based on the few dollars involved with the AEITC, especially

compared to other noncompliance programs. 

Page 42 GAO-07-1110 Advance Earned Income Tax Credit
In addition, IRS officials expressed concerns that employers would not 

submit Forms W-5 to IRS. Officials raised an analogy between this 

proposal and the prior Questionable W-4 program.47 As we reported in 

2003, about 75 percent of the large employers with 1,000 or more 

employees in IRS’s Large and Medium-Size Business and Small 

Business/Self Employed divisions who filed tax returns in tax year 2001 

did not send IRS any questionable Forms W-4.48 After our report, IRS 

discontinued the Questionable W-4 program. Additionally, officials noted

that requiring employers to submit Forms W-5 may discourage them from 

participating because if the employer was notified that the SSN on a Form 

W-5 was invalid or that it did not match the employee’s name, employers 

would likely have a responsibility to discuss the matter with the employee, 

creating yet another new burden employers would not want to accept. 

Finally, employers may not participate because if the employee left the 

employer during the year, the employer would again have to contact IRS 

so the Form W-5 database could be updated. 

Options to Reduce AEITC 

Noncompliance May Be 

Cost Effective 

Although we do not know how successful the various options we have 

identified for improving AEITC compliance may be if implemented or 

what the full cost of implementation would be, IRS may be able to achieve

a return on investment somewhat comparable to that for EITC 

examinations. We found an average of about $94 million a year in AEITC 

noncompliance for recipients in tax years 2002 through 2004.49 If a 

compliance effort could reduce AEITC noncompliance by one-quarter, that 

is, $24 million per year, IRS could spend about $1.3 million each year to do 

so and achieve a $19 to $1 return on investment.50 Alternatively, IRS 

estimated that it would cost about $533,000 to send soft notices to 300,000 

taxpayers during the Dependent Database test. If IRS were to test sending

soft notices for AEITC and it cost IRS about the same amount to send 

notices to 300,000 noncompliant AEITC recipients, IRS would only need to

 47 The Questionable W-4 program required employers to submit information to IRS on

taxpayers who claimed more than 10 withholding allowances or exemptions. 

48 GAO, IRS’s Questionable Form W-4 Program, GAO-04-79R (Washington, D.C.: Nov. 6,

2003). 

49 The number includes AEITC amounts received by nonfilers, filers who misreported the

amount received, and individuals with invalid SSNs. 

50 This estimate is illustrative only and many variables could affect how successful any 

compliance effort would be and the cost of implementing an effort. 

Page 43 GAO-07-1110 Advance Earned Income Tax Credit
reduce AEITC noncompliance by about 11 percent (about $10 million) to 

achieve a $19 to $1 return on investment. 

If the advance option were discontinued, eligible AEITC recipients could 

still receive the full benefits of the EITC as a lump sum after filing their tax 

return. In addition, improper AEITC payments to ineligible or 

noncompliant individuals would be eliminated. The exact amount of 

revenue that could be saved is not known. However, in determining an 

amount, IRS officials said they would consider the following: the amount

of AEITC disbursed compared with the amount shown on filed tax returns, 

the cost of administering the AEITC (e.g., forms and publications, 

processing, compliance activities), and any amount currently recovered 

through compliance activities. 

The AEITC has never achieved a significant participation rate, the amount 

recipients received in the period we reviewed was quite low, and 

noncompliance was high. However, policymakers may judge that the goal

of providing funds to low-income workers during the year, as opposed to a 

lump sum that they could get as part of the EITC when filing their taxes, 

remains important and should continue to be allowed. If so, IRS needs to 

pursue potentially cost-effective measures to address AEITC 

noncompliance. 

Eligible Taxpayers Could 

Receive Full EITC Benefits 

If the Advance Option 

Were Discontinued 

Conclusions 

Each of the three options we identified for improving AEITC 

compliance—using soft notices, having up-front verification of AEITC 

applicants’ SSNs by employers, or requiring employers to submit copies of 

the Form(s) W-5 and creating a database to monitor AEITC—appears to 

have potential to improve compliance, but their full benefits and costs 

need to be evaluated and, if possible, tested. Soft notices have improved 

compliance in other tax programs but they could be somewhat less 

effective in improving AEITC compliance, in part, due to its high turnover

rate. The TIN Matching service and SSNVS have the potential to reduce 

AEITC noncompliance by enabling employers to verify workers’ SSNs 

before providing them the AEITC. Differences exist between the two 

services, but either could likely be used for AEITC SSN verification. Both

services are based on SSA records that are already deemed accurate 

enough such that SSA and IRS make decisions based on them to disallow 

certain exemptions and credits until eligibility has been properly 

demonstrated. Significant concerns exist, however, such as the need for 

legislation authorizing either the use of TIN Matching or SSNVS for AEITC. 

This and other issues would need to be further explored as the costs and

Page 44 GAO-07-1110 Advance Earned Income Tax Credit
benefits of employers verifying employees’ SSNs are fully identified. If IRS 

required employers to submit copies of the Form W-5 when an employee

requests the AEITC, IRS could create a database to better monitor and 

address all three of the noncompliance problems we analyzed. However, 

imposing additional responsibilities on employers for both the SSN 

verification option and the Form W-5 database option have the potential to 

adversely affect the AEITC’s already low participation rate if employers 

avoid providing the AEITC due to increased responsibilities on their part. 

Due to the relatively small size of the AEITC overall, combined with the 

low dollar amounts per taxpayer, IRS officials are concerned that 

addressing AEITC noncompliance may provide less return on IRS’s 

enforcement efforts than would addressing other noncompliance issues. 

However, IRS may be able to achieve returns on AEITC enforcement that 

would not be significantly out of line with returns on other enforcement 

work. For example, it cost IRS about $533,000 to send soft notices to 

300,000 taxpayers in the Dependent Database test. If IRS were to test 

sending soft notices for AEITC and it cost IRS about the same amount to 

send notices to 300,000 noncompliant AEITC recipients, IRS would need 

to reduce noncompliance by about 11 percent (about $10 million) to 

achieve a $19 to $1 return on investment. 

The Acting Commissioner of Internal Revenue should analyze whether any 

of the following options could cost effectively and significantly reduce

AEITC noncompliance: 

Recommendations for 

Executive Action 

• sending potentially noncompliant AEITC recipients soft notices, 

such as to nonfilers whose Forms W-2 show that they received

AEITC and filers who misreported the amount they received or 

whose SSN and name do not match;

• requiring employers to verify the SSN of employees seeking 

AEITC; or 

• requiring employers to submit Form W-5 to IRS and IRS 

creating and maintaining a database for these forms. 

To better identify the costs and implementation issues as well as the 

likelihood for these or other options to reduce AEITC noncompliance,

where practical, the Acting Commissioner of Internal Revenue should test 

these options to make a more fully informed judgment about whether any 

would be worthwhile. 

If the Acting Commissioner of Internal Revenue determines that none of 

these options would be cost effective and no other remedies are viable, 

Page 45 GAO-07-1110 Advance Earned Income Tax Credit
then the Treasury Secretary should inform the Congress of this and 

provide Treasury’s opinion about whether the AEITC should be retained.

The Acting Commissioner of Internal Revenue provided written comments 

in a July 18, 2007 letter. He agreed with our recommendation and outlined

the actions IRS would take to address that recommendation, including 

conducting further analyses and possible testing of proposed options for 

reducing AEITC noncompliance. He also stated that IRS will conduct its 

cost-benefit analyses in conjunction with a congressional requirement to 

study the impact of expanding eligibility of the AEITC to all EITC 

recipients. We also provided a draft of this report to the Department of the 

Treasury and SSA and incorporated technical comments where 

appropriate. SSA emphasized that verifying eligibility for the AEITC is 

most appropriate for IRS because it is a tax administration issue and 

therefore outside the scope of SSA’s mission. 

As agreed with your offices, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days after its 

date. At that time, we will send copies of this report to the Secretary of the 

Treasury, the Commissioner of the Social Security Administration, the 

Acting Commissioner of Internal Revenue, appropriate Congressional 

committees, and other interested parties. This report is available at no 

charge on GAO’s web site at http://www.gao.gov. 

Agency Comments 

If you or your staffs have any questions, please contact me at (202) 512-

9110 or brostekm@gao.gov. 

Michael Brostek 

Director, Tax Issues 

Strategic Issues Team 

Page 46 GAO-07-1110 Advance Earned Income Tax Credit
Appendix I: IRS’s Implementation of 

Recommendations from GAO’s 1992 Report on Appendix I: IRS’the Advan s Implementation of ce Earned Income Tax Credit 

Recommendations from GAO’s 1992 Report 

on the Advance Earned Income Tax Credit 

After analyzing IRS’s responses to our recommendations in our 1992 

Advance Earned Income Tax Credit (AEITC) report, we determined that 

IRS has implemented five of the six recommendations to the 

Commissioner of Internal Revenue from our 1992 report on the AEITC and 

partially implemented the remaining one (see table 8). 

Table 8: IRS Implementation of Recommendations from GAO’s 1992 Report on the Advance Earned Income Tax Credit 

Number Recommendation Status IRS implementation

1 Include information on AEITC in employee 

outreach materials and programs. 

Implemented Developed publicity materials. 

2 Notify taxpayers who receive the Earned 

Income Tax Credit (EITC) about the advance

option. 

Implemented Revised Form W-2 and Notice 797 to contain 

information on how to apply for the AEITC and 

developed radio and television announcements on 

the AEITC. 

3 Encourage employers to notify employees 

who have no income tax withheld of the 

advance option.

Implemented Added text to the face of the Form W-4 

instructions advising employees to consider the 

AEITC. 

4 Clarify instructions on AEITC in “Circular E, 

Employer’s Tax Guide.” 

Implemented Clarified employers’ responsibilities and liabilities 

in advancing the EITC in the 1993 “Circular E,

Employer’s Tax Guide.” 

5 Send, to individuals who do not file tax 

returns, a notice explaining their requirements

to file. 

Partially Implemented Included information on the AEITC in a reminder to 

file notice until 1997 and added a separate AEITC 

box on Form W-2. 

6 Explore ways to identify those individuals who 

receive the credit advance, but do not report it, 

so as to prevent them from receiving the credit 

a second time. 

Implemented Added a line on the Form 1040 for taxpayers to 

report AEITC received and redesigned the Form 

W-2.

Source: GAO analysis of IRS data. 

Our first recommendation was for the Commissioner of Internal Revenue

to include information on AEITC in employee outreach materials and 

programs. IRS implemented this recommendation primarily by developing 

publicity materials (i.e., grocery bags, milk carton art, brochures, posters) 

and distributing them to the public. 

For the second recommendation, IRS stated that it did not have the 

approximately $2 million in funding that the agency said would have been 

required to notify all taxpayers who receive the EITC, but did not elect the 

advance option. Instead, IRS took other actions including revising the 

Form W-2 in 1992 to contain information on how to apply for the AEITC 

and IRS Notice 797, “Possible Federal Tax Refund Due to the Earned 

Income Credit,” to include information on how to apply for the AEITC. 

Page 47 GAO-07-1110 Advance Earned Income Tax Credit
Appendix I: IRS’s Implementation of 

Recommendations from GAO’s 1992 Report on

the Advance Earned Income Tax Credit 

For our third recommendation, IRS noted that it could encourage 

employers to make such notifications, but that there are no statutory 

sanctions on employers who fail to do so. Beginning in 1992, IRS placed 

text on the face of the Form W-4 instructions advising employees to 

consider filing a Form W-5 with their employer to obtain the advance 

through lower withholding. 

For our fourth recommendation to clarify instructions on the AEITC in 

“Circular E, Employer’s Tax Guide” IRS did so through the inclusion of 

new examples explaining to employers how they should make advance 

payments to employees and how employers can report these amounts. 

Our fifth recommendation was for the IRS Commissioner to send 

individuals who received the AEITC and do not file tax returns a notice 

explaining the requirement to file. IRS partially implemented this 

recommendation by including information on advance payment in a 

reminder to file notice and adding a separate AEITC box on Form W-2. IRS 

did not track the number of AEITC nonfilers who received the notice. The 

reminder to file notice was only sent until 1997 and IRS officials were 

uncertain why that notice was discontinued. 

The last recommendation was for exploring ways to identify those 

individuals who receive the credit in advance but do not report it. IRS 

pointed out that its systems were not geared to detecting unreported 

AEITC payments at the time the returns are processed and the best 

approach to preventing noncompliance by AEITC payment recipients is a 

proactive one that recognizes the filing of correct returns. IRS 

implemented this recommendation by providing a separate line on Form 

1040 on which to report AEITC payments and redesigning the Form W-2, 

for tax year 1993, which it believed would increase the accuracy of the

AEITC payment information reported on Form W-2. Our work in this 

report demonstrates a continuing need to explore additional compliance 

initiatives aimed at those who receive the AEITC, but do not report it on 

their tax return. 

Page 48 GAO-07-1110 Advance Earned Income Tax Credit
Appendix II: Scope and Methodology Appendix II: Scope and Methodology 

To answer the first and second objectives: 

• how many individuals received the Advance Earned Income Tax Credit 

(AEITC) compared with the Earned Income Tax Credit (EITC) and 

how much did they receive in tax years 2002 through 2004; what 

actions, if any, have been taken to increase use since 1992; and what is 

the potential for significant increases in the future; and 

• what is the extent of noncompliance, if any, associated with the AEITC; 

we obtained a data file of all Forms W-2, “Wage and Tax Statement,” for 

tax years 1999-2004 indicating AEITC payments as shown by an amount 

greater than $0 in box 9 of the Form W-2 from the Internal Revenue

Service (IRS).1

 We used these tax years because they were the most 

current available at the time we started our review. The Form W-2 

identified key information, including the AEITC recipient’s name, address, 

Social Security number (SSN), and amount of AEITC dollars paid, as well

as the employer’s name and address. 

To determine the number of individuals who received the AEITC, we used 

Forms W-2 instead of tax returns, which IRS has historically used to 

estimate AEITC use. We used this alternate approach because we believe

the Forms W-2 provide results that are more accurate and complete.2

 For 

example, using Forms W-2 would include in the population of AEITC 

recipients those who received AEITC, but did not file a return, and those 

who filed a return, but did not report any AEITC. Using tax returns would 

not capture these individuals or related noncompliance issues. In addition, 

using tax returns counts instances where both spouses receive the AEITC 

and file jointly on one return as opposed to two individuals. IRS’s 

Research, Analysis, and Statistics and EITC program office officials agreed

with our methodology. 

We performed data reliability tests on the data file to determine whether 

the data were sufficiently reliable for our intended purposes. We did this 

testing, in part, by conducting preliminary analyses, which identified 

certain data irregularities or anomalies. We identified two noteworthy 

 1

The AEITC amount on the Form W-2 is what an employer reported paying to an employee.

While this is not necessarily evidence that the employee actually received that amount, IRS 

considers the Form W-2 the official wage and tax statement and makes adjustments to the

tax return based on the Form W-2 when discrepancies exist.

2

An individual who had more than one Form W-2 reporting AEITC for a particular year was

counted as only one individual and the amount of AEITC paid was totaled. 

Page 49 GAO-07-1110 Advance Earned Income Tax Credit
Appendix II: Scope and Methodology 

anomalies in the data file: (1) excessive AEITC dollar amounts and (2) 

invalid AEITC recipient SSNs. First, many Forms W-2 showed that 

employees received amounts over the allowable limits. A few even showed

individuals each receiving about $1 million in AEITC—amounts clearly 

above AEITC legal limits and which IRS officials said would be 

improbable, potentially resulting from transcription errors. Second, we 

also found some instances where the SSN and/or name on the Form W-2 

were invalid, which means that the number was never issued by SSA or 

that the name and number on the Form W-2 did not match the listed name 

for that same SSN in official records maintained by IRS. We compared the 

number and name information on the Form W-2 to the National Account 

Profile to evaluate the validity of that information and to identify any 

possible subsequent corrections.3

To address these data anomalies, we separated the Form W-2 file into four

subpopulations using the following three criteria: whether (1) the SSN on 

the Form W-2 was valid, according to Data Master File (DM-1); (2) the SSN 

and the recipient’s name on the Form W-2 matched, according to DM-1; 

and (3) the amount of AEITC received was in excess of the yearly 

maximum.4

 Each of the subpopulations had a unique profile, as follows:5

1. Valid subpopulation: This group of Forms W-2 represents all 

individuals (1) that had a valid SSN, meaning that it was a number 

issued by SSA, (2) whose name matches the SSN, and (3) that had an 

AEITC amount within the yearly maximum. More than 75 percent of 

the Forms W-2 on average during tax years 2002 through 2004 were in 

this subpopulation. 

2. Invalid name subpopulation: This group of Forms W-2 represents all 

individuals that had (1) a valid SSN (2) a SSN that did not match the 

individual’s name and (3) the AEITC amount was within the yearly 

 3

 The National Account Profile incorporates the DM-1 from SSA, which is the primary 

source file for all SSNs. The National Account Profile also includes additional SSN change 

information available to IRS to show the most current and complete taxpayer information.

4

 The AEITC maximum limits for tax years 1999-2004 were: $1,387, $1,412, $1,457, $1,503, 

$1,528, $1,563, respectively. These amounts are limited if two married individuals both elect 

the AEITC. 

5

 While each subpopulation contains a unique set of Form W-2s, during tax years 2002-2004 

there were 856 Form W-2s that appear in both the valid and invalid name subpopulations. 

This could occur due to variations in how the name is spelled or reported by the employer

and/or due to timing differences in reporting and updating name changes to SSA. 

Page 50 GAO-07-1110 Advance Earned Income Tax Credit
Appendix II: Scope and Methodology 

maximum. About 17 percent of the Forms W-2 fell in this 

subpopulation for each of the 3 years we reviewed. 

3. Invalid number subpopulation: This group of Forms W-2 represents 

all Forms W-2 that had an invalid SSN and an AEITC amount that was 

within the yearly maximum. About 7 percent of the Forms W-2 during 

tax years 2002 through 2004 were in this population.6

4. Dollar limit subpopulation: This group of Forms W-2 represents all 

instances where the AEITC amount was above the yearly maximum, 

regardless of whether the SSN was invalid or if the individual’s name 

matched the SSN. This represented less than 1 percent on average of 

all Forms W-2 in each of the 3 years we reviewed. Because IRS officials 

told us these data were likely erroneous, we excluded it from most of 

our analyses, and IRS officials agreed.

Table 9: Number of Forms W-2, Number of Individuals, and the Dollars for Each Subpopulation, Tax Years 2002 through 2004 

Tax year 2002 Tax year 2003 Tax year 2004

Number 

of 

Forms

W-2

Number of 

individuals Dollars

Number 

of 

Forms

W-2

Number of 

individuals Dollars

Number 

of 

Forms

W-2

Number of 

individuals Dollars

Valid 

subpopulation 

(percentage) 

488,007 

(74%) 

418,774 

(78%) 

$107,230,369

(57%)

463,285

(76%)

398,526

(79%)

$106,075,016

(70%)

469,234 

(76%) 

398,335

(78%)

$111,098,330

(68%)

Invalid name 

subpopulation 

(percentage) 

114,819 

(17%) 

80,524 

(15%) 

$25,734,033

(14%)

101,646

(17%)

74,234

(15%)

$25,480,158

(17%)

101,140 

(16%) 

77,747

(15%)

$26,819,235

(16%)

Invalid 

number 

subpopulation 

(percentage) 

49,432 

(8%) 

32,501 

(6%) 

$11,582,604

(6%)

44,244

(7%)

30,622

(6%)

$11,650,727

(8%)

43,696 

(7%) 

31,875

(6%)

$12,166,702

(7%)

Dollar limit 

subpopulation 

(percentage) 

6,408 

(1%) 

6,360 

(2%) 

$43,703,747

(23%)

2,692

(less 

than 

1%)

2,677

(1%)

$7,486,726

(5%)

2,768 

(less 

than 

1%) 

2,757

(1%)

$12,917,134

(8%)

Total 658,666 538,159 $188,250,753 611,867 506,059 $150,692,627 616,838 510,714 $163,001,401

Source: GAO analysis of IRS data. 

Note: Percentages may not add due to rounding. 

 6

 Because the SSN was invalid, it is not possible to determine whether the individual’s name

matched. 

Page 51 GAO-07-1110 Advance Earned Income Tax Credit
Appendix II: Scope and Methodology 

We conducted additional data reliability tests for each of the databases we 

used to obtain information about the AEITC, including IRS’s Individual 

Returns Transaction File, for return and filing information, which came 

from the Compliance Data Warehouse; National Account Profile/DM-1, for 

IRS’s SSN and name reference information, which also came from the 

Compliance Data Warehouse; Automated Underreporter (AUR), for IRS’s 

third-party information return data; and Taxpayer Identification Number 

(TIN) Matching and SSA’s Social Security Number Verification System 

(SSNVS), for alternative SSN and name reference information used by 

employers.7

 After completing our data reliability assessments, we 

determined the AEITC data to be sufficiently reliable for analysis and our 

reporting objectives. 

We also developed a comprehensive analysis plan that included our 

researchable issues, planned analysis, data sources, and limitations. We 

shared our plan with IRS and others and incorporated their feedback. 

Because IRS’s workload precluded them from providing information 

related to employers/AEITC payers within our time frames, we were able 

to conduct only limited analyses of employers who paid AEITC. 

Using the analysis plan for each subpopulation, we conducted multiple 

analyses to develop relevant demographic, characteristic, and compliance 

data. Because each population had different criteria, certain

characteristics or compliance data could not be developed or compared 

across the subpopulations. For example, the only characteristics data that 

could be developed for the invalid SSN subpopulation came from the Form 

W-2 (e.g., amount of AEITC, geographic location) because it is the only 

available source. Similarly, tax return data, such as filing status, was not 

available for those who did not file a tax return. 

All data pertaining to filed tax returns came either from returns that 

reported receipt of the AEITC on the appropriate line or from a 

“constructed tax return,” which IRS officials created using the SSN on the 

Form W-2 and matching it to an SSN in the primary, secondary, or 

dependent position on a filed return. The location of the SSN in one of 

these positions is relevant due to the way IRS manages its data files. There 

could be instances when a tax return was filed but it was not detected

using our methodology. For example, a taxpayer’s SSN on the Form W-2 

 7

 The Compliance Data Warehouse houses excerpts of data from various IRS systems for 

easy retrieval. 

Page 52 GAO-07-1110 Advance Earned Income Tax Credit
Appendix II: Scope and Methodology 

might have been incorrect and the taxpayer reported the correct number 

on the tax return (Form 1040). 

To report on data pertaining to the EITC, we relied on published EITC 

data provided by IRS research and program office officials, including the 

EITC database, the EITC Database Year to Year Comparison Report, and

EITC Fact Sheet.8

 When possible, our analysis compares individuals who 

received the AEITC with individuals who received the EITC. IRS defines 

EITC recipients by the number of federal tax returns that received EITC. 

In addition, EITC data are based upon the primary TIN of all taxpayers 

who received an amount of EITC. We determined the number of 

individuals who receive the AEITC based on the number of Forms W-2 

reporting AEITC per unique SSN. IRS officials agreed that even though 

these populations are not identical, it is reasonable to make a comparison 

between them. 

We frequently consulted with IRS officials on the data and our analyses; 

they generally agreed with both the approach and the accuracy of the 

results. For the analyses that IRS conducted, we agreed with both the 

approach and the accuracy of the results. 

In addition, we reviewed legislative and IRS administrative changes to the

AEITC since 1992 and discussed them with IRS and other officials, 

including Department of the Treasury officials. We reviewed reports on 

IRS’s implementation of some of our prior recommendations pertaining to 

the EITC and discussed them with IRS officials, including the National 

EITC Director. We also coordinated this work with the Treasury Inspector

General for Tax Administration. 

Finally, we also identified and interviewed 11 individuals we determined to 

be experts to provide us a fuller understanding on the potential for 

significant increases or improvement to AEITC use and noncompliance 

and included academics, researchers, practitioners, and individuals 

representing the areas of tax policy, low-income individual issues, and 

 8

 The EITC Database is an extraction of EITC data from IRS’s Individual Returns 

Transaction File. The database is located on the Compliance Data Warehouse. These data 

met our reliability standards. 

Page 53 GAO-07-1110 Advance Earned Income Tax Credit
Appendix II: Scope and Methodology 

compliance issues.9 We chose these individuals based on our knowledge of 

their areas of expertise and our research that indicated they were 

knowledgeable about the EITC. 

To address the third objective, how well do IRS’s procedures address any 

areas of noncompliance, we examined portions of IRS’s Internal Revenue

Manual and interviewed IRS Wage and Investment and Small 

Business/Self-Employed division officials to determine procedures for 

processing returns that reported receipt of the AEITC. We examined how 

IRS’s enforcement procedures and operations, including Submission 

Processing, AUR, Nonfiler, Collection, Examination, Criminal 

Investigation, and Taxpayer Advocate, address certain kinds of potential 

noncompliance. 

We explored various options to improve AEITC compliance. This involved 

conducting literature searches and interviews with IRS and SSA officials. 

We reviewed and discussed the results of soft notice tests with IRS 

officials, including the National EITC Director, and discussed the 

applicability of soft notices for addressing AEITC noncompliance. We also 

reviewed and analyzed documents and reports about IRS, SSA, and 

Department of Homeland Security databases about whether they could be

used by employers to verify the SSN of an employee seeking the AEITC 

before the employer begins paying it. We also interviewed knowledgeable

officials at IRS and SSA about the advantages and disadvantages of such 

systems when considering the AEITC. Further, we interviewed IRS 

officials from various offices, such as EITC Program, Modernization and

Information Technology Services, and Stakeholders, Partnership, 

Education and Communication, about the advantages and disadvantages 

of creating a database for the Forms W-5. It was not within the scope of 

our work to fully evaluate the potential cost and benefits of these options 

for reducing noncompliance. 

We also reviewed prior GAO, IRS, Treasury Inspector General for Tax 

Administration, and other reports on the AEITC and EITC. 

 9

We spoke with Leonard Burman, Urban Institute; Leslie Book, Villanova University School

of Law; Jonathan Forman, University of Oklahoma College of Law; William Gale, The

Brookings Institution; Robert Greenstein, Center on Budget and Policy Priorities; Teresa

Hinze, Community Tax Aid, Inc.; Julie Kruse, Center for Economic Progress; Diana Leyden,

University of Connecticut School of Law; David Marzahl, Center for Economic Progress; 

John Karl Scholz, University of Wisconsin Department of Economics; and Eugene Steuerle,

Urban Institute.

Page 54 GAO-07-1110 Advance Earned Income Tax Credit
Appendix II: Scope and Methodology 

We conducted our work primarily in Washington, D.C., and Atlanta, Ga.,

from December 2005 through July 2007 in accordance with generally 

accepted government auditing standards. 

Page 55 GAO-07-1110 Advance Earned Income Tax Credit
Appendix III: Demographic Characteristics of 

Advance Earned Income Tax Credit Appendix III: Demographic Characteristics of Recipients and Their Employers 

Advance Earned Income Tax Credit 

Recipients and Their Employers 

We identified basic demographic characteristics of Advance Earned 

Income Tax Credit (AEITC) recipients and their employers in tax years 

2002 through 2004. Specifically, we identified the following 11

characteristics: (1) number of Forms W-2 received; (2) average amount of 

AEITC received by consecutive recipients; (3) average adjusted gross 

income (AGI) for AEITC recipients; (4) average wages; (5) filing status; 

(6) age; (7) gender; (8) number of qualifying children; (9) filing method; 

(10) geographic location of AEITC recipients; and (11) employer size, 

number of employees, and number of Forms W-2 with AEITC issued to 

employees. Each of the characteristics represents an analysis and provides

additional objective information about AEITC recipients not previously 

discussed. Where possible, we compared AEITC recipients to Earned 

Income Tax Credit (EITC) recipients. Further analyses may provide 

information to better target IRS enforcement efforts. For example, IRS’s 

information on EITC associated with gender differs from our AEITC 

results in table 17 on gender. 

The characteristics are organized by a declining AEITC population size. 

For example, table 10, “Number of Forms W-2 Received by Subpopulation, 

Tax Years 2002 through 2004,” includes the valid, the invalid name, and 

invalid number subpopulations, as described in the scope and 

methodology (see app. II), while table 15, “Filing Status of AEITC and 

EITC Recipients, Number and Percentage, Tax Years 2002 through 2004,” 

includes only the valid and invalid name subpopulations. The invalid

number subpopulation was not included in the table about filing status 

because that subpopulation contains only Form W-2 data and not tax 

return data. Thus, information such as filing status, which comes from the 

tax return, is not available. 

Number of Forms W-2 with AEITC that each individual received: 

Most individuals who received the AEITC only had one Form W-2 

reporting its receipt (see table 10). Having more than one Form W-2 does 

not necessarily indicate noncompliance because an individual may have 

more than one job during the year and receive the AEITC from more than

one employer. The data did not enable us to analyze whether any of these

individuals had more than one Form W-5 in effect at one time. Presently, 

IRS’s administrative procedures do not enable it to identify whether the 

taxpayer has more than one Form W-5 in effect at one time. 

Page 56 GAO-07-1110 Advance Earned Income Tax Credit
Appendix III: Demographic Characteristics of 

Advance Earned Income Tax Credit 

Recipients and Their Employers 

Page 57 GAO-07-1110 Advance Earned Income Tax Credit
Appendix III: Demographic Characteristics of 

Advance Earned Income Tax Credit 

Recipients and Their Employers 

Table 10: Number of Forms W-2 Received by Subpopulation, Tax Years 2002 

through 2004 

Tax year 2002

Number of 

Forms W-2

Valid 

subpopulation

Invalid name 

subpopulation 

Invalid number 

subpopulation

1 370,350 59,660 22,812

2 35,821 13,275 6,233

3 8,056 4,438 1,954

4 2,671 1,829 874

5 1,040 704 332

6 408 327 142

7 202 138 74

8 109 65 37

9 48 32 10

10 33 18 7

11 16 11 7

12 5 8 3

13 4 7 4

14 2 1 1

15 2 3 1

16 2 0 2

17 2 2 1

18 2 1 0

19 1 1 2

20 0 1 1

21 0 0 0

22 0 0 0

23 0 0 2

25 0 1 0

26 0 0 0

27 0 1 0

28 0 0 1

30 0 0 0

31 0 0 0

33 0 1 0

34 0 0 0

38 0 0 0

643 0 0 0

Page 58 GAO-07-1110 Advance Earned Income Tax Credit
Appendix III: Demographic Characteristics of 

Advance Earned Income Tax Credit 

Recipients and Their Employers 

Tax year 2003 Tax year 2004

Valid subpopulation 

Invalid name 

subpopulation 

Invalid number 

subpopulation

Valid 

subpopulation

Invalid name 

subpopulation 

Invalid number 

subpopulation

353,284 56,863 22,474 349,544 62,422 24,853

33,440 11,599 5,424 35,518 10,515 4,776

7,645 3,514 1,660 8,568 3,040 1,452

2,417 1,299 600 2,735 1,078 483

907 512 259 1,032 382 187

394 238 94 410 149 57

196 99 41 258 77 27

104 38 22 107 33 13

63 18 17 65 17 8

33 22 6 42 8 4

17 5 4 19 5 5

14 6 5 19 4 1

6 5 5 8 1 2

5 2 3 2 0 0

1 3 1 1 3 1

0 3 1 1 5 0

0 3 1 0 1 0

0 2 0 2 1 0

0 0 0 0 0 1

0 0 1 2 3 1

0 0 0 0 1 0

0 0 0 1 0 1

0 1 0 0 0 0

0 0 0 1 1 0

0 0 1 0 0 1

0 1 0 0 0 0

0 0 1 0 0 0

0 1 0 0 0 0

0 0 1 0 0 0

0 0 0 0 0 0

0 0 0 0 1 0

0 0 0 0 0 1

0 0 1 0 0 0

Page 59 GAO-07-1110 Advance Earned Income Tax Credit
Appendix III: Demographic Characteristics of 

Advance Earned Income Tax Credit 

Recipients and Their Employers 

Tax year 2002

Number of 

Forms W-2

Valid 

subpopulation

Invalid name 

subpopulation 

Invalid number 

subpopulation

935 0 0 1

1088 0 0 0

Totals 418,774 80,524 32,501

Page 60 GAO-07-1110 Advance Earned Income Tax Credit
Appendix III: Demographic Characteristics of 

Advance Earned Income Tax Credit 

Recipients and Their Employers 

Tax year 2003 Tax year 2004

Valid 

subpopulation 

Invalid name 

subpopulation 

Invalid number 

subpopulation

Valid 

subpopulation

Invalid name 

subpopulation 

Invalid number 

subpopulation

0 0 0 0 0 0

0 0 0 0 0 1

398,526 74,234 30,622 398,335 77,747 31,875

Source: GAO analysis of IRS data. 

Note: This table includes the valid, invalid name, and invalid number subpopulations. About 20 

percent of the combined invalid name and invalid number subpopulations were noncompliant (see 

table 4). 

Average amount of AEITC received by consecutive recipients: 

About 98,000 individuals received the AEITC consecutively during tax 

years 2002 through 2004. These 98,000 individuals received a higher 

average amount of AEITC than the entire AEITC population (see fig. 6). 

Figure 6: Average Amount of AEITC Received by Consecutive and AEITC 

Recipients, Tax Years 2002 through 2004 

Page 61 GAO-07-1110 Advance Earned Income Tax Credit
Appendix III: Demographic Characteristics of 

Advance Earned Income Tax Credit 

Recipients and Their Employers 

Note: This figure includes the valid, invalid name, and invalid number subpopulations.

Adjusted gross income (AGI) for AEITC and EITC recipients: The 

maximum amount of AGI a taxpayer could have in tax years 2002 through 

2004 and receive the AEITC and/or EITC was $34,178, $34,692 and $35,458,

respectively. As noted in tables 11, 12, and 13, most individuals who 

received the AEITC and filed a tax return reported an AGI of $1—$20,000.

Some taxpayers had an AGI above the allowable limits. However, because

an individual’s personal circumstance may have changed during the year,

for example the individual may have gotten a higher paying job, as long as

the same amount of AEITC received as shown on the Form W-2 was 

reported on the tax return, AGI outside the limit for AEITC recipients is 

permissible and the taxpayer is considered compliant. By reporting the 

correct amount on the tax return, the AEITC would increase the tax due or

reduce any refund. 

Table 11: AGI for AEITC and EITC Recipients, Number, Average, and Sum, for Tax Year 2002 

Tax year 2002

AEITC EITC

Valid subpopulation Invalid name subpopulation 

Adjusted

Gross

income Number Average Sum Number Average Sum Number Average Sum

Less 

than or 

equal to 

$0a

2,328 -$4,602 -$10,713,330 851 -$38,560 -$32,814,646 135,881 -$40,267 -$5,471,560,820

$1 -

$10,000 

97,641 $5,459 $533,029,760 7,946 $5,363 $42,617,768 7,360,626 $5,905 $43,461,774,192

$10,001 -

$20,000 

92,795 $14,768 $1,370,422,047 9,236 $14,920 $137,799,876 7,238,561 $14,676 $106,230,907,584

$20,001 -

$30,000 

51,787 $24,053 $1,245,652,310 7,867 $24,847 $195,471,529 5,395,193 $24,549 $132,448,552,653

Greater 

than 

$30,000 

38,765 $56,298 $2,182,391,376 33,625 $88,847 $2,987,478,924 788,562 $31,806 $25,081,179,444

Total 283,316 $18,780 $5,320,782,163 59,525 $55,952 $3,330,553,451 20,918,823 $14,425 $301,750,853,053

Source: GAO analysis of IRS data. 

a

Negative dollar amounts are possible with an AGI less than or equal to $0 because these returns 

likely have eligible deductions (such as alimony payments) that exceed the AGI amount, thus 

resulting in a negative AGI. This table includes the valid and invalid name subpopulations. 

Page 62 GAO-07-1110 Advance Earned Income Tax Credit
Appendix III: Demographic Characteristics of 

Advance Earned Income Tax Credit 

Recipients and Their Employers 

Table 12: AGI for AEITC and EITC Recipients, Number, Average, and Sum, for Tax Year 2003 

Tax year 2003

AEITC EITC

Valid subpopulation Invalid name subpopulation 

Adjusted

gross

income Number Average Sum Number Average Sum Number Average Sum

Less than 

or equal 

to $0a

1,402 -$8,980 -$12,589,922 790 -$82,807 -$65,417,790 159,145 -$37,491 -$5,966,471,268

$1 -

$10,000 

89,053 $5,485 $488,423,673 7,115 $5,369 $38,201,515 7,497,336 $5,895 $44,194,704,408

$10,001 -

$20,000 

86,420 $14,768 $1,276,286,596 8,436 $14,899 $125,687,374 7,340,828 $14,611 $1,072,555,29,694

$20,001 -

$30,000 

50,197 $24,168 $1,213,157,369 7,290 $24,794 $180,748,114 5,498,853 $24,634 $135,457,333,696

Greater 

than 

$30,000 

38,894 $57,039 $2,218,488,004 30,991 $94,505 $2,928,794,298 935,215 $31,988 $29,915,739,209

Total 265,966 $19,490 $5,183,765,720 54,622 $58,731 $3,208,013,511 21,431,377 $14,505 $107,255,529,694

Source: GAO analysis of IRS data. 

a

Negative dollar amounts are possible with an AGI less than or equal to $0 because these returns 

likely have eligible deductions (such as alimony payments) that exceed the AGI amount, thus 

resulting in a negative AGI. This table includes the valid and invalid name subpopulations. 

Table 13: AGI for AEITC and EITC Recipients, Number, Average, and Sum, for Tax Year 2004 

Tax year 2004

AEITC EITC

Valid subpopulation Invalid name subpopulation 

Adjusted

gross

income Number Average Sum Number Average Sum Number Average Sum

Less 

than or 

equal to 

$0a

641 -$22,631 -$14,506,202 686 -$61,661 -$42,299,493 177,820 -$28,625 -$5,090,160,585

$1 -

$10,000 

86,180 $5,578 $480,670,518 6,988 $5,391 $37,671,007 7,497,833 $5,896 $44,206,887,726

$10,001 -

$20,000 

83,792 $14,716 $1,233,045,113 8,270 $14,914 $123,334,680 7,355,688 $14,562 $107,113,059,413

$20,001 -

$30,000 

49,165 $24,204 $1,189,979,660 7,139 $24,846 $177,374,704 5,519,610 $24,710 $136,390,977,111

Page 63 GAO-07-1110 Advance Earned Income Tax Credit
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Recipients and Their Employers 

Tax year 2004

AEITC EITC

Valid subpopulation Invalid name subpopulation 

Adjusted

gross

income Number Average Sum Number Average Sum Number Average Sum

Greater 

than 

$30,000 

34,225 $54,623 $1,869,459,016 32,638 $101,396 $3,309,361,834 1,170,267 $32, 204 $37,687,855,307

Total 254,003 12,735 $4,758,648,105 55,721 $64,705 $3,605,442,732 21,721,218 $14,746 $320,308,618,972

Source: GAO analysis of IRS data. 

a

Negative dollar amounts are possible with an AGI less than or equal to $0 because these returns 

likely have eligible deductions (such as alimony payments) that exceed the AGI amount, thus 

resulting in a negative AGI. This table includes the valid and invalid name subpopulations. 

Wages for AEITC and EITC recipients: The yearly wage limits for 

AEITC and EITC recipients were $34,178 for tax year 2002, $34,692 for tax 

year 2003, and $35,458 for tax year 2004. The average wages for AEITC 

recipients in the valid subpopulation were about $18,000, while they were 

about $47,000 for the invalid name subpopulation.1

 This compares with 

about $13,000 for EITC recipients (see table 14). Some wages are outside 

the allowable limits. However, because an individual’s personal 

circumstance may have changed during the year, for example, the 

individual may have gotten a higher paying job, as long as the same 

amount of AEITC received as shown on the Form W-2 was reported on the 

tax return, wages outside the limit are permissible and the taxpayer is 

considered compliant. By reporting the correct amount on the tax return,

the AEITC would increase the tax due or reduce any refund.

 1

 The large difference in wages between the AEITC valid and invalid name subpopulations

could be a result of women who married during the year and changed their name with their 

employer, but not SSA. These women likely reported combined wages with their spouse. 

Page 64 GAO-07-1110 Advance Earned Income Tax Credit
Appendix III: Demographic Characteristics of 

Advance Earned Income Tax Credit 

Recipients and Their Employers 

Table 14: Wages Reported for AEITC and EITC Recipients, Number, Wage Amount, and Average Dollars Received for Tax 

Years 2002 through 2004 

AEITC EITC

Valid subpopulation Invalid name subpopulation 

Tax 

year Number Wage amount Average Number Wage amount Average Number Wage amount Average

2002 283,316 $4,926,169,548 $17,388 59,525 $2,696,220,392 $45,296 20,918,823 $273,167,081,421 $13,058

2003 265,966 $4,829,307,231 $18,158 54,622 $2,545,765,228 $46,607 21,431,377 $280,828,962,882 $13,104

2004 254,003 $4,409,967,145 $17,362 55,721 $2,759,417,493 $49,522 21,721,218 $290,119,218,681 $13,356

Source: GAO analysis of IRS data. 

Notes: This table includes the valid and invalid name subpopulations. 

Filing status of AEITC and EITC recipients: As shown in table 15, 

about half of AEITC recipients in the valid subpopulation and most 

individuals who received the EITC used the Head of Household filing 

status. This compares to AEITC recipients in the invalid name 

subpopulation who most frequently used the Married Filing Jointly filing 

status. About 2 percent of the tax returns that reported receiving AEITC 

used the Married Filing Separate filing status, which is not allowed. 

However, an individual’s personal circumstance may have changed during 

the year, for example the individual may have separated from their spouse. 

As long as the same amount of AEITC received as shown on the Form W-2 

was reported on the tax return, this situation is permissible and the 

taxpayer is considered compliant. By reporting the correct amount on the 

tax return, the AEITC would increase the tax due or reduce any refund. 

Page 65 GAO-07-1110 Advance Earned Income Tax Credit
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Advance Earned Income Tax Credit 

Recipients and Their Employers 

Table 15: Filing Status of AEITC and EITC Recipients, Number and Percentage, Tax 

Years 2002 through 2004 

Tax year 2002

AEITC EITC

Valid 

subpopulation

Invalid name 

subpopulation

Head of household 140,021

(49%)

11,180

(19%)

11,326,654

(54%)

Single 77,347

(27%)

13,457

(23%)

4,495,201

(21%)

Married filing jointly 60,153

(21%)

33,837

(57%)

5,068,608

(24%)

Married filing separate 5,546

(2%)

988

(2%)

3,042

(less than 1%)

Widow(er) with children 180

(less than 1%)

40

(less than 1%)

25,318

(less than 1%)

Married filing separate (with 

spouse not required to file) 

69

(less than 1%)

23

(less than 1%)

N/A

Total 283,316 59,525 20,918,823

Page 66 GAO-07-1110 Advance Earned Income Tax Credit
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Advance Earned Income Tax Credit 

Recipients and Their Employers 

Tax year 2003 Tax year 2004

AEITC EITC AEITC EITC

Valid 

subpopulation 

Invalid name 

subpopulation 

Valid 

subpopulation

Invalid name 

subpopulation 

133,985 

(50%) 

10,255 

(19%) 

11,532,582

(54%)

134,964

(53%)

10,551 

(19%) 

11,659,521

(54%)

68,795 

(26%) 

12,355 

(23%) 

4,681,467

(22%)

63,685

(25%)

12,606 

(23%) 

4,914,789

(23%)

58,133 

(22%) 

31,043 

(57%) 

5,190,469

(24%)

51,053

(20%)

31,633 

(57%) 

5,119,517

(24%)

4,815 

(2%) 

903 

(2%) 

0

(0%)

4,052

(2%)

862 

(2%) 

0

(0%)

187 

(less than 1%)

42 

(less than 1%)

26,859

(less than 1%)

193

(less than 1%)

52 

(less than 1%)

27,391

(less than 1%)

51 

(less than 1%)

24 

(less than 1%)

N/A 56

(less than 1%)

17 

(less than 1%)

N/A

265,966 54,622 21,431,377 254,003 55,721 21,721,218

Source: GAO analysis of IRS data. 

Notes: EITC totals are the number of taxpayers who received EITC. N/A means not applicable. This 

table includes the valid and invalid name subpopulations. 

Age of AEITC and EITC recipients: Most individuals who received the 

AEITC, as well as most EITC recipients, were between the ages of 26 and 

64 (see table 16). IRS officials noted that recipients whose age fell into the 

‘Over 100’ category are the result of a probable error, such as a

transcription error. Alternatively, an AEITC recipient in this category may 

have used a SSN of a deceased individual. 

Page 67 GAO-07-1110 Advance Earned Income Tax Credit
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Advance Earned Income Tax Credit 

Recipients and Their Employers 

Table 16: Age of AEITC and EITC Recipients, Tax Years 2002 through 2004 

Tax year 2002

AEITC EITC

Valid 

subpopulation

Invalid name 

subpopulation 

Age 25 and 

under 

82,810

(20%)

29,010 

(36%) 

3,259,332

(16%)

Age 26 to 64 333,519

(80%)

31,202 

(39%) 

17,345,338

(83%)

Age 65 to 100 2,409

(1%)

14,275 

(18%) 

242,838

(1%)

Over 100 35

(less than 1%)

6,037 

(8%) 

71,315

(less than 1%)

Total 418,773 80,524 20,918,823

Page 68 GAO-07-1110 Advance Earned Income Tax Credit
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Advance Earned Income Tax Credit 

Recipients and Their Employers 

Tax year 2003 Tax year 2004

AEITC EITC AEITC EITC

Valid 

subpopulation 

Invalid name 

subpopulation 

Valid 

subpopulation

Invalid name 

subpopulation 

78,215 

(20%) 

26,035 

(35%) 

3,289,587

(15%)

77,096

(19%)

26,499 

(34%) 

3,348,578

(15%)

317,997 

(80%) 

29,300 

(40%) 

17,613,301

(82%)

318,683

(80%)

31,908 

(41%) 

17,844,506

(82%)

2,278 

(less than 1%)

13,033 

(18%) 

261,347

(1%)

2,514

(1%)

13,270 

(17%) 

274,428

(1%)

35 

(less than 1%)

5,866 

(8%) 

267,142

(1%)

42

(less than 1%)

6,070 

(8%) 

253,706

(1%)

398,525 74,234 21,431,377 398,335 77,747 21,721,218

Source: GAO analysis of IRS data. 

Notes: This table includes the valid and invalid name subpopulations. IRS calculated age by 

subtracting the birth year from the analysis year. Neither IRS nor GAO could identify why the tax 

years 2002 and 2003 AEITC valid Forms W-2 SSN total is one below the total number of individuals 

who received a Form W-2 reporting AEITC. 

Gender of AEITC and EITC recipients: More males than females 

received the AEITC during tax years 2002 through 2004. In contrast, more 

females than males received the EITC during this same period (see table 

17). 

Page 69 GAO-07-1110 Advance Earned Income Tax Credit
Appendix III: Demographic Characteristics of 

Advance Earned Income Tax Credit 

Recipients and Their Employers 

Table 17: Gender of AEITC and EITC Recipients, Number and Percentage, Tax Years 

2002 through 2004

Tax year 2002

AEITC EITC

Valid 

subpopulation

Invalid name 

subpopulation 

Female 165,694

(40%)

36,805 

(46%) 

11,087,655

(53%)

Male 252,922

(60%)

39,908 

(50%) 

9,822,392

(47%)

Unknown 158

(less than 1%)

3,811 

(5%) 

8,776

(less than 1%)

Total 418,774

(100%)

80,524 

(100%) 

20,918,823

(100%)

Page 70 GAO-07-1110 Advance Earned Income Tax Credit
Appendix III: Demographic Characteristics of 

Advance Earned Income Tax Credit 

Recipients and Their Employers 

Tax year 2003 Tax year 2004

AEITC EITC AEITC EITC

Valid 

subpopulation 

Invalid name 

subpopulation 

Valid 

subpopulation

Invalid name 

subpopulation 

159,681 

(40%) 

34,019 

(46%) 

11,277,324

(53%)

165,480

(42%)

35,904 

(46%) 

11,525,243

(53%)

238,683 

(60%) 

36,762 

(50%) 

10,148,364

(47%)

232,690

(58%)

38,472 

(49%) 

10,190,319

(47%)

162 

(less than 1%)

3,453 

(5%) 

5,689

(less than 1%)

165

(less than 1%)

3,371 

(4%) 

5,656

(less than 1%)

398,526 

(100%) 

74,234 

(100%) 

21,431,377

(100%)

398,335

(100%)

77,747 

(100%) 

21,721,218

(100%)

Source: GAO analysis of IRS data. 

Notes: This table includes the valid and invalid name subpopulations. We reported gender information 

only for individuals who filed a federal tax return. Percentages may not add due to rounding. 

Number of qualifying children for AEITC and EITC recipients:

About half of the individuals who reported receiving the AEITC had two 

qualifying children. Results were similar for EITC recipients. However, 

about 8 percent of this population did not report having any qualifying 

children, which is not allowed (see table 18). However, an individual’s 

personal circumstance may have changed during the year, for example, 

the individual may have separated from their spouse or divorced. As long 

as the same amount of AEITC received as shown on the Form W-2 was 

reported on the tax return, the taxpayer is considered compliant. By 

reporting the correct amount on the tax return, the AEITC would increase 

the tax due or reduce any refund. In contrast, most individuals who 

received the EITC also had two qualifying children. There is no qualifying

child requirement to receive the EITC. 

Page 71 GAO-07-1110 Advance Earned Income Tax Credit
Appendix III: Demographic Characteristics of 

Advance Earned Income Tax Credit 

Recipients and Their Employers 

Table 18: Number of Qualifying Children for AEITC and EITC Recipients, Number and Percentage, Tax Years 2002 through 

2004 

Tax year 2002 Tax year 2003 Tax year 2004

AEITC EITC AEITC EITC AEITC EITC

Number of taxpayers with no qualifying

children (percentage) 

7,946

(8%)

3,765,072

(18%)

7,456

(7%)

4,022,684 

(19%) 

7,786

(8%)

4,181,382

(19%)

Number of taxpayers with 1 qualifying 

child (percentage) 

43,066

(41%)

8,198,533

(39%)

43,129

(41%)

8,269,050 

(39%) 

40,379

(40%)

8,354,539

(38%)

Number of taxpayers with 2 qualifying 

children (percentage) 

53,721

(51%)

8,955,218

(43%)

55,558

(52%)

9,139,643 

(43%) 

52,448

(52%)

9,185,297

(42%)

Total (percentage) 104,733

(100%)

20,918,823

(100%)

106,143

(100%)

21,431,377 

(100%) 

100,613

(100%)

21,721,218

(100%)

Source: GAO analysis of IRS data. 

Note: This table is based on the number of tax returns in the EITC database that had AEITC greater 

than $0 and zero, one, or two qualifying children. 

Filing method of AEITC and EITC recipients: As noted in table 19, 

most tax returns that showed receiving an amount of AEITC were filed 

electronically, as were most tax returns which reported receipt of the 

EITC. For both AEITC and EITC, about 70 percent of recipients filed 

electronically for the 3 years we examined. 

Table 19: Filing Method of AEITC and EITC Recipients, Number and Percentage, Tax Years 2002 through 2004 

Tax year 2002 Tax year 2003 Tax year 2004

AEITC EITC AEITC EITC AEITC EITC

Electronic 93,291

(68%) 

14,030,564

(67%)

100,085

(72%)

15,322,251

(71%)

98,592

(78%)

16,269,437

(75%)

Paper 44,477

(32%) 

6,888,259

(33%)

38,885

(28%)

6,109,126

(29%)

28,228

(22%)

5,451,781

(25%)

Total 137,768

(100%) 

20,918,823

(100%)

138,970

(100%)

21,431,377

(100%)

126,820

(100%)

21,721,218

(100%)

Source: GAO analysis of IRS data. 

Note: Tax years 2002 and 2003 include 5 and 4 duplicate Taxpayer Identification Numbers (TIN), 

respectively. The AEITC totals shown above do not equal the total number of individuals who filed a 

federal tax return for that year. This table only includes the number of tax returns that had an AEITC 

amount greater than $0. IRS did not identify the filing method used by individuals who filed a tax

return but failed to report receipt of the AEITC. The total number of individuals who filed a federal tax 

return was 338,942, 316,959, and 307,251, for tax years 2002 through 2004 respectively. The EITC

total represents the total number of taxpayers claiming EITC. 

Page 72 GAO-07-1110 Advance Earned Income Tax Credit
Appendix III: Demographic Characteristics of 

Advance Earned Income Tax Credit 

Recipients and Their Employers 

Geographic location of AEITC recipients in the valid 

subpopulation: Of the individuals in the valid subpopulation, use of the 

AEITC varied widely across the country. In all 3 tax years, Florida and 

Illinois had the most AEITC recipients (see fig. 7).

Page 73 GAO-07-1110 Advance Earned Income Tax Credit
Appendix III: Demographic Characteristics of 

Advance Earned Income Tax Credit 

Recipients and Their Employers 

Figure 7: Geographic Location of AEITC Recipients in the Valid Subpopulation, Tax Years 2002 through 2004 

Note: AEITC geographic location is based upon information reported on the tax return. This figure 

includes the valid subpopulation. 

a

These geographic locations had at least 1 but fewer than 10 individuals who received the AEITC. 

Page 74 GAO-07-1110 Advance Earned Income Tax Credit
Appendix III: Demographic Characteristics of 

Advance Earned Income Tax Credit 

Recipients and Their Employers 

b

U.S insular areas include the three major U.S. territories, which are the U.S. Virgin Islands, American 

Samoa, Guam, and the two Commonwealths, which are the Commonweath of Puerto Rico and the 

Commonwealth of Northern Mariana Islands. 

c

Other includes Federated States of Micronesia, Marshall Islands, Palau, and Armed Forces mostly

located outside the U.S. 

d

Missing refers to instances where the geographic location was not available. 

Employer size, number of employers, number of forms W-2 

employers issued to AEITC recipients and Total AEITC Dollars 

Reported on Forms W-2: Slightly more than 50,000 employers reported 

paying at least one employee AEITC in each tax years 2002 through 2004. 

Most of these employers were classified by IRS as small business/self 

employed and they issued more than half of all the Forms W-2 with AEITC 

(see table 20). 

Table 20: Employer Size, Number of Employers, Number of Forms W-2 Employers Issued to AEITC Recipients and Total 

Dollars Reported on Forms W-2, Tax Years 2002 through 2004 

Tax Year 2002 Tax Year 2003 Tax Year 2004

Employer 

size 

Number of 

employers 

Number 

of Forms

W-2

issued

with 

AEITC 

Total AEITC 

Dollars 

Reported on 

Forms W-2

Number of 

employers

Number 

of Forms

W-2

issued

with 

AEITC

Total AEITC 

Dollars 

Reported on 

Forms W-2

Number of 

employers 

Number 

of Forms

W-2

issued

with 

AEITC

Total AEITC 

Dollars 

Reported on 

Forms W-2

Small 

business/self 

employed 

30,004 

(57%) 

368,112 

(56%) 

$72,779,073

(50%)

29,562

(57%)

347,942

(57%)

$73,120,770

(51%)

30,296 

(59%) 

351,710

(57%)

$77,689,921

(52%)

Tax exempt 

and 

government 

entities 

13,416 

(26%) 

62,869 

(10%) 

$29,103,769

(20%)

12,976

(25%)

57,856

(10%)

$25,830,428

(18%)

12,609 

(24%) 

45,301

(7%)

$24,715,548

(16%)

Large and 

midsize 

business 

9,058 

(17%) 

227,029 

(35%) 

$42,551,520

(29%)

8,715

(17%)

202,459

(33%)

$43,615,497

(30%)

8,517 

(17%) 

219,684

(36%)

$47,612,524

(32%)

Unknown or 

unidentifiable 

89 

(less than 

1%) 

656 

(less than 

1%) 

$112,644

(less than 

1%)

174

(less than 

1%)

3,610

(1%)

$639,206

(less than 

1%)

72 

(less than 

1%) 

143

(less than 

1%)

$66,274

(less than 

1%)

Totals 52,567 658,666 $144,547,006 51,427 611,867 $143,205,901 51,494 616,838 $150,084,267

Source: GAO analysis of IRS data. 

Note: Employers are defined by unique Employer Identification Numbers (EIN) and the classification 

of employer size is based on IRS criteria. Number of employers includes the valid, invalid name, and 

invalid number subpopulations. Number of Forms W-2 issued with AEITC includes all Forms W-2 

issued that year reporting an amount of AEITC. Percentages may not add due to rounding. 

Page 75 GAO-07-1110 Advance Earned Income Tax Credit
Appendix IV: Administrative and Legislative

Changes to the Advance Earned Income Tax Appendix IV Credit Since 1990 : Administrative and Legislative 

Changes to the Advance Earned Income Tax 

Credit Since 1990 

IRS has made several administrative changes to the Advance Earned 

Income Tax Credit (AEITC) since the beginning of 1990 (see table 21). IRS 

described these changes in responses to recommendations in our 1992 

AEITC report and a 2003 Treasury Inspector General for Tax 

Administration report.1

Table 21: Administrative Changes to the AEITC since 1990 

Year Change

1990 Added separate lines to the 1990 Forms 1040 and 1040A for reporting

AEITC received. 

1991 Revised Form W-4 to advise employees of the availability of the AEITC and 

to refer them to the Form W-5.

1991-

1992 

Revised Form W-2 and IRS Notice 797 to contain information on how to 

apply for the AEITC. 

1992 Developed publicity materials and distributed them to the public; provided

credit information in the Small Business Taxpayer Education Program; and 

increased outreach speaker seminar efforts, in cooperation with federal, 

state, and local officials and private organizations. 

1992 Developed print and audiovisual products to inform the public about the 

AEITC. 

1992 Expanded instructions on AEITC in “Circular E, Employer’s Tax Guide.” 

1992 Added examples to “Circular E, Employer’s Tax Guide,” explaining how to 

advance the EITC to employees and how to report amounts in advance. 

1992 Clarified employer’s responsibilities and liabilities in advancing the Earned 

Income Tax Credit (EITC) in the 1993 “Circular E, Employer’s Tax Guide.” 

1993 Expanded 1993 Form W-2 instructions concerning AEITC. Specifically, 

revised the Form W-2 to place a bold outline around the AEITC box of the 

employee’s copy. 

2003 Updated instructions that require tax examiners to compare the amount of 

AEITC shown on the tax return to the amount listed as AEITC on the Form 

W-2 and adjust the amounts when needed. 

2004 Created an error condition in return processing when the amount of AEITC

reported exceeds the maximum allowed for the year. 

2005 Created an error condition in return processing for whenever AEITC is listed 

on the return without a corresponding entry for the EITC. 

Source: GAO analysis.

 1

GAO/GGD-92-26 and Treasury Inspector General for Tax Administration, Taxpayers Were

Assessed Additional Tax for Advance Earned Income Credit Payments Not Received, 

2003-40-126 (June 2003). 

Page 76 GAO-07-1110 Advance Earned Income Tax Credit
Appendix IV: Administrative and Legislative

Changes to the Advance Earned Income Tax 

Credit Since 1990 

Notes: Changes made between 1990 and 1993 were a result of GAO’s 1992 report and changes 

between 2003 and 2005 were a result of the Treasury Inspector General for Tax Administration’s 

2003 report. Some of the changes made between 1990 and 1993 occurred before our report was 

issued. 

There have been two laws enacted since our 1992 report that include

specific changes to the AEITC.2

 First, the Omnibus Budget Reconciliation 

Act of 1993 (OBRA ’93), did the following. 

1. Limited the amount of advance payment allowable in a taxable year to 

60 percent of the maximum credit available to a taxpayer with one 

qualifying child. 

2. Directed the IRS to notify taxpayers with qualifying children who 

receive a refund on account of the EITC that the credit may be

available on an advance basis. The conference report accompanying 

OBRA ’93 stated that after these notifications had been made for 2 

taxable years, the Treasury Secretary was directed to study their effect 

on utilization of the advance payment mechanism and, based on the 

results of the study, the Secretary may recommend modifications to 

the notification program.3

Second, the U.S. Troop Readiness, Veteran’s Care, Katrina Recovery, and

Iraq Accountability Appropriations Act of 2007, which was enacted in late 

May 2007, calls for a study of AEITC use.4

 The study is to be conducted by

the Secretary of the Treasury for the Congress and is to include the 

benefits, costs, risks, and barriers to workers and to businesses (with a 

special emphasis on small businesses) if the AEITC included all recipients 

of the EITC (i.e., individuals without qualifying children). It also asks what

steps would be necessary to implement such an inclusion. 

 2

 We only included laws that made specific changes to the AEITC or its administration that 

were independent of changes to the EITC. Thus, we did not include laws whose only 

change to the AEITC occurred because of changes to the broader EITC program, such as

changes in EITC benefit amounts or eligibility rules.

3

 H.R. Conf. Rep. No. 103-213 (1993). 

4

 Pub. L. No. 110-28. 

Page 77 GAO-07-1110 Advance Earned Income Tax Credit
Appendix V: Additional Analyses of Advance Appendix V Earned Income Tax Credit Noncompliance : Additional Analyses of Advance 

Earned Income Tax Credit Noncompliance 

We identified additional areas of noncompliance for AEITC recipients 

during tax years 2002 through 2004. We also examined demographic 

characteristics of our noncompliant subpopulations, including the invalid

name, invalid number, and dollar limit subpopulations. Our analyses 

revealed the following: (1) some consecutive AEITC recipients had an 

invalid SSN, (2) most consecutive AEITC recipients filed a tax return, but 

did not report the correct AEITC amount on the tax return, (3) AEITC 

recipients with an invalid SSN received little money, (4) most AEITC 

recipients with an invalid SSN received one to two Forms W-2, (5) AEITC 

recipients in the invalid subpopulations lived in various geographic 

locations, and (6) AEITC was paid in excess of yearly maximum limits. As 

with the data in Appendix III, further analyses of this data may provide 

information on noncompliance characteristics potentially useful for IRS 

enforcement efforts. 

Each of the tables provides additional information about AEITC recipients 

not previously discussed. Where possible, we compared AEITC recipients 

to EITC recipients. The characteristics are organized by a declining AEITC 

population size, similar to the organization in appendix III. Most analyses 

include the invalid name and invalid number subpopulations. The 

subpopulations are described in the scope and methodology section (see 

app. II). 

Some consecutive AEITC recipients had an invalid SSN: About 

98,000 individuals received the AEITC consecutively in each of the 3 years, 

tax years 2002 through 2004, and received an average of about $56 million.

About a quarter of these individuals had an invalid SSN and received an

average of approximately $16 million in AEITC. Additionally, nearly 15 

percent of consecutive users had an invalid SSN and did not file a federal 

tax return, receiving an average of about $9 million in AEITC (see table 

22). 

Page 78 GAO-07-1110 Advance Earned Income Tax Credit
Appendix V: Additional Analyses of Advance 

Earned Income Tax Credit Noncompliance 

Table 22: Number of Individuals and AEITC Dollars Received by AEITC Recipients and Individuals Who Elected the AEITC 

Consecutively Using an Invalid SSN and an Invalid SSN and Not Filing, Tax Years 2002 through 2004 

Tax year 2002 Tax year 2003 Tax Year 2004

Individuals Dollars Individuals Dollars Individuals Dollars

AEITC recipients 531,799 $144,547,006 503,382 $143,205,901 507,957 $150,084,267 

AEITC consecutive recipientsa97,998 

(18%) 

$53,272,152

(37%)

97,998

(19%)

$60,849,730 

(42%) 

97,998

(19%)

$52,698,947

(35%)

AEITC consecutive recipients with 

invalid SSN (percentage)b

23,175 

(24%) 

$14,837,041

(28%)

23,175

(24%)

$17,217,171 

(28%) 

23,175

(24%)

$14,798,025

(28%)

AEITC consecutive recipients with 

invalid SSN and did not file federal 

tax return (percentage)b

13,181 

(13%) 

$8,593,857

(16%)

13,153

(13%)

$9,972,631 

(16%) 

13,348

(14%)

$8,722,592

(17%)

Source: GAO analysis of IRS data. 

Note: The number of AEITC consecutive recipients represents the total number of individuals who 

received the AEITC over each of the 3 years. The associated dollars represent the amount those 

individuals received each year. 

a

Percentage is out of AEITC recipients and dollars. This analysis includes the valid, invalid name, and

invalid number subpopulations. 

b

Percentage is out of AEITC consecutive recipients and dollars. This analysis includes the invalid 

name and invalid number subpopulations. 

Most consecutive AEITC recipients filed a tax return, but did not

report the correct AEITC amount on the tax return: About 98,000 

individuals received the AEITC consecutively in each of the 3 tax years, 

2002 through 2004. More than half of these individuals filed a tax return. Of 

those who filed, about half reported the same AEITC amount on the tax 

return as shown on the Form W-2 (i.e., matched). Of the mismatches, the

majority did not report receipt of the AEITC (see table 23). 

Page 79 GAO-07-1110 Advance Earned Income Tax Credit
Appendix V: Additional Analyses of Advance 

Earned Income Tax Credit Noncompliance 

Table 23: Number of AEITC Consecutive Recipients with Matches and Mismatches between Forms W-2 and Filed Tax Returns, 

Tax Years 2002 through 2004 

Tax year 2002 Tax year 2003 Tax year 2004

Number Dollars Number Dollars Number Dollars

Number of consecutive AEITC recipients 

who filed federal tax returns 

65,864 $42,750,223 63,189 $43,205,414 60,257 $36,916,220

Number of returns that matched the 

Form(s) W-2 AEITC amount for 

consecutive recipients 

(percentage)a

29,017

(44%)

$21,611,779

(51%)

29,606

(47%)

$24,369,871 

(56%) 

28,478

(47%)

$20,706,538

(56%)

Number of mismatches between Form(s) 

W-2 and filed tax returns for consecutive 

recipients 

(percentage)a

36,847

(56%)

$21,138,444

(49%)

33,583

(53%)

$18,835,543 

(44%) 

31,779

(53%)

$16,209,682

(44%)

 

Number of mismatches due to 

nonreporting of AEITC for consecutive 

recipients 

(percentage)b

34,400

(93%

$19,751,401

(93%)

31,035

(92%)

$17,182,551 

(91%) 

29,675

(93%)

$14,922,931

(92%)

Number of mismatches due to 

underreporting of AEITC for consecutive 

recipients 

(percentage)b

1,567

(4%)

$956,176

(5%)

1,688

(5%)

$1,164,494 

(6%) 

1,352

(4%)

$843,205

(5%)

Number of mismatches due to 

overreporting AEITC 

(percentage)b

880

(2%)

$430,867

(2%)

860

(3%)

$488,498 

(3%) 

752

(2%)

$443,546

(3%)

Source: GAO analysis of IRS data. 

Note: Percentages may not add due to rounding. This table includes individuals who filed a tax return 

in the valid and invalid name subpopulations. 

a

We considered a match to be anything plus or minus a dollar on the Form W-2 in order to allow for 

taxpayer rounding. We tested the sensitivity of this result by using a difference between the AEITC 

reported on the Form W-2 and the tax return of up to $100 and the results were similar. Percentage is 

of number of consecutive AEITC recipients who filed federal tax returns. 

b

Percentage is of number of mismatches due to nonreporting of AEITC for consecutive recipients and

number of consecutive AEITC recipients who filed federal tax returns. 

AEITC recipients with an invalid Social Security number (SSN) 

received little money: Most AEITC recipients who had a Form(s) W-2 

with an invalid SSN obtained $100 or less of AEITC (see table 24). These 

data are consistent with the overall AEITC population, as previously 

noted, where about half of all recipients received less than $100 and 80 

percent received $500 or less for the year. 

Page 80 GAO-07-1110 Advance Earned Income Tax Credit
Appendix V: Additional Analyses of Advance 

Earned Income Tax Credit Noncompliance 

Table 24: Amount of AEITC Received Per Invalid Form W-2, Number and 

Percentage, Tax Years 2002 through 2004 

Tax year 2002 Tax year 2003 Tax year 2004

AEITC amount 

Count

(percentage)

Count

(percentage)

Count

(percentage)

$1- $100 14,004

(43%)

12,658

(41%)

13,292

(42%)

$101- $200 4,075

(13%)

3,818

(12%)

3,817

(12%)

$201 - $300 2,651

(8%)

2,471

(8%)

2,605

(8%)

$301- $400 2,006

(6%)

1,888

(6%)

1,881

(6%)

$401 - $500 1,521

(5%)

1,360

(4%)

1,433

(4%)

$501- $600 1,172

(4%)

1,147

(4%)

1,218

(4%)

$601- $700 952

(3%)

953

(3%)

929

(3%)

$701- $800 848

(3%)

809

(3%)

891

(3%)

$801- $900 820

(3%)

727

(2%)

804

(3%)

$901- $1,000 705

(2%)

718

(2%)

710

(2%)

$1,001 - $1,100 649

(2%)

690

(2%)

691

(2%)

$1,101 - $1,200 657

(2%)

634

(2%)

624

(2%)

$1,201 - $1,300 634

(2%)

665

(2%)

652

(2%)

$1,301 - $1,400 621

(2%)

709

(2%)

731

(2%)

$1,401 - yearly maximum 577

(2%)

955

(3%)

1,242

(4%)

Above maximum a609

(2%)

420

(1%)

355

(1%)

Total 32,501 30,622 31,875

Source: GAO analysis of IRS data. 

Page 81 GAO-07-1110 Advance Earned Income Tax Credit
Appendix V: Additional Analyses of Advance 

Earned Income Tax Credit Noncompliance 

Note: This table includes the invalid number subpopulation. 

a

Above the maximum is possible because this table presents aggregated Forms W-2 and if an 

individual received more than one Form W-2, the total received could be above the yearly maximum. 

Most AEITC recipients with an invalid SSN received 1 to 2 Forms 

W-2: Most recipients who had an invalid SSN received 1 to 2 Forms W-2 

reporting AEITC. For example, in tax year 2002, 6,223 individuals received 

two Forms W-2 that reported AEITC. These resulted in a total of 12,466 

Forms W-2 equaling $3,261,327 in AEITC, with an average of $262 in 

AEITC per Form W-2 (see tables 25, 26, and 27).

Table 25: Number of Individuals Receiving a Form(s) W-2, Total Number of Form(s) 

W-2 Reporting AEITC, Total Associated and Average Dollars Received Relative to

Number of Form(s) W-2 Reporting AEITC for AEITC Recipients with an Invalid SSN 

on the Form(s) W-2, Tax Year 2002 

A B C D E

Number of 

Forms W-2 an

individual 

received

reporting AEITC

Number of 

individuals

receiving the 

number of 

Forms W-2

Total number 

of Forms W-2

reporting 

AEITCa

Total

associated

dollars on

Forms W-2

Average 

dollars per 

Form W-2b

1 22,812 22,812 $5,588,671 $245

2 6,233 12,466 $3,261,327 $262

3 1,954 5,862 $1,290,955 $220

4 874 3,496 $689,595 $197

5 332 1,660 $287,912 $173

6 142 852 $138,384 $162

7 74 518 $84,688 $163

8 37 296 $46,962 $159

9 10 90 $15,429 $171

10 7 70 $9,601 $137

11 7 77 $12,577 $163

12 3 36 $6,073 $169

13 4 52 $11,805 $227

14 1 14 $6,246 $446

15 1 15 $5,156 $344

16 2 32 $8,271 $258

17 1 17 $3,893 $229

19 2 38 $10,695 $281

20 1 20 $6,978 $349

Page 82 GAO-07-1110 Advance Earned Income Tax Credit
Appendix V: Additional Analyses of Advance 

Earned Income Tax Credit Noncompliance 

A B C D E

Number of 

Forms W-2 an

individual 

received

reporting AEITC

Number of 

individuals

receiving the 

number of 

Forms W-2

Total number 

of Forms W-2

reporting 

AEITCa

Total

associated

dollars on

Forms W-2

Average 

dollars per 

Form W-2b

23 2 46 $8,101 $176

28 1 28 $6,074 $217

935 1 935 $83,211 $89

Total Forms 

W-2 with invalid

SSNs 

32,501 49,432 $11,582,604 $234

Source: GAO analysis of IRS data. 

Note: This table includes the invalid number subpopulation. 

a

This number is derived by multiplying column A by column B. 

b

This amount is derived by dividing column D by column C. 

Table 26: Number of Individuals Receiving a Form(s) W-2, Total Number of Form(s) 

W-2 Reporting AEITC, Total Associated and Average Dollars Received, Relative to

Number of Form(s) W-2 Reporting AEITC for AEITC Recipients with an Invalid SSN 

on the Form(s) W-2, Tax Year 2003 

A B C D E

Number of 

Forms W-2 an

individual 

received

reporting AEITC

Number of 

individuals

receiving the 

number of 

Forms W-2

Total number 

of Forms W-2

reporting 

AEITCa

Total

associated

dollars on

Forms W-2

Average 

dollars per 

Forms W-2b

1 22,474 22,474 $6,787,458 $302

2 5,424 10,848 $2,689,186 $248

3 1,660 4,980 $1,076,219 $216

4 600 2,400 $478,420 $199

5 259 1,295 $222,288 $172

6 94 564 $107,704 $191

7 41 287 $46,869 $163

8 22 176 $32,510 $185

9 17 153 $30,123 $197

10 6 60 $14,293 $238

11 4 44 $9,769 $222

12 5 60 $14,794 $247

13 5 65 $20,860 $321

14 3 42 $10,857 $259

Page 83 GAO-07-1110 Advance Earned Income Tax Credit
Appendix V: Additional Analyses of Advance 

Earned Income Tax Credit Noncompliance 

A B C D E

Number of 

Forms W-2 an

individual 

received

reporting AEITC

Number of 

individuals

receiving the 

number of 

Forms W-2

Total number 

of Forms W-2

reporting 

AEITCa

Total

associated

dollars on

Forms W-2

Average 

dollars per 

Forms W-2b

15 1 15 $1,798 $120

16 1 16 $4,378 $274

17 1 17 $10,284 $605

19 0 0 $0 $0

20 1 20 $4,468 $223

22 0 0 $0 $0

23 0 0 $0 $0

26 1 26 $8,584 $330

28 1 28 $9,513 $340

31 1 31 $9,404 $303

38 0 0 $0 $0

643 1 643 $60,948 $95

935 0 0 $0 0

1,088 0 0 $0 0

Total 30,622 44,244 11,650,727 $263

Source: GAO analysis of IRS data. 

Note: This table includes the invalid number subpopulation. 

a

This number is derived by multiplying column A by column B. 

b

This amount is derived by dividing column D by column C. 

Table 27: Number of Individuals Receiving a Form(s) W-2, Total Number of Form(s) 

W-2 Reporting AEITC, Total Associated and Average Dollars Received, Relative to

Number of Form(s) W-2 Reporting AEITC for AEITC Recipients with an Invalid SSN 

on the Form(s) W-2, Tax Year 2004 

A B C D E

Number of 

Forms W-2 an

individual 

received

reporting AEITC

Number of 

individuals

receiving the 

number of 

Forms W-2

Total number 

of Forms W-2

reporting 

AEITCa

Total

associated

dollars on

Forms W-2

Average 

dollars per 

Form W-2b

1 24,853 24,853 $7,602,238 $306

2 4,776 9,552 $2,663,173 $279

3 1,452 4,356 $1,022,262 $235

4 483 1,932 $385,252 $199

Page 84 GAO-07-1110 Advance Earned Income Tax Credit
Appendix V: Additional Analyses of Advance 

Earned Income Tax Credit Noncompliance 

A B C D E

Number of 

Forms W-2 an

individual 

received

reporting AEITC

Number of 

individuals

receiving the 

number of 

Forms W-2

Total number 

of Forms W-2

reporting 

AEITCa

Total

associated

dollars on

Forms W-2

Average 

dollars per 

Form W-2b

5 187 935 $178,214 $191

6 57 342 $72,679 $213

7 27 189 $47,036 $249

8 13 104 $30,029 $289

9 8 72 $15,628 $217

10 4 40 $9,060 $227

11 5 55 $9,027 $164

12 1 12 $3,178 $265

13 2 26 $9,049 $348

14 0 0 $0 $0

15 1 15 $5,077 $338

16 0 0 $0 $0

17 0 0 $0 $0

19 1 19 $5,604 $295

20 1 20 $9,567 $478

22 1 22 $5,076 $231

23 0 0 $0 $0

26 1 26 $6,837 $263

28 0 0 $0 $0

31 0 0 $0 $0

38 1 38 $9,575 $252

643 0 0 $0 $0

935 0 0 $0 $0

1,088 1 1,088 $78,141 $72

Total 31,875 43,696 $12,166,702 $278

Source: GAO analysis of IRS data. 

Note: This table includes the invalid number subpopulation. 

a

This number is derived by multiplying column A by column B. 

b

This amount is derived by dividing column D by column C. 

AEITC recipients in the invalid subpopulations lived in various 

geographic locations: Use of the AEITC varied widely across the country

for individuals in the invalid number and invalid name subpopulations. For 

the invalid name subpopulation, in all 3 tax years, California and Illinois 

Page 85 GAO-07-1110 Advance Earned Income Tax Credit
Appendix V: Additional Analyses of Advance 

Earned Income Tax Credit Noncompliance 

had the most Forms W-2 reporting AEITC and for the invalid number 

subpopulation, in all 3 tax years, Florida and Illinois had the most (see 

figs. 8 and 9). 

Page 86 GAO-07-1110 Advance Earned Income Tax Credit
Appendix V: Additional Analyses of Advance 

Earned Income Tax Credit Noncompliance 

Figure 8: Geographic Location of AEITC Recipients in the Invalid Name Subpopulation, Tax Years 2002 through 2004 

Note: AEITC geographic location is based upon information reported on the tax return. This figure 

includes the invalid name subpopulation. 

Page 87 GAO-07-1110 Advance Earned Income Tax Credit
Appendix V: Additional Analyses of Advance 

Earned Income Tax Credit Noncompliance 

a

These geographic locations had at least one but fewer than 10 individuals who received the AEITC. 

b

U.S insular areas include the three major U.S. territories, which are the U.S. Virgin Islands, American 

Samoa, Guam, and the two Commonwealths, which are the Commonweath of Puerto Rico and the 

Commonwealth of Northern Mariana Islands. 

c

Other includes Federated States of Micronesia, Marshall Islands, Palau, and Armed Forces mostly

located outside the U.S. 

d

Missing refers to instances where the geographic location was not available. 

Page 88 GAO-07-1110 Advance Earned Income Tax Credit
Appendix V: Additional Analyses of Advance 

Earned Income Tax Credit Noncompliance 

Figure 9: Geographic Location of AEITC Recipients in the Invalid Number Subpopulation, Tax Years 2002 through 2004 

Note: AEITC geographic location is based upon information reported on the tax return. This figure 

includes the invalid number subpopulation. 

Page 89 GAO-07-1110 Advance Earned Income Tax Credit
Appendix V: Additional Analyses of Advance 

Earned Income Tax Credit Noncompliance 

a

These geographic locations had at least 1 but fewer than 10 individuals who received the AEITC. 

b

U.S insular areas includes the three major U.S. territories, which are the U.S. Virgin Islands,

American Samoa, Guam, and the two Commonwealths, which are the Commonweath of Puerto Rico 

and the Commonwealth of Northern Mariana Islands. 

c

Missing refers to instances where the geographic location was not available. 

AEITC was paid in excess of yearly maximum limits: A total of 

almost 12,000 Forms W-2, reporting about $64 million, showed AEITC paid 

above the yearly maximum between tax years 2002 through 2004 (see figs. 

10 and 11). Specifically, in tax year 2002 there were 6,408 Forms W-2 above

the yearly maximum reporting almost $44 million; 2,690 in tax year 2003, 

reporting over $7 million; and 2,768 in tax year 2004, reporting almost $13 

million. As noted in figure 10, most Forms W-2 above the yearly maximum 

were between $1 above the limit and $5,000. An individual receiving the 

AEITC was eligible to obtain a maximum yearly amount of $1,503 in tax 

year 2002, $1,528 in tax year 2003, and $1,563 in tax year 2004. 

Figure 10: Number of Forms W-2 Received with Amounts above the Yearly AEITC Maximum, Tax Years 2002 through 2004 

Page 90 GAO-07-1110 Advance Earned Income Tax Credit
Appendix V: Additional Analyses of Advance 

Earned Income Tax Credit Noncompliance 

Note: This excludes 2 Forms W-2 in 2003 that when totaled, reported about $1 billion paid in AEITC. 

This figure includes the dollar limit subpopulation. 

Figure 11: AEITC Dollars Reported on Form W-2s above the Yearly AEITC Maximum, Tax Years 2002-2004 

Note: This excludes 2 Forms W-2 in 2003 that when totaled, reported about $1 billion paid in AEITC. 

This figure includes the dollar limit subpopulation. 

Page 91 GAO-07-1110 Advance Earned Income Tax Credit
Appendix VI: Comments from the Internal Appendix VI: Comments from the Internal Revenue Service 

Revenue Service 

Page 92 GAO-07-1110 Advance Earned Income Tax Credit
Appendix VI: Comments from the Internal

Revenue Service 

Page 93 GAO-07-1110 Advance Earned Income Tax Credit
Appendix VI: Comments from the Internal

Revenue Service 

Page 94 GAO-07-1110 Advance Earned Income Tax Credit
Appendix VI: Comments from the Internal

Revenue Service 

Page 95 GAO-07-1110 Advance Earned Income Tax Credit
Appendix VII: 

A

GAO Contacts and Staff 

cknowledgments 

Page 96 GAO-07-1110

Appendix VII: GAO Contacts and Staff 

Acknowledgments 

Michael Brostek, (202) 512-9110 

Libby Mixon, (404) 679-1900 

Joanna Stamatiades, (404) 679-1900

In addition to those named above, Blake Ainsworth, Frances Cook, James 

Cook, Rebecca Gambler, Evan Gilman, George Guttman, Donna Miller, 

Cheryl Peterson, Michael Rose, Steve Sebastian, Daniel Schwimer, Richard 

Stana, James Ungvarsky, Michael Volpe, and Paul Wright made key 

contributions to this report. 

Advance Earned Income Tax Credit

GAO Contacts 

Acknowledgments 

(450619) 
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