The Earned Income Tax Credit (EITC) is a refundable tax credit available to eligible workers earning relatively low wages. Because the credit is refundable, an EITC recipient need not owe taxes to receive the benefit. Hence, many working poor (especially those with children) who have little or no tax liability receive financial assistance from this tax provision. The amount of the EITC is based on a variety of factors, including number of qualifying children, earned income, and tax filing status. One concern with the EITC is the credit's complex rules and formulas make it difficult for taxpayers to comply with and difficult for the Internal Revenue Service (IRS) to administer. Studies indicate that EITC errors (both unintentional and intentional) result in a relatively high proportion of EITC payments being issued incorrectly. The Department of the Treasury's Agency Financial Report (AFR) for fiscal year (FY) 2017 estimates that in FY2017 between 21.9% and 25.8% of EITC payments—between $14.9 billion and $17.6 billion—were issued improperly. In 2014, the IRS issued a study examining the major factors that lead taxpayers to erroneously claim the EITC. This study found that the majority of taxpayers who overclaim the EITC are ultimately ineligible for the credit, rather than eligible for a smaller credit. (While the study was released in 2014, it is also referred to as the 2006-2008 EITC Compliance Study in this report, because it examined tax returns between 2006 through 2008.) In addition, the IRS may have difficulty ensuring that tax filers are in compliance with all the parameters of the credit, a problem that may be exacerbated in light of budgetary constraints faced by the agency. This report examines findings from the 2014 IRS study. The report first briefly defines and compares two common measures of EITC noncompliance: improper payments and overclaims. Next, the report provides an overview of the major factors leading to EITC noncompliance identified in the 2014 study on this issue, as well as challenges the IRS may face in their efforts to reduce each type of error. These factors include claiming ineligible children as qualifying children for the credit, income reporting errors, and filing status errors. Finally, the report describes the role of paid preparers in EITC noncompliance. This report does not provide a detailed overview of the credit. For more information on eligibility for and calculation of the EITC, see CRS Report R43805, The Earned Income Tax Credit (EITC): An Overview , by [author name scrubbed] and [author name scrubbed] This report discusses two measures of EITC noncompliance: improper payments and overclaims. Although these two measures of EITC noncompliance are related, they do differ. EITC improper payments are an annual fiscal year measure of the amount of the credit that is erroneously claimed (generally overclaimed) and not recovered by the IRS. In other words, recovered amounts of the credit are subtracted from erroneous claims of the credit to calculate improper payments. EITC overclaims are the amount of the credit claimed incorrectly and do not include the impact of enforcement activities. Hence, the major difference between improper payments and overclaims is that improper payments net out amounts recovered or protected by the IRS, while overclaims do not. Hence, improper payments are generally smaller than overclaims. In addition, in contrast to improper payments which are published annually, overclaims have historically been reported less frequently (the last two comprehensive IRS studies that examined overclaims were released in 1999 and 2014). For a more detailed explanation of the relationship between improper payments and overclaims, see the Appendix . The IRS estimates that in FY2017, between $14.9 and $17.6 billion in EITC payments (i.e., between 21.9% and 25.8% of payments) were issued improperly. EITC improper payments and rates are often compared to the improper payments and rates of traditional spending programs. For example, the Office of Management and Budget (OMB) has designated the EITC as a "high-error program" in comparison to other spending programs, with EITC improper payments the second highest in terms of the total dollar amount (behind Medicare Fee-for-Service) and the highest in terms of improper payment rate (improper payments as a percentage of total payments). , However, in order to make accurate comparisons of improper payments between tax benefits and traditional spending programs, it may be necessary to also consider the comparative costs of administering tax benefits and spending programs. The federal government must spend money to administer its tax laws—as well as other government programs (e.g., food stamps, veteran's benefits). The IRS's administrative expenses include processing tax returns, auditing tax returns, and collecting unpaid tax liabilities. To the extent that additional administrative expenses are associated with fewer errors (unintentional mistakes and fraud) and ultimately a reduction in improper payments, these administrative costs should be considered when comparing the improper payments of tax benefits to traditional spending programs. For example, some experts stress that spending programs may have lower improper payment rates than the EITC because they screen every participant before the benefit can be claimed. Such screenings generally involve high administrative costs. In contrast, the administrative cost of the EITC is relatively minimal. In congressional testimony, the IRS Taxpayer Advocate noted that Using tax returns as the "application" for EITC benefits rather than a traditional screening process results in low cost with high participation as well as the risk of improper payment. The IRS has pointed out that for the EITC current administration costs are less than 1% of benefits delivered. This is quite different from other non-tax benefits programs in which administrative costs related to determining eligibility can range as high as 20% of program expenditures. In addition to comparing the EITC's improper payments to the improper payments of other spending programs, they can also be compared to revenue losses that arise from taxpayer noncompliance with other provisions of the tax code. EITC errors are not the major source of revenue losses arising from taxpayer noncompliance. The most recent IRS report on the tax gap—tax liabilities not paid—estimated that the annual average gross tax gap for the tax years 2008 to 2010 period was $458 billion. The net tax gap, which nets out amounts subsequently collected, was estimated to be $406 billion over the same time period. The majority of the net tax gap—$291 billion—is associated with the individual income tax. The largest source of noncompliance with individual income tax laws was the underreporting of business income on individual income tax returns, resulting in $125 billion of the tax gap The next largest source of the tax gap (in dollar terms) was the underreporting of self-employment tax, estimated to be $65 billion annually during the 2008 to 2010 period. As the Taxpayer Advocate stated in the Fiscal Year 2015 Objectives, when comparing the tax gap from the EITC noncompliance versus underreporting business income, "EITC overclaims account for 6% of the gross individual income tax noncompliance while business income underreported by individuals accounts for 51.9%." , In August 2014, the IRS released a new EITC compliance study examining the causes of EITC overclaims on 2006, 2007, and 2008 tax returns (henceforth referred to as the "2006-2008 EITC Compliance Study"). This study found that the majority of tax filers who overclaim the EITC are ineligible for the credit, instead of eligible for a smaller credit. Specifically, between 79% and 85% of EITC dollars claimed incorrectly were claimed by tax filers ineligible for the credit. This study concluded that there were three major reasons for errors among claimants: EITC claimants claimed children who were not their qualifying children for the credit; EITC claimants misreported their income; and EITC claimants used an incorrect filing status when claiming the credit. The 2006-2008 EITC Compliance Study found that the most frequent EITC error was incorrectly reporting income, and the largest error (in terms of overclaim dollars) was incorrectly claiming a child for the credit, as illustrated in Table 1 . The study also found that filing status errors are a source of EITC overclaims, although they are a relatively smaller cause of errors in comparison to income reporting and qualifying child errors. Unlike previous studies (which did not examine error among paid preparers), this study also found that among paid tax preparers, unenrolled preparers were the most common type of preparers of tax returns which include the EITC. In addition, unenrolled preparers were found to be most prone to error when claiming the credit. Total overclaims from the 2006-2008 EITC Compliance Study were estimated to be between $14.0 billion (low estimate) and $19.3 billion (high estimate). For policymakers, it may be important to understand not only the types of taxpayer errors that lead to EITC overclaims, but also how the IRS may or may not be able to detect these errors and administer this tax benefit. The IRS examines a small sample of all tax returns every year, including those with the EITC, to verify that taxpayers are complying with tax laws. In FY2017, the IRS examined over one million tax returns, of which more than a third (36.0%) included an EITC claim. (By way of comparison, the IRS processed over 245 million returns in the same time period.) The IRS estimated that of $29.0 billion of additional tax owed as a result of all examinations, 6.9% ($2.0 billion) came from tax returns which included an EITC claim. Generally, the IRS does not reveal how it detects errors or flags questionable tax returns to prevent persons from using this information to circumvent IRS detection. However, public documents that evaluate the efficacy of the IRS error detection procedures do provide a general overview of some of the ways the IRS can attempt to detect errors, especially before a refund is issued.