Reckless Means Reckless: Understanding the EITC Ban

Abstract

Under section 32(k), a little-known subsection introduced to the code by the Taxpayer Relief Act of 1997, the earned income tax credit is disallowed if a taxpayer improperly claimed that credit in a prior tax year. This disallowance is best known to tax practitioners as the EITC ban. If the improper EITC claim is attributable to "reckless or intentional disregard of rules and regulations," the ban is imposed for a two-year period. The IRS does not recognize a formal definition for reckless or intentional disregard under section 32(k), and it imposes the EITC ban without a clear explanation in nearly 90 percent of cases. This article argues that the legislative history of the EITC ban demonstrates that Congress intended to import to section 32(k) the well-established definition for reckless or intentional disregard from section 6662, which imposes the accuracy-related penalties.

Keywords: earned income tax credit, EITC, earned income tax credit ban, EITC ban, earned income credit, earned income credit ban, two year ban, reckless or intentional disregard, reckless, recklessness, 32(k), 6662, accuracy-related penalties, Internal Revenue Service, IRS, National Taxpayer Advocate, penalty

JEL Classification: K34