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MSP #24: EARNED INCOME TAX CREDIT (EITC)

The IRS’s EITC Return Preparer Strategy Does Not Adequately Address the Role of Preparers in EITC Noncompliance

TAS Recommendations and IRS Responses

1
1.

TAS RECOMMENDATION #24-1

Release the annual analysis for the EITC Return Preparer Strategy to the public, including the measures used to evaluate the effectiveness of the strategy.

IRS RESPONSE TO RECOMMENDATION: NTA Recommendation not adopted as written, but IRS Actions Taken to Address Issues Raised by NTA.  Each year, we report the results of our strategy in the Department of Treasury’s Agency Financial Report, a document that is available to the public. The specifics of the EITC RPS Report is not shared as it contains detailed information about selection criteria that is only appropriate for internal use. We share overall results and future plans with the preparer community in Nationwide Tax Forum seminars, meetings and seminars with large tax preparation firms and professional organizations, and in webinars. At the start of each year’s outreach strategy, we notify EITC preparers of our planned educational and compliance activities through e-News for Tax Professionals, Quick Alerts, news releases, and in the Hot Topics on our Preparer Toolkit.

CORRECTIVE ACTION: N/A

TAS RESPONSE: As of now, the RPS has been developed, implemented, and analyzed without any feedback from the Taxpayer Advocate Service, practitioners, or other stakeholders, such as community organizations working with low income taxpayers.  If the annual RPS reports are made public, the stakeholders with appropriate knowledge and experience can provide feedback on ways to improve the initiative.  For instance, community organizations dealing with the effects of unscrupulous preparers could comment on ways to improve contact with unenrolled agents.

The IRS claims that the contents of these reports cannot be published because the contents are for official use only.  The National Taxpayer Advocate agrees that the selection criteria for RPS action should not be published.  However, the details surrounding the activities of the RPS initiative, the methodology for determining its success, and the analysis of its success, should be available for public review.  The National Taxpayer Advocate believes that the RPS initiative, which is a major component in addressing EITC noncompliance, should be transparent so that key stakeholders, including Congress, can be fully informed. It should be noted that similar reports, such as Compliance Estimates for the EITC Claimed on 2006–2008 Returns, have been published by the IRS.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

2
2.

TAS RECOMMENDATION #24-2

Include TAS as a member of the EITC Return Preparer Strategy team.

IRS RESPONSE TO RECOMMENDATION: NTA Recommendation not adopted as written, but IRS Actions Taken to Address Issues Raised by NTA.  We are always striving to make improvements to our education/outreach and compliance strategies. We agree that there may be some opportunities to review the letters we currently send to make a clearer distinction between educational letters and compliance letters and better communicate errors made by the preparer. We believe a team consisting of participants from Refundable Credits Policy and Program Management staff and the TAS to look at this issue would be beneficial.

Update: All letters must go through the Office of Taxpayer Correspondence process.  IRS started the official process for FY 2017 letters in April 2016.  As part of this process, TAS reviews the letters and provides feedback.  While a separate team was not established to review and discuss improvement opportunities for Return Preparer Strategy letters, TAS was afforded the opportunity to review and provide feedback on all preparer letters for FY 2017.

CORRECTIVE ACTION: We will establish a team made up of representatives from internal IRS operations and members of the TAS to review and discuss improvement opportunities for Return Preparer Strategy letters.

TAS RESPONSE: TAS partially disagrees with this response.  While TAS is pleased to be included in the discussion of RPS letters, TAS strongly believes inclusion in all aspects of the EITC RPS team is crucial.  Our experience with EITC cases from our own inventory, our oversight of the Low Income Taxpayer Clinics, our significant research into the sources of tax noncompliance and taxpayer and preparer behavior, our statutory role as the voice of the taxpayer inside the IRS and our advocacy for taxpayer rights enable us to share valuable insights with the team as a valued member.  For the IRS to decline including TAS in the team from the outset flies in the face of logic.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

3
3.

TAS RECOMMENDATION #24-3

In collaboration with TAS and other IRS functions, and based on this annual analysis, determine where to focus resources and how to measure success with a multiyear analysis.

IRS RESPONSE TO RECOMMENDATION: The RPS is a multi-year strategy with an overall goal to reduce EITC improper payments.  We use what we learn from each year’s results to refine and improve the treatments. As an essential business function, the IRS determines how our limited resources will be allocated to improve the strategy and achieve the goals, considering resource constraints and other program priorities. However, we will share our plan for anticipated return preparer treatments.

CORRECTIVE ACTION: N/A

TAS RESPONSE: As discussed in our preceding response, TAS is disappointed with the IRS response to this recommendation and will continue to push for inclusion in RPS planning.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

4
4.

TAS RECOMMENDATION #24-4

Incorporate preparer referrals, both from internal and external sources, and preparers who misuse PTINs, as a selection criterion for compliance treatment in the EITC Return Preparer Strategy.

IRS RESPONSE TO RECOMMENDATION: Preparer referrals are not currently incorporated in our risk-based scoring models as the IRS has other methods of treating potentially unprofessional or criminal behavior. The EITC RPS is to educate preparers on the credit and treat intentional disregard. Some referrals from other areas are a single incident, not yet adjudicated, and may not be an indicator of improper behavior on the part of the preparer.  Many Preparer Tax Identification Number (PTIN) errors are unintentional, such as a number transposition or missing digits. We research and identify the correct preparer using a PTIN, and provide treatment to the correct preparer. Improper PTIN use identified by campus operations, research functions, and external sources is analyzed and referred to the Return Preparer Office, as appropriate.

CORRECTIVE ACTION: N/A

TAS RESPONSE: TAS is disappointed the IRS is not willing to adopt this recommendation. Those referrals that are determined to be single incident, not yet adjudicated could be removed from the sample so that IRS could concentrate on those preparers that are intentionally misusing PTINs.  TAS urges the IRS to reconsider its response.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

5
5.

TAS RECOMMENDATION #24-5

Use measures for evaluating the effectiveness of the strategy on an annual basis that are not limited to measuring protected dollars or return on investment, but also include a year-to-year analysis of the preparer’s behavior following treatment.

IRS RESPONSE TO RECOMMENDATION: The IRS conducts a series of tests using both test and control groups. Results of each treatment or series of treatments are evaluated on a yearly basis for their effectiveness. This data is used to refine and improve the existing treatments or combination of treatments. Although we do capture dollars protected and ROI, we also capture and evaluate other factors related to change in behavior. This data is reviewed over a period of time to determine if the change is temporary or not.

CORRECTIVE ACTION: N/A

TAS RESPONSE: TAS is pleased this recommendation has been implemented; however, we will continue to monitor how the IRS actually reviews this data and utilizes it to improve its strategy and approaches over time.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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6.

TAS RECOMMENDATION #24-6

Tailor outreach specifically to the unenrolled preparer population that addresses due diligence requirements and is presented where these preparers operate.  This outreach should incorporate TV and radio as well as social media.

IRS RESPONSE TO RECOMMENDATION: The IRS outreach to unenrolled preparers was expanded in FY 2016. This effort leverages partnerships with over 550 preparer organizations that reach over 500,000 unenrolled preparers. IRS liaisons provide important compliance messages for distribution to members via virtual newsletters, listservs, and other channels. We partnered with the Latino Tax Professional Association to deliver educational material in Spanish. We continue to provide seminars on EITC due diligence at the IRS tax forums which are attended by preparers at all levels of expertise, including unenrolled preparers. We have an extensive network of preparer alerts designed for immediate electronic distribution and e-news messages delivered electronically to subscribers.

Through both our educational and compliance treatment letters, we promote our Tax Preparer Toolkit, emphasizing the due diligence pages. We include the web link in preparer letters. The  number of visits to the Tax Preparer Toolkit increased from 33,463 in FY 2015 to 110,909 in FY 2016 during the peak periods of October 1 to March 31, a 231% increase. We also conduct outreach activities through the IRS Nationwide Tax Forums, irs.gov, and social media avenues.

We improve our toolkit based on feedback from preparers received at the Nationwide Tax Forums, through e-mail, and other means.  Last year, we used social media to send compliance messages to preparer groups and preparers. Each month targeted a specific compliance issue. Data for this effort is not yet available. Each year we produce and promote videos from our tax forum seminar; many preparer groups and employers use the videos for training purposes. Due to budget constraints, we are not able to expand outreach to television or radio.

CORRECTIVE ACTION: N/A

TAS RESPONSE: TAS commends the IRS for its improvements in unenrolled preparer outreach for 2016 and looks forward to observing the downstream results of these actions.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

7
7.

TAS RECOMMENDATION #24-7

Conduct a creative, geographic-based public education campaign in conjunction with other internal and external stakeholders including public service advertisements, videos, and tweets in order to educate taxpayers on how to select a competent preparer, what the rules of due diligence require, and the consequences of using an unskilled or unscrupulous preparer, including identity theft.  Different marketing approaches should be tested and studied to track EITC compliance over the years.

IRS RESPONSE TO RECOMMENDATION: Tip Number 12, January 9, 2017, IRS, States, Industry Urge Taxpayers to Learn Signs of Identity Theft, IRS Taxes. Security. Together. -Tax Tip Number 11, January 3, 2017, IRS Offers Tips on Validating Your Identity on Your Tax Return, Taxes. Security. Together. Tax Tip Number 9, December 19, 2016.

IRS has also educated the preparer community on their expanded due diligence requirements for Child Tax Credit and American Opportunity Tax Credit under the PATH Act as follows:

  • Conducted two seminars at each of the five FY 2016 Nationwide Tax Forums that included information on due diligence
  • Conducted due diligence seminars at the Latino Tax Professionals Association as well as a large tax professional firm’s annual meetings.
  • Held two due diligence webcasts in January 2017
  • Rolled out expanded DD training, publicized in e-news for Tax Professionals Issue 2017–5, 2/3/2017
    Updated the Tax Preparer Toolkit on EITC Central with news and resources to help preparers meet their due diligence requirements.
  • Updated Pub 4687, Refundable Credits Due Diligence EN/SP (8/2016), a brochure that informs paid tax return preparers who file EITC, CTC, and AOTC returns of their due diligence requirements, provides information on avoiding common mistakes, and points to resources to assist in meeting the requirements.

    IRS addressed fraud and identity theft to preparers as well as part of its Security Summit partnership by expanding their ongoing public awareness campaign.  They launched the “Protect Your Clients; Protect Yourself” campaign. As part of this initiative, the partners will issue weekly security awareness tax tips through January aimed at tax professionals. These tips have already been issued:

  • Safeguarding Taxpayer Data: Create Strong Passwords, IRS Protect Your Clients; Protect Yourself Tax Tip Number 8, January 25, 2017
  • What to Do If You Suffer a Data Breach or Other Security Incident, IRS Protect Your Clients; Protect Yourself Tax Tip Number 7, January 18, 2016
  • Safeguarding Taxpayer Data: Monitor Your EFIN for Suspicious Activity, IRS Protect Your Clients;
  • Protect Yourself Tax Tip Number 6, January 11, 2017
  • Safeguarding Taxpayer Data – Secure Your Office, IRS Protect Your Clients; Protect Yourself Tax Tip Number 5, January 4, 2017,
  • Safeguarding Taxpayer Data – Make a Security Plan, Protect Your Clients; Protect Yourself Tax Tip Number 4, December 28, 2016
  • Safeguarding Taxpayer Data – How to Get Started, Protect Your Clients; Protect Yourself Tax Tip Number 3, December 21, 2016
  • Safeguarding Taxpayer Data – Avoid Scams, Protect Your Clients; Protect Yourself Tax Tip Number 2, December 14, 2016
  • Tax Professionals: Protect Your Clients; Protect Yourself, IRS Protect Your Clients; Protect Yourself Tax Tip Number 1, December 7, 2016

CORRECTIVE ACTION: IRS Actions to be Adopted/Addressed if Resources and Budget Allow.  The IRS currently provides information on selecting a preparer and its importance through many mediums. This includes publications, social media, web pages on irs.gov and EITC Awareness Day. We specifically discuss how to choose a tax preparer and what to expect from that preparer. IRS will review and update this information as necessary to prepare for the 2017 filing season.

Due to budget constraints, the IRS is unable to conduct a geographic-based public education campaign or marketing test. However, we will evaluate other less costly options to inform the public.

TAS RESPONSE: TAS appreciates the IRS’s willingness to adopt this recommendation if there is sufficient funding to cover the cost and encourages the IRS to look at creative funding and partnership opportunities to make up for any potential shortfalls in the budget.  However, TAS believes that the cost of such a campaign will be minimal when compared to the positive compliance impact of arming taxpayers with better information. Therefore we encourage the IRS to collaborate with TAS in conducting a creative pilot campaign in a specific geographic community to measure the potential compliance impact versus the cost of such a campaign.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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