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MSP #08: EARNED INCOME TAX CREDIT (EITC)

The Future State’s Reliance on Online Tools Will Harm EITC Taxpayers

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #8-1

Amend Internal Revenue Manual 4.19.14.5.4, EITC Qualifying Child, to allow an IRS employee to use a state agency’s determination that a taxpayer has qualified for Temporary Assistance for Needy Families, Section 8 or comparable benefits, as substantiation for EITC with a qualifying child.

IRS RESPONSE TO RECOMMENDATION: The IRS, working with members of TAS, identified additional documentation that taxpayers can provide and the IRS will accept to support EITC eligibility during an examination.

The IRS updated Internal Revenue Manual (IRM) 4.19.14.5.4, EITC Qualifying Child (QC), on July 29, 2016. A new exhibit was added, Exhibit 4.14-1, (Examples of Acceptable Documentation for EITC claims (not all-inclusive)), which includes these six additional documents:

1. Social service records (relationship)
2. Earnings statement/Check Stub (residency)
3. Bank statements (residency)
4. Military records (relationship)
5. Parole Office files (residency, relationship, citizenship)
6. Eviction Notice (residency)

The IRM was also updated to inform tax examiners that they should consider any information received that is not reflected in the IRM to strengthen proof of eligibility. This could include information that the taxpayer and child qualified for other social benefit programs during the year, including Temporary Assistance for Needy Families.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate commends the IRS for working with TAS to incorporate additional documents into IRM 4.19.14.5.4. These documents are specifically suited to meet the needs of low income taxpayers. Making the guidance in IRM 4.19.14.5.4 as thorough as possible will go far in helping IRS employees assist EITC claimants.

However, instead of catching incorrect claims after the fact, in certain cases the IRS could rely on determinations by federal or state agencies that are already making eligibility decisions for similar public benefits. Although none of the federal or state administered benefit programs, including Temporary Assistance for Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP), and Section 8 housing assistance, fully overlap with the EITC, state workers arguably have the knowledge and experience to understand the needs of low income applicants. Additionally, the state workers determining eligibility for TANF are investigating many of the same elements as EITC audits: U.S. citizenship, family structure, and household finances. In particular, because children must not be absent from the household for more than 45 days for TANF benefits, the state employees are also familiar with determining the residency of children. This is important to consider because IRS data show that of the known errors involving qualifying children on EITC claims, 75 percent of the errors resulted from the residency test.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

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

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2.

TAS RECOMMENDATION #8-2

Hire or train employees with social work skillsets in order to meet the needs of taxpayers claiming the EITC.

IRS RESPONSE TO RECOMMENDATION: The IRS provides Continuing Professional Education (CPE) and other training that consistently includes lessons devoted to the development of social work skills to help the tax examiners more effectively communicate and interact with taxpayers. The CPE training is delivered to all tax examiners annually. These lessons support the IRS mission by helping taxpayers to understand their tax obligations while being treated with fairness and understanding.

For example, our “Maintaining Professional Courtesy” lesson includes information on using effective communication and listening skills, including showing respect and consideration for the taxpayer. The “Earned Income Credit (EIC): One Response Does It All” lesson, which was included in the CPE for FY 2017, was developed to help tax examiners improve their written explanations to taxpayers to help reduce multiple document requests.  Our courses on the “Earned Income Credit (EIC):  One Call Does it All” and Suicide Calls and Domestic Violence Awareness also help our employees develop the skillsets for meeting the needs of taxpayers.

In an effort to improve the training material, cases and telephone calls are continually reviewed to identify improvement opportunities when tax examiners are interacting with taxpayers in written and verbal communication.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate’s recommendation regarding social work skill sets encompasses more than just enhanced communication skills. EITC taxpayers would benefit from employees with actual social work training not just because they need personalized communication and interaction. Family matters are some of the most personal matters a taxpayer can discuss. Thus, an employee with social work skills would gain familiarity with the taxpayer’s issues, be able to suggest alternate sources of documentation given that familiarity, and most importantly, reassure the taxpayers who may be understandably apprehensive and anxious, incorporating some of the skills and traits associated with social workers. This approach goes beyond what current IRS employees are trained to do.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

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

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3.

TAS RECOMMENDATION #8-3

Postpone its planning of any EITC Future State technology until the TDC data is available. Instead, the IRS should invest its resources into person-to-person communication for EITC taxpayers, including a dedicated “Extra Help” line for EITC taxpayers.

IRS RESPONSE TO RECOMMENDATION: The IRS budget has been cut significantly, but taxpayers still have multiple ways and options for getting EITC assistance from IRS employees and volunteers versed in the tax law. These options include calling the IRS toll-free phone line, visiting a Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) program, using the EITC Assistant online, or making an appointment to visit the local Taxpayer Assistance Center (TAC). Various outreach and educational events hosted by the IRS also help increase awareness of the credit and help people know the rules.  For example, “EITC Awareness Day” is a nationwide effort led by the IRS to help taxpayers get more information through traditional and social media channels and to promote use of the EITC Assistant on the IRS website. Each year, the IRS uses its available communication resources to reach the broadest range of taxpayers.

CORRECTIVE ACTION: N/A

TAS RESPONSE: As mentioned above, the IRS intends to incorporate “Future State” technology into EITC audits without understanding how it will affect low income taxpayers. Given the harm that can befall a taxpayer who makes a mistake with his or her EITC claim, it imperative that the IRS understand how the “Future State” will affect low income taxpayers. It is true that the IRS has many educational tools available to EITC taxpayers. However, the “Future State” will likely move low income taxpayers away from the personalized assistance that they need to successfully navigate the IRS systems successfully. A better use of limited funds is to invest in tools that assist EITC taxpayers directly, such as a dedicated “Extra Help” line. Recently, TAS opened two new offices, one in San Diego, California, and one in St. Petersburg, Florida. These locations where chosen because of the low income population density. The Local Taxpayer Advocate (LTA) in each new office reached out to Stakeholder Partnerships, Education and Communication (SPEC) employees in those areas and asked to participate in EITC Day activities. Both of the LTAs were told they do not do anything for EITC Awareness Day. In these instances, the IRS has missed an important opportunity to reach EITC taxpayers.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

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

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