Popular search terms:

MSP #12: EARNED INCOME TAX CREDIT (EITC)

The IRS Continues to Make Progress to Improve Its Administration of the EITC, But It Has Not Adequately Incorporated Research Findings That Show Positive Impacts of Taxpayer Education on Compliance

TAS Recommendations and IRS Responses

1
1.

TAS RECOMMENDATION #12-1

Send out pre-filing season letters to taxpayers who break certain return filters. These letters should be written in plain language and be tailored to the taxpayer’s particular needs.

IRS RESPONSE TO RECOMMENDATION:

We continue to identify alternative treatments to improve voluntary compliance, reduce improper payments, and change taxpayer behavior. We tested the use of notices sent to taxpayers who claimed the EITC in fiscal year 2016. We implemented the test to determine the effectiveness of using notices to promote a change in behavior of taxpayers who self-prepared EITC claims erroneously. We issued approximately 25,600 soft notices to taxpayers who appeared to have filed tax year 2014 returns claiming the EITC with either qualifying child or Schedule C income errors. We analyzed processing year 2016 data to determine the effectiveness of the notices in promoting changed behavior and voluntary compliance. We are currently conducting additional analysis. Upon completion of the analysis, based on available resources, we will refine and issue letters accordingly.

Additionally, we are planning an EITC outreach study for filing season 2019. The study will evaluate the effectiveness of soft-touch outreach in reducing erroneous EITC claims by taxpayers with self-employment income that results in the maximum amount of the EITC. Soft notices will promote compliance through self-correction, and provide taxpayers with specific resources on the EITC eligibility rules and how to correctly report self-employment income and expenses.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate encourages the IRS to publish the findings from its Fiscal Year 2016 study. She also looks forward to seeing the results from the IRS’s filing season 2019 study. However, the IRS does not need to wait to incorporate research findings from other studies, such as the research done by TAS reported in the 2017 Annual Report to Congress, to improve EITC compliance even in a tight budget environment. For instance, the soft notice to taxpayers will be useful if it is tailored to the taxpayer’s particular circumstances and is written in plain language.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

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

2
2.

TAS RECOMMENDATION #12-2

Provide a dedicated toll-free Help line for EITC taxpayers during the filing season.

IRS RESPONSE TO RECOMMENDATION:

Despite significant budget reductions, the IRS continues to offer taxpayers with EITC related inquiries multiple options for obtaining assistance from IRS employees and volunteers versed in the tax law. Options include calling the IRS toll-free telephone line, visiting a Volunteer Income Tax Assistance or Tax Counseling for the Elderly program, using the EITC Assistant online, or making an appointment to visit the local Taxpayer Assistance Center. Various outreach and educational events, hosted by the IRS, also help raise awareness of the credit and guidelines. 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 IRS.gov). Each year, the IRS uses its available communication resources to reach the broadest range of taxpayers.

To provide taxpayers another option to secure information on the EITC, the IRS is currently working with TAS, through the Audit Improvement Team, to design an interactive tool tailored to the taxpayers’ situation, based on their responses. The tool will be able to direct the user to the correct documents needed to resolve an audit, or help them understand why they don’t qualify for the EITC. This effort is based on feedback from tax preparers, Low Income Tax Clinic counselors, and taxpayers who shared concerns about the difficulty in identifying the documents to provide for their unique situation using the Form 886-H-EIC, Documents You Need to Send to Claim the Earned Income Credit on the Basis of a Qualifying Child or Children for Tax Year 2017.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate is glad to see multiple options for an EITC taxpayer to contact the IRS. However, the one aspect that is missing is that the taxpayer needs tailored assistance to address questions specific to the EITC. This is why a dedicated Extra Help line for taxpayers to receive information over the phone is so important. We know from our surveys that not all low income taxpayers have easy access to the internet. Additionally, the EITC is a complex area of law that impacts many personal aspects of a taxpayer’s life, such as their income, marital status, and living arrangements. This area of tax law requires a small cadre of specially trained IRS employees who can speak directly with taxpayers to identify and resolve any areas of confusion related to the EITC.

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 #12-3

Expand the list of acceptable documentation under IRM 4.19.14-1 and train employees on the importance of this list.

IRS RESPONSE TO RECOMMENDATION: ​​​The IRS will implement the use of third-party affidavits as proof of residency for a limited population of taxpayers beginning with tax year 2018 audits. The affidavit will be incorporated into the initial audit mailing and allowed as proof of residency at all stages of the audit. We will continue to use data analysis to help identify any additional populations that would be best served by using third-party affidavits during the audit process.

CORRECTIVE ACTION: The IRS will implement the use of third-party affidavits as proof of residency for a limited population of taxpayers beginning with tax year 2018 audits. The affidavit will be incorporated into the initial audit mailing and allowed as proof of residency at all stages of the audit. We will continue to use data analysis to help identify any additional populations that would be best served by using third-party affidavits during the audit process.

TAS RESPONSE: TAS continues to see cases in its inventory which demonstrate that some IRS employees are not accepting a variety of documents. TAS is actively working with the IRS on the EITC Audit Improvement team in order to improve training. The National Taxpayer Advocate will continue to monitor this aspect of EITC audits.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

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

4
4.

TAS RECOMMENDATION #12-4

Continue to expand the use of third-party affidavits, thereby making them available to all EITC taxpayers.

IRS RESPONSE TO RECOMMENDATION: ​The IRS will implement the use of third-party affidavits as proof of residency for a limited population of taxpayers beginning with tax year 2018 audits. The affidavit will be incorporated into the initial audit mailing and allowed as proof of residency at all stages of the audit. We will continue to use data analysis to help identify any additional populations that would be best served by using third-party affidavits during the audit process.

The W&I response for Recommendation #12-4 stands as originally provided. W&I will not be providing a potential implementation date or a responsible function.

CORRECTIVE ACTION: The IRS will implement the use of third-party affidavits as proof of residency for a limited population of taxpayers beginning with tax year 2018 audits. The affidavit will be incorporated into the initial audit mailing and allowed as proof of residency at all stages of the audit. We will continue to use data analysis to help identify any additional populations that would be best served by using third-party affidavits during the audit process.

Although IRS did not give us a due date or responsible function, TAS is keeping this open to monitor.

TAS RESPONSE: Since the IRS has implemented the use of third-party affidavits for a limited population of taxpayers and will continue to use data to help identify additional populations, the National Taxpayer Advocate believes the IRS has partially agreed with this recommendation. The third-party affidavit has proven to be an effective tool for taxpayers to substantiate their EITC claims. The National Taxpayer Advocate is pleased that third-party affidavits will now be available to a limited population of taxpayers. However, the use of third-party affidavits benefits both the taxpayer and the IRS as it is a credible document and saves time and money. The National Taxpayer Advocate strongly urges the adoption of third-party affidavits as a tool for all taxpayers claiming the EITC. Since the IRS’s actions appear to show that it partially agrees with this recommendation, it should provide an implementation date for its analysis of data to help identify any additional populations that can receive the third-party affidavit during the audit process.

AGREED (FULL or PARTIAL) or NOT AGREED: Partial

OPEN or CLOSED: Closed

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

en English
X