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With the filing season in full operation, many taxpayers are receiving correspondence from the IRS that convey significant taxpayer rights and require taxpayers to take prompt action. As part of my recently released Annual Report to Congress, I included a Literature Review that investigated how notices can be improved using insights from the available psychological, cognitive, and behavioral science research. A major issue with current IRS notices is that many taxpayers have difficulty understanding them. They may be unsure about what the notice requires them to do, the steps they may need to take, or the rights they have to challenge the IRS’s determination in a notice. This, in part, is because the design of IRS notices does not take into account the findings of available literature and research regarding effective notice design. Nor are IRS notices designed from a taxpayer rights perspective, which can prevent taxpayers from learning about or exercising their rights—for example, by relegating the segment on their rights to the last page of the notice, which they are least likely to read. In fact, notices are often designed with the goal of increasing revenue rather than adequately informing taxpayers of their rights. In the three Most Serious Problems on notices included in my 2018 Annual Report to Congress (here, here, and here), I provide both critiques of current IRS notices and suggestions for improvement. One of those suggestions is for the IRS to improve taxpayer understanding and decrease taxpayer burden by redesigning its notices using psychological, cognitive, and behavioral science insights. These suggestions are summarized below.
Notices should use plain language, with simple and personal messages
One of the most common findings from psychological, cognitive, and behavioral science research is that using plain language principles (described in this linked webpage by the Center for Plain Language) enhances effective communication. Such principles include highlighting or emphasizing key messages, using personal language, and avoiding jargon. Notices should be specific and personalize the message when possible. They should include the facts and information that directly relate to the taxpayer. This can help prevent confusing taxpayers or burdening them with too much cognitive load, which the IRS has itself discussed in its Behavioral Insights Toolkit. Simplification of the message similarly helps improve understanding and engagement (as one Organization for Economic Cooperation and Development (OECD) study on building a letter to engage customers about their interest-only mortgages found). This simplification can be done by sending more concise messages and reducing the amount of information readers must process when reading a letter. When tasks are simpler to complete or there are fewer, clearer steps to complete those tasks, people are more likely to complete them.
A letter study on Medicare patients’ selections of drug plans found that personalizing the message in a notice for the intended target of the notice or the target audience also has an impact on a reader’s responsiveness to the notice. This can be done by tailoring the message to the most relevant issues for the audience or taxpayer, instead of a more generic message. More generic, less salient messages receive lower reader responsiveness than messages that highlight points that are particularly relevant and important for taxpayers (another finding from the above linked OECD study).
The IRS must effectively organize notices to ease taxpayer burden
The way a notice is organized will affect how taxpayers read and understand it. The organization of a notice can also influence taxpayers’ decisions in how to respond to a notice. Choice architecture is a design concept that guides the decision-making process. For example, a Harvard study on optimal defaults and active decisions found that the default choice was the one most often chosen by study participants. Similarly, the order of choices, or their presentation and placement on a notice, can influence which choice is made and reduce or increase the cognitive burden placed on taxpayers trying to work their way through a notice. People can only handle so much information at once; too much information can increase their cognitive burden, which will hinder understanding and decision-making. Additionally, too many choices placed together can lead to choice overload, which can similarly limit understanding or lead people to be less likely to make a choice (which further emphasizes the importance of default options).
The IRS should also use psychological, cognitive, and behavioral science tools to improve taxpayer understanding and effective decision-making
There are a variety of tools notice writers can use that can influence how a message is received and how readers will react to it. These can be used to the benefit or detriment of taxpayers, depending on how they are used. For example, reminder messages can help taxpayers remember to meet deadlines or complete necessary tasks. Messages like these are “nudges.” From a Deloitte guide to using nudging in tax compliance, a nudge is “a concept from behavioral science and economics that steers people in [a] particular direction but that also allow[s] them to preserve their freedom of choice and does not impose any significant material incentives.” Warning messages are also nudges. The effect of these nudges, and how they actually steer people, will depend on another behavioral science concept: framing. Framing, according to the SAGE Handbook of Social Psychology is “the idea that identical information can be presented in different ways such that there is a different focus or a different salience of certain aspects of information.”
Essentially, the way a document is worded, or the order in which the information is presented, can influence the actions people are most likely to take in response. Framing a notice to look like a bill, with a balance due and due date line on the first page for example, could steer more people to pay what the IRS wants. Alternatively, framing a notice with a focus on taxpayer rights—by wording the notice in the context of what steps taxpayers may take, the rights they have in response to a notice, and the deadlines to retain those rights—can steer more taxpayers to learn, understand, and exercise their rights, instead of paying blindly.
It is further necessary for the IRS to experiment and test changes to notices to determine what are the most effective notice designs
The insights gained from psychological, cognitive, and behavioral science research are valuable, and should guide changes to notice design. However, it is important for any changes to newly designed notices to be thoroughly tested to ensure that they actually work as intended. Research principles can work in one context, but fail in others. Testing can also identify what changes may need to be tweaked to provide better effects, or whether additional changes may further improve notices, such as a different typography (which several studies have shown impact reader understanding and memory). It is also imperative that test studies be designed with a taxpayer rights focus. Notices that are tested for different objectives, such as increasing revenue or decreasing phone contacts, can help achieve those objectives while ignoring or overlooking other factors, such as a taxpayer’s ability to pay (see, for example, the discussion in the Economic Hardship Most Serious Problem in my 2018 Annual Report).
This year, TAS is working on examining and experimenting with core IRS notices, such as the CP11 Math Error Notice, LT11 Collection Due Process Notice, and the LT3219 Statutory Notice of Deficiency, focusing on improving taxpayer rights and understanding, and reducing taxpayer burden, using the psychological, cognitive, and behavioral science insights discussed in this blog. I am also committed to an ambitious project of designing interactive IRS roadmaps from a taxpayer’s perspective. When complete, taxpayers will be able to type in or click on the notice or letter number from the IRS correspondence they’ve received, and find their place on the roadmap. They will have plain English descriptions of the purpose of the notice and the important rights and protections granted. We’re very excited about this project; building on the Roadmaps we published in the 2018 Annual Report to Congress, we hope to have the underlying structure completed by this June, so we can begin programming. In the meantime, we will continue to advocate for better-designed, rights-based IRS notices.
The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.
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