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In 1975, the year the Earned Income Tax Credit (EITC) was enacted, I “hung out my shingle” as a tax return preparer for the first time. Thus, the EITC and I have been sisters-in-arms throughout my entire career in tax. In fact, as a young, newly divorced mother struggling to pay bills, I myself received the EITC. From both a professional and personal perspective, I have witnessed the significant, positive impact the EITC can have on people’s lives.
Back in 1975, I certainly did not expect that much of my life’s work would involve the EITC. But as my work evolved to include legal practice and tax controversy, I saw how vulnerable populations could lose the much-needed safety net of the EITC merely because they did not understand the IRS’s audit processes or could not afford to take time off from work during business hours to gather documentation or sit on the phone trying to get through to the IRS. If they took time off, their pay would be docked. They might even lose their jobs. So they didn’t respond, the IRS assumed they were not entitled to the credit, and the taxpayer (and her family) lost out on hundreds or thousands of dollars in much-needed benefits for which she was, in fact, eligible.
I saw this sequence of events played out time after time after I founded and directed The Community Tax Law Project, the first independent low income taxpayer clinic (LITC) in the country. I also saw taxpayers who had no idea what the EITC eligibility criteria were and were completely dependent on a new breed of return preparers—ones who had no training in tax law but who simply relied on software and viewed tax preparation as a way to lure vulnerable taxpayers into expensive refund anticipation loans.
I found this heartbreaking because what I saw, almost every day of my working life, first at the LITC and later as the National Taxpayer Advocate, was the substantial, life-supporting difference the EITC made in the lives of tens of millions of taxpayers. Yes, the EITC is a complicated statute. Yes, the EITC is undermined by overclaims—both inadvertent and fraudulent. And yes, the EITC requires the IRS to play a different role than merely revenue collector. But it is important to keep in mind that the EITC is a low-cost, effective, and efficient method of delivering tens of billions of dollars in assistance to families and individuals who are working in low-paying jobs.
As the National Taxpayer Advocate, I have spent much of the last 18 years thinking about how to improve the administration of the EITC. How should the IRS change its approach and processes? How should the IRS and others increase the participation rate? And how can the IRS minimize noncompliance while respecting taxpayer rights and not deterring participation by eligible taxpayers? I have attempted to seek answers and make recommendations with respect to these questions. I and Taxpayer Advocate Service (TAS) employees have conducted research studies, served on Treasury and IRS taskforces, conducted training sessions for IRS and TAS employees, and made scores of administrative and legislative recommendations about the EITC.1