Tax Advocate issues report on earned income tax credit and “map” of tax system

Background. TAS is an independent organization within IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. The NTA reports to the IRS Commissioner and serves as his or her advisor on taxpayer advocacy.

EITC report.  The EITC report, Earned Income Tax Credit: Making the EITC Work for Taxpayers and the Government, presents a detailed examination of the strengths and weaknesses of the EITC as currently structured and administered, and makes legislative and administrative recommendations to improve it.

The report makes both general, conceptual recommendations and specific recommendations. Among the general recommendations:

• The IRS, which views itself primarily as a tax collection agency, should more explicitly acknowledge that it has a second mission – that of administering benefits programs like the EITC. Benefits administration requires a different approach from tax collection, including hiring employees with different skill sets and creating a separate set of practices and processes to carry out this second mission. While preventing improper payments is an important part of its job, the IRS should also strive to ensure that low income working taxpayers receive the benefits for which they are eligible and are treated with respect and fairness. The report points out that eligible taxpayers often lose out on benefits to which they are entitled either because they don’t claim them or because they aren’t able to navigate the IRS’s audit process.
• Congress should consider the administrability of tax provisions, especially family and child-related provisions whose eligibility criteria may be difficult, if not impossible, for the IRS to verify. When a tax provision is difficult for the IRS to administer, the provision is more susceptible to improper payments and may cause some taxpayers to be subjected to additional scrutiny. This additional scrutiny can be particularly burdensome for low income taxpayers, causing some to give up because they don’t have the knowledge or ability to substantiate their claims.

• Congress should conduct regular oversight hearings of the IRS on a permanent basis. These hearings would provide an opportunity for the IRS to identify successes and challenges with the laws it administers. In the case of low income tax benefits, these hearings would also provide a forum for Congress to hear directly from outside experts, including Low Income Taxpayer Clinics, return preparers, and others with insights into the challenges facing low income taxpayers and their families.

Among the report’s specific recommendations:

• Congress should consider redesigning the EITC to reduce fraud by separating the worker component from the family-size component of the credit and by revising the definition of a “qualifying child” to better reflect existing family relationships.

• Congress should authorize the IRS to establish minimum standards for tax return preparers and software providers to protect taxpayers and improve the accuracy of EITC claims.

• Congress and the IRS should take steps to ensure EITC compliance procedures are consistent with due process norms and fundamental taxpayer rights. These steps should include limiting the use of summary assessment authority (also known as “math error” authority) to appropriate cases based on clear criteria, updating and modernizing the summary assessment process, developing a structure for ban determinations that protects taxpayer rights, and clarifying and improving the procedures authorizing Tax Court review of ban determinations.

“Subway map” of tax system.  TAS is releasing a “subway map” that illustrates the stages of a taxpayer’s journey through the tax system – from getting answers to tax law questions through audits, appeals, collection and litigation.

The NTA’s 2018 Annual Report to Congress included a series of “roadmaps” depicting a taxpayer’s “journey” through the tax system. The roadmaps were divided into seven stages: (i) tax return preparation; (ii) tax return processing; (iii) notices; (iv) examinations; (v) appeals; (vi) collection; and (vii) litigation. The purpose of the roadmaps was to help taxpayers and policymakers gain a better understanding of the tax administration process.

The subway map expands on the earlier roadmaps by providing a visual depiction of the taxpayer’s journey. The subway map is now available to view online and will be available in hard copy as a print map next month.

TAS will be working to develop an interactive version of the subway map in the coming year. When the interactive map is completed, a taxpayer or representative will be able to enter into it at any step and learn more about that step and the surrounding steps. With the interactive version, a taxpayer or representative will be able to input the number of an IRS letter or notice and generate a pop-up window that provides key relevant information, including where in the process the taxpayer is and what the next steps will be.