Reimagining Tax Administration: Social Programs Through the Tax Code – Workshop 4: Eligibility Rules for EITC/CTC and Other Family Benefit/Anti-Poverty Programs, Part 2

Prior blogs in our series giving an advance look at the Center for Taxpayer Rights’ Reimagining Tax Administration workshop briefs have covered the characteristics of the Earned Income Tax Credit/Advance Child Tax Credit population and the impact of administrative burden on that population’s ability to claim and receive those credits.  You can read the first two blogs here and here.

In Part 1 of this workshop’s coverage, we analyzed whether the eligibility rules for tax benefits targeted to low income households actually fit the characteristics of the target population and whether those rules caused some eligible children not to receive the benefits.  Today we explore what are the risks that might arise in using the tax system to deliver these benefits to that population, how other countries have tried to come up with approaches that minimize that risk, and why, even given the risks, we might still want to run such programs through the tax code. All of the workshop sessions are recorded, and the videos are available here on the Center’s website, along with slide decks and other materials.

Avoiding repayment risks in the Child Tax Credit: Lessons from the UK, Australia, New Zealand, and Canada

Presented by Kathleen Bryant, Legal Research Associate & Chye-Ching Huang, Executive Director, The Tax Law Center, New York University

Refundable credits, particularly those with an advance payment feature and eligibility determined retroactively, can pose a “repayment risk.”  Based on evidence from United Kingdom, Australia, and New Zealand, repayment risks can create program instability and financial hardship.  Taxpayers may be required to pay back some or all of the benefit received due to changes in income or family circumstances. While safe harbors can mitigate some of the financial harm, substantial repayment risk can undermine political and public support for the program.


Generally, there are three approaches to minimizing repayment risk that have been employed internationally (or proposed in the United States). (More information on avoiding repayment risks internationally can be found here.)

  1. The government can require repayment with some protections in place for taxpayers. This is the case in the United Kingdom, Australia, New Zealand, and the United States (for 2021).

In the United Kingdom between 2003 to 2004 and 2005 to 2006, about one-third of all tax credit awards were overpaid, with income fluctuation accounting for 70% of the overpayments and delays in reporting changes in family circumstances accounting for about 30% of repayment obligations. Requiring repayment created financial hardship for families in the UK: as a result, over 25% of overpaid taxpayers owed the government more than £2,500 and 10% owed the government more than £5,000. Seventy-one percent of overpaid taxpayers reported that the obligation to repay the government caused financial difficulty, with some reporting that they went without basic needs so they could make payments back to the government.

In addition to causing financial hardship, credit repayment obligations in the UK discouraged taxpayers from claiming the credit in future years. Credit repayment debt affected the government as well, creating administrative instability with ineffective fixes. Further, while initially UK had large safe harbors to account for income variation from year to year, these safe harbors were reduced over time.

  1. The government can eliminate income-based repayment obligations but can require reconciliation when family circumstances change. This is the option adopted in Canada.

Unlike that in the UK, the Canadian child tax credit is based on prior year income, meaning that changes in circumstances during the current year do not create repayment obligations during that year. However, if a taxpayer fails to immediately report changes in family circumstances, the delay may cause steep repayment obligations and subsequent financial hardship.

  1. The government can create presumptive eligibility rules, implement a grace period for reporting updates, and allow for an income lookback period to protect against all repayment methods.

The repayment structure proposed by the House Ways & Means Committee in the Build Back Better Act provides another approach to repayment obligations. The proposal includes monthly eligibility, an income “lookback,” and presumptive eligibility with a grace period for reporting changes in income and family circumstances.  (Note that under the proposal, the new caregiver has the responsibility to apply for the monthly credit when the care-giving circumstances change.)  Similar to the UK, New Zealand, and Australia, this proposal includes a safe harbor provision that would cover some or all of the excess, meaning a qualifying taxpayer could be protected from repaying any CTC amount overpaid by the government.  However, the safe harbor only applies to changes in the number of qualifying children, and not to other changes such as change in filing status or income.

While repayment risks associated with refundable credits are a concern, the administrative remedies can a high burden on honest/accurate filers.  Refundable tax credits account for 10% of the tax gap, with EITC constituting only 6% of the tax gap and the CTC/Additional CTC comprising only 2%, yet they receive more negative media attention than other contributors, such as underreporting business income tax (25%). Further, as noted earlier, improper refundable credit payments are reported twice – first as part of the tax gap and then as improper payments. This imbalance in scrutiny leads to adoption of more complex rules which can, in turn, result in more mistakes and overclaims, thereby increasing repayment risk.

District of Columbia Earned Income Tax Credit

Presented by Elena Fowlkes, Program Manager, Office of the Taxpayer Advocate, DC Office of Tax and Revenue

The District of Columbia’s Earned Income Tax Credit (DC EITC) provides an alternate approach to refundable credits that the federal government can study to improve its administration of the EITC and other refundable credits. Although the DC EITC piggybacks off of the federal EITC, the program has been greatly expanded and will continue to grow in the future.

For families with qualifying children, the DC EITC started at 10% of the federal credit in 2001 and increased to 40% in 2009 and more than 75% beginning in 2022. The DC EITC for childless workers has been a particular focus of the DC Council, in response to the DC Tax Revision Commission’s 2014 recommendations, and is more generous than the federal credit.  Specifically, in 2015 the DC EITC not only increased the benefit for childless workers (100% of the federal credit as opposed to the prior 40%) but also raised the Adjusted Gross Income (AGI) threshold above the IRS maximum ($25,833 for DC versus $15,820 for IRS, with ongoing inflation adjustments), to account for the higher cost of living in the District of Columbia.  Further, the DC EITC includes a component for non-custodial parents.  In 2015, after the adoption of the changes for eligible childless workers and non-custodial parents, DC saw an increase of 10,000 claims, or nearly 27%.

The DC EITC is scheduled to expand even further in the coming years. Set at 70% of the federal EITC for Tax Year (TY) 2022, the credit is scheduled to increase to 85% for TY 2025 and 100% of the federal EITC by TY 2026. Additionally, beginning in 2022, 40% of the DC credit will be paid up-front, and the remainder of payments, if over $600, will be paid in eleven monthly installments. Beginning in 2023, all DC EITC refunds over $1,200, including those to childless workers, will be paid out in monthly installments. Recently, DC approved the use of Individual Taxpayer Identification Numbers (ITINs) for taxpayers claiming the DC EITC.

One downside to basing the DC EITC on the federal EITC is that it incorporates all the complexity housed in the federal rules. Moreover, if the IRS disallows the federal EITC as a result of a math error or an audit, DC law requires the DC taxpayer to file an amended return reflecting the IRS disallowance of the EITC.  Further, the DC Department of Revenue can independently audit the taxpayer’s DC return and disallow the DC credit.  Thus taxpayers navigating the complex credit eligibility rules can face a significant repayment risk, as well as the potential administrative burden of two audits.

Issues with Delivering Benefits Through the Tax Code

Presented by Cathy Livingston, Partner, Jones Day

As the foregoing presentations make clear, there are challenges with delivering family benefit and anti-poverty programs through the tax code.  For example:

  • Retrospective filing requirements limit the reach of these programs. Generally, most individuals report their income to the IRS once at the end of each year; thus, the agency must rely on outdated information on income, filing status, and the presence of qualifying children. Moreover, low income individuals are not required to file at all, so the IRS lacks even an annual snapshot of these individuals’ household information. Because these individuals may still be eligible for the credits, they will be forced into an affirmative interaction with the tax agency that would otherwise not be required.
  • Congress and the IRS view the IRS’s primary role as a revenue collector. Many existing definitions and processes reflect this role, which can be difficult to reconcile with benefit administration.
  • The IRS does not have real time information regarding income, marital status, employer health insurance coverage – information that is necessary for targeting benefits more closely to the time of need.
  • Even when a taxpayer may be eligible for a tax refund from a benefit program, the IRS may offset that refund against a past federal tax debt and federal law requires the IRS to offset the refund for certain other outstanding federal and state debts unless a specific exception applies.
  • Finally, there is the culture issue: a lack of resources (or a lack of willingness to dedicate resources) for education and outreach limits the IRS’ ability to reach the most vulnerable taxpayers. Further, the IRS views itself as an enforcement agency; the emphasis on improper payment reporting plays into the IRS enforcement culture.

Given all these challenges, why even attempt to administer social benefits through the tax code?  One answer is found in the U. S. Constitution, Article 1, Section 9, Clause 7, which states that no monies can be drawn on the Treasury except where appropriated.  The impact of this appropriation requirement for discretionary spending is that funds are appropriated on an annual basis and are subject to political winds.  Even with mandatory spending such as appropriated entitlements, they periodically expire (e.g., Children’s Health Insurance Program expired for 114 days between 2017-2018, and is now funded through FY 2023).

To complicate matters further, Congress at times may “disappropriate” funding for provisions it has previously passed.  This happened with the Risk Corridor Payments enacted by the Affordable Care Act (42 USC 18062), which provided for insurers’ net losses attributable to pricing risks to be paid out of program management appropriations.  In 2015, Congress passed a rider to the annual appropriations bill prohibiting use of program management appropriations for this purpose.  In Maine Community Health Options v. United States, 140 S.Ct. 1308 (2020), the U.S. Supreme Court acknowledged the validity of the rider but held that insurers could sue for payment under the Tucker Act and if successful, the obligations would be paid as a debt of the United States.

In recent years, there have been occasions when all or some of the annual appropriations bills have not been enacted by the start of the fiscal year, leading to what is commonly known as a “government shutdown.”  Under 31 USC 1324, certain tax refunds and tax credits are considered “permanent indefinite appropriations” and shall be paid out regardless of a lapse in annual appropriations.   These include credits included in the Internal Revenue Code before 1978 (such as the EITC), as well as the Child Tax Credit and the Premium Tax Credit.

Thus, one motivation for running social benefit programs through the Internal Revenue Code is to avoid the disruptions of the annual appropriations process or disappropriation of entitlement spending.

CONCLUSION: How to Balance the Trade-offs?

As currently structured the IRS is in a difficult position for administering social benefit programs: it is set up to collect the pennies owed.  It is uncomfortable with designing tax procedures that adopt a “rough justice” approach, whereby IRS can show flexibility in administration toward taxpayers who are acting in good faith and are tripped up by the complexity and rigidity of the law.  Moreover, the inflexibility and precise targeting of definitions in current law create repayment risk. 

One way to minimize complexity is to provide a universal benefit.  This approach eliminates gaming. Another approach is utilized in Australia, where the child benefit can be divided between two main carers, with a default set at 50-50, subject to a different division agreed to between the parties.  Such division has the additional benefit of encouraging both parents to be involved with the child.

Canada has adopted a different eligibility rule: the person with primary responsibility for the child’s care is eligible to receive the credit.  This approach maximizes access for families in flux rather than adopting rigid relationship and residency rules.  But it may also require more administrative capacity than the IRS currently allocates to credit administration as well as program navigators. Even without legislative reform, the IRS can learn from other federal agencies and other countries in order to effectively administer social programs.  It needs to increase its administrative capacity, train its staff in social welfare skills, and accept that because it does not have residence or carer information, it must tolerate some improper payments in order to successfully disburse the benefits to the eligible population. (For a discussion of the cultural changes necessary for the IRS to administer social benefit programs, see Workshop VI.)


  1. Eliminate the requirement to include overpayments of the Earned Income Credit and other family-based refundable credits from reporting as improper payments under the IPIA.  (These overpayments are already accounted for in tax gap calculations.)
  2. Absent making the child tax credit universal, Congress should consider adopting a “primary care giver” definition for purposes of determining eligibility for family tax benefits.  Congress should further consider allowing two main carers to receive the tax benefit, to be divided 50-50 unless otherwise agreed to.
  3. If an advance payment mechanism is enacted, Congress should include a reasonable safe harbor provision;  allow a grace period for change-of-circumstances reporting; provide a look-back or income averaging to account for income volatility; authorize the sharing of residency and caring data from state and local agencies; and provide funding for a cross-agency network of navigators that work with beneficiaries of all social benefit programs, including the EITC and CTC.

Reimagining Tax Administration: Social Programs Through the Tax Code – Workshop 4: Eligibility Rules for EITC/CTC and Other Family Benefit/Anti-Poverty Programs, Part I

Prior blogs in our series giving an advance look at the Center for Taxpayer Rights’ Reimagining Tax Administration workshop briefs have covered the characteristics of the Earned Income Tax Credit/Advance Child Tax Credit population and the impact of administrative burden on that population’s ability to claim and receive those credits.  You can read those blogs here and here.

Today’s blog analyzes whether the eligibility rules for tax benefits targeted to low income households actually fit the characteristics of the target population, and whether these eligibility rules leave benefits on the cutting room floor for some otherwise eligible children.  In Part 2 of this workshop brief (to be published tomorrow), we explore the risks that might arise in using the tax system to deliver these benefits to that population, how other countries have tried to come up with approaches that minimize that risk, and why, even given the risks, we might still want to run such programs through the tax code.

All of the workshop sessions are recorded, and the videos are available here on the Center’s website, along with slide decks and other materials. — Nina

Eligibility Rules: Background

Eligibility for the various family benefit and anti-poverty credits is dependent on several factors, including income (e.g., adjusted gross income or earned income), marital and tax filing status, citizenship and residency status, and the number and presence of eligible children. The four-part qualifying child test used for various tax benefit provisions considers the relationship of the child to the taxpayer, where the child resides throughout the year, the age of the child, and (in some cases) the amount of financial support given to the child by the taxpayer. The primary issue regarding tax credit eligibility is whether the adults receiving that benefit have a connection with the child; relationship and residency serve as proxies for determining who cares for and has responsibility for the child.


Claiming Benefits for a Child

Presented by Elaine Maag, Principal Research Associate, Urban-Brookings Tax Policy Center

Forty percent of all child subsidies come from tax benefits, outstripping traditional benefit programs including Medicaid, Children’s Health Insurance Program (CHIP), and income security programs such as SSI, TANF, Social Security and SNAP.

Chart of federal expenditures on children by category and major programs, 2019.

Due to the difficulty that comes with delivering benefits directly to children, there are several ways in which agencies try to deliver benefits to adults most closely connected to the child:

  • Medicaid and the Children’s Health Insurance Program (CHIP) follows the tax filing relationship;
  • Social Security survivor benefits are provided to the legal representative or designated payee, which may be different from the Medicaid adult;
  • Temporary Assistance for Needy Families (TANF) gives benefits to families regardless of marital status, so the adult can be an unmarried partner living in the household with the child;
  • Supplemental Nutrition Assistance Program (SNAP) grants benefits to those who share meals with the child, which may be the TANF unit or the tax unit; and
  • the Child Tax Credit (CTC) adopts the qualifying child test applied to the dependency exemption (IRC § 151-152).  Unlike the EITC, the CTC/dependency exemption includes a support test.

These different eligibility tests raise the question, in awarding benefits, what criteria should policymakers care about so long as we know the child actually exists?  For example, one goal would be to minimize overlapping claims.  Going beyond the taxable unit so that the benefit can follow the child as the child moves throughout the year could increase duplicate claims, but if the definition is intuitive – e.g., by focusing on providing the benefit to the taxpayer who provides care for the child regardless of the taxpayer’s relationship to the child – overlapping may not be a significant issue.

The existing piecemeal system creates problems for both the applicants and agencies administering the benefits. Confusion arises when the benefit units don’t match.  For example, if an individual is denied benefits under one program’s eligibility rules, that person may be less likely to apply for benefits under another program despite being eligible. Conversely, an individual eligible for benefits under one program might incorrectly claim benefits another program. These mismatches create compliance costs for the agencies.  Further, requiring multiple agencies to determine eligibility for the same households increases administrative costs and applicant burden.

Although there are problems associated with having different eligibility rules for each program, there are also costs associated with creating a uniform eligibility test across all family benefit and anti-poverty programs. First, a uniform definition would create winners and losers – if an individual is ineligible for one program, that individual is ineligible for all programs. Second, while each of these programs is designed to reduce poverty and provide benefits to children, their methods and goals are different. A uniform definition might not coincide with each program’s individual goals.

As discussed in Workshop 2, the tax system’s current test for whether individuals can receive benefits on behalf of children does not adapt to the changing structure of the American family, and thus excludes children and families from receiving much-needed cash benefits. One potential area of focus for policy makers should be to try to determine with whom the child lives and deliver benefits to that household, which could bring a degree of uniformity between the various programs and reduce compliance and learning costs for the taxpayer and administrative costs for the agencies.  (See Workshop 3 for a discussion of administrative burden.)

Social Welfare Considerations of EITC Qualifying Child Noncompliance

Presented by Emily Lin, Financial Economist, Office of Tax Analysis, Department of the Treasury

In Fiscal Year (FY) 2020, according to the IRS, nearly one quarter (24%) of EITC payments, or $16 billion, were made to taxpayers completely or partially ineligible for the credit, with 30% (and half of the dollar amount) of these errors attributable to nonqualifying children. This aggregate data, however, doesn’t provide insight into how to improve administration of the credit or the social welfare loss of noncompliance.  For example, what is the value of an improperly paid EITC dollar, and what is the cost of reducing those errors?  EITC noncompliance is also subject to duplicative reporting, because EITC overclaims are considered elements of the IRS tax gap as well as “improper payments” under Office of Management and Budget (OMB) guidance for the Improper Payments Information Act of 2002 (IPIA).

A summary of EITC errors on Tax Year (TY) 2006 to 2008 returns is shown in the table below.

As shown above, failure to meet the qualifying child test constitutes 30% of returns with EITC errors and over half of dollars incorrectly claimed.  What this data does not provide is answers to the following research questions:

  • Who are the taxpayers incorrectly claiming the EITC?
  • Do they live with the child at all during the year?
  • Do they have a relationship with the child?
  • Why did the correct person not claim the child?
  • What is the social welfare loss and the net revenue loss of the wrong person claiming the credit?

To understand the nature, extent, and impact of EITC errors, the Treasury Department’s Office of Tax Analysis (Treasury) analyzed the IRS National Research Program (NRP) results of a random sample of over 12,000 returns claiming the EITC between 2006 and 2011.  (You can find the study here.) Together with the returns, Treasury analyzed Social Security records and information returns. From the study, Treasury was able to determine the number of improper payments and the amount of money associated with those payments in connection with qualifying child errors.

The charts below summarize the type of qualifying child error in returns incorrectly claiming children for EITC purposes as well as who is making the ineligible claims.

Of the 31.4 million children claimed each year, on average, 4.8 million were claimed in error (based on annual average data above).  Of that 4.8 million children, 3.4 million met the rules relating to children (e.g., the age test).  Thus, 71% of the children claimed in error could be claimed by someone else. This constitutes 38% of all EITC overclaims.

The study further found that in the vast majority of cases, these children met the EITC relationship test with the person incorrectly claiming them on the return.

  • 47% of the children were a son or daughter of the taxpayer;
  • 37% of the children were an other qualifying relative;
  • 15% of the children had lived with the taxpayer at some point during the year; and
  • Only about 12% of the children failed to meet the residency and relationship test.

The researchers then matched the children claimed in error to their non-claiming parents, as follows:

  1. Use Social Security records to identify the non-claiming/non-audited parents of children claimed in error.
  2. Search for the tax and information returns of the non-audited parent. Did this parent file a tax return? Did this parent claim the EITC?
  3. Determine whether the non-audited parent could have claimed the EITC with respect to this child based on income.

Treasury found that for 21% of the children, they could not find Social Security Numbers (SSNs) for any parent (they were deceased, had an ITIN, or were foster parents).  For 20% of the children, the parent on the NRP return was the only parent on record with SSA, and for 19% of the children, they identified one non-audited parent who was not on any return.  Of these latter parents, only 27% had earned income and those who did had very low income.  Thus, 36% or 1.2 million of the children were not claimed by the other parent on a return.  (Only 4% of the children were claimed by both parents – i.e., duplicate claims.)  But could the other parent have claimed the child for EITC?

For Tax Years 2006 through 2011, it appears that 47% (or 0.5 million) of non-claiming parents appeared eligible to claim 0.6 million children.  Of the non-claiming parents who were ineligible to claim the child, in many cases they had already claimed the maximum number of children for EITC purposes, or their income was above the phase-out range for EITC.  Thus, they may have allowed another family member to claim the child.

Treasury then determined the amount of EITC forgone for the sample of 0.6 million children associated with incorrect EITC claims.  The study found that 39% of the $1.449 billion in EITC overclaims could have been claimed by another parent, resulting in $561 million in foregone EITC payments.

Based on this study, the researchers were able to make several conclusions about the nature of improper EITC payments. First, the official EITC improper payment rates overstate the revenue loss to the government because they do not take account of forgone claims. Second, most improperly claimed children are claimed by a relative, not by a stranger or a friend. About 11% of these children are claimed by a relative they live with for all or part of the year, meaning this taxpayer would be eligible to claim the child but for their relationship to the child. Third, the research indicated that while some errors appear to be accidental, most improper payments reflect a credit-maximizing motive. Finally, about 2 million of the 3.4 million children claimed in error could not have been claimed by a tax-filing parent under the current eligibility rules. While some of these children may not be the intended beneficiaries of the credit, more research is necessary to determine the social welfare loss associated with the exclusion of these children.

Reimagining Tax Administration: Social Programs Through the Tax Code – Workshop 3: Design Theory and Administrative Burden

Today we continue our series giving an advance look at the Center for Taxpayer Rights’ Reimagining Tax Administration workshop briefs. An earlier post here explored the social safety net, including the role of refundable tax credits in lifting children out of poverty, and the characteristics of the population claiming the Earned Income Tax Credit (EITC) and Advance Child Tax Credit (CTC).

In the brief today, we explore the impact of program design and administrative burden on that population’s ability to understand and navigate application procedures and other bureaucratic apparatus, and how that apparatus might deter the targeted population from receiving benefits for which they are eligible.  We also learn about some interesting experiments in trying to communicate complex administrative requirements and legal issues to program beneficiaries.

All of the workshop sessions are recorded, and the videos are available here on the Center’s website, along with slide decks and other materials.

Administrative Burden: Policymaking by Other Means

Presented by Pamela Herd & Donald Moynihan, Professors, McCord School of Public Policy, Georgetown University

Administrative burdens occur when an individual’s experience with policy implementation is onerous. Administrative burden can occur in any context where the state regulates private behavior or structures access to services, and it can apply to either a consumer of government services or a government employee. Administrative burdens are distributive in that certain groups experience more benefits or burdens than others. In the context of the tax system, lower income groups often experience the most disadvantages. These burdens are also constructed, as they reflect the preferences of political actors and their constituents regarding policy. As the product of administrative or political choices, these burdens are often presented as technical fixes or aspects of broad concerns, such as reducing fraud.  Note, however, that just as administrative burdens can be designed into a program, they can also be designed out.


Administrative burden reflects people’s experience of the state. That experience includes three categories of costs – learning, compliance, and psychological. Learning costs are the costs people face when searching for information about government-provided services. Compliance costs are those encountered when trying to comply with a program’s rules and regulations. Psychological costs are related to the stress, lack of autonomy, or stigma experienced when learning about a program or complying with its requirements.

The table below provides examples of each cost and how they operate in the context of the Advance Child Tax Credit (Advance CTC):

Cost:Learning CostsCompliance CostsPsychological Costs
Description & Examples:– Engaging in the search process to collect information about public services, as this knowledge is not innate.
– Evaluating how services are relevant to the individual.
– Examples: learning a program exists, determining eligibility, considering the benefit, researching how to apply.
– Following administrative rules or requirements
– Examples: submitting forms, providing documentation, completing recertification process, hiring legal help.
– Stigma associated with applying for or participating in a program with negative perceptions.
– Loss of personal power or autonomy in interactions with the state.
– Stress of dealing with administrative processes or potential loss of benefit.
Advance CTC Context:– Mitigated by automatic enrollment, via previously filed returns or nonfiler information provided through a portal, and outreach efforts.
– Information about enrollment not clear on IRS website.
– Significant portion of nonfiler population not familiar with tax system.
– Requires large outreach effort, which is not a core IRS skill.
– Low compliance costs for those automatically enrolled.
– Early versions of nonfiler portal not available in mobile-friendly version.
– Early versions of nonfiler portal not available in non-English languages.
– Limited ability to modify eligibility information via portal.
– Applications through nonfiler portal do not always result in receipt of credit, and no explanation provided or resources to remedy.
– Low psychological costs due to broad eligibility across income groups.
– No need to apply for the benefit in person.
– Benefit was provided in cash (rather than voucher or card).

These burdens will likely change as taxpayers are required to reconcile the Child Tax Credit and receive the remaining credit during the 2022 filing season. Individuals with limited or no experience with the tax system must file a return to receive the remainder of the credit, and easy to use filing portals will not be available until after April 15th. Measures instituted to protect against improper payments may raise impose significant administrative burden.  Additionally, the nature and extent of burdens in future years is still unclear, as the existence of the Advance Child Tax Credit is uncertain beyond the 2021 tax year. The addition of a work requirement will increase burden, both in terms of accessibility of the credit and the challenge of documenting work status.

Applying Behavioral Economics to Human services

Presented by Emily Schmitt, Office of Planning, Research, and Evaluation, Administration for Children and Families, U.S. Department of Health and Human Services

Administrative burdens can be mitigated or eliminated by applying modern understandings of human behavior to the administration of social services, including those administered by the IRS. Under traditional theories of human decision-making, consumers are treated as rational decision-makers who use all available information to make decisions that maximize their well-being. Under this approach, where the benefit outweighs the cost of applying or compliance with requirements, people will apply for the benefit.

However, behavioral economics and psychology have brought additional insights into how humans interact with systems and make decisions.  These insights include the following observations, which can be applied to reduce administrative burden:

  • People can only pay attention to and understand a limited amount of information at a time;
  • People give more weight to the present than to the future;
  • People may place more importance on smaller factors, giving them an outsized influence;
  • People are influenced by how they see themselves and others; and
  • People are more motivated by loss than they are by gain.

In 2010 the Administration for Children and Families of the U.S. Department of Health and Human Services launched the Behavioral Interventions to Advance Self-Sufficiency (BIAS) initiative, to determine whether applying behavioral economics principles to programs under its purview can have a large impact with small, low cost changes. (In Fiscal Year 2021 ACF provided grants totaling $120 billion in 60 programs, including child care, Head Start, Temporary Assistance to Needy Families (TANF), refugee resettlement, and child support enforcement.)  Under the BIAS approach, human services should be redesigned based on the characteristics of decision-making using the following steps:

  1. Define: Identify problems of interest with a program or agency.
  2. Diagnose: Gather data, create a process map, identify drop-off points, and hypothesize bottlenecks.
  3. Design: Propose behavioral interventions to address these bottlenecks.
  4. Test: Ideally, conduct Rapid Cycle Evaluation using random assignment.

The BIAS portfolio applied this approach in three domains (work support, child support, and child care), seven states, and 15 tests.  In these tests the agency was trying to zoom in on specific places where people drop out of the application or recertification process and identify particular design interventions, mostly in the way agencies communicated with people.  Using this system, administrative burdens have been reduced by taking the following actions:

  • Simplifying messaging so it is more easily and quickly understood, including consolidating important information on the first page;
  • Including information about how people can plan how they will interact with the system, for example by providing information about how to get to a meeting via public transportation;
  • Adding personalization to materials, for example by adding sticky notes from case workers to agency letters;
  • Making deadlines and other important dates prominent; and
  • Experimenting with highlighting the potential loss or gain that comes with the consumer’s choices.

Through randomized tests and demonstration projects, BIAS identified very low cost and scalable small changes that improved program administration. In one such program, BIAS redesigned communication sent to New York City residents who may be eligible for an EITC-like payment. To receive the payment, residents were required to attend a meeting and provide information in the year before the payment was administered. To increase awareness of the payment and of the steps required to guarantee eligibility, BIAS designed a postcard and text messages sent to residents by the city. In the modified postcards, steps for eligibility were simplified and the information was condensed to make the process as simple and clear as possible for recipients. BIAS found that residents who received both the simplified postcard and the text message were more likely to attend the meeting required for eligibility. (For more information about “the power of prompts,” see the ACF report here.) For the next round of projects, ACF will focus on changing program and staff level processes and practices in small but important ways.  Ultimately, adapting messaging based on human behavior is low cost and increases participation in important social programs because consumers experience fewer burdens as they navigate the complex processes.

Case Study: Cancellation of debt self-help materials

Presented by Jim Greiner, Honorable S. William Green Professor of Public Law, Faculty Director, Access to Justice Lab, Harvard Law School

Experiments with materials distributed to taxpayers with cancelled debt illustrate the benefits – and the disadvantages – of designing benefit administration in accordance with the principles of behavioral economics. The goal of these experiments was to get people to show up to court to contest credit card debts.  The proceedings involve legal terms and procedures that can increase administrative burden. In this experiment, researchers designed educational materials intended to increase participation in administrative proceedings relating to cancelled debt. Drawing on adult education literature and techniques used by junk mail purveyors and working with the Access to Justice Lab, these materials relied heavily on cartoons and other images, and characters were designed to convey certain messages to the consumer.

For example, the taxpayer character, named Blob, is intended to be “everyperson” — raceless, genderless, and shapeless to remove any potential bias. The attorney character is designed to be friendly and inviting to encourage participants to seek legal help when self-help is not enough.

Although participation rates after publication of these materials are still low, the addition of these materials resulted in a tripling of the participation rate for these proceedings. Additionally, producing material like this is low-cost, and it proved beneficial where an individual might be hesitant to retain legal help or where legal assistance is not scalable. Especially where data sharing among agencies is limited (meaning individuals must participate more to provide information the agency does gather itself), more self-help materials are necessary to help individuals navigate complex procedures.

Although the benefits are clear, there remain some challenges to producing self-help materials like this. First, because the law and processes covered are so complex, the materials are quite lengthy (in the credit card sits, the paper-based self-help document was 91 pages long). Additionally, determining when self-help is not enough and an individual should seek legal help is problematic, as the benefits of self-help and of free legal assistance can vary based on the nature and extent of the proceeding.  One promising approach is that of blended self-help, such as that used by to help people get through the bankruptcy process.  This tool uses online guided interviews to gather information that will then be presented to a bankruptcy lawyer in the proper format to prepare documents for filing.


How the agency approaches its role as benefits administrator can have significant impact on administrative burden.  For example, one state unemployment agency tried to make the claims filing and hearing process less burdensome by requiring the claims adjuster to obtain the employment file directly from the employer rather than requiring the claimant to submit it.  In this way, the agency conducts its own discovery and the adjudicator asks questions.  This approach to the proceeding is inquisitorial rather than adversarial, which reduces the learning, compliance, and psychological costs of the proceeding.

Further, interventions differ depending on one’s goal.  Is the goal to increase participation by 5 percent or to get to universal participation?  The latter goal may require policy simplification, or better collaboration by data-sharing between state and federal agencies or between federal agencies.  And where data-sharing doesn’t achieve the desired improvements, intensive outreach may be required – not just by the agency but on-the-ground third parties assisting individuals.  Further, the type of intervention depends on where you are in the policy process and also on the nature of the problem.  For example, information nudges work well where the key problem is learning costs.

To bring about changes in the organizational culture, which can result in larger scale reduction of administrative burden, agencies must be willing to experiment and work on institutionalizing these values by creating an ethic of experimentalism and continuous learning.  Nudging can be a gateway to cultural change – it shows how difficult it is for people to navigate existing processes and opens the door to systemic change.


In attempting to minimize administrative burden in programs that benefit low income and historically under-represented populations, policy makers and administrative agencies should consider the following design elements when making policy choices:

  • Design programs that incorporate automatic enrollment and default elections;
  • Incorporate data-sharing among state and federal agencies into program design to determine eligibility and further auto-enrollment, subject to necessary protections on use and disclosure of data;
  • Draft eligibility rules that are able to be expressed in non-legal common parlance and do not create barriers to participation by the eligible population;
  • Establish programs of on-the-ground personal assistance, including partnerships with stakeholders trusted by the eligible population;
  • Articulate explicitly the costs and benefits of improper payment/fraud detection protections, including the impact of these measures on the eligible population by deterring them from participating in the program.
  • Establish inquisitorial, non-adversarial dispute resolution processes; and
  • Establish an agency culture of experimentation and continuous learning that considers design and administrative burden at all stages of administration.

Reimagining Tax Administration: Social Programs Through the Tax Code – Characteristics of the EITC/Advance CTC Population

In the fall of 2021, the Center for Taxpayer Rights held an online workshop series titled Reimagining Tax Administration: Social Programs Through the Tax Code.  The goal of the series, funded by the Rockefeller Foundation, was to bring together tax professionals, researchers, and administrators not only to understand the current federal tax administration approach to administering social benefits through the tax system but also to explore and discuss alternative approaches.  The Center will be publishing a report based on these workshops, but we thought readers of PT would like to get a preview of this work.

All of the workshop sessions are recorded, and the videos are available here on the Center’s website, along with slide decks and other materials.

Today we are sharing with you the brief from the second workshop in the series.  In 2021, the EITC, Advance CTC and Economic Impact Payments (EIPs) combined were the largest federal program lifting children out of poverty.  This session explores the characteristics of the EITC/CTC population and the implications of those characteristics for administering such major social benefits by the Internal Revenue Service.  Later sessions build on this fundamental information to “reimagine” eligibility rules, administrative burden and due process protections, agency culture and, ultimately, proposals for change.  We’ll be sharing these briefs with PT readers over the rest of this week and beginning of the next, so stay tuned! 


Presented by Hilary Hoynes, Professor of Economic & Public Policy, Haas Distinguished Chair of Economic Disparities, University of California, Berkeley

Both the Earned Income Tax Credit (EITC) and the Advance Child Tax Credit (Advance CTC) fall within the United States’ social safety net. Programs in the social safety net can be divided into two categories: social insurance programs and public assistance programs. Eligibility for social insurance programs is determined by work history and amounts paid in while working, not on current income. Conversely, eligibility for public assistance programs is determined based on income and, in some instances, assets. Benefits from programs in each category can be given in cash, tax credits or refunds, or in kind, such as health insurance or vouchers. These programs can be administered through a number of systems, including by the Internal Revenue Service through the tax system.


Who are the disadvantaged and how are social safety net programs helping?

In the United States, children under 18 experience the highest poverty rate at 9.7%, followed closely by older Americans at 9.5% (reduced significantly by Social Security). These rates are higher among Black and Hispanic Americans, female heads of household, and foreign-born non-citizens.

A chart of monthly and annual social safety net participation by program. Medicare, Medicaid, and Social Security are highest.

The largest programs in the social safety net – in terms of participation – are Medicare/Medicaid, Supplemental Nutritional Assistance Program (SNAP), Social Security, and refundable tax credits. Although Social Security pulls more Americans out of poverty than any other anti-poverty program, its effect on children is not as drastic. Refundable tax credits and SNAP are the largest anti-poverty programs for American children. The charts below show this distinction.

Change in number of people in poverty after including each element of public assistance, 2020.
Source: U.S. Census Bureau, Supplemental Poverty Survey 2020, Figure 8
"what if" child poverty rates with the elimination of selected federal programs.
Source: National Academy of Sciences, A Roadmap to Reducing Child Poverty (2019)

Despite the success of these programs in reducing poverty from 11.4% to 9.1% in 2020, child poverty in the United States is higher than the OECD average, and higher than in similarly situated countries after taxes and government benefits. This disparity is due to the following problems:

  • Benefits are not universal. Adults without children and undocumented immigrants are often excluded.
  • Cash is the most useful form of assistance, but many programs provide benefits in non-cash forms.
  • Many programs in the social safety net are conditioned on work, which can be a difficult requirement to meet.
  • The United States spends less as a percentage of GDP on social safety net programs compared to OECD countries, and the child poverty rate remains high after taking into account tax and transfer programs compared to economically similar countries. Taxes and government benefit programs reduced child poverty by only 7% in 2015 (from 27% to 20%). The charts below show the comparison.

Expanding the EITC to include more childfree adults, as well as permanently implementing the Advance CTC, can begin to address these gaps.


Presented by Margot Crandall-Hollick, Specialist in Public Finance, The Congressional Research Service

Background: Why Benefits Are Administered by the Internal Revenue Service

Traditionally, the IRS is a revenue collector. However, because the agency has access to most income and personal information, it is also in the best position to administer benefits to the public. With each tax return, the IRS gains access to the financial and personal information of the filer and any individuals associated with that taxpayer’s return, such as a spouse or any dependents. Additionally, because filing requirements are determined without regard to immigration status, the IRS can collect information on non-citizens and other residents. From tax returns and third party information reporting, the IRS receives information for 86 percent of Americans.  Given this breadth of information, Congress has placed administration of two significant anti-poverty programs, the EITC and the CTC, within the IRS.

There are limits to the IRS’ reach, as some populations have no reason to interact with the IRS and its data collection procedures. The Tax Reform Act of 1986 limited the contact IRS has with the very low-income population by eliminating the need for many in this population to file tax returns. While this measure eliminated a burden, it created challenges for administering benefits to this population, as demonstrated when Congress chose the IRS to administer Economic Impact Payments (EIPs) during the COVID-19 pandemic. Of the 14% of Americans whose information is not available from tax returns, many are older Americans earning only Social Security income. For these individuals, the IRS was able to partner with the Social Security Administration to gather the data it needed to administer EIPs.

To administer benefits to the individuals who do not file tax returns or who are not known to the Social Security Administration (or another federal agency), the IRS has created a series of temporary portals through which nonfilers can provide their information, discussed in workshops 1 and 6.

The Earned Income Tax Credit

Created in 1975, the Earned Income Tax Credit (EITC) has always been conditioned on work, although its eligibility rules have been expanded to consider filing status, number of qualifying children, and income.

The EITC phases in and out based on these factors. The chart below shows the credit amount for 2021, both with and without the expansion for childfree workers under the American Rescue Plan Act:

According to the Congressional Research Service, (CRS) the highest participation, both in terms of percentage of eligible claims made and dollars received, is among taxpayers with more than one qualifying child. In terms of household adjusted gross income, the highest participation rates come from households with AGI between $10,000 and $15,000, and the highest credit amounts are received by families with AGI between $15,000 and $20,000.

Among childless workers, only 65% of eligible taxpayers claim the EITC. This disparity may be because the taxpayer is below the filing threshold discussed in Workshop 1, and the cost of preparing the return is high compared to the amount of the credit – the highest amount a childless worker could receive before the enactment of the American Relief Plan Act (ARPA) was $543, compared to several thousand dollars potentially available for those with children. ARPA expanded the childless worker EITC to $1,502 for Tax Year 2021.

To satisfy the earned-income requirement, a majority of taxpayers reported W-2 income, with some also reporting self-employment income. Regardless of the type of job, about 60% of EITC claimants work multiple jobs throughout the year.

The Child Tax Credit

Like the EITC, eligibility for the Child Tax Credit (CTC) is dependent on number of qualifying children and income. However, the CTC differs from the EITC in that it is not dependent on filing status and, at least for 2021, eligibility does not require earned income – extending eligibility to the 5% of children who live in a household without earned income. The American Rescue Plan Act (ARPA), which eliminated the earned income requirement, also made the credit fully refundable for 2021 and increased the maximum amount an individual can receive — $3,600 for each qualifying child under six and $3,000 for each qualifying child under 17, with half of the credit paid in monthly installments in advance in 2021. The chart below from CRS summarizes the credit for 2021 (and for years not covered by ARPA’s expansion):

Although the exact impact of ARPA is not yet known, CRS has estimated the reach of the Child Tax Credit as well as its effect on the child poverty rate. The graphs below show the estimated increase in the number of families with children benefitting from the credit, both overall and for those in poverty:

In addition to reaching more families and children generally, CRS estimates that the ARPA expansion of the Child Tax Credit will result in a higher credit amount for all families, but especially for families living below the federal poverty line. CRS estimates that nearly 20 million children live in households below 200% of the federal poverty line, 4.7 million of whom live below the poverty line. A detailed breakdown of the expected credit increase by income level is below:

CRS has also predicted the ARPA expansion’s impact across races and ethnicities, with black and Hispanic children experiencing the largest decrease in poverty. For all children, the ARPA expansion is predicted to nearly halve the child poverty rate. Predicted reductions in child poverty rates by race and ethnicity are shown below:


Presented by Elaine Maag, Principal Research Associate, Urban-Brookings Tax Policy Center 

As a result of the COVID-19 pandemic, families already struggling financially faced increased income volatility and food insecurity, missed or delayed healthcare, childcare problems, and an inability to meet basic needs. Both existing programs and new COVID relief programs provide cash or in-kind benefits to address these problems. Historically, the tax system has been taxed with redistributing income through these programs – through taxation of high-income individuals as well as through delivery of safety net benefits. Although there are benefits to using the tax system to administer certain benefits, IRS procedures have not kept up with changing family structures.

Advantages of Using the Tax System to Administer Benefits

 About 40% of benefits for children is administered through the tax system. As discussed above, the IRS has access to information needed to determine eligibility for benefits based on tax returns. Because benefits are claimed when a tax return is filed, there is no additional administrative step necessary – individuals do not need to schedule an appointment or fill out another application to claim tax benefits. Perhaps because these benefits are claimed via a tax return, there is little or no stigma associated with receiving tax benefits, which can serve as a barrier to claiming benefits administered by other agencies.

Disadvantages of Using the Tax System to Administer Benefits

Despite these advantages, there are problems with administering benefits through the tax system. Aid can be administered as transfer benefits or as taxes. Transfer benefits consider the household, can change throughout the year, and are based on need at the time of eligibility determination. Conversely, taxes are based on taxable unit (legal relationships), are usually constant throughout the year, and eligibility is determined after the tax year ends. Benefits as taxes do not always provide assistance directly to the individual who needs it most and when it is needed most.

The rigidity of the tax system prevents some from receiving benefits when needed – both in terms of timing and eligibility. With the exception of the Advance Child Tax Credit in 2021, the IRS provides cash assistance in one lump sum several months after the eligibility period ends. This approach does not help individuals who lose or change their jobs throughout the year, as aid is delivered after the hardship is experienced. Additionally, Congress has provided strict and unrealistic eligibility based on legal relationship. Despite a changing social landscape, the IRS uses a traditional family model when determining eligibility for tax credits. These rules prevent 300,000 children from receiving benefits from the IRS because the households in which they live do not reflect the legal definitions required for credit eligibility.

The current tax code is based on a traditional familiy composition of childbearing/rearing within marriage, married parents, and low divorce rates.  Yet relationships of families and children in the United States are changing — married parents are becoming less common, increasingly children are born outside of marriage and couples are cohabiting, children are moving between households throughout the year, and multigenerational households are becoming more common. The charts below, excerpted from an important Tax Policy Center report, summarize how familial structure has changed in the United States:

Household income is also changing throughout the year. Income volatility is not considered when the IRS administers yearly tax credit payments. Forty percent of families living under 200% of the federal poverty line experience a 25% change in income for six months throughout the year. The chart below, from another TPC report, summarizes income volatility for all households and for those with incomes below 200% of the federal poverty line:

Yearly lump sum payments have certain advantages, but providing periodic payments in advance of the close of the tax year (the period for determining eligibility) can lessen the burden for families experiencing repeated income volatility throughout the year.


The IRS is a natural choice for administering benefits to families – it has access to information from tax returns and other agencies, and it is equipped to provide billions of dollars to Americans. Additionally, administration through the IRS is easier for individuals and comes with a decreased social stigma. However, using the IRS comes with challenges.  First, the tax system has not fully embraced the adjustments necessary to administer advance, periodic payments rather than lump sum payments at year end.

Second, a significant population of low income households do not interact with the tax agency, including the lowest-income individuals with no obligation to file a tax return and children living in households that do not meet the rigid relationship tests currently in place. Although safeguards against fraud and misuse must be in place, using data from external sources (states and other administrative agencies), the IRS can incorporate these individuals without creating too great a burden on itself or these individuals. For example, SNAP has information regarding family composition of some households not currently part of the tax system.  With these improvements, the IRS can decrease the effects of child poverty on American children and their families.


  1.  Retain the Tax Year 2021 dollar and age expansion of the childless worker EITC for future years.
  2. Amend EITC eligibility rules and revise administrative procedures to be more responsive to the structure of today’s families.
  3. With appropriate safeguards, utilize state and other agency data to identify non-filer households that are potentially eligible for the EITC and CTC.
  4. Increase the capacity of IRS systems to issue monthly or periodic advance payments, building on the EIP and Advance Child Tax Credit experience.
  5. Quantify the long-term effects on child welfare and labor participation of benefits administered through the tax system.

Will the Commissioner agree that a filing extension is necessary so that all eligible children can claim the enhanced Child Tax Credit?

We welcome guest bloggers Luz Arevalo and Angela Divaris from Greater Boston Legal Services. GBLS is part of a coalition of nonprofit organizations who seek to maximize access to the expanded child tax credit for 2021. Angela and Luz highlight the problem of otherwise-eligible CTC claimants without a US taxpayer identification number who did not file an ITIN application or an extension of the filing deadline by April 18, 2022. Under IRC 24(e)(2), those families will miss out on the credit if nothing is done.

PT has covered barriers to receiving ITINs in several prior posts including last summer when ITIN delays and the cumbersome requirement to paper-file applications were highlighted in the NTA’s 2022 objectives report to Congress. Back in 2016, Patrick Thomas and Lany Villalobos wrote about the impact of the PATH Act and other ITIN issues described in the NTA’s 2015 annual report to Congress.

A related issue recently surfaced which I found interesting as it implicates several different administrative problems facing the IRS. In 2020 and 2021, the IRS encouraged people with expiring ITINs to renew early, separately (and before) filing their tax return to avoid refund delays. This well-intentioned message had unintended consequences, recently revealed in the NTA’s 2023 objectives report to Congress.


The NTA explains that even if an individual submitted an ITIN renewal application well in advance before filing their tax return, due to processing backlogs the IRS computer system may have disallowed the CTC on the return via math error. Many people do not contest a math error notice (for various reasons), and the IRS does not always abate math error changes upon request although it is legally obliged to do so. Frustratingly, the IRS does not automatically restore the disallowed tax benefits when the ITIN unit catches up and restores the taxpayer’s ITIN. One wonders what “the right to a fair and just tax system” means if IRS processing delays can result in permanent disallowance of tax benefits intended to help children in a pandemic. TAS’s 2023 systemic advocacy objective number 13 is to restore tax benefits that were disallowed due to ITIN renewal processing delays.

Interestingly, the NTA notes that as of January 1, 2022 ITIN holders can no longer renew “in advance” – they must submit their renewal application with their tax return. I am not sure this is the best solution to the problem since it requires those families to suffer the refund delays that advance renewals were intended to prevent. Fixing the IRS computer systems to prevent the issuance of math error notices when an ITIN application is pending would seem a more taxpayer-friendly solution. Sadly, IT-based solutions are easier said than done when it comes to the IRS.


Timing is everything.  For many immigrant taxpayers, the time to claim the enhanced Child Tax Credit and the Recovery Rebate Credit ran out on April 18, 2022.  As of this writing, however, we believe that the Service is considering several requests to extend the filing deadline for those immigrant families who did not apply for their taxpayer identification numbers before the filing deadline. 

Section 205 of the 2015 PATH Act requires that a tax filer have been issued a taxpayer identification number or have requested a filing extension before the tax-filing due date (and be issued a TIN by the extended filing deadline) in order to claim a child tax credit.  Many thousands of mixed status households who faced severe obstacles obtaining ITINs or who received their Social Security numbers after the April filing due date are, thus, now tragically prevented from claiming the enhanced Child Tax Credit for their children, most of whom are U.S. citizens, who are otherwise eligible if they had social security numbers.  These immigrant families faced severe pandemic related challenges to filing exacerbated by widespread misinformation regarding their eligibility.

Over 100 organizations signed a letter asking Commissioner Rettig and Secretary Yellen to extend the filing deadline for these households based on the emergency declaration prompted by the COVID-19 pandemic (as authorized by IRC 7508A) and in order to fulfill the legislative intent of the American Rescue Plan Act (ARPA).  Similar requests were made by 7 senators and 28 mayors. The Commissioner has the authority to extend filing deadlines in response to emergency declarations, and the COVID-19 declaration should be considered as grounds to support a one-time filing extension to allow families to claim a one-time emergency benefit.

The 2021 tax year was a critically important one for American families.  The American Rescue Plan Act (ARPA), which was drafted in response to COVID-19 pandemic, directed the IRS to distribute relief funds to the vast majority of families in the country.  Its historic Child Tax Credit expansion has been hailed as a life-line with the potential to slash childhood poverty in the country to its lowest level on record.  There were obvious obstacles in the distribution of the credit to the lowest income households who exist outside the tax system, and especially those in mixed status families.  The IRS recognized that eligibility would not translate into actual access for as many as 2.3 million children.   These low-income households – the ones most needing the refundable credits- were the hardest to reach and became the objects of outreach from the White House down to community groups working on the ground.  It was an impossible task to complete during filing season.  Many of these children who predictably fell through the cracks had a parent who faced the added burden of obtaining an Individual Taxpayer Identification Number (ITIN) and are now out of time.  The equitable administration of ARPA will be served if all the children contemplated continue to enjoy the same access to this historic relief in a time of crisis.

Should this deadline be extended, there will be a need for advocates to reach these deserving children by participating in targeted outreach and filing assistance.

TIGTA Report on EITC Audit Procedures Suggests Room for Improvement in IRS Communication and Education Strategy

Today we welcome back guest blogger Anna Gooch. Anna highlights ongoing discussions of the IRS’s communication and education strategy between TIGTA, the IRS, and stakeholder groups. This topic is particularly timely following the President’s executive order on improving customer experience across the federal government, which states in part, that

Agencies should continually improve their understanding of their customers, reduce administrative hurdles and paperwork burdens to minimize “time taxes,” enhance transparency, create greater efficiencies across Government, and redesign compliance-oriented processes to improve customer experience and more directly meet the needs of the people of the United States.

The Secretary of the Treasury is specifically directed to

design and deliver new online tools and services to ease the payment of taxes and provide the option to schedule customer support telephone call-backs.  The Secretary of the Treasury should consider whether such tools and services might include expanded automatic direct deposit refunds based on prior year tax returns, tax credit eligibility tools, and expanded electronic filing options.

Creatively re-thinking taxpayer communication and education will help ensure that the agency’s new online tools and services make a meaningful difference in the taxpayer experience. Christine

In a report issued on September 2, 2021, the Treasury Inspector General for Tax Administration (TIGTA) released a report reviewing the IRS’ EITC audit practices and providing recommendations for improvement. In the report, TIGTA explained:

The IRS’s EITC examination strategy is not part of a larger IRS examination strategy that encompasses all examinations by which resources devoted to EITC examinations can be more easily assessed in the context of other challenges to taxpayer noncompliance. Also, due to IRS processing limitations, the IRS does not prioritize certain high-risk EITC claims for examination. Lastly, the IRS’s examination rates for EITC claims appear disproportionate with respect to certain Southern States; however, the examinations are aligned with tax returns flagged by IRS compliance filters.


Based on these findings, TIGTA made the following recommendations designed to improve the processes by which the IRS selects EITC claims for audit:

1. [C]onsider how refundable credits, including the EITC, would be examined to a different extent if the claims are considered for compliance purposes closer to the proportion that they contribute to the Tax Gap.

2. Evaluate the current programming for the prerefund selection process to ensure that cases identified by both [Questionable Refund Program (QRP)] and [Dependent Database (DDb)] selection pools are prioritized for DDb prerefund selection.

3. Evaluate and revise the scoring process to ensure that the cases with the highest risk are scored as such.  This process should include adding weight to cases with higher QRP and DDb scores and [duplicate TIN filing] repeaters.

4. [T]ailor EITC-related educational efforts for the States with disproportionate error rates.

Of these four recommendations, three are focused on the IRS’ role as a revenue collector. The fourth recommendation, the only recommendation that the IRS did not agree to adopt, concerns the IRS’ role as benefits administrator. In rejecting that recommendation, the IRS relied on its belief that “it already has extensive outreach and education strategy in place,” including EITC Awareness Day and Refundable Credits Summit.

Although this report focuses solely on EITC audits, it provides an opportunity to explore the nature of current IRS outreach and education programs in the context of refundable credit compliance. The Refundable Credits Summit and EITC Awareness Day provide a window into such efforts.

On November 2 and 3, 2021, the IRS held its annual Refundable Credits Summit, a two-day conference hosted by the Wage & Investment Division and Return Integrity & Compliance Services. Commendably, the IRS has been holding these summits for several years now and invites various stakeholders – academics, nonprofits serving the target community, representatives of tax professional groups, LITCs, and tax preparation and VITA entities – to hear presentations from senior IRS leaders on topics relevant to refundable credits and to discuss concerns. The first day of the Fall 2021 Summit provided a summary of legislative and procedural developments regarding the Child Tax Credit and the Earned Income Credit, as well as progress made on advance payments of credits and the various portals associated with those credits. On the second day of the Summit, the IRS hosted a four-hour brainstorming session, requesting suggestions on ways to raise awareness of the availability of refundable credits. During this session, Summit participants offered ways in which the IRS can reach more Americans – posters in laundromats, billboards along highways, ads on local radio stations. There were seemingly endless ideas offered, and while raising awareness of refundable credits is undoubtedly important, this discussion highlighted the IRS’ limited view of “outreach.”

First, based on what was discussed during the Summit (and what was not discussed), it is clear that raising awareness is where the IRS’ plan ends. Reaching as many taxpayers as possible is admirable, but as several participants pointed out during the summit, the lack of a follow up education strategy from the IRS creates a risk that taxpayers will not understand how refundable credits apply to them and their circumstances, nor will they have resources to consult when they encounter a problem.  

Second, it seems the IRS views itself as an information provider and not as the entity that would communicate directly with taxpayers. Rather, though aware of geographic, cultural, and demographic differences among eligible populations, the IRS did not appear to envision any role for itself in communicating with these populations. Instead, the IRS looked to the attendees to conduct community-based outreach using IRS-provided resources. Understandably, the IRS is proud of increasing its stakeholders and the number of eligible individuals it reaches; however, the IRS has no effective way of analyzing whether its materials and efforts are useful or effective because it delegates this responsibility to stakeholders.  

Finally, the IRS failed to consider the importance of using data in its outreach campaigns. There exist data breaking down which areas are most at risk for failing to claim the expanded CTC, even if families in these areas are eligible. These areas should have not only a different, targeted outreach strategy, as TIGTA suggests, but also an intensive education campaign focusing on the communities where specific types of noncompliance occur.  The IRS also doesn’t seem to use data in analyzing its efforts after the fact. As one participant stated during the Summit, the IRS cannot just throw several campaigns out and hope that something sticks. If the IRS wants outreach and education to be effective, it must analyze what works and what doesn’t.

In terms of education, as noted in the recent TIGTA report, the IRS relies on its existing EITC Awareness Day to provide sufficient education to EITC claimants. According to the IRS website, “Awareness Day is an event organized by the IRS and its partners to educate the public about the EITC and requirements to claim the credit. The goal is to raise awareness of EITC to ensure every qualified worker claim and receive [sic] their EITC. We also ask you to join us in getting the right message out about the CTC/ACTC and the AOTC to the right people who deserve the credits” (emphasis added). Despite the IRS’ apparent goal to reach “every qualified worker,” the reach of Awareness Day is quite limited. In 2020, via its 1,500 “supporters,” the IRS reached 2 million individuals on EITC Awareness Day. While the IRS does state that “other activities such as news releases and articles for EITC Awareness Day” were conducted, it is silent as to what exactly these activities are or what their reach is, especially because the IRS relies so heavily on its “partners.” In 2020, 25 million taxpayers claimed the EITC on their return. Two million is 8% of 25 million – not exactly “every qualified worker.” The IRS does not publish much data on EITC Awareness Day, so it’s not entirely clear who is targeted, what the message is, or if there is any follow up, much less what communities the education actually occurred in.  The information that is published suggests that there is room for improvement of EITC (and other refundable credit) education efforts, particularly those targeted toward the 5 million taxpayers who are potentially eligible for the EITC but do not claim it.

The TIGTA report is just one example of where the IRS is failing to embrace its dual role as both revenue collector and benefits administrator, and outreach and education are just a small part of adopting that role. The IRS could begin to improve its educational programs by starting with small pilot programs targeting communities with high noncompliance or nonparticipation, as TIGTA suggests. From these programs, the IRS would be able to test and analyze multiple strategies and approaches to determine the best approach for larger markets. Among other changes, the IRS could revise its mission statement, create a specialized unit dedicated to benefits administration, adjust administrative processes, and improve communications to better reflect the role it has in administering some of the nation’s largest anti-poverty programs. Of course, all of this cannot happen overnight, but as Congress continues to place benefit administration in the IRS, the IRS must adapt accordingly.

Major Change to Offer in Compromise Policy

The only bad thing about the change in IRS policy in Offers in Compromise (OIC) is that it comes too late for me to change a forthcoming law review article on offset.  The inability to update the article which is headed to press matters little.  The new policy regarding offset in OICs represents a significant shift in collection policy for the benefit of taxpayers with accepted offers.  Kudos to the decision makers behind this policy shift.  A recent blog post from the National Taxpayer Advocate sets out the shift in policy and does a nice job of providing background as well as summarizing the new policy.  This post seeks to complement the information provided by the NTA but is somewhat duplicative.  Christine wrote a two-part blog post on offers and refunds, here and here, if you want more background on this subject.


Offsets after OICs

Section 7122 gives wide discretion to the IRS to enter into an OIC with taxpayers when the IRS finds that doing so serves the best interest of the government.  As we have discussed previously, the IRS generally declined to enter into OICs until a shift in policy three decades ago brought about by the lengthening of the statute of limitations on collection.  Once it decided to accept OICs as a regular part of its collection arsenal, it took the IRS some years to refine the process.  As it did so, it developed language in Form 656, the form on which the taxpayer submits the OIC itself, which committed taxpayers to foregoing the refund for the year in which the IRS accepted the OIC.  If you actually read the entire Form 656 you find it contains many provisions regarding the taxpayer’s commitment in accepting the OIC.

 The specific language developed by the IRS regarding the commitment of the taxpayer to give up their refund in the year of the OIC acceptance is found on page 5 of the form in section 7(e), which states:

The IRS will keep any refund, including interest, that I might be due for tax periods extending through the calendar year in which the IRS accepts my offer. I cannot designate that the refund be applied to estimated tax payments for the following year or the accepted offer amount. If I receive a refund after I submit this offer for any tax period extending through the calendar year in which the IRS accepts my offer, I will return the refund within 30 days of notification.

This provision surprises many taxpayers.  It has caused our clinic to carefully explain to taxpayers what to expect.  The offset sometimes comes a year or more after the acceptance of the offer if the IRS accepts an OIC early in a calendar year.  We would counsel clients to try to manage their taxes for the year of the offer acceptance so that they did not have a refund or, if they did, the refund was small.

Even though the IRS rarely accepted OICs prior to the change in its policy in 1992, it did have an OIC program.  In the Sarmiento case, discussed below, the clinic traced this language back to at least 1964.  At that time, however, refundable credits did not exist and the policy as originally designed would not have been intended to claw them back after OIC acceptance.

The policy fell hard on individuals receiving refundable credits as Congress pushed more and more benefits into the hands of individuals through the tax code.  For some individuals, the offset could take the earned income credit and child tax credit of several thousand dollars even though these refundable credits did not really constitute a tax refund as much as a benefit payment through the tax code.  Because of the way the offset operated in this situations, authors of this blog and others have criticized the taking of these refunds as part of the OIC process. 

Taxpayers have essentially no leverage to negotiate the terms of an OIC.  Even when aware of this provision in the offer contract and aware that it meant the taking of a large refund generated because of refundable credits, taxpayers could not negotiate their way out of the situation.

Now, for OICs accepted after November 1, 2021, the IRS will forego taking the post-OIC acceptance refund for the year of acceptance.  It will still take refunds for the periods leading up to the acceptance of the OIC (subject to the discussion of Offset Bypass Refunds (OBRs) discussed below.)  The benefit to taxpayers varies based on the amount of refund they might have received for the year of OIC acceptance.  The NTA’s blog has some statistics on this; however, the individuals receiving significant refunds based on refundable credits, usually among the poorest of the taxpayers receiving acceptances, will definitely benefit.

The new policy does make clear that the IRS expects to offset any refunds related to pre-OIC acceptance tax years.  This policy makes sense.  It prevents taxpayers from delaying the submission of amended returns until after an OIC acceptance in an effort to circumvent having the refund offset.  In this way, the policy operates similarly to the requirement that taxpayers disclose their interest in potential lawsuits and other claims not yet turned into a definite amount at the time of making the OIC.  The IRS should receive these monies or at least know about them and make a judgment.

Prior Litigation on This Issue

Carl Smith took on the language when he served as the director of the Cardozo Low Income Taxpayer clinic.  Through litigation, the clinic tried to limit the refund offset in the year of acceptance to refunds that were not from refundable credits in Sarmiento v. U.S., 678 F.3d 147 (2d Cir. 2012), and its companion case, Maniolos v. U.S., 469 Fed. Appx. 56 (2d Cir. 2012).  At the time, the OIC language stated that the IRS could keep “any refund, including interest, due to [the taxpayer] because of overpayment of any tax or other liability, for tax periods extending through the calendar year in which the IRS accepts the offer.” Carl and the clinic argued that, in the plain English in which the OIC was written (which they argued should apply instead of Codespeak), a refundable credit is not from any overpayment, and the policy reasons for the offset of refundable credits made no sense from both a history and policy perspective.  The clinic’s brief stated:

Support for this colloquial-English interpretation is found in the alteration that has happened in the particular language regarding “additional consideration” from the time of the 1964 OIC at issue in Robbins Tire & Rubber Co, Inc. v. United States, 462 F.2d 684 (5th Cir. 1972).  The Robbins Tire OIC provided that the United States could retain “any and all amounts of money to which the proponent may be entitled under the internal revenue laws, due through overpayments of any tax or other liability, including interest and penalties, made for periods ending prior to or during the calendar year in which this offer is accepted.”  Id., at 686.  This prior OIC language —“any and all amounts of money to which the proponent may be entitled under the internal revenue laws”—was later replaced in the version that each of the taxpayers signed with the more colloquial English words “any refund, including interest, due to me/us . . .”

Carl notes that the policy reasons for offsetting refunds from actual overpayments make sense as a means of stopping people from overpaying estimated tax payments in the year of OIC acceptance, just to get the excess back after an OIC is accepted based on assets lowered by the excess payments. 

While the policy surprisingly still allows this creative tax planning, the old policy allowed creating planning to avoid having a refund – unless your refund resulted from a refundable credit.  In that sense, the new policy just trades off on incentives and, in my experience, a relatively small number of individuals submitting offers engage in this type of planning. 

The Second Circuit ruled that the word overpayment in the OIC had to be read as defined in the Tax Code, which included refundable credits.  The litigation did cause the IRS to rewrite the OIC form to eliminate the words “because of overpayment”.  Carl says that during the litigation the IRS Director of Collection Policy told Carl he was curious about the cases and would be following them.  Carl felt the IRS sounded open to the ideas at issue in the litigation, though the IRS eventually did not change policy and in fact made the language more airtight to be able to keep all overpayments.

Offset Bypass Refunds

The NTA’s blog describes OBRs.  Something we have done before here in the most visited post of any every written by this blog.  The NTA’s blog announces a new policy regarding OBRs and OICs which appeared on the IRS website two weeks ago with little fanfare.  If a taxpayer files a return during the time an OIC is pending, the IRS will offset any refund generated by the return up to the amount of the outstanding liability.  Previously, a taxpayer with hardship who needed this refund to pay the rent or electricity could not take advantage of the OBR process while the OIC was pending.

OBRs have come under some criticism recently.  TIGTA criticized them in a report discussed by Les in a post here.  Les and I participated in an ABA Tax Section comment that focused on OBRs and made several suggestions seeking to make them more taxpayer friendly and accessible.

The new policy allows the taxpayer to submit a request for an OBR even while the offer is pending.  Like the policy of offsetting refunds described above, it is another step in the right direction for protecting taxpayers and especially low income taxpayers.  Under the new policy, the IRS will process the OBR just as if the taxpayer had not filed an OIC.  This does not mean that the taxpayer will necessarily receive the refund, or the full amount of the refund, but does give the taxpayer a fighting chance to receive at least a part of the refund during a time of real need.

The NTA’s blog gives an example of how OBRs work.  The blog does not cite to IRM provisions regarding the new policy because those have yet to be written.  It notes that this process is not well known and not easy to find.  The post concludes by saying that TAS is trying to prod the IRS to be more forthcoming about this process:

We continue to encourage the IRS to provide educational material on explaining the benefits of OBRs, the economic hardship requirements, and what taxpayers need to do to timely request an OBR. With the upcoming filing season, we encourage the IRS to get the OBR message out by leveraging its relationships with the public.

No doubt improvements could occur, but I applaud the IRS for acknowledging that taxpayers who have submitted an OIC may need an OBR just as much as those who have not made such a submission.  Because the OBR process itself remains difficult and somewhat opaque, I do not expect that this policy change will open the floodgates.  It will, however, allow some taxpayers in need to find relief.

FAWBU and Dispute Resolution Redux – Part 2

In Part 1 of this posting series, I proposed a 12-step program for getting the IRS to finally embrace its dual mission of collecting revenue and administering various social benefit programs.  There is one more step that must be addressed for the IRS to effect cultural change:  the development of a dispute resolution process for family and worker tax benefits that conforms to principles of due process and minimizes administrative burden.  That is the subject of today’s and my next post.

There is great urgency for addressing this issue, because we are facing a 2022 filing season that promises to be challenging, to put it mildly.  There will be millions of taxpayers who must file a return to claim the remainder of the Child Tax Credit and reconcile advance CTC payments, as well as claiming and reconciling the third round of Economic Impact Payments.  Among these millions are filers who are new to the system.    And there will be many taxpayers who were blocked from receiving the AdvCTC because someone else claimed their child(ren) on a 2020 or 2019 return, or because their 2020 return was delayed in processing by the IRS for one reason or another.  These folks will be coming in and claiming the CTC for TY 2021, and their returns are sure to be flagged and delayed, requiring these “newbie” filers to interact with the agency under circumstances of economic and emotional stress.  Depending on the quality of their interaction and experience with the IRS, these individuals may be discouraged from claiming future tax benefits for which they are eligible, thereby undermining the policy goals for such benefits.


In assessing the current state of EITC/CTC dispute resolution, it is helpful to do a quick review of the basic principles underlying procedural due process.  The Fifth Amendment of the U.S. Constitution states, in part, that “[n]o person shall . . . be deprived of life, liberty, or property, without due process of law. . . .”  Procedural due process protections are triggered when the government actions bring about grievous loss.  In those instances, “the fundamental requisite of due process of law is the opportunity to be heard.”  (Grannis v. Ordean, 234 U.S. 385, 394 (1914)).

In the tax world, the Supreme Court has long held that pre-deprivation hearings are not a constitutional requirement where taxes are concerned.  ( See Springer v. United States, 102 U.S. 586, 594 (1881).)  Congress has stepped in and created pre-deprivation judicial review mechanisms before the United States Tax Court in deficiency and collection due process proceedings.  But a great deal of harm can be done at the administrative level before such judicial review is triggered. 

This is where Goldberg v Kelly comes in.  In this case, New York State denied individuals currently receiving welfare benefits a hearing prior to terminating those benefits.  The Supreme Court agreed with the District Court that in the welfare context “[t]he stakes are simply too high for the welfare recipient, and the possibility for honest error or irritable misjudgment too great, to allow termination of aid without giving the recipient a chance, if he so desires, to be fully informed of the case against him so that he may contest its basis and produce evidence in rebuttal.” (Goldberg v. Kelly, 397 U.S. 254, 266 (1970), quoting 294 F.Supp. at 904-905.)

The Court analyzed what it means to hold a hearing “at a meaningful time and in a meaningful manner” in the context of welfare benefits termination.  The basic elements are:

  • timely and adequate notice detailing the reasons for a proposed termination;
  • an effective opportunity to defend by confronting any adverse witnesses and by presenting his own arguments and evidence orally; and
  • the opportunity to be heard “tailored to the capacities and circumstances of those who are to be heard“ (397 U.S. 269);
  • “the recipient must be allowed to retain an attorney if he so desires: (397 U.S. 270); and
  • The “decisionmaker should state the reasons for his determination and indicate the evidence he relied on” (397 U.S. 271).

Later cases have limited the sweeping language of Goldberg v. Kelly, and the ruling itself applied to situations where benefits were terminated, not where benefits were applied for but denied.  However, Goldberg’s fundamental principles are a valid, if not constitutionally required, basis for conducting a due process analysis of IRS dispute resolution processes at the administrative level. 

First, we need to define what is a “dispute.”

Years ago, the answer to that question would be easy – an audit, an appeal, or a contested collection action.  Today, as I’ve discussed here, a large and increasing number of IRS challenges occur at the filing and return processing level.  For example, the IRS rejects e-filed returns claiming the EITC and CTC for a child where someone else has already claimed that child on a return.  In this case, the taxpayer has filed a valid refund claim, but the IRS has summarily rejected the e-filed return, creating administrative burden and delay for the taxpayer (and additional work for the IRS) by requiring the taxpayer to file the claim on a paper return. 

Similarly, through the summary assessment (math error) authority under IRC § 6213(b), the IRS summarily assesses tax on millions of returns by adjusting/disallowing various deductions and credits for family benefits.  It stops millions of returns on suspicion of identity theft, questionable refund claims, and unverified wage and withholding reports.  It requires taxpayers who have been denied family-based credits in prior years to file a detailed schedule supporting their claims for such credits in current years, and will summarily reject these returns if such required schedules are not included.  All of these actions constitute disputes, along with the more traditional audit, appeals, and collection matters.  And all of these disputes should be subjected to due process/administrative burden analysis, especially when the return in question reflects a claimed refundable credit like the EITC and CTC.

If your return is lucky enough to survive all of these processes (which are sequential, meaning if your return survives one, it then goes back into the processing pipeline and could be stopped by another process, ad infinitum), the return could still be selected for audit.  Today, about 75% of individual audits, including EITC audits, are conducted by correspondence.  Per Goldberg and later cases like Mathews v Eldridge, given the characteristics of the EITC and refundable CTC population, written submissions likely do not pass due process muster.

So, let’s apply these principles to what will happen in 2022 – both in terms of the filing season and claims for the CTC/AdvCTC reconciliation.

Timely and Adequate Notice Detailing the Reasons for a Proposed Adjustment or Rejection and Statement of Evidence Relied Upon in making the Determination

In the context of return processing, the taxpayer should be informed of the reason for the rejection of any e-filed return.  IRS has rejection codes; it should develop plain-language explanations of those codes and require Electronic Return Originators to provide that information to their customers.  (Code for America already does this; other EROs should follow suit, and IRS should require it.)  IRS should also require these explanations to be provided to taxpayers filing through Free File, Free Fillable Forms or the IRS Nonfiler Portal.

“Where’s my refund?” and similar apps should provide the taxpayer with specific information about where their return is in the processing pipeline, including the specific reason the return has been delayed (e.g., wage verification or identity theft) and should provide the taxpayer with links to specific instructions about any steps the taxpayer can take to resolve the matter.  IRS Customer Service Representatives (CSRs) must have access to this information as well.

Anyone who has received a math error notice or a correspondence audit adjustment report will agree that there is a paucity of information regarding the actual adjustment and reasons therefor.  Because of the underlying constraints of the IRS notice composition system, a single letter may contain vague language that refers to a number of possible reasons for an adjustment, making it difficult for the taxpayer to determine just what the IRS is adjusting and why it is making the adjustment. 

Because a math error notice is both a notification of a “termination” of benefit and the actual determination, it is essential under due process principles that the notice clearly state the reasons for such an assessment.  Math error notices should contain information relating to the exact line on the Form 1040 that is being adjusted, the exact amount of the adjustment on that line, the exact reason for the adjustment, and the Internal Revenue Code section authorizing that adjustment.  Where there is an adjustment of the Rebate Recovery Credit (RRC), the notice should provide sufficient details about the EIP paid out in 2021 so that the taxpayer can determine the accuracy of the adjustment.  With respect to adjustments to any EITC or CTC claimed, the notice should provide the reason for the adjustment, e.g., a duplicate claim for the child, or the correct number and amount of advance CTC payments received and not reported on the return.

Sufficient notice includes timely notice, and a notice will not be timely and afford a meaningful opportunity to challenge government action if it is received only a few days before a deadline.  This is particularly true where the targeted population has literacy and access-to-representation challenges.  The IRS needs to deal with the issue of mailing delays by adjusting the date of the notice to account for at least two weeks in delivery lags (See Ways and Means Chairman Pascrell’s letter in this regard.)

An opportunity to be heard includes effective and meaningful notice of the requirements and manner for requesting a hearing.  Thus, notices that provide deadlines for actions – e.g., 90 days or 60 days – should include the specific due date on which the response should be filed.  In the 21st century, this kind of computation is so technologically elemental, it is shameful the IRS still does not do this (or gets it wrong).  Assisters should be able to see this information with respect to specific taxpayer inquiries.

Effective opportunity to defend by confronting any adverse witnesses, by presenting arguments and evidence orally, and by tailoring the opportunity to be heard  “to the capacities and circumstances of those who are to be heard“

The Goldberg Court reasoned that for a welfare recipient, requiring written submissions is not sufficient, because literacy and education are issues; although informal procedures are allowed, a welfare recipient must be allowed to present their position orally.  And while the Court recognized the government’s legitimate concern with minimizing the risk of erroneous payments and delays, “[m]uch of the drain on fiscal and administrative resources can be reduced by developing procedures for prompt pre-termination hearings and by skillful use of personnel and facilities.”

In the return filing, processing, and audit context, as I’ve discussed elsewhere, these requirements can be met in part by establishing a dedicated Family and Worker Benefit Unit (FAWBU).  Compliance checks and audits should be handled by appointment – with a single employee assigned to the case.  The IRS can learn a lot from federal and state agencies that work with the low income/no income population, including the Social Security Administration and the research arm of the Department of Health and Human Services.  (You can watch the video of the Reimagining Tax Administration workshop here, where we discuss efforts to get people to show up for appointments to receive or maintain benefits.)  

Audits and other compliance checks should provide the taxpayer with the option to mail, fax, or upload documentation.  The use of template affidavits, such as Form 8836 Schedule A, will ease the administrative burden on these taxpayers, but oral testimony is essential with this population.  Thus, taxpayers should be able to present such documentation at virtual or in-person appointments, where oral testimony can be obtained.  IRS research has shown that office audits, where taxpayers can share their documentation and learn what more is needed, have a higher agreed-to rate and lower default rate than correspondence audits.  IRS can utilize accessible technology to facilitate these appointments.

Access to Representation

It should be axiomatic, with the enactment of Taxpayer First Act §1402, amending IRC § 7526 to authorize the IRS to make direct referrals to low income taxpayer clinics (LITCs), that CSRs and IRS audit employees should be equipped with electronic tools to provide taxpayers who are unrepresented and whose income is at or below 250 % federal poverty level with direct referral information to LITCs.  The IRS can program its systems such that when a CSR receives a call from a taxpayer, there is an indicator that the taxpayer’s most recent return or most recent IRP data appears to qualify the taxpayer for LITC assistance.  Similarly, in any case selected for EITC or refundable CTC audit, the auditor should be required to explicitly discuss LITC referral information when the taxpayer is unrepresented.  The IRS has LITC contact information, and if it is truly dedicated to cultural change and incorporating due process principles into tax administration, it will use this information proactively to advise taxpayers of the availability of assistance.

This is just a modest attempt at applying due process principles to tax administration.  In my next post, I’ll look at the proposed dispute resolution mechanism for Advance CTC payments and make design suggestions so the process conforms with these principles.