NTA Blog: TAS Research Shows that Education Improves EITC Compliance

September 20, 2018

Subscribe to the NTA’s Blog and receive updates on the latest blog posts from National Taxpayer Advocate Nina E. Olson. Additional blogs from the National Taxpayer Advocate can be found at www.taxpayeradvocate.irs.gov/blog.

Recently, the IRS provided its response to my Most Serious Problem addressing EITC issues in the 2017 Annual Report to Congress. I want to reiterate my recommendation that the IRS should provide a dedicated toll-free Extra Help telephone line for EITC taxpayers. I’ve made similar recommendations here, here, and here. The IRS has not agreed to implement my recommendation. Instead, the IRS responded to my latest recommendation by saying, in part:

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

These are good tools to help taxpayers. However, to truly assist taxpayers claiming the EITC, the IRS must tailor its services to the needs of the typical taxpayer claiming the EITC. For example, TAS research shows that low income taxpayers, the population of taxpayers eligible for the EITC, are less likely to have broadband access in their homes. Yet the IRS is increasingly having taxpayers rely on online self-help tools to answer tax law questions. Instead, TAS research shows that providing a dedicated Extra Help telephone line to taxpayers can improve EITC compliance.

In 2016, the National Taxpayer Advocate began studying how educational letters sent to EITC taxpayers before the filing season could impact EITC compliance going forward. TAS sent letters to about 6,500 taxpayers who appeared to have erroneously claimed EITC on their tax year (TY) 2014 returns and whom the IRS did not select for audit. The TAS letter explained, in plain language, the requirements for claiming EITC, identified the specific requirement the recipient did not appear to meet, and suggested sources of additional information and assistance, including TAS. Results of the study showed the TAS letter averted noncompliance on TY 2015 returns where the TY 2014 return appeared erroneous because the relationship test was not met. If the TAS letter had been sent to all taxpayers whose TY 2014 returns appeared to be erroneous because the relationship test was not met, it would have averted about $47 million of erroneous EITC claims – all this for the mere cost of postage and printing – an incredible return on investment!

TAS continued this study in 2017. If the results for the 2017 study (in terms of the relationship test) were projected to the entire TY 2015 population, it would result in a savings of over $53 million in erroneous EITC claims. In the 2017 study, TAS added an additional sample of 1,197 taxpayers who were offered in the letter the availability of a dedicated “Extra Help” telephone line staffed by TAS employees trained to answer taxpayer questions about the letter and the EITC eligibility rules. If projected to the entire TY 2015 population who only broke a Dependent Database rule indicating the child may not have resided with the taxpayer, sending the TAS letter with the available Extra Help telephone line would result in a savings of over $44 million in erroneous EITC claims. Based on a review of calls received on the Extra Help telephone line, TAS has been able to identify two areas that received repeat questions: the rules of claiming a dependent versus the EITC, and the rules that are involved when parents have shared custody of a qualifying child.

The IRS’s current approach with taxpayers, while beneficial, overlooks some valuable opportunities to maximize the benefits of informing, educating, and interacting with taxpayers. The IRS needs to carefully study how best to communicate with EITC taxpayers. Offering the Extra Help telephone line could be particularly helpful since the IRS could talk to the taxpayer directly and identify areas of confusion. The IRS could then update and improve its online, telephone, and in-person educational initiatives based on real-world experience. Based on the data referenced above, just offering the Extra Help telephone line may help reduce repeat EITC errors. The IRS could also apply this knowledge and improve EITC outreach, education, and procedures for all EITC taxpayers.

We intend to repeat our notice study in 2019, offering the TAS Extra Help line to all taxpayers in the study. We also plan to hold focus groups with some of the taxpayers involved to hear their reactions, concerns, and suggestions about the letter. Maybe the third time will be the charm, and the IRS will finally adopt our data-driven recommendation to offer an Extra Help line to the EITC population.

The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate is appointed by the Secretary of the Treasury and reports to the Commissioner of Internal Revenue. However, the National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.