July 10, 2019
IR-2019-213
WASHINGTON — National Taxpayer Advocate Nina E. Olson today released a special report on the Earned Income Tax Credit (EITC), which makes recommendations designed to increase the participation rate of eligible taxpayers and reduce overclaims by ineligible taxpayers. Also today, the Taxpayer Advocate Service (TAS) published a subway map that depicts a taxpayer’s “journey” through the tax system to help taxpayers and policymakers better understand the tax administration process.
Special Report on Earned Income Tax Credit
The EITC report, Earned Income Tax Credit: Making the EITC Work for Taxpayers and the Government, presents a detailed examination of the strengths and weaknesses of the EITC as currently structured and administered, and makes legislative and administrative recommendations to improve it. The report runs more than 100 pages – roughly half text and half appendices consisting of EITC data tables (pg. 49) and a comprehensive literature review (pg. 82).
“But this report is not just a research document,” Olson wrote in her preface. “It is a call to action. As we show throughout this report, the way the EITC is structured and the way the IRS is administering it often harms the very taxpayers it is intended to serve. We have made specific, common sense recommendations to mitigate that harm and reform the administration of the EITC. All our recommendations are actionable and supported by data and research.”
The report makes both general, conceptual recommendations and specific recommendations. Among the general recommendations:
- The IRS, which views itself primarily as a tax collection agency, should more explicitly acknowledge that it has a second mission – that of administering benefits programs like the EITC. Benefits administration requires a different approach from tax collection, including hiring employees with different skill sets and creating a separate set of practices and processes to carry out this second mission. While preventing improper payments is an important part of its job, the IRS should also strive to ensure that low income working taxpayers receive the benefits for which they are eligible and are treated with respect and fairness. The report points out that eligible taxpayers often lose out on benefits to which they are entitled either because they don’t claim them or because they aren’t able to navigate the IRS’s audit process.
- Congress should consider the administerability of tax provisions, especially family and child-related provisions whose eligibility criteria may be difficult if not impossible for the IRS to verify. When a tax provision is difficult for the IRS to administer, the provision is more susceptible to improper payments and may cause some taxpayers to be subjected to additional scrutiny. This additional scrutiny can be particularly burdensome for low income taxpayers, causing some to give up because they don’t have the knowledge or ability to substantiate their claims.
- Congress should conduct regular oversight hearings of the IRS on a permanent basis. These hearings would provide an opportunity for the IRS to identify successes and challenges with the laws it administers. In the case of low income tax benefits, these hearings would also provide a forum for Congress to hear directly from outside experts, including Low Income Taxpayer Clinics, return preparers, and others with insights into the challenges facing low income taxpayers and their families.
Among the report’s specific recommendations:
- Congress should consider redesigning the EITC to reduce fraud by separating the worker component from the family-size component of the credit and by revising the definition of a “qualifying child” to better reflect existing family relationships.
- Congress should authorize the IRS to establish minimum standards for tax return preparers and software providers to protect taxpayers and improve the accuracy of EITC claims.
- Congress and the IRS should take steps to ensure EITC compliance procedures are consistent with due process norms and fundamental taxpayer rights. These steps should include limiting the use of summary assessment authority (also known as “math error” authority) to appropriate cases based on clear criteria, updating and modernizing the summary assessment process, developing a structure for ban determinations that protects taxpayer rights, and clarifying and improving the procedures authorizing Tax Court review of ban determinations.
The report was written by a team of EITC experts with “real world” experience representing taxpayers. The project was led by Professor Leslie Book of the Villanova University School of Law, who served as a “professor in residence” with TAS, and Margot Crandall-Hollick, an EITC expert with the Congressional Research Service who was detailed to TAS for a three-month period. They collaborated with a team of TAS attorney-advisors, research and technical analysts, and a Local Taxpayer Advocate. Several team members had worked at Low Income Taxpayer Clinics, where they represented taxpayers in EITC audits and Tax Court cases. The team conducted extensive interviews with internal and external stakeholders, and it compiled and reviewed reams of documents, studies, and data about the EITC as well as other benefit programs and tax credits in other countries.
On a personal note, Olson pointed out that the EITC was enacted in 1975 – the same year she began her career as a tax return preparer and that she has extensive experience with the program. “[A]s a young, newly divorced mother struggling to pay bills, I myself received the EITC,” she wrote. Professionally, Olson represented EITC claimants through a Low Income Taxpayer Clinic she founded and has worked extensively on EITC issues as the National Taxpayer Advocate.
“The EITC and I have been sisters-in-arms throughout my entire career in tax,” she wrote. “It is fitting, then, in my last Report to Congress before I retire as National Taxpayer Advocate on July 31, 2019, that we should publish this extraordinary document.”
TAS Releases Detailed ‘Subway Map’ Illustrating A Taxpayer’s Journey Through the Tax System
TAS is releasing a “subway map” that illustrates, at a very high level, the stages of a taxpayer’s journey through the tax system – from getting answers to tax law questions through audits, appeals, collection and litigation. The map makes clear the complexity of tax administration, with its many connections, overlaps, and repetitions between stages. Notably, it shows why the road to tax compliance isn’t always easy to navigate.
The National Taxpayer Advocate’s 2018 Annual Report to Congress included a series of “roadmaps” depicting a taxpayer’s “journey” through the tax system. The roadmaps were divided into seven stages: (i) tax return preparation; (ii) tax return processing; (iii) notices; (iv) examinations; (v) appeals; (vi) collection; and (vii) litigation. The purpose of the roadmaps was to help taxpayers and policymakers gain a better understanding of the tax administration process.
The subway map expands on the earlier roadmaps by providing a visually clear depiction of the taxpayer’s journey. The subway map is now available to view online and will be available in hard copy as a print map next month. To place an order call 800-829-3676 beginning July 12 and request Publication 5341.
“Anyone looking at this map will understand that we have an incredibly complex tax system that is almost impossible for the average taxpayer to navigate,” Olson said. “I personally have spent dozens of hours designing and preparing this map, as have many members of my staff.”
View a video introduction to the subway map.
Because of the complexity and number of steps at each stage, the original roadmaps simplified certain processes by omitting multiple sub-steps and detours that in some situations can be significant. To provide a more complete picture, TAS will be working to develop a fully interactive version of the subway map in the coming year. When the interactive map is completed, a taxpayer or representative will be able to enter into it at any step and learn more about that step and the surrounding steps. TAS envisions that a taxpayer or representative will be able to input the number of an IRS letter or notice and generate a pop-up window that provides key relevant information, including where in the process the taxpayer is and what the next steps will be.
“This digital roadmap will be the culmination of many years of work and research by TAS into human cognition and learning, notice clarity, and taxpayer empowerment,” Olson said. “It is my firm belief that taxpayers must have knowledge about their rights within a bureaucracy as complex as the IRS. If only taxpayers who are represented by tax professionals have access to that knowledge, then we do not have a fair and just tax system. Thus, the digital roadmap will be a powerful tool to improve access to justice.”
About the Taxpayer Advocate Service
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Your local advocate’s number is in your local directory and at https://www.taxpayeradvocate.irs.gov/contact-us. You can also call TAS toll-free at 877-777-4778. TAS can help if you need assistance in resolving an IRS problem, if your problem is causing financial difficulty, or if you believe an IRS system or procedure isn’t working as it should. Our service is free. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to https://www.taxpayeradvocate.irs.gov. You can get updates on tax topics at facebook.com/YourVoiceAtIRS, Twitter.com/YourVoiceatIRS, and YouTube.com/TASNTA.
National Taxpayer Advocate Nina Olson delivers her final report to Congress; identifies priority challenges facing the IRS and TAS
Print the Full Press Release
IR-2019-110
June 20, 2019
WASHINGTON — National Taxpayer Advocate Nina E. Olson today released her 37th and final report to Congress in advance of her previously announced retirement on July 31. In the preface, Ms. Olson reflects on her 18 years in the job and provides her assessment of the key challenges facing the IRS and the Taxpayer Advocate Service (TAS) in the coming years. The report also presents a review of the 2019 filling season.
“I am enormously grateful for the opportunity I have had to advocate on behalf of our nation’s taxpayers,” Ms. Olson wrote. “Amazingly, despite the challenges of complying with our multi-million-word tax code, more than 150 million individual taxpayers and more than 10 million business entities do their civic duty every year by filing income tax returns with the IRS. That is an extraordinary achievement and one we should not take for granted.”
Ms. Olson continued: “But even as the system works for most taxpayers most of the time, it doesn’t work for millions of others. Taxpayer service is woefully inadequate. . . . IRS audit notices are often unclear, leading some taxpayers to ‘agree’ to assessments by default – even when they don’t owe the tax. And the IRS doesn’t screen for ability to pay before it takes collection actions, thereby causing or worsening financial hardships for financially vulnerable taxpayers. Advocating for taxpayers affected by problems like these, both individually and collectively, has been and will continue to be the work of TAS.”
Key IRS Challenges
Taxpayer Service. The report says poor taxpayer service remains the biggest challenge taxpayers face in dealing with the IRS. As one example, IRS telephone assistors during the recent filing season answered just 25 percent of taxpayer calls enterprise-wide, and hold times for taxpayers who got through averaged 13 minutes.
The report points out that the President’s Management Agenda for 2018 emphasized the importance of high-quality customer service. It said: “Federal customers . . . deserve a customer experience that compares to – or exceeds – that of leading private sector organizations,” and it cited data from the American Customer Satisfaction Index (ACSI) and the Forrester U.S. Federal Customer Experience Index as key benchmarks.
Those indices show the IRS performs poorly relative to both private sector organizations and other federal agencies. The ACSI report for 2018 ranks the Treasury Department tied for 10th out of 12 Federal Departments and says that “most [IRS] programs score . . . well below both the economy-wide national ACSI average and the federal government average.” Similarly, the 2019 Forrester report ranks the IRS 13th out of 15 federal agencies and characterizes the IRS’s customer experience score as “very poor.”
The National Taxpayer Advocate’s report says the IRS is not taking adequate steps to address its service shortcomings. While the Administration’s budget proposal for fiscal year (FY) 2020 requested an increase of 5.0 percent for enforcement, it requested a decrease of 6.6 percent in taxpayer services funding.
“This approach is tantamount to robbing Peter to pay Paul,” Ms. Olson wrote. “There is no doubt that budget constraints have limited the IRS’s taxpayer service capacity, but the IRS should not blame Congress for a lack of taxpayer services funding when it is itself proposing to shift funding away from taxpayer services. What’s more, budget constraints can’t be used as an all-purpose excuse for mediocrity. The Taxpayer First Act directs the IRS to develop a comprehensive customer service strategy within one year. The IRS should use that requirement as an opportunity to think creatively about better ways to truly put ‘taxpayers first.’”
Appropriate Use of Self-Service Applications. In its FY 2018-2022 Strategic Plan, the IRS established the “Enterprise Self-Assistance Participation Rate” as one of its principal measures of taxpayer service. According to the IRS, “[t]his measures the percent of instances where a taxpayer uses one of the IRS’s self-assistance service channels (i.e., automated calls, web services) versus needing support from an IRS employee (i.e., face-to-face, over the phone, via paper correspondence).”
The National Taxpayer Advocate’s report cites survey data from Forrester Research and a separate survey recently published in the Harvard Business Review that, in combination, indicate customers who use the Internet are comfortable with self-assistance for some categories of interactions but prefer personal contact (by phone or in person) for others, particularly those that involve uncertainty and complex decision-making known to provoke anxiety.
“Applying these findings to the IRS, with its awesome investigation, audit, and collection powers,” Ms. Olson wrote, “it is clear that every interaction with the agency has the potential to be anxiety-inducing. This observation has led me to develop what I call the Taxpayer Anxiety Index as a methodology for analyzing how the IRS should structure its interactions with the taxpayer. Simply put, as the anxiety-inducing capacity of a given interaction increases, so should the taxpayer’s access to person-to-person interaction.”
The National Taxpayer Advocate’s 2018 Annual Report to Congress contained “roadmaps” that pinpoint the stages of a taxpayer’s “journey” though the tax system. Using the roadmaps, today’s report says, “we can easily identify where the taxpayer’s anxiety increases and human intervention is warranted. For example, in our Return Processing Roadmap, if a taxpayer’s refund return gets bogged down in Identity Theft processes or in the pre-refund wage verification program, these delays cause anxiety. Where the taxpayer’s refund gets stopped for multiple delays, anxiety skyrockets.”
The report urges the IRS to use the “Taxpayer Anxiety Index” concept to determine where in the process personal contact is most needed and to continue to provide personal service in these circumstances.
Treatment of Financially Vulnerable Taxpayers. The Internal Revenue Code and the IRS’s own procedures contain rules designed to protect taxpayers experiencing economic hardship from IRS collection action. For example, the IRS must release a levy if it determines the levy “is creating an economic hardship due to the financial condition of the taxpayer,” and the IRS must make allowance for a taxpayer’s basic living expenses (known as “Allowable Living Expenses”) when considering whether to compromise a tax debt.
However, the IRS generally does not assess whether there is economic hardship unless and until the taxpayer asks it to do so. In particular, it does not attempt to determine whether a taxpayer is experiencing an economic hardship before accepting full-pay installment agreements or serving levies. As a result, the report says, taxpayers entered into about 2.1 million streamlined installment agreements in FY 2018, and about 40 percent of those taxpayers had incomes at or below their Allowable Living Expenses. The default rate for those taxpayers was 39 percent – about seven times the default rate for taxpayers with higher incomes.
“[T]he IRS collection system favors knowledgeable taxpayers who understand how to request collection alternatives and, at least in relative terms, discriminates against taxpayers who don’t have that knowledge,” Ms. Olson wrote. “That is not the way a fair tax system should work, and it needs to change.”
The report makes two recommendations. First, it recommends that the IRS create an algorithm based on its internal data (tax returns, Forms W-2, and Forms 1099) to identify taxpayers at risk of economic hardship; then, if a taxpayer so identified calls the IRS or seeks to enter into an online installment agreement, the IRS could use that data to trigger a “pop-up” screen noting the possibility of economic hardship and providing information about collection alternatives. Second, the report recommends the IRS send a letter describing collection alternatives to taxpayers who its data show are at risk of economic hardship before it levies against their property. “A clear letter would go a long way toward leveling the playing field by providing the same information to all affected taxpayers,” the report says.
Filing Season Review
For most taxpayers, the 2019 filing season went smoothly. The IRS received about 137 million individual income tax returns and issued about 96 million refunds, with an average refund amount of $2,725. About 92 percent of returns were filed electronically, and about 87 percent of taxpayers who received refunds elected to receive them via direct deposit. These statistics are comparable to the prior year.
By contrast, service levels declined for taxpayers who required assistance from the IRS. The IRS’s benchmark “Level of Service” (LOS) on its Accounts Management telephone lines dropped from 80 percent during the 2018 filing season to 67 percent this year. Time spent on hold on those lines rose from an average of 5.1 minutes to 9.0 minutes. Part of the decline is likely attributable to the partial government shutdown.
The report says the IRS utilizes narrow performance measures that suggest the agency is performing well but do not reflect the taxpayer experience. Notwithstanding the IRS benchmark measure showing an LOS of 67 percent on its Accounts Management lines, IRS telephone assistors answered only 23 percent of calls received. For taxpayers calling the compliance telephone lines (which are separate from the Accounts Management lines), performance was worse. The LOS on the various Automated Collection System lines was 33 percent, and the average hold time was 41 minutes.
TAS Priority Issues for FY 2020
The report identifies and discusses 12 priority issues TAS plans to focus on during the upcoming fiscal year. Among the key issues are the following:
- Creation and Online Availability of a Roadmap of Tax Controversies. The National Taxpayer Advocate’s 2018 Annual Report to Congress included a series of “roadmaps” depicting a taxpayer’s “journey” through the tax system, including seven stages: (i) tax return preparation; (ii) tax return processing; (iii) notices; (iv) examinations; (v) appeals; (vi) collection; and (vii) litigation. The purpose was to help taxpayers gain a better understanding of the tax administration process, particularly when they are experiencing problems. Since publication of the 2018 report, TAS has continued to develop ways to represent the taxpayer’s journey visually by placing the stages in the format of a metro or subway map. The map is expected to be released next month.
Because of the complexity and number of steps at each stage, the original roadmaps simplified certain processes by omitting multiple sub-steps and detours that in some situations can be significant. To provide a more complete picture, TAS will be working to develop a fully interactive version of the metro/subway map in the coming months. When the interactive map is completed, a taxpayer or representative will be able to enter into it at any step and learn more about that step and the surrounding steps. TAS envisions that a taxpayer or representative will be able to input the number of a letter or notice and generate a pop-up window that provides key relevant information, including where in the process the taxpayer is and what the next steps will be.
- Limitations on Ability of Amish Taxpayers to Receive Full Child Tax Credit Benefits. As part of the Tax Cuts and Jobs Act (TCJA), Congress imposed a requirement that taxpayers include a Social Security number (SSN) for every qualifying child for whom they claim the Child Tax Credit (CTC). The requirement is intended to block claims by taxpayers whose children do not qualify for SSNs. However, the requirement has also created a conflict with the religious beliefs of the Amish and certain other religious groups. In some cases, religious beliefs prohibit taxpayers from accepting government benefits. As a result, many individuals in the Amish community refrain from accepting Social Security benefits and from obtaining SSNs. The IRS has taken the position that it will not allow full CTC benefits for these taxpayers.
Prior to the enactment of the SSN requirement, the IRS utilized a procedure that allowed Amish taxpayers to claim the CTC without placing an identifying number on the dependent line of their returns. Since the enactment of the TCJA SSN requirement, the IRS has created an exception for children who are born and die in the same or consecutive years and thus do not receive SSNs but may be claimed for CTC purposes. Yet the IRS has declined to create an exception for Amish taxpayers. The report summarizes relevant provisions of the Religious Freedom Restoration Act and key U.S. Supreme Court decisions establishing the circumstances in which the government must create exceptions to laws of general applicability to accommodate the free exercise of religion.
In general, the courts subject laws that burden the free exercise of religion to a strict scrutiny test, allowing burdensome provisions to stand only if the government can demonstrate that the application of the burden to a person (i) is in furtherance of a compelling governmental interest and (ii) is the least restrictive means of furthering that compelling governmental interest. The report argues that barring the Amish from receiving the CTC is not the least restrictive means available because the IRS had previously developed and applied procedures to allow them to receive benefits without an SSN. It also points out that the parents of children who are born and die in the same or consecutive years, while sympathetic, are not a “protected class” under the law, while persons who do not obtain SSNs because of their religious beliefs are a “protected class” and are therefore entitled to greater accommodation. During FY 2020, TAS will continue to urge the IRS to allow Amish taxpayers without SSNs to receive full CTC benefits when otherwise eligible.
Additional Report Volumes
The National Taxpayer Advocate will be releasing two additional volumes of this report next month. The first will contain the IRS’s general responses to each of the administrative recommendations the Advocate proposed in her 2018 Annual Report to Congress as well as its specific response to each recommendation. The volume will also contain TAS’s analysis of the IRS’s responses and, in some cases, will detail TAS’s disagreement with the IRS’s position.
The second additional volume will contain a comprehensive assessment of the Earned Income Tax Credit (EITC) and will make recommendations designed to increase the participation rate of eligible taxpayers and reduce overclaims by ineligible taxpayers. During the spring, Professor Leslie Book of the Villanova School of Law, a leading EITC expert, served as a “professor in residence” with TAS, and Margot Crandall-Hollick, an EITC expert with the Congressional Research Service, worked with TAS on a detail. Together with TAS’s EITC experts and research staff, they conducted a broad review of existing EITC research and drafted a comprehensive set of recommendations to assist Congress and the IRS in improving the program.
In addition, the National Taxpayer Advocate plans to publish the metro/subway map depicting a taxpayer’s “journey” through the tax system in July both in digital form and in hard copy.
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The National Taxpayer Advocate is required by statute to submit two annual reports to the House Committee on Ways and Means and the Senate Committee on Finance. The statute requires these reports to be submitted directly to the Committees without any prior review or comment from the Commissioner of Internal Revenue, the Secretary of the Treasury, the IRS Oversight Board, any other officer or employee of the Department of the Treasury or the Office of Management and Budget. The first report must identify the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year. The second report must discuss at least 20 of the most serious problems encountered by taxpayers, identify the 10 tax issues most frequently litigated in the courts, and make administrative and legislative recommendations to resolve taxpayer problems.
The National Taxpayer Advocate blogs weekly about key issues in tax administration. Click here to subscribe. Past blogs from the National Taxpayer Advocate can be found here.
About the Taxpayer Advocate Service
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Your local advocate’s number is in your local directory and at https://www.taxpayeradvocate.irs.gov/contact-us. You can also call TAS toll-free at 877-777-4778. TAS can help if you need assistance in resolving an IRS problem, if your problem is causing financial difficulty, or if you believe an IRS system or procedure isn’t working as it should. Our service is free. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to https://www.taxpayeradvocate.irs.gov. You can get updates on tax topics at facebook.com/YourVoiceAtIRS, Twitter.com/YourVoiceatIRS, and YouTube.com/TASNTA.
