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ABA Tax Section Submits Comments on Advance Child Tax Credit

JUN. 4, 2021

ABA Tax Section Submits Comments on Advance Child Tax Credit

DATED JUN. 4, 2021
DOCUMENT ATTRIBUTES

June 4, 2021

Hon. Charles P. Rettig
Commissioner
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224

Re: Comments on the Administration of the Advance Child Tax Credit Dear Commissioner Rettig:

Enclosed please find comments on the administration of the Advance Child Tax Credit under the American Rescue Plan Act. These comments are submitted on behalf of the Section of Taxation and have not been approved by the House of Delegates or the Board of Governors of the American Bar Association. Accordingly, they should not be construed as representing the position of the American Bar Association.

The Section of Taxation would be pleased to discuss these comments with you or your staff.

Sincerely,

Joan C. Arnold
Chair, Section of Taxation
American Bar Association
Washington, DC

Enclosure

cc:
Mark Mazur, Acting Assistant Secretary (Tax Policy) and Deputy Assistant Secretary (Tax Policy), Department of the Treasury
Thomas West, Deputy Assistant Secretary, Domestic Business Tax, Department of the Treasury
Krishna P. Vallabhaneni, Tax Legislative Counsel, Department of the Treasury
Colin Campbell, Attorney-Advisor, Department of the Treasury William M. Paul, Acting Chief Counsel, Internal Revenue Service
John P. Moriarty, Associate Chief Counsel, Income Tax & Accounting, Internal Revenue Service
Julie Hanlon-Bolton, Deputy Associate Chief Counsel, Income Tax and Accounting, Internal Revenue Service
Robin M. Tuczak, Senior Program Analyst, Office of Chief Counsel, Internal Revenue Service
Erin Collins, National Taxpayer Advocate, Internal Revenue Service


AMERICAN BAR ASSOCIATION
SECTION OF TAXATION

Comments on Administration of the Advance Child Tax Credit under the American Rescue Plan Act

These comments (“Comments”) are submitted on behalf of the American Bar Association Section of Taxation (the “Section ”) and have not been approved by the House of Delegates or Board of Governors of the American Bar Association. Accordingly, they should not be construed as representing the position of the American Bar Association.

Principal responsibility for preparing these Comments was exercised by Scott Levine. Substantial contributions were made by Nancy Abramowitz, Leslie Book, Radhika Bora, Alden DiIanni-Morton, Maria Dooner, Keith Fogg, Fred Goldberg, Jr., Catherine Livingston, Megan Newman, Nancy Rossner, and Christine Speidel. These Comments have been reviewed by Joseph Barry Schimmel of the Committee on Government Submissions and Kurt Lawson, Vice-Chair for Government Relations for the Tax Section.

Although members of the Section may have clients who might be affected by the federal tax principles addressed by these Comments, no member who has been engaged by a client (or who is a member of a firm or other organization that has been engaged by a client) to make a government submission with respect to, or otherwise to influence the development or outcome of one or more specific issues addressed by, these Comments has participated in the preparation of the portion (or portions) of these Comments addressing those issues. Additionally, while the Section's diverse membership includes government officials, no such official was involved in any part of the drafting or review of these Comments.

Contact: Scott Levine
(202) 879-3437
smlevine@jonesday.com

Date: June 4, 2021

EXECUTIVE SUMMARY

On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (the “Act”), a $1.9 trillion economic stimulus bill to mitigate the economic and health effects of the ongoing COVID-19 pandemic.1 Section 9611 of the Act modified the child tax credit (“CTC”) available under section 24 for 2021, and enacted section 7527A to provide for advance child tax credit payments (“ACTC”) during 2021.2 These provisions (i) expanded and increased the CTC for 2021 to $3,000 per child for children ages six to 17 and $3,600 per child for children under six years of age, for taxpayers at or below certain income thresholds,3 and (ii) made the CTC fully refundable and 50% advanceable.4 The provisions require the CTC to be reconciled against ACTC payments for 2021 and excess ACTC payments to be added to the tax owed by the recipient, although the resulting additional tax owed is limited by a safe harbor of $2,000 multiplied by the taxpayer's net change in qualifying children, which phases out at certain income thresholds.5 Under the safe harbor, single taxpayers with modified adjusted gross income (“MAGI”) of under $80,000 and taxpayers filing jointly with MAGI of under $120,000 need not repay up to $2,000 per child in excess advance payments.

On May 17, 2021, the Internal Revenue Service (the “Service”) released Revenue Procedure 2021-24.6 We welcome this official guidance, which offers a simplified return filing process for taxpayers who are not otherwise required to file a return, that permits low-income taxpayers to claim the recovery rebate credit for 2020 (consistent with informal guidance provided to the Service's Volunteer Income Tax Assistance (“ VITA”) programs earlier this year) and also helps these taxpayers receive the ACTC and the third round of Economic Impact Payments (“EIPs”) in 2021. Prior to this guidance, VITA and the Service's Tax Counseling for the Elderly sites were instructed by the Service not to e-file a tax return for the sole purpose of allowing a taxpayer to access the ACTC or the third round of EIPs. The new guidance removes a major impediment to nonfilers' receipt of these payments.

We appreciate the Service sharing the timing for its payment of the ACTC, and the amount that families can expect to receive,7 and its recent outreach to taxpayers and other service providers in their networks regarding the ACTC.8 It is helpful to publicize the date of the payments so that families can budget their finances, but also so that families who believe they are eligible for ACTC but do not receive a payment on or around July 15, 2021, can take any available corrective action.

These Comments respond to the request by the Department of Treasury (“Treasury”) and the Service for input regarding the changes made by section 9611 of the Act. We acknowledge that certain timing, funding, and staffing considerations might affect the administration of the ACTC this year, but we make the following recommendations in response to that request in the hope that they will facilitate greater access to the ACTC for the most vulnerable taxpayers. These recommendations are discussed in more detail in the next section of the Comments.

1. Administrative Review and Reexamination of ACTC: We recommend that the Service provide clear and timely notification of denial of the ACTC to affected taxpayers, and expedited review of such denial. This process would not in any way limit, foreclose, or otherwise adversely affect a taxpayer's rights following the return filing date, or any Service decision regarding the CTC in its entirety for the year. The expedited preliminary review would (i) allow for a review of a taxpayer's eligibility of the advanced credit during the tax year, (ii) permit a taxpayer to offer documentation to the Service, (iii) inform a taxpayer of the right to an authorized representative, and (iv) provide that the Service make an expedited decision. Further, we recommend that the Service establish timelines for taxpayers to know when review can be requested and when decisions should be made. This process would cover only payments of the ACTC.

2. Communication: We recommend that the Service establish a dedicated ACTC telephone line to facilitate communication and provide a link on the Service's website so taxpayers can check the status and expected delivery date of their ACTC payments. We further recommend that the Service establish a regular means of communication with stakeholders, including especially representatives of Low Income Taxpayer Clinics (“LITCs”) and VITA, to remain alert to issues taxpayers might be experiencing in receiving the ACTC, and identify opportunities to respond through FAQs or other public communications.

3. Change in Circumstances: We recommend that the Service provide guidance to taxpayers as soon as possible regarding how to access the on-line portal to opt out of ACTC payments or report changes in MAGI, filing status, or number of qualifying children. We also recommend that the Service advise taxpayers of how long they can expect to wait after they submit information through the portal until their ACTC periodic payments are modified. If a taxpayer tries to add a qualifying child through the portal, and that child already is being treated as a qualifying child of another taxpayer for purposes of paying ACTC, we recommend that the portal automatically notify the taxpayer of that fact.

4. Delivery Mechanism: We recommend that the Service send ACTC payments via existing Direct Express cards for those qualifying taxpayers who have not provided bank account information to the Service and who are enrolled in Direct Express. We also recommend that the Service provide a mechanism for taxpayers (including those with estranged spouses) to update their direct deposit information and household composition in 2021, and to check how much time they can expect to wait after updating their direct deposit information to receive ACTC payments via direct deposit.

5. Reconciliation of ACTC Payments on 2021 Tax Returns: We recommend that the Service allow taxpayers claiming the CTC on their 2021 tax returns to attach supporting documents to speed the processing of their tax return and provide guidance to taxpayers with respect to how long taxpayers must wait before verification procedures become effective. We also recommend that the Service consider streamlined processing procedures for CTC returns prepared by VITA and possibly other tax return preparers that follow more rigorous verification procedures established by the Service. For taxpayers who receive the ACTC but do not file a 2021 return and whose liability is determined pursuant to the section 6020(b) and subsequent deficiency procedures, we recommend that the Service provide the benefit of the safe harbor under section 24(j)(2)(B).

DISCUSSION

I. Administrative Review and Reexamination of ACTC

A. Background

To determine a taxpayer's eligibility for the ACTC, and the amount of the ACTC, during 2021, section 7527A(b) requires the Service to look to the taxpayer's 2020 tax return (or, if the taxpayer did not file a 2020 return, the taxpayer's 2019 return) to identify qualifying children, MAGI, and filing status.9 While in most cases this process will accurately identify the taxpayer who eventually will be entitled to receive the CTC for 2021, and the amount of the CTC, a significant number of taxpayers will not be identified through this process, or the amounts will be wrong, because their information will have changed from the prior return due to family dynamics and other factors.

In certain circumstances, a taxpayer identified as eligible for the ACTC based on the prior year's tax return information might not even be entitled to the CTC for 2021. For example, some child support agreements require parents to alternate years of claiming federal and state child-related tax benefits. In that case, the most recent federal income tax return of one parent might claim a child as a dependent, while the other parent is entitled to claim the same child as a dependent in the current year.

The Service can either wait to resolve claims for these taxpayers when they file their 2021 tax returns in 2022 and claim the CTC, or seek to resolve claims of eligibility for the ACTC in 2021. Section 7527A(b) allows the Service to modify the amount of the ACTC in 2021, to more accurately reflect the amount of the CTC the taxpayer eventually will be entitled to receive, based on additional information known to it or supplied by the taxpayer, and Section 7527A(c) directs it to establish an on-line portal to allow taxpayers to provide such information.

B. Recommendations10

We recommend that the Service create an expedited administrative review process so that taxpayers who have submitted information supporting their eligibility for the ACTC through the on-line portal may request a reexamination of a denial of a claim for the ACTC. We recommend that the Service notify taxpayers if their claims are denied and allow them to request a reexamination of the decision and send documents to the Service in support of the claims. We also recommend that the Service inform taxpayers of their rights (including the right to an authorized representative), allow for review conferences, and allow them to receive a decision on their reexamination as quickly as possible.

We further recommend that the Service create a system for qualifying taxpayers to use the portal or some other mechanism to make a claim for ACTC once they know they are not receiving the ACTC payments. Under section 7527A(c)(2), taxpayers may use the portal to provide information “which would be relevant to a modification” of the annual advance payment. Modification, as specified in section 7527A(b)(3), might reflect an excess or a deficit in prior ACTC payments.

We also recommend that, if a taxpayer identified as eligible for the ACTC with respect to a child opts out of receiving the ACTC, the Service provide a mechanism for such taxpayer to identify an alternative taxpayer who will claim that child as a qualifying child for 2021.

Finally, we recommend that the Service partner with other federal and state government agencies to assist in identifying taxpayers who might benefit from outreach alerting them to the simplified filing process that could facilitate their receipt of ACTC.

We believe that the foregoing steps would better ensure that taxpayers who are likely to receive a CTC for 2021 — and only those taxpayers — will receive an ACTC in 2021. Regarding our last recommendation, to partner with other federal and state government agencies, we note that, with respect to the 2020 EIPs, the Service successfully partnered with the Social Security Administration (“SSA”) and the Veterans Administration to identify taxpayers eligible for the EIPs but not in the Service's taxpayer database.

II. Communication

A. Background

A key aspect of the Service's administration of the ACTC will be communication. The mechanisms that the Service establishes to field taxpayer questions and communicate with stakeholders will be vital in providing timely access to ACTC payments.

B. Recommendations

1. Availability to Answer Taxpayer Questions; Notices to Taxpayers

We appreciate that the Service's on-line tools will permit taxpayers to opt out of ACTC payments and will require several identification checks for taxpayers. Although there might be robust on-line tools to assist taxpayers, we expect that many taxpayers will prefer to communicate with the Service by telephone for a variety of reasons, including a lack of internet access or technological difficulties. Therefore, we recommend that the Service establish a dedicated telephone line to facilitate these types of communications and provide a link on the Service's website so taxpayers can check the status and expected delivery date of their ACTC payments (including the details of any issues that arise with delivering the ACTC payments).

We also recommend that the Service staff the dedicated phone line with Service representatives who are able to access taxpayer-specific information and resolve taxpayers' specific questions. In addition, we recommend that the Service implement a callback feature to prevent long hold times for taxpayers.

In addition to the benefits noted above, a dedicated phone line for questions about ACTC payments would serve as an opportunity to verify taxpayers' identity and prevent improper payments. Further, it would facilitate the Service's ability to gather information and efficiently identify problems or unanticipated circumstances specific to the ACTC.

Finally, we recommend that, in the event that a taxpayer otherwise would have qualified for the ACTC based on the taxpayer's 2019 or 2020 tax return, but the Service determines it will not pay the taxpayer the ACTC, the Service send the taxpayer a letter explaining why the taxpayer will not receive the ACTC in 2021; and we also recommend that the Service send notices – labeled in a manner indicating that they are important tax documents – to a taxpayer whenever the taxpayer's account for the ACTC on-line portal is created or updated, when each ACTC payment is sent out, and when a reconciliation memorandum is sent out. We believe that the letters and notices would enable taxpayers to make better financial plans and possibly encourage them to provide additional or corrected information to the Service, and that labeling notices as important documents would make it more likely for taxpayers to read and retain ACTC-related mail for later use when needed to prepare and file their 2021 tax returns.

2. Availability to Communicate with Stakeholders

We recommend that the Service establish a streamlined system for stakeholders to communicate specifically about possible systemic issues with the ACTC, such as a dedicated phone line, and identify opportunities to respond through FAQs or other public communications. We note that a successful part of the Service's administration of EIPs in 2020 and 2021 has been its strong partnerships with stakeholders, including those in the VITA and LITC communities. These partnerships have facilitated messaging to the public, especially to traditionally underrepresented communities. They also have allowed service providers to alert the Service to concerns or issues that taxpayers are experiencing.

III. Change in Circumstances

A. Background

As noted above, section 7527A generally provides for the amount of the ACTC to be determined by the filing status, MAGI, and number of qualifying children reflected on a taxpayer's 2019 or 2020 tax return.11 But it also allows the ACTC, which is to be distributed in periodic payments during the last six months of 2021, to be modified based upon a later-filed tax return or other information known to the Service or provided by the taxpayer.12 This authority allows the Service to determine the ACTC more accurately, i.e., to better reflect the amount of the CTC the taxpayer eventually will be entitled to receive, and to correct an excess or deficiency in prior payments.13 Additionally, section 7527A(c) requires the Service to provide an on-line portal that allows taxpayers to opt out of the ACTC or provide relevant information, such as changes to number of qualifying children, marital status, or MAGI, that can later be used to modify their ACTC payments.14

As noted above, reliance on a prior tax return will allow the Service to make accurate ACTC payments to many CTC-eligible taxpayers. However, we are concerned that a significant number of taxpayers who experience changes in their family dynamics, household composition, or income will receive excess ACTC payments and will not qualify for enough protection under the section 24(j)(2)(B) safe harbor to avoid an increased tax liability for 2021. Other taxpayers might be unable to access the ACTC even though they are eligible.

B. Recommendations

While we understand that the capabilities of the on-line portal might be limited, we recommend that the portal incorporate certain key elements discussed directly below.

1. Automatic Notifications

We recommend that, when a taxpayer attempts to add a qualifying child for the ACTC via the portal, the portal will notify the taxpayer automatically if the child is being treated as a qualifying child of another taxpayer for purposes of ACTC payments. A similar response is provided to taxpayers under the Service's current e-file system, when a taxpayer attempts to e-file a tax return listing a child as a dependent who already has been claimed as a dependent on another return filed for the same tax year. We further recommend that the portal provide information on how a taxpayer can prove eligibility to claim the qualifying child in 2021. Both will enable the taxpayer to make financial plans and possibly also provide additional or corrected information to the Service.

2. Updating Information

We recommend that the Service allow taxpayers to enter their projected income, filing status and number of qualifying children for 2021 in the portal, as well as to update their address, bank account information, and other payment information required to receive the ACTC through the portal.

We are sensitive to concerns about fraud. However, we believe it is important for taxpayers to be able to update their information in real time, because the ACTC will be disbursed through periodic payments. Extraordinary demands on the Service combined with attention to the health and safety of Service employees handling paper returns during the pandemic have led to significant delays in processing Forms 8822, Change of Address, as well as past-year tax returns that normally would be used to update a taxpayer's address with the Service. We believe the portal could provide an important optional means for providing these updates.

We include address changes in our recommendation because, as we have detailed in prior letters,15 low-income taxpayers are more reliant on traditional mail service correspondence (as opposed to direct deposit and other means of electronic communication and payment), and change mailing addresses more often than other taxpayers. In our experience, the inability of these taxpayers to change their address and other information in the EIP portal made it more difficult for many low-income taxpayers to access their EIPs.

We also recommend that the Service incorporate outreach strategies like those used with the advance payment of the premium tax credit16 to provide guidance to taxpayers on issues that might arise if taxpayers' actual income and filing status differs from their projected income and filing status, and their effect on eligibility for the CTC and repayment of excess credits. Related to this, we recommend that the Service provide training and technical assistance so that the broadest possible volunteer community can provide technical support to low-income taxpayers and backstop the Service's resources. We believe that permitting LITCs and other volunteer organizations to support access to payments of the ACTC would benefit, in particular, middle-income taxpayers who are not covered by VITA.

3. Setting Taxpayer Expectations

We recommend that the Service set taxpayers' expectations when they submit information through the portal. In particular, we recommend that it send a notification by mail to all taxpayers who submit information through the portal, informing them of how their submissions will affect their ACTCs. The notice would tell the taxpayer which, if any, of the following applies: (a) the ACTC will be increased by a specified amount; (b) the ACTC will be decreased by a specified amount; (c) the ACTC will cease; or (d) there is insufficient time to resolve the issues raised by their submission and adjust the ACTC for 2021. If the last situation applies, we recommend that the taxpayer be reminded that taxpayers who meet the eligibility criteria may claim the CTC on their 2021 return even if they have not received the ACTC.

In our view, by setting expectations in this way, the Service will substantially reduce telephone calls to the Service and the Taxpayer Advocate Service.

4. Competing Claims

Section 7527A(c)(2)(A) provides that the portal must allow a taxpayer to report “a change in the taxpayer's number of qualifying children, including by reason of the birth of a child.”17

A change also might occur because a child was claimed as a dependent on another taxpayer's return for 2020 but will be claimed on the taxpayer's return for 2021. In a significant number of families and households, the same child is properly claimed as a qualifying child by different adults in different tax years. For example, the parents might be divorced or unmarried and agree to alternate who claims the child each year, or a grandmother might claim a grandchild one year and a parent might claim the child the next year due to changes in who has supported the child or in the employment status of the parent or other household members. Due to these structures and circumstances, we anticipate that there will be situations affecting numerous taxpayers in which there are competing claims for the ACTC based on the same child. We recommend that the portal allow taxpayers to upload supporting documentation, such as divorce decrees or custodial agreements, that could resolve these claims.

IV. Delivery Mechanism (Section 7527A(e)(1), (2))

A. Background

We applaud the Department of the Treasury (“Treasury”) and the Service for their commitment “to maximizing the use of direct deposit to ensure fast and secure delivery.”18 Experience with EIPs has shown that direct deposit is an efficient and secure means of delivering funds to families. We strongly support the government's decision to accept bank account information from nonfilers via e-filed “zero AGI” tax returns.19 To further support the goal of fast and secure delivery of ACTC, we recommend the use of certain delivery mechanisms in special circumstances as discussed directly below.

B. Recommendations

1. Separated Spouses

We recommend that the Service provide a means for taxpayers with estranged spouses to update their direct deposit information and household composition during 2021.

Many recently separated joint filers experienced problems obtaining their EIPs because payments made based on a prior joint return were deposited to the first bank account listed on the return or mailed to the address on the return, so that one spouse received the entire payment. Members of the Section observed problems with estranged spouses who refused to share the stimulus payment, and we anticipate that similar disputes will arise in the context of the ACTC. Further, we understand that fraudulent tax preparers often enter incorrect bank account information into the tax return, which could cause the ACTC to be deposited to the wrong spouse's account.

2. Use of Direct Express Cards

We recommend that the Service deposit ACTC payments onto existing Direct Express cards for those federal beneficiaries who have not provided bank account information to the Service but are enrolled in Direct Express.20

We applaud the Service for delivering many EIPs to taxpayers on direct debit cards, as it enabled them to avoid check cashing fees and more rapidly use the funds immediately for needed items. However, this method still is subject to the delays and challenges of the postal service and address management. Generally, in our experience, low-income individuals receiving public benefits prefer to receive payments on their existing cards rather than receive a new card or a check in the mail. Taxpayers receiving Social Security or Veterans benefits often receive their payments on a Direct Express card. We believe that the use of Direct Express cards as described above would be efficient, secure, and consistent with consumer preferences It also would be consistent with section 7527A(e), which calls for payments to be made by electronic funds transfer in the same manner as other federal payments.21

In making this recommendation, we appreciate that Treasury and the Service coordinated with the SSA to issue some EIPs on Direct Express cards in 2020. However, we believe that process could have been improved. For example, taxpayers who used the nonfiler portal did not receive their payments via Direct Express card, even when no bank information had been provided to the Service.22 Also, there was no way to indicate on a tax return or on the portal that a taxpayer had a Direct Express card and wished to receive their EIP on that account. In our view, many federal beneficiaries would benefit from having access to these options.

V. Reconciliation of ACTC Payments on 2021 Tax Returns (Sections 24(j) and 7527A(g))

A. Background

As discussed above, we anticipate that in many cases the person claiming a qualifying child on a 2021 tax return will not be the person who received the ACTC for that child. In some cases, these will be “shifting dependents” who are rightfully claimed by a different taxpayer once all the relevant facts are known for the tax year. In other cases, there might be competing claims for the same child on two 2021 tax returns.23

Section 7527A(g) authorizes the Secretary to issue regulations or other guidance that might be “necessary or appropriate to carry out the purposes of [the ACTC provisions and the CTC reconciliation provisions].” It specifically authorizes guidance to address circumstances “where the filing status of the taxpayer for a taxable year is different from the status used for determining the annual advance amount.” Changes in filing status affect the section 24(j)(2)(B) safe harbor amount that otherwise protects lower-income taxpayers from a tax liability when the taxpayer has received excess ACTC based on a decrease in the number of qualifying children from a prior year.24 Changes in filing status also affect the thresholds for the phaseout of the amount of the ACTC to which the taxpayer is entitled.25

Section 24(j) provides for summary assessment authority if a recipient fails to properly reduce the CTC by the amount of the ACTC or fails to increase income tax liability by the amount of the excess ACTC.26 Separately, for taxpayers who receive the ACTC but do not subsequently file a 2021 return, section 6020(b) authorizes the Service to prepare a substitute for a return.

B. Recommendations

1. Shifting Dependents and Competing Claims

In cases of competing claims for the same child, we understand that the Service's past practice has been to process the first tax return that is filed that passes the applicable return processing requirements, and to disallow the qualifying child claim on the second tax return (which cannot be e-filed and must be filed on paper). We recommend that the Service instead implement procedures to resolve the disputed claim when processing the second tax return, particularly when ACTC payments have been made to the taxpayer who filed the first return or possibly to a different taxpayer altogether. Such procedures might include opportunities to attach documents to paper filed returns (if paper filing is required) or to rely on the more rigorous verification procedures used for returns prepared by VITA. As described above, there are many real-world reasons for taxpayers to make inconsistent claims, and we believe a process for resolving them is essential to ensuring that CTCs are provided to the right ones.

2. Legal Nonfilers Who Receive ACTC

We recommend that the Service permit taxpayers who receive ACTC in 2021 based on a prior year return, but who are ineligible for the CTC in the current year, not to file a 2021 tax return if their taxable income for 2021 is below the filing threshold for the year. We believe that these taxpayers should be eligible for the section 24(j)(2)(B) safe harbor because they did not “opt in” to receive such payments and and that a filing requirement solely to reconcile the credit would be burdensome.

3. Reconciliation via Substitute for Return

We recommend that the Service allow a taxpayer who receives the ACTC but does not file a return for the 2021 tax year, and whose liability is determined based on a substitute return prepared under section 6020(b) and subsequent deficiency procedures, to rely on the section 24(j)(2)(B) safe harbor on the basis of the substitute return. We believe that the statutory criteria permit the Service to calculate the safe harbor based on the filing status and income used for purposes of preparing the section 6020(b) return.

We also recommend that the Service not apply its summary assessment authority to a substitute return prepared under section 6020(b) under these circumstances. Although section 24(j) provides summary assessment authority if a recipient fails to properly reduce the CTC by the amount of the ACTC or fails to increase income tax liability by the amount of the excess ACTC, we believe that authority logically applies only to circumstances where the taxpayer files a return and the failure to properly reconcile the ACTC is evident on the face of the return.27 We note that, in other contexts, the Service has been required to follow regular deficiency procedures before assessing income tax liability stated on a substitute return unless the taxpayer has agreed to the correctness of liability stated on the return.28

FOOTNOTES

1American Rescue Plan Act of 2021, Pub. L. No. 117-2, 135 Stat. 4.

2Unless otherwise indicated, references to a “section” are to a section of the Internal Revenue Code of 1986, as amended (“Code” or “I.R.C.”), and all “Regulations” or “Treas. Reg. §” references are to the Treasury Regulations promulgated under the Code all as in effect (or, in the case of proposed regulations which remain outstanding, as proposed) as of the date of these Comments.

3I.R.C. § 24(i)(3). The phase-out thresholds for the credit changed from $200,000 under prior law to $75,000 for individual filers and from $400,000 under prior law to $150,000 for joint filers.

4I.R.C. §§ 24(i)(1), 7527A.

5IRC § 24(j)(2)(B).

62021- __ I.R.B. ____.

7IR-2021-113, 5/17/21

8See William Hoffman, Advance Child Credit Guidance and Portal Coming, IRS Says, 2021 TNTF 94-12 (May 17, 2021).

9I.R.C. § 7527A(b)(1)-(2).

10We intend to submit a subsequent letter to the Service, providing examples of instances where the Service or another agency has permitted taxpayers to submit information supporting their eligibility for certain benefits.

11I.R.C. § 7527A(b)(1)-(2).

12I.R.C. § 7527A(b)(3)(A).

13See id.

14Taxpayers who opt out of the ACTC may still claim the full CTC payment when filing a 2021 tax return in 2022. I.R.C. § 7527A(c).

15See, e.g., ABA Tax Section, Delivery of Economic Impact Payments to Low-Income and Vulnerable Individuals (2020), available at https://www.americanbar.org/content/dam/aba/administrative/taxation/policy/2020/041320comments.pdf; ABA Tax Section, Comments on Information Collection – Change of Address Under OMB Control Number 1545-1163 (2019), available at https://www.americanbar.org/content/dam/aba/administrative/taxation/policy/070119comments.pdf.

1642 U.S.C. § 18082.

17I.R.C. § 7527A(c)(2)(A) (emphasis added).

18Treasury Press Release, Treasury and IRS Announce Families of 88% of Children in the U.S. to Automatically Receive Monthly Payment of Refundable Child Tax Credit (May 17, 2021), available at https://home.treasury.gov/news/press-releases/jy0177.

19Rev. Proc. 2021-24 also allows taxpayers to e-file $1 tax returns for the same purpose. 2021-__ I.R.B. ____.

20This recommendation focuses on Direct Express cards. However, we note that the same considerations support providing advance CTC payments via state-controlled Electronic Benefit Transfer (“EBT”) cards. These comments do not address EBT cards, as legislation or administrative guidance might be required permitting disclosure and coordination among federal and state entities. If the decision is made that current law permits sharing of information that will facilitate timely distribution, we recommend that it be provided by way of a notice that can be issued promptly.

21I.R.C. § 7527A(e)(1)-(2).

22See SSA, How will I receive my economic impact payment (EIP) if my monthly benefit is paid to a Direct Express Card? (Nov. 23, 2020), available at https://www.ssa.gov/coronavirus/eip-cares-act/.

23See the further discussion of changing circumstances above at Section III.

24See I.R.C. § 24(j)(2)(B)(iii).

25See I.R.C. § 24(i)(4)(B).

26See I.R.C. § 24(j)(1), (2)(A). These subsections refer to I.R.C. § 6213(b)(1), which requires “a mathematical or clerical error appearing on [a] return.”

27See I.R.C. § 24(j)(1), (2)(A). These subsections refer to I.R.C. § 6213(b)(1), which requires “a mathematical or clerical error appearing on [a] return.”

28See G.C.M. 33978 (Nov. 22, 1968); Spurlock v. Commissioner, 118 T.C. 155 (2002).

END FOOTNOTES

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