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Jackson Hewitt Criticizes EITC Precertification Pilot Program

JUL. 12, 2003

Jackson Hewitt Criticizes EITC Precertification Pilot Program

DATED JUL. 12, 2003
DOCUMENT ATTRIBUTES
July 12, 2003

 

CC:PA:RU (Announcement 2003-40)

 

Room 5226

 

Internal Revenue Service

 

POB 7604

 

Ben Franklin Station

 

Washington, DC 20044

 

Re: Comments on Form 8836, Administration of the Earned Income Tax Credit

 

[1] Jackson Hewitt, Inc. is the second largest tax preparation firm in the nation, serving over 2.8 million taxpayers annually through 4,200 locations in 48 states and the District of Columbia. Jackson Hewitt prides itself in providing fast, accurate income tax preparation at reasonable prices for low- and middle-income taxpayers, and is proud to be the industry leader in the use of electronic filing -- with 95% of Jackson Hewitt customers choosing to e-file their tax returns during the 2003 tax season. Jackson Hewitt provides e-file to its tax preparation customers at no cost -- allowing customers to take advantage of the quickest method for filing their tax returns and receiving their refunds.

[2] Jackson Hewitt is concerned that the proposed IRS initiative to pre-certify recipients for the Earned Income Tax Credit (EITC) imposes serious burdens on eligible taxpayers while providing no basis for assurance that the program will result in increased compliance. In addition, we believe that the pre-certification program will place additional burdens on the tax preparation community in being able to assist customers who are eligible for the EITC and in helping the IRS achieve its modernization goals. While we do agree that noncompliance with the EITC is a continuing problem, we urge the IRS to reconsider and reform several facets of the proposed pre-certification program.

[3] Jackson Hewitt provides the following comments on proposed Form 8836 to be used in conjunction with the administration of the EITC.

 

General Comments.

 

 

1. Current Compliance Initiatives. As previously stated, Jackson Hewitt recognizes that noncompliance with EITC is an ongoing problem and that attention must be given to correcting the inequities. However, we believe that the IRS may be moving in haste to implement a new, untested program before it has had a chance to fully analyze the effectiveness of EITC compliance measures already in place. For the past several years, the IRS has used various programs -- including the Debt Indicator, information from a child-custody database, and third-party data regarding credit card information -- to assist in determining eligibility -- and fraud -- for the EITC. To date, these programs have worked well and their efficiency is increasing as tax preparers become more effective in their use. In addition, Jackson Hewitt has integrated a sophisticated due diligence program into its tax preparation software that works with the various IRS EITC compliance programs to further assist in correctly determining a taxpayer's EITC eligibility. Our own data indicates an increase in the effectiveness of this combination of programs since they were initiated. However, these programs and systems have been in use just a few short years. Thus, we believe the IRS should seriously consider concentrating its efforts on improving the effectiveness and use of these tools before embarking on a new, untested compliance program that could inure serious consequences to compliant taxpayers as well as the tax preparation community.

2. Pilot Project. IRS personnel have described the EITC pre-certification initiative as a two-step process -- 1) a pilot program involving 45,000 taxpayers to test the feasibility of the initiative; and 2) implementation of the initiative itself encompassing a targeted group of 4 million taxpayers. We believe the plan to test the initiative through use of a pilot project -- where every facet of the new initiative is given a "test run" and the results of the test run are analyzed for their effectiveness -- is a wise choice. However, little evidence exists either through written or verbal communication from the IRS that analysis will be performed on the pilot project and any lessons learned from the project will be used to modify and improve the pre-certification initiative prior to its full implementation. We strongly encourage the IRS to review its timeline and methodology for the proposed pilot project to insure that proper attention is given to analyzing the results as well as to receiving feedback from stakeholder groups prior to proceeding with full implementation.

Form 8836

[4] Jackson Hewitt has numerous questions and concerns regarding the design and content of the form and instructions to be used for the pre-certification program. Specifically:

[5] 1. The overall design and language used in the form and instructions must be simplified. The goal of the IRS is two-fold -- to encourage eligible taxpayers to register for pre-certification in advance of filing their tax return and to provide clear, concise instructions that make it easy for the taxpayer to accurately complete the form. We think the form and instructions fall short of these goals in several respects.

[6] First, while the IRS has provided a sample of Form 8836 and its instructions, the critical first impression that will be made upon the taxpayer is the contact letter explaining why the taxpayer is receiving the information. The content and tone of this letter is critical to the success of the pre-certification program -- it must be written in a way that encourages the taxpayer to comply, and provide ample instruction and illustration on how to do so. Recipients of this communication may have several general characteristics. English may be a second language, their education level may not be advanced, and they may already have a general fear and misunderstanding of the IRS. Jackson Hewitt strongly urges the IRS to seek the input of the tax preparation community on the structure and content of the cover communication used in the pilot project to insure that it encourages, rather than discourages, participation.

[7] Second, the overall design of the form must be simplified. Several employees of Jackson Hewitt who deal daily with tax preparation and understanding IRS forms and instructions had difficulty understanding the parameters of the instructions as well as exact requirements of several sections of the form. Our fear is that the difficulty that we faced will be multiplied several times by taxpayers involved in the pilot project or the fully implemented program, leading to extensive filing of incorrect or incomplete information that will slow the tax refund process for eligible taxpayers.

2. Specific Comments on Form 8836

a) Jackson Hewitt urges the IRS to consider requiring the filing of one form for each child that a parent wishes to claim the EITC. While this may be construed as an additional burden on taxpayers, we believe this simple requirement will eliminate a great deal of confusion and administrative detail for both taxpayers and the IRS. Many families have two or more children, but not all the children reside with the same parent. To ease the confusion with this new requirement, rather than requiring parents with more than one child to determine whether they need to complete one form or two we recommend that Part II of proposed Form 8836 be modified to include instructions stating:

 

"Please complete a separate Form 8836 for each child who lived with you for more than six months in 2003 for which you wish to claim the EITC. Up to two children can be claimed by a taxpayer."

 

We believe that requiring a separate form for each child -- but asking taxpayers to submit all forms together to the IRS -- will reduce confusion for both the taxpayer and the IRS in compiling and analyzing the information provided to determine residency requirements.

b) Available Documentation and Affidavits. Form 8836 seeks to provide two options to taxpayers in documenting the residency requirements of children for EITC purposes. The first option is for the parent to submit available documentation directly to the IRS that confirms residency status. The second option allows the taxpayer to provide an affidavit from a respected professional to attest to the residency requirement. These two options are set forth in Part III and Part IV of proposed Form 8836. Jackson Hewitt would like to highlight several difficulties it has identified with the suggested procedures:

 

i. We believe it is confusing to taxpayers to provide the option in Part III of attaching a third-party letter as proof of residency. Penalties of perjury inure to the taxpayer under Part III in the instance where a taxpayer chooses to provide a third-party letter attesting to residency -- but no penalty inures to the third party for possible perjury in providing a letter with false information. (Perjury. applies to the third-party only if Part IV is completed and signed by the third party.) Further, it is not indicated on the form or in the instructions what information must be included in such a letter.

ii. Initially, we believe it will be difficult for taxpayers to obtain letters or affidavits from trusted third parties to verify residency. Most of the professionals listed may not have clear knowledge of the residency situation in order to provide an unqualified response, leading to further investigation by the IRS. Further, many of these professionals may be reluctant to comment on a family situation with the knowledge that the IRS may share the information they provide with other federal agencies and law enforcement. This is especially true in family situations involving custody issues or protective orders where the location of both parent and child is kept confidential -- and where revealing this information could be considered a breach of professional ethics in several professions listed as qualified third-parties.

 

c) Where and How to File. The instructions to Form 8836 lack clear explanation to the taxpayer (and to the tax preparer) on how to file the pre-certification form. Due to the already confusing instructions, many taxpayers will undoubtedly bring their incomplete pre-certification form with them at the time they visit a tax preparer to file their income taxes. In this instance, it is unclear whether it is the responsibility of the taxpayer or the preparer to mail the pre-certification form to the IRS. If the responsibility rests with the taxpayer -- and the taxpayer falls to mail the pre-certification form -- then liability may inure to the tax preparer who has signed a return claiming EIC eligibility for which that taxpayer may not have proved eligibility to the IRS. If the responsibility lies with the preparer to mail the pre-certification form, how is the submission of the form and its attachments handled when a taxpayer files his/her return electronically? Clear answers to these questions must be provided to insure that the program operates smoothly.

d) Deterrent to Electronic Filing. Low- and middle- income taxpayers (largely those eligible for EITC) are the largest taxpayer group that utilizes electronic filing. If the accumulation, completion, and filing of forms relating to the pre-certification program becomes too onerous for taxpayers, we believe that the program itself could serve as a deterrent to increasing the number of taxpayers who file their returns electronically.

[8] Thank you for the opportunity to provide these comments. We would be happy to answers any questions or provide additional insights into issues raised herein.
Sincerely,

 

 

/s/

 

 

Michael D. Lister

 

President and Chief Operating

 

Officer

 

Jackson Hewitt Tax® Service

 

Parsippany, NJ
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