Earlier this year I wrote a series of blogs in which I tried to think through the implementation of the newly enacted but temporary Advance Child Tax Credit (AdvCTC). You can find those blogs here and here and here and here. We are now several months into the delivery of the AdvCTC, and we have more details on what an extended AdvCTC might look like, by way of Ways and Means Committee Chairman Neal’s mark. So I thought it would be a good time to review how the program has been doing in terms of implementation and where improvement is called for, going forward.
Moreover, for the last month or so, the Center for Taxpayer Rights has been holding a series of workshops entitled Reimagining Tax Administration: Running Social Programs Through the Tax Code. Through these workshops, and the stellar panelists and moderators who have graciously agreed to present at them, we are trying to explore the challenges faced by taxpayers and IRS alike when the tax system is used to deliver social benefits to low income and other under-resourced populations. You can learn more about the workshop series, see the agenda, and register for future sessions here and you can watch videos of past sessions on the Center’s youtube channel here.“read
At this point in the process, we’ve identified that there are definite benefits, including political reasons, for administering these programs through the tax system. But there are also significant challenges, including imperfect data sets and lack of resources dedicated to assistance for these taxpayers. Rigid definitions of what constitutes a family or household for tax purposes, mired in a Leave-It-To-Beaver mirage, can trip up taxpayers who are actually responsible for the welfare of the child. We have learned that a significant group of children move from one household to another throughout a given year, and that some countries have developed eligibility requirements for similar programs that address that reality. For example, by basing the payment on who is the “carer” of the child, and even allowing for two “carers” to split the single credit in a manner agreed between themselves, we may transform many erroneous claims into proper claims. We have discussed the need for the IRS to receive data from state benefit programs and the possibility of reducing burden by automatically “enrolling” taxpayers on the basis of this data. (The IRS can certainly pay out the childless worker EITC on the basis of Form W2 and Form 1099-NEC data, checking who is eligible but has not claimed it after the end of the filing season.)
We also know administrative burden, created through policies, procedures, forms, return processing, and authentication and documentation requirements, can block eligible individuals from claiming benefits and avail themselves of rights and protections. The IRS return processing system alone can result in a taxpayer’s return getting way-laid along the way to being posted, and because the IRS accounts personnel are chronically underfunded, taxpayers may not receive their AdvCTC until many months after the end of the filing season, thus undermining the very rationale for having an AdvCTC in the first place (smoothing out payments throughout the year).
Finally, notwithstanding additional data and revisions to the eligibility rules, families being families, there will always be disputes about who should claim the child. For example, according to data on the use of GetCTC, the application developed by Code for America to provide persons below filing threshold with an easy and accessible vehicle to file a 2020 return and claim the AdvCTC, one of the top three reasons e-filed returns were initially rejected by the IRS is because the dependent was claimed on the 2020 return of another person. The most common reason for rejection was the taxpayer had already filed a 2020 return. In some cases, this could indicate identity theft, including by a former or separated spouse.
This brings us to the next two workshop sessions in our Reimagining Tax Administration series, which will be held on November 1 and 8, respectively, and to topics I’ve written about previously with respect to the Advance CTC here and here – namely, due process protections, the dispute resolution process, and cultural change in the IRS.
Let me take cultural change at the IRS first – not because it is easier, but because the dispute resolution processes will not be reformed effectively until cultural change takes place. Real cultural change is difficult – beyond mere window dressing. It requires a shift in focus at the very top of the organization, so change can work its way down through the executive ranks to front-line employees and taxpayer interactions. It requires a realignment of the agency’s mission, vision, and strategic plan and the goals, initiatives, and policies that derive from those high-level statements. And it requires Congress and the public to hold the IRS accountable for executing this change.
Here is my 12-step program for cultural change:
- Adopt a mission statement that explicitly recognizes the IRS has a dual mission of collecting revenue and disbursing social benefits, framed by the duty to protect taxpayer rights.
- Establish performance measures and goals that emphasize high participate rates, quality (including accuracy), timely assistance, and first-time issue resolution, and hold executives accountable for achieving these goals.
- Create a dedicated unit, the Family and Worker Benefit Unit (FAWBU), that is responsible for all aspects of delivering tax benefits related to families and workers, including taxpayer education, assistance, outreach, and compliance initiatives.
- Establish within the FAWBU a dedicated, year-round toll-free assistance line to timely respond to taxpayer questions about eligibility for tax-related family and worker benefits and about return-processing issues, other account issues, and disputes relating to their claims for such benefits.
- Hire and staff the FAWBU with employees having expertise in social welfare programs and experience working with beneficiaries of those programs.
- Hire staffing necessary to timely resolve returns delayed on account of identity theft, questionable refund claims, duplicate claims relating to a child, and wage and withholding verification, by no later than June 1 of each filing season.
- Create a simplified filing portal that is accessible to low income and below-filing-threshold taxpayers claiming such benefits.
- Develop programs and algorithms for identifying and automatically determining eligibility for unclaimed credits and other benefits; where data is inconclusive but indicates individuals are likely to be eligible for such benefits, develop strategies to engage these individuals.
- Staff a geographically-based outreach, education, and assistance staff, focusing on the delivery of in-person and virtual face-to-face assistance.
- Liaise with state and local agencies administering family and worker benefits to their respective populations, and develop plans to utilize state and local agency data to increase participation by eligible taxpayers, including publishing data relating to underserved populations by zip code.
- Establish and promote cross-agency coordination with existing federal and state navigator programs to increase participation by eligible taxpayers.
- Establish a Federal Advisory Committee under 5a USC 92-463 for the purposes of receiving advice from external experts and advocates serving and studying the beneficiaries of these programs.
While this looks like a huge laundry list of items, all of these things are achievable. Treasury and IRS can establish a joint executive steering committee, with outside advisors and a subordinate working group composed of Treasury and IRS personnel from Treasury Office of Tax Policy and Tax Analysis, IRS Research, Wage and Investment, Taxpayer Advocate Service, Chief Counsel, and Communications. Treasury is going to have establish such a group anyway in order to implement any legislative extension. In fact, Treasury and the IRS established just such a joint steering committee and working group arrangement in 2002 to address administration of the EITC – I know because I was a member of the steering committee. The 2002 initiative led to some of the best and most informative experiments with increasing EITC participation and compliance. This time around, the steering committee should issue a report within 6 months addressing how the IRS will establish the FAWBU, and produce a timeline for implementing these changes within 18 months following the delivery of the report. The report should include the appropriations estimates, hiring authorities, and information technology improvements required to implement the proposed plan.
And by the way, the mission statement could be changed tomorrow – the IRS has done it before, when in the stealth of the night in 2010 it changed the word “administer” to “enforce” without any publicity or consulting taxpayers or IRS employees.
In my next blog post, I’ll review the dispute resolution process and what we need to be prepared to do in the next filing season to ensure people get the tax benefits they are eligible for.