Les is out on the West Coast today presenting at Loyola Law School’s Tax Policy Colloquium. Les is the first presenter this year, and the other speakers cover a broad range of topics. Les’ talk is based on research and a paper he is currently working on, some of which is based on his prior writing and a number of Procedurally Taxing posts where he discusses the EITC, compliance, and criticism of the IRS in relying on sanctions like the Section 32(k) ban. He also weaves in his interest in viewing these issues through the social science and behavioral economics lenses.
Some of Les’ recent PT posts that he pulls from for the talk and paper are:
The paper will likely not be finalized until later this fall, but the abstract for the paper and talk is as follows:
Thinking About Taxpayer Rights and Social Psychology to Improve Administration of the EITC
The IRS is a reluctant but key player in delivering social benefits to the nation’s working poor. The earned income tax credit (EITC) is generally praised for its role in reducing poverty and incentivizing low-wage work. While the EITC has generally received bipartisan support, the IRS faces strong criticism over EITC compliance issues. Opponents focus on headline-generating reports of improper payments and a characterization of errors as likely due to fraud. Advocates look to the intersection of legal complexity and the characteristics of recipients as the main driver of error and the relatively low share of the tax gap that is attributable to refundable credits in general and the EITC in particular.
The current compliance challenge presents an opportunity to think about the compliance problem differently than before. In prior research, building off the work of sociologists Kidder and McEwen, I applied a typology of noncompliance to EITC claimants. That typology suggests that the problem of EITC overclaims is not a single problem but best thought of as many different compliance problems, some of which reflect intentional taxpayer misconduct and others which reflect problems that are more directly connected to the characteristics of the claimants (such as transiency or literacy challenges), perceived unfairness of eligibility rules, or actions attributable to third parties, such as return preparers who play an important role in the delivery of the EITC. In this article, I build on that typology by integrating recent compliance studies, current research on the increased complexity of American family life and two approaches that may present an opportunity for the IRS to improve the likelihood that claimants will voluntarily comply. One approach is based on research that suggests tax agencies can enhance voluntary compliance by an appropriate mix of power and measures that will enhance greater trust in the IRS. The other is based on social psychology research that has shown that by increasing psychological costs and the perceived likelihood of detection through changes in forms, disclosure statements and a more personalized communication approach people may be more inclined to be truthful in the first instance.
By explicitly tying in how possible administrative and legislative solutions relate to the complex structure of today’s American family life, trust in the tax administration, and social psychology research, this article takes the small but I believe important step of recognizing that IRS and Congress cannot principally rely on detecting and deterring noncompliance through audits, penalties and expanded summary tax return adjustment powers. While there is no silver bullet that Congress and IRS can turn to, and audits and penalties are and should remain an important part of a tax agency’s approach, the article provides insights from tax compliance researchers and offers specific administrative and legislative proposals that may improve administration of the EITC.