In my last two blogs here and here, I have tried to think through how to reconcile challenging and sometimes competing policy and administrative considerations in order to pay the Child Tax Credit in advance throughout the tax year on a monthly basis. In this blog post I turn to the broader issue of how the IRS should be restructured and reformed so it can effectively administer social benefit programs such as the Earned Income Tax Credit (EITC) and the Advanced Child Tax Credit (AdvCTC).
Since my 2010 Annual Report to Congress, I have urged the IRS to recognize that as of the 2000s, its mission has undergone a major paradigm shift. No longer is the IRS just a revenue collector for the federal fisc. It is, instead, both a revenue collector and a benefits administrator. Here are just a few of the social benefit programs it administers:
- Earned Income Tax Credit – As of December 2020, the IRS issued $ 62 billion in payments to about 25 million low income working taxpayers and households annually;
- Premium Tax Credit – For Tax Year 2018 the IRS issued $ 41.8 billion in payments to 5.4 million taxpayers;
- Economic Impact Payments – over three rounds of payments in 2020 and 2021, under incredibly difficult pandemic conditions, the IRS issued almost $ 800 billion in economic impact payments to about 160 million taxpayers.
- Advanced Child Tax Credit – The IRS has projected it will be issuing monthly payments of half the annual credit to approximately 39 million taxpayers beginning July 15, 2021, totaling many tens of billions of dollars.
This shift in the type of IRS program responsibilities has major ramifications for how it conducts business. To date, the IRS has treated these programs in the same way it treats other tax administration programs, which is to say, from an enforcement-oriented perspective. Its emphasis has been on using remote correspondence examinations, pre-refund fraud detection filters, and automated summary assessment authorities (math errors), sprinkled sporadically with some outreach efforts (see the annual EITC day events). Its ongoing outreach efforts basically involve issuing electronic alerts and creating posters and flyers in multiple languages to distribute to its ever-expanding stakeholder base. The language expansion is terrific, and kudos to Commissioner Rettig for driving this. The IRS’s stakeholder base, on the other hand, is having an increasingly difficult time carrying the IRS message because it is shouldering so much of the service delivery burden and has very little opportunity to influence both the operations and the message. To many, it feels like a one-way street.
While I had hoped the IRS would seize the opportunity provided it in the Taxpayer First Act to come up with a comprehensive customer service strategy that comes to grips with its social benefit mission, the IRS’s Taxpayer First Act Report largely punts on this issue. With the focus on IRS’s role in implementing the AdvCTC, we have another chance to get the IRS to embrace this mission. As I’ve outlined in my previous posts, the AdvCTC will require the IRS to engage with taxpayers not currently in the tax system and interact with current taxpayers outside of the annual return filing process. It will require the IRS to develop social skills that presently do not exist in an agency that views its primary role as enforcement. This paradigm shift will not be easy, but Congress and the Administration can make this happen as a key service and strategy component of the push to update IRS technology and reduce the tax gap.
The first step in this transformation is for Congress to require the IRS to adopt a new mission statement that explicitly acknowledges its dual mission. (IRS could do this without congressional intervention, but I have been recommending this since 2010 and the IRS has explicitly declined to do so.) The IRS current mission statement could be modified as follows (added/altered language is italicized):
The mission of the IRS is to provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and receive the tax benefits for which they are eligible, and by applying the tax law with integrity and fairness to all and in accordance with the Taxpayer Bill of Rights.
Some may wonder why I keep harping on the mission statement, since it may seem like just a bunch of words. But my 18 years inside the IRS, at the highest leadership level, have taught me that strategic planning starts with the mission statement. From the mission statement flow the agency’s goals, objectives, strategies, initiatives, and performance measures, down to annual executive performance agreements (upon which individual executive performance is scored and bonuses are awarded). In a hierarchical, command and control organization like the IRS, you get what you measure. And what you measure starts with your mission.
Establishing a dual mission means that, rather than lumping the EITC and other benefits in with offshore noncompliance and pass-through underreporting, the IRS will have go through a separate strategic planning and performance management process for the mission of delivering social benefits to eligible individuals. The goal for such a program will be achieving the highest possible participation rate of eligible taxpayers while protecting taxpayer rights and minimizing undue burden. Thus, rather than focusing on the improper payment rate as the primary driver of all EITC/CTC/APTC initiatives, the IRS will focus on understanding the particular characteristics of the eligible population that might create challenges for benefit delivery and program integrity. It could then use that information to design and staff a program delivery approach that meets the needs of the target population, rather than forcing the target population to fit the needs of the IRS.
In order to accomplish this, the next step is the establishment of a Family and Worker Benefit Unit (and because it is the IRS and it will need an acronym, I suggest FAWBU). This unit will be responsible for program design, implementation, assistance, and compliance for all tax provisions that hinge on family status. Some might say the IRS already has a division that has these responsibilities, namely the Wage & Investment Operating Division. But as I noted in 2010, the vast majority of W&I’s employees are dedicated to tasks that affect all taxpayers – e.g, submission processing (processing all types of returns, information reports, and other submissions); accounts management (handling the main phone numbers and correspondence for accounts of many different types of taxpayers, including all individual taxpayers); forms and publications (designing and writing all IRS forms and publications for all types of taxes and taxpayers). Separate and apart from what happens with the FAWBU, these functions should be moved into a separate division, since they serve all taxpayers, not just those receiving social benefits through the tax system.
To get a sense of what operations should be under the FAWBU, I spent some time the other day scrolling through the IRM provisions relating to the Wage & Investment Operating Division, which had a major update on February 20, 2020. Two units caught my eye – Stakeholder Partnerships, Education and Communication (SPEC) and Return Integrity and Compliance Services (RICS).
According to the IRM, SPEC’s mission is “to assist customers taxpayers [sic] in satisfying their tax responsibilities by building and maintaining partnerships with key stakeholders, seeking to create and share value by informing, educating and communicating with its shared customers.“ (IRM 184.108.40.206.2(2)) The FAWBU could absorb the functions of SPEC, which would be redesigned to incorporate a renewed focus on educating about and delivering benefits to eligible taxpayers. IRS budgets should allocate SPEC increased staffing that is geographically based where its partners are and where taxpayer populations who have most need of education are located. The unit would continue to operate the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs, with increased staffing to provide better support, innovation, and assistance to the grantees. SPEC should focus on recruiting new hires from the programs they interact with – it needs to bring the skills, experience, and knowledge of persons who have worked directly with the affected populations into the IRS. That is the beginning of organizational change.
The FAWBU would also absorb RICS. RICS’ mission is “to strengthen the integrity of the tax system by:
- Protecting the public interest by improving IRS’s ability to detect and prevent improper refunds
- Serving the public interest by taking enforcement actions fairly and appropriately to identify, evaluate and prevent the issuance of improper refunds
- Helping taxpayers understand the refundable tax credits for which they are eligible.” IRM 220.127.116.11 (1)
IRM 18.104.22.168(2) lists eight ways RICS accomplishes its mission, with a heavy emphasis on program integrity, fraud, identity theft, and compliance. Programs under RICS includes the Return Integrity Verification Operations (RIVO); Integrity and Verification Operations (IVO); Refundable Credits Exam Operations, and Refundable Credits Program Management. In the IRS today, RICS oversees all the compliance operations and revenue protection programs relating to refunds, including refunds attributable to refundable credits.
Now, RICS’ functions are incredibly important to the integrity of the nation’s tax system, and it’s work protects both taxpayers individually and collectively from systemic and individual efforts at refund fraud. But because it is viewed primarily as a revenue protection function, it tolerates high false positive rates and creates burdensome processes for issue resolution.
Under the FAWBU, program integrity would be redefined to include using data and technology not only to identify ineligible taxpayers but to proactively identify eligible persons who have not claimed the benefits and persons for whom the benefits can be issued automatically where data indicate there is low risk of an improper payment. In this way, RICS focus becomes broader – it develops a more holistic approach to program integrity, and has a specific goal assisting taxpayers with their compliance challenges. There is an explicit taxpayer service component to program integrity, including reducing false positive rates.
I would move the entire RICS operation under FAWBU, since RICS interacts with billions of dollars of refundable credit refunds. I would rename the Refundable Credits Exam Operation as the Refundable Credits Compliance Unit, which would have a small component of audits but primarily focus on preventive initiatives, soft touches, nudging notices and communications; the unit would also incorporate the return preparer strategy aspect of RICS. The unit would focus on alternatives to correspondence audits, which are particularly unsuitable for low income populations. The compliance unit would be responsible for providing expedited administrative review of denials of the Advanced Child Tax Credit or dueling AdvCTC claims, if the credit is permanently enacted.
Outreach and education would be transformed to include the establishment of a Family and Worker Benefit Federal Advisory Committee under the Federal Advisory Committee Act (FACA), the members of which would come from various stakeholders who regularly interact with, serve, or research the target populations. The Advisory Committee would advise the IRS on all things related to these benefit programs – including communication strategy, taxpayer assistance (including the advisability of digital approaches and account authentication), and education and compliance initiatives. The IRS would be able to share communications, FAQs, draft notices, prototypes of the nonfiler and update portals, etc., with the Advisory Committee. The Advisory Committee would submit an annual report to the Secretary of the Treasury and the Commissioner. Having a dedicated Advisory Committee will ensure pre-implementation external expert comments and suggestions on social benefit program administration.
The FAWBU would have responsibility for taxpayer service operations, including maintenance of a toll-free line pre- and during filing season dedicated to answering taxpayer questions about eligibility for refundable credits, as well as a dedicated phone line for updating circumstances for the AdvCTC. The FAWBU would also hire and maintain a staff of researchers, data scientists, and psychologists who could assist in the planning of initiatives and tools that would influence behavior, both to increase the participation rate and to minimize noncompliance.
Most importantly, the FAWBU must be staffed with employees with the particular skillsets best adapted to achieve the goals and implement the strategies and initiatives deriving from the IRS’s social benefits delivery mission. This unit’s front line taxpayer-facing employees should have social work skills; compliance personnel should also have that background, especially important as approaches are developed to address compliance issues that occur not because the individual is a bad actor but rather is experiencing the challenges that arise in the context of poverty and near-poverty. Thus, in achieving its social benefits mission, the FAWBU would place heavy emphasis on its employees (1) directly assisting individual taxpayers with applying for the credits; (2) answering questions upfront and quickly; (3) resolving discrepancies quickly with clear explanations; (4) actively partnering with stakeholders, listening to recommendations, and incorporating into IRS approaches; (5) emphasizing education and compliance touches over enforcement; and (6) exploring innovative approaches and conducting ground-breaking research on the service and compliance needs of the target population.
Further, the FAWBU would reach out to federal and state government entities to learn how these other agencies interface with, educate, and assist these vulnerable populations, including alternative approaches to online authentication and to digital accounts and services. (The Advisory Committee could include a member from a state benefits office. ) Finally, the FAWBU would learn about the program integrity and dispute resolution systems utilized in other programs, and how due process protections must be and can be incorporated into tax social benefit programs. It would also study and learn from approaches adopted by international tax administrations.
My proposed reorganization uses existing resources and introduces a mission and goals that will apply those resources in a way that views the taxpayer population as trying to comply with the tax laws. It focuses resources on education and assistance, on using technology to deliver benefits to taxpayers who are eligible, and on using nudges and preventive approaches to noncompliance. Increased IRS appropriations offer a chance to create a Family and Worker Benefit Unit within the IRS that can recruit employees with the skills necessary to meet the needs of the benefit population, and enhance training for existing employees who are interested in helping the IRS fulfill the benefits-distribution aspect of its mission.
If we don’t make this change in the IRS mission and establish a FAWBU, and instead just layer additional social benefits on top of the current IRS structure, we will harm taxpayers because the IRS will treat this program from an enforcement perspective and not provide taxpayers with the assistance and guidance they need to receive the benefits they are eligible for. To effectively administer social benefits through the federal tax system, we need a unit dedicated solely to the needs of these taxpayers and all aspects of benefits distribution.