Nina E. Olson, the outgoing National Taxpayer Advocate, released a special report Wednesday on the Earned Income Tax Credit, suggesting different ways to increase the participation rate of eligible taxpayers in claiming the EITC and reduce overclaims by ineligible taxpayers. The Taxpayer Advocate Service she leads also published a chart Wednesday that it’s referring to as a “subway map” showing how a taxpayer can navigate the tax system to get assistance with their tax needs.

“Anyone looking at this map will understand that we have an incredibly complex tax system that is almost impossible for the average taxpayer to navigate,” Olson said. “I personally have spent dozens of hours designing and preparing this map, as have many members of my staff.”

The TAS will be working to develop a fully interactive version of the subway map in the year ahead. When it is finished, a taxpayer or their representative will be able to enter it at any step and find out more about that step and the surrounding steps. TAS envisions that a taxpayer or representative will be able to input the number of an IRS letter or notice and generate a pop-up window that provides key relevant information, including where in the process the taxpayer is and what the next steps will be.

“This digital roadmap will be the culmination of many years of work and research by TAS into human cognition and learning, notice clarity, and taxpayer empowerment,” Olson said. “It is my firm belief that taxpayers must have knowledge about their rights within a bureaucracy as complex as the IRS. If only taxpayers who are represented by tax professionals have access to that knowledge, then we do not have a fair and just tax system. Thus, the digital roadmap will be a powerful tool to improve access to justice.”

The EITC report, “Earned Income Tax Credit: Making the EITC Work for Taxpayers and the Government,” examines the strengths and weaknesses of the credit as it’s currently structured and administered, and makes legislative and administrative recommendations to improve it.

“But this report is not just a research document,” Olson wrote in her preface. “It is a call to action. As we show throughout this report, the way the EITC is structured and the way the IRS is administering it often harms the very taxpayers it is intended to serve. We have made specific, common-sense recommendations to mitigate that harm and reform the administration of the EITC. All our recommendations are actionable and supported by data and research.”

The report makes a number of recommendations:

• The IRS, besides functioning as a tax collection agency, should more explicitly acknowledge it has a second mission: administering benefits programs like the EITC. The report recommends the IRS should hire employees with different skills and create a distinct set of practices and processes to carry out this second mission. While preventing improper payments is an important part of its job, the IRS should also try to make sure low-income working taxpayers receive the benefits for which they are eligible and are treated with respect and fairness. The report points out that eligible taxpayers often lose out on benefits to which they are entitled either because they don’t claim them or because they aren’t able to navigate the IRS’s audit process.
• The report suggests Congress should consider the administrability of various tax provisions, particularly family and child-related tax credits whose eligibility criteria can be hard if not impossible for the IRS to verify. When a tax provision is difficult for the IRS to administer, the provision is more prone to improper payments and could cause some taxpayers to be subject to extra scrutiny that can be especially burdensome for low-income taxpayers, causing some to give up because they don’t have the knowledge or ability to substantiate their claims.
• Congress should hold regular oversight hearings of the IRS on a permanent basis. The hearings would offer an opportunity for the IRS to identify successes and challenges with the tax laws it administers. In the case of low income tax benefits, these hearings would also provide a forum for Congress to hear directly from outside experts, including Low Income Taxpayer Clinics, return preparers, and others with insights into the challenges facing low income taxpayers and their families.
• Congress should consider redesigning the EITC to reduce fraud by separating the worker component from the family-size component of the credit and by revising the definition of a “qualifying child” to better reflect existing family relationships.
• Congress should authorize the IRS to establish minimum standards for tax return preparers and software providers to protect taxpayers and improve the accuracy of EITC claims.
• Congress and the IRS should take steps to ensure EITC compliance procedures are consistent with due process norms and fundamental taxpayer rights. These steps should include limiting the use of summary assessment authority (also known as “math error” authority) to appropriate cases based on clear criteria; updating and modernizing the summary assessment process; developing a structure for ban determinations that protects taxpayer rights; and clarifying and improving the procedures authorizing Tax Court review of ban determinations.

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