Internal Revenue Service Scales Back EITC Certification Plan

Initial Internal Revenue Service (IRS) plans to "pre-certify" certain recipients of the Earned Income Tax Credit (EITC) have come under considerable criticism by advocates during the past few months. After agreeing to allow a comment period on the process and the forms, the IRS substantially modified the program. See the IRS press release.

The goal of the project remains to weed out filers who may be ineligible because they are claiming children who have not resided with them for the required six months. Concerns remain that the certification process will cause eligible filers to lose the benefits of the EITC because of confusion or the difficulty of supplying the required information.

The primary changes are:

  • The IRS will reduce the number of filers required to certify in the first pilot project to 25,000, rather than 45,000 EITC recipients. The 25,000 will be drawn from the same pool of people -- primarily filers who are not the parents of the child(ren) they are claiming.
  • Rather than require “pre-certification" beginning in August to be completed before the regular filing season, forms will be sent at the end of this year for completion with the 2003 tax forms (for the 2004 tax season). This will allow filers access to more sources of tax assistance and tax preparers. It is not clear whether this may cause delays in EITC payments.
  • The IRS will redo the "Qualifying Children Residency Statement" form and instructions to make them easier to understand and comply with.

One of the major problems with the "Qualifying Children" form is the difficulty documenting through approved sources, who probably would not have personal knowledge that any child met the six-month residency requirement. Neighbors or relatives are prohibited from serving as an approved source, even if they were child care providers, certifying that a child had resided with the filer for six months. The IRS has not yet decided whether it will accept affidavits from neighbors or relatives.

This pilot project of 25,000 will be assessed, and the IRS will proceed with a second-year certification, but the number of affected filers has not yet been determined. The IRS has also not agreed to stakeholder involvement during the assessment process.

The IRS also announced that it would expand its efforts to reduce erroneous payments to taxpayers who underreport their income or misrepresent their filing status in order to get the EITC credit.

There is some good news and some bad. The underlying question remains an issue -- why should low-income tax filers be subject to more stringent rules to certify eligibility (before issuance of their refunds) than anyone else?

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