Federal housing law
0124 Publ 2104-B (PDF)
Federal housing law as enacted — verbatim and citable.
- Edition
- 2026-10-03
- Last updated
- 2026-10-04
- Jurisdiction
- United States
Official source: IRS Forms, Instructions & Publications (https://www.irs.gov/pub/irs-pdf/p2104b.pdf), retrieved 2026-10-03. U.S. Government work (17 U.S.C. § 105).
TABLE OF CONTENTS
TAS RESEARCH REPORTS
Taxpayer Opinions of IRS Individual Online Accounts and a Review of Online Accounts and Web Services Offered to Businesses and Tax Professionals by U.S. State and Foreign Country Taxing Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Study of the Two-Year Bans on the Earned Income Tax Credit, Additional Child Tax Credit, and American Opportunity Tax Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Study of Potentially Legitimate Taxpayers Who Did Not Receive a Tax Year 2020 Refund Because They Did Not Respond to an IRS Letter Requesting They Verify Their Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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TAS RESEARCH REPORTS: Online Accounts
Appendix 1¶
FIGURE 2.1.5, State Taxing Authorities and Their Websites: Businesses and Tax Professionals
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| State | Website |
|---|---|
| New York | https://www.tax.ny.gov/ |
| North Carolina | https://www.ncdor.gov/ |
| North Dakota | https://www.tax.nd.gov/ |
| Ohio | https://tax.ohio.gov/ |
| Oklahoma | https://oklahoma.gov/ |
| Oregon | https://www.oregon.gov/ |
| Pennsylvania | https://www.revenue.pa.gov/ |
| Puerto Rico | https://hacienda.pr.gov/ |
| Rhode Island | https://tax.ri.gov/ |
| South Carolina | https://dor.sc.gov/ |
| Tennessee | https://www.tn.gov/ |
| Texas | https://comptroller.texas.gov/ |
| Utah | https://tax.utah.gov/ |
| Vermont | https://tax.vermont.gov/ |
| Virginia | https://www.tax.virginia.gov |
| Washington | https://dor.wa.gov/ |
| West Virginia | https://tax.wv.gov/ |
| Wisconsin | https://www.revenue.wi.gov/ |
FIGURE 2.1.6, Countries and Their Websites: Businesses and Tax Professionals
| Country | Website |
|---|---|
| Australia | https://www.ato.gov.au/ |
| Canada | https://www.canada.ca/ |
| United Kingdom | https://www.gov.uk/ government/ |
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Appendix 2¶
Data Collection Instrument – State and Country Website Reviews
A. State or Country (if outside the United States)
B. Organization Name
C. Web Link for organization
D. Are other languages offered? If yes, please list if any in addition to English.
E. Is website available to the following user type? Choose only one and complete a separate DCI
for each .
Individual
Business
Tax Professional
F. Can an account be established on the website? Describe process for setting up account.
- Are communication preferences available?
G. Can a POA be designated on the website?
Can user view any authorization requests from tax professionals?
Can user approve and electronically sign Power of Attorney and Tax Information
Authorization for your tax professional?
- How can the POA expire?
H. Is a Terms of Service available to read?
I. Is account information available on the website?
What can be viewed?
What can be changed?
J. What communication options are available?
K. Can user receive digital copies of notices?
Can user view digital copies of notices?
Is a Notice Response option available?
L. Describe Authentication Requirements. What are the Authentication Methods?
M. Can a payment be made from the website? What payment methods are available?
Credit Card
Debit Card
Direct from Bank Account
PayPal or other online service
Other (If other, please describe)
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N. What are Payment Plan Options?
Learn about payment plan options
Apply for a new payment plan
View details of your existing payment plan
View any pending or scheduled payments
Renegotiate or Reinstate Plan
What is cost to set up plan?
O. Can a user file on the website?
Are there qualifications to file?
What are the costs to follow?
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TAS RESEARCH REPORTS: Two-Year Bans
Child Tax Credit, and American Opportunity Tax Credit¶
EXECUTIVE SUMMARY
The IRC authorizes the IRS to ban taxpayers from claiming certain refundable credits (the Earned Income Tax Credit (EITC), the Additional Child Tax Credit (ACTC), or the American Opportunity Tax Credit (AOTC)) for two years if it determines that the taxpayer claimed the credit due to reckless or intentional disregard of rules and regulations. 1 The IRS also may impose a ten-year ban on taxpayers who fraudulently claim these credits; however, it imposes the ten-year ban infrequently, and this study will focus exclusively on the twoyear ban. A review of a representative sample of cases in which the IRS imposed the bans as a result of audits closed in fiscal year (FY) 2022 or through the first eight months of FY 2023 shows the IRS often did not follow its own procedures: 2
- In 76 percent of the cases where managerial approval was required, the IRS failed to secure such
approval for imposing the ban; 3
- In 81 percent of the cases, the IRS did not adequately explain to the taxpayer why the ban was
imposed, as required;
- In 30 percent of the cases, the IRS did not previously disallow the same credit for the same reason
for which it imposed the ban; and
- At least 50 percent of the prior audits took place more than three years from when the IRS imposed
the two-year ban. 4
1 IRC § 32(k). 2 TAS did not complete the data collection instruments and associated analyses in time for the IRS to review the data. However, TAS will provide the data for IRS review upon request. 3 The confidence intervals for subsamples of the 352 cases reviewed will be provided in the Findings section. 4 Data is from a TAS review of 352 cases where the IRS implemented a two-year ban during FY 2022 or the first eight months of FY 2023, preventing the taxpayer from claiming one or more of EITC, ACTC, or AOTC for the next two tax years.
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Improperly imposed bans deprived taxpayers of significant tax benefits if they were otherwise eligible for a credit in the ensuing two years. For example, the median dollar amount of EITC for taxpayers in the sample banned from claiming this credit was $3,619. This is a significant amount of credit to lose if the taxpayer were otherwise eligible for EITC in the following two years. 5
INTRODUCTION
The EITC, enacted in 1975, is a tax credit targeted at low-income workers – primarily workers with children. It has become one of the government’s largest means-tested anti-poverty programs. During 2022, nearly 32 million eligible workers and families received almost $66 billion in EITC. 6 The ACTC, enacted in 1997, is also a means-tested tax credit available to working families. 7 Together, the EITC and ACTC lift millions of individuals and families out of poverty. The AOTC, enacted in 2009, is a tax credit for those who incur qualified education expenses. 8 The credit is available for a student enrolled at least half-time in a college, university, or other accredited post-secondary educational institution who is pursuing a degree or education credential.
The Rules for Claiming the Earned Income Tax Credit, Additional Child Tax Credit, and American Opportunity Tax Credit Are Complex, Differ From Each Other, and Were Confused With the Rules for Claiming a Dependency Exemption 9
The amount of allowable EITC and ACTC is a function of a taxpayer’s earned income or “modified adjusted gross income” and the number of “qualifying children” in the household. 10 A “qualifying child” is a person who meets age requirements, bears a specified relationship to the taxpayer, and has the same principal residence as the taxpayer for more than half the year. 11
The EITC and ACTC age requirements differ, and disabled dependents may meet the definition of a qualifying child for the dependency exemption and the EITC but not for the ACTC. 12 The dependency exemption was available not only for a “qualifying child” but also for a “qualifying relative.” 13 The amount of allowable AOTC, like the ACTC, is a function of “modified adjusted gross income,” and like the ACTC but unlike the EITC, is only partially refundable. 14
5 IRS, Compliance Data Warehouse (CDW), Individual Returns Transaction File (IRTF) (Nov. 23, 2023). This dollar amount only included the claiming of credits in the two years after the ban on the credits for which the IRS imposed the ban. 6 Id. 7 IRC § 24. 8 IRC § 25A. 9 Tax Cuts and Jobs Act (TCJA), Pub. L. No. 115-97, § 11022, 131 Stat. 2054, 2073 (2017); TCJA, Pub. L. No. 115-97, § 11041, 131 Stat. 2054, 2082 (2017) added a new credit for other dependents under IRC § 24 for a dependent who is not a qualifying child for purposes of the Child Tax Credit (CTC), significantly increased the CTC, and suspended dependency exemptions. These changes to the tax law are effective for tax years (TYs) 2018-2025. 10 See IRC §§ 32(c)(1) and 24(a) relating to eligibility to claim the credit and IRC §§ 32(b) and 24(b) for the calculation of the amount of allowable credit. 11 IRC §§ 32(c)(3), 24(c), 152(c) (providing that a qualifying child is an individual who is the taxpayer’s son, daughter, stepchild, foster child, or a descendant of any of them (e.g., a grandchild), or a child who is a sibling, stepsibling, or halfsibling of the taxpayer, or a descendant of any of them). 12 See IRC § 24(c)(1), requiring a qualifying child to not have attained the age of 17, and IRC § 152(c)(3)(B), providing an exception to the general age requirements, for purposes of IRC § 152(c)(3)(A) but not for purposes of IRC § 24, for individuals who are permanently and totally disabled. For the National Taxpayer Advocate’s recommendation that Congress remove this inconsistency, see National Taxpayer Advocate 2018 Annual Report to Congress 421 (Legislative Recommendation: Child Tax Credit: Amend Internal Revenue Code § 24(c)(1) to Conform With § 152(c)(3)(B) for Permanently and Totally Disabled Individuals Age 17 and Older), https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020/07/ARC18_Volume1_LR_10_CTC.pdf. 13 See IRC §152(a)(2), (d). A qualifying relative includes, for example, the taxpayer’s sibling, father, and mother. 14 See IRC §§ 25A(i), 24(d).
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TAS Research Reports: Two-Year Bans
Taxpayer Recklessness or Intentional Disregard of Rules and Regulations Rather Than Mere Negligence Is Required to Trigger a Ban The IRC authorizes the IRS to impose two-year bans following “a final determination that the taxpayer’s claim of credit was due to reckless or intentional disregard of rules and regulations.” 15 Neither the IRC nor Treasury regulations define the terms “reckless or intentional disregard” to impose the ban, and there is no judicial interpretation of those terms for the two-year bans. 16 However, IRS Chief Counsel guidance provides that a “taxpayer’s failure to respond (or failure to provide an adequate response) to a request for substantiation and verification of EITC does not, in and of itself, constitute reckless or intentional disregard of the rules and regulations.” 17 If the IRS determines that a taxpayer improperly claimed the EITC, ACTC, or AOTC “due to reckless or intentional disregard of rules and regulations,” then the IRS may ban the taxpayer from claiming the credit for two years.
Background The IRS has had the authority to ban taxpayers from claiming the EITC since 1997. It acquired the same authority regarding ACTC and AOTC in 2016. In 2013, the National Taxpayer Advocate raised concerns about the IRS’s practices and procedures for imposing the two-year ban on claiming the EITC. The concerns were based on IRS data showing that the IRS frequently – almost 40 percent of the time – imposed the ban without making the statutorily required determination about the taxpayer’s state of mind. A 2013 TAS study of a representative sample of two-year ban cases found:
The IRS frequently – 19 percent of the time – imposed the ban solely because the EITC had been disallowed in the previous year;
The IRS often – 69 percent of the time – did not obtain managerial approval before imposing the ban, as required by its own procedures; and
Almost 90 percent of the time, neither IRS work papers nor communications to the taxpayer contained an adequate explanation of why the IRS imposed the ban. 18
15 IRC §§ 32(k)(1)(B)(ii), 24(g)(1)(B)(ii), and 25A(b)(4)(a)(ii)(II). Under IRC §§ 32(k)(1)(B)(i), 24(g)(1)(B)(i), and 25A(b)(4)(a)(ii)(I), the IRS is also authorized to impose a ten-year ban on taxpayers who fraudulently claim these credits, but it imposes the ten-year ban infrequently (e.g., audits of 2016 returns resulted in the imposition of ten-year bans on 162 taxpayers). IRS, Compliance Data Warehouse, Individual Master File. 16 “Neither the statutes nor the regulations thereunder cross reference any other Code section or regulations that contain similar language.” National Taxpayer Advocate 2019 Annual Report to Congress vol. 2, at 244 (Study of Two-Year Bans on the Earned Income Tax Credit, Child Tax Credit, and American Opportunity Tax Credit), https://www.taxpayeradvocate.irs.gov/wp-content/ uploads/2020/11/ARC19_Volume1_TRRS_02_EITCban.pdf. 17 IRS Service Center Advice 2002-45051, Request for Significant Service Center Advice Earned Income Credit (Nov. 8, 2002), https://www.irs.gov/pub/irs-wd/0245051.pdf. 18 National Taxpayer Advocate 2013 Annual Report to Congress 103 (Most Serious Problem: Earned Income Tax Credit: The IRS Inappropriately Bans Many Taxpayers from Claiming EITC), https://www.taxpayeradvocate.irs.gov/wp-content/ uploads/2020/08/2013-ARC_VOL-1_S1-MSP-9.pdf. The National Taxpayer Advocate renewed her concerns in 2019. See National Taxpayer Advocate Fiscal Year 2020 Objectives Report to Congress vol. 3, at 44 (Special Report: Earned Income Tax Credit: Making the EITC Work for Taxpayers and the Government, Improving Administration and Protecting Taxpayer Rights), https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020/08/JRC20_Volume3.pdf.
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IRS Procedures Require Auditors’ Work Papers to Contain a Detailed Explanation for Imposing a Ban, Managers Must Approve Bans, Auditors Must Speak to Taxpayers Who Are Being Audited for the First Time Before Imposing a Ban, and the IRS Must Explain to the Taxpayer Why It Is Imposing a Ban Following the publication of TAS’s research findings from the 2013 study on two-year EITC bans, the IRS revised the Internal Revenue Manual (IRM) to provide guidance to auditors about when to impose bans. 19 Both the current version of the IRM and the 2013 version require auditors who propose the two-year ban to note in their work papers, with more than just a cursory explanation, the reason for the decision. 20 However, the IRM explicitly directs auditors to review the documentation submitted by the taxpayer and determine whether to impose a ban based on law, the taxpayer’s documentation, and research on IRS databases, including work papers for the prior year examination. 21
Both the current version of the IRM and the 2013 version require the auditor’s manager to approve the imposition of a ban. 22 However, the current IRM explicitly directs managers to review the entire case file and ensure that the work papers properly document the decision and reason to impose or not impose a ban. 23 Managers are also required to ensure that the decision to assert the ban is warranted and record approval of the ban on the IRS Correspondence Examination Automation Support (CEAS) database. 24
One current IRM provision that was not part of the 2013 IRM requires the auditor to speak with the taxpayer before imposing the ban if this is the taxpayer’s first audit regarding the disallowed credit and the taxpayer has responded to the audit. 25 Another IRM provision that was not part of the 2013 IRM requires auditors to “[w]rite an 886-A explanation to the taxpayer clearly explaining the reason for the assertion of the 2-year ban.” 26 Form 886-A, Explanation of Items, is a schedule or exhibit to audit reports.
At the conclusion of the audit, a taxpayer may agree to the proposed additional assessment and ban. If the taxpayer does not agree and does not seek a conference with IRS Independent Office of Appeals (or does not prevail in an Appeals conference), the IRS issues a statutory notice of deficiency to which it should attach the Form 886-A sent to the taxpayer. The taxpayer can request Tax Court review of the IRS’s final determination to decrease or disallow the credits, but the Tax Court may not have jurisdiction to consider whether the IRS properly imposed the ban.
19 The applicable provision in 2013, EITC 2/10 Year Ban - Correspondence Guidelines for Examination Technicians (CET), was IRM 4.19.14.6.1. That IRM is now numbered as 4.19.14.7.1 (Jan. 3, 2023), https://www.irs.gov/irm/part4/irm_04-019-014r. 20 IRM 4.19.14.7.1(2), 2/10 Year Ban – Correspondence Guidelines for Examination Technicians (CET) (Jan. 3, 2023), https://www.irs. gov/irm/part4/irm_04-019-014r. This IRM provides “Note: Do not use standard statements such as, ‘The 2-year ban is applicable because taxpayer showed intentional disregard of the rules and regulations for EIC/ACTC/AOTC.’ Proper workpaper documentation should clearly outline the audit steps taken and fully explain the decision to assert or not assert the two-year ban.” 21 IRM 4.19.14.7.1(2), 2/10 Year Ban – Correspondence Guidelines for Examination Technicians (CET) (Jan. 3, 2023), https://www.irs. gov/irm/part4/irm_04-019-014r. 22 Id. 23 Id. 24 Id. 25 IRM 4.19.14.7.1(8), 2/10 Year Ban – Correspondence Guidelines for Examination Technicians (CET) (Jan. 3, 2023), https://www.irs. gov/irm/part4/irm_04-019-014r. This IRM provides that “IF this is the first year EITC, CTC/ACTC/refundable CTC/ODC, or AOTC was audited; AND the TP has responded, you must speak with the taxpayer before you recommend assertion of the ban. Based on the information received and your conversation with the taxpayer, the taxpayer shows they had prior knowledge of the rules and regulations for claiming one or more of the credits, but chose to take it anyway; THEN Assert the ban on each of the credits to which it applies, and include the specific details that showed the taxpayer had prior knowledge of the rules and regulations.” The IRM does not define what constitutes a first-time audit. 26 IRM 4.19.14.7.1(5), 2/10 Year Ban – Correspondence Guidelines for Examination Technicians (CET) (Jan. 3, 2023), https://www.irs. gov/irm/part4/irm_04-019-014r.
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Once the ban has been imposed, the IRS must send the taxpayer Notice CP 79A, We Denied or Reduced One or More of the Credits Claimed on Your Tax Return and Applied a Two-Year Ban. 27 Notice CP 79A advises the taxpayer, “You don’t need to take any action at this time,” but it contains information on claiming the credits on future returns and refers the taxpayer to an IRS webpage for additional information. 28
TAS Conducted a 2019 Study to Determine the Impact of Changes the IRS Made to the Procedures for Imposing the Two-Year Ban To evaluate the effect of these changes, TAS conducted a research study in 2019 on imposing the two-year ban on taxpayers who claimed the EITC, ACTC, or AOTC. 29 A review of a representative sample of cases in which the IRS imposed the bans as a result of audits of tax year (TY) 2016 returns shows the IRS often did not follow its own procedures:
In 53 percent of the cases, the auditor did not secure required managerial approval for imposing the ban;
In 82 percent of the cases, the auditor did not adequately explain to the taxpayer why it imposed the ban as required;
In 61 percent of the cases in which the auditor was required to speak to the taxpayer before imposing the ban, no such conversation took place; and
In 54 percent of the cases in which taxpayers submitted documents, it appeared from the documents submitted that the taxpayer believed they qualified for the credit.
TAS tried to leverage its findings in this study to persuade the IRS to change its two-year ban procedures for EITC, ACTC, or AOTC credits, including:
That a prior audit must address the same rule under consideration in the current audit; and
That the IRS should not consider a prior audit of a refundable credit that the IRS conducted more than three years from the date of the current audit.
Unfortunately, the IRS declined to adopt these changes.
RESEARCH QUESTIONS
A 2013 TAS study demonstrated that the IRS often imposes EITC bans in error, and the IRS made some adjustments to its procedures due to that study. In 2019, TAS conducted a research study to evaluate the impact of these changes and determined that several issues in the 2013 study remained. A primary objective of this study is to determine if these issues persist, resulting in the continuation of erroneous bans.
27 IRM 4.19.14.7.1(6), 2/10 Year Ban – Correspondence Guidelines for Examination Technicians (CET) (Jan. 3, 2023), https://www.irs. gov/irm/part4/irm_04-019-014r (providing that “[w]hen the case closes and the ban is being imposed, Master File will mail CP 79A to the taxpayer explaining that the 2-year ban was applied and what they need to do in the future”). 28 IRS, Understanding Your CP79A Notice, www.irs.gov/cp79a (last visited Jan. 18, 2024). On this webpage, the answer to the question “What do I need to do if I disagree with the two-year ban?” is “You may request a reconsideration of the audit. In your request, send us information that shows you are entitled to the credits for the audited year, or information that shows your claim for the credits wasn’t due to reckless or intentional disregard of rules and regulations.” 29 National Taxpayer Advocate 2019 Annual Report to Congress 244 (Study of Two-Year Bans on the Earned Income Tax Credit, Child Tax Credit, and American Opportunity Tax Credit), https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020/08/ARC19_ Volume1_TRRS_02_EITCban.pdf.
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- Overview a. How many two-year bans has the IRS imposed during FY 2022 or through the first eight months
of FY 2023 for EITC, ACTC, and AOC? How does the number of two-year bans imposed in FY 2019 compare to the number imposed in FY 2023? b. What are the income characteristics of taxpayers subjected to bans?
Overall, how often did the IRS impose bans even though the taxpayer either did not participate in the audit or mail to the taxpayer was returned undeliverable?
How often is the required managerial approval obtained before the ban is imposed?
How often is there an adequate explanation on Form 886-A of why the IRS imposed the ban as required by IRS procedures?
How often did the statutory notices of deficiency adequately explain the imposition of the two-year ban?
How often did the examiner’s work papers state the reason the IRS imposed the two-year ban?
How often does it appear from documents taxpayers submit that they believe they qualify for the credit?
Did the IRS impose the two-year ban consistently when there was a prior disallowance and were prior disallowances for the same reason for which the IRS imposed the ban?
METHODOLOGY
In our 2013 study, we calculated the number of two-year bans according to when the ban appeared on IRS databases. 30 In our 2019 study, we provided data about the population of taxpayers on whom the IRS imposed a two-year ban as a result of an audit of a TY 2016 return. Our population for this current study included any taxpayer on whom the IRS imposed a two-year ban between FY 2022 and the first eight months of FY 2023. 31 To learn more about how the IRS imposes two-year bans, TAS Research extracted a random, statistically valid sample of cases in which the IRS imposed a ban on one of the credits, preventing the taxpayers from claiming the EITC, ACTC, or AOTC for the next two years as the result of an audit of one or more of these credits. We selected an original sample of nearly 400 cases; however, the final data collection only included 352 cases after omitting cases where we could not locate the complete case record and a few cases where the reviewer recorded the Taxpayer Identification Number incorrectly, preventing the ability to merge the sample results with other systemically available data, such as the amount of claimed refundable credit(s), the taxpayer’s income, or other characteristics of the audit.
TAS used a data collection instrument (DCI) that was very similar to the DCIs used in TAS’s 2013 and 2019 studies. TAS utilized nine reviewers from its Systemic Advocacy function to review the cases. All reviewers reviewed the same five cases to both ensure the adequacy of the DCI and to ensure the reviewers answered the DCI questions consistently. Subsequently, TAS Research held discussions with the reviewers to determine why inconsistencies occurred with the reviews of these five cases and to make appropriate changes to the DCI. After the reviews of these five cases, the reviewers reviewed three more cases to ensure that with the updated DCI the reviewers were consistently answering the DCI questions. After ensuring the DCI reviews were being conducted consistently, TAS Research provided about 40 cases to each reviewer.
30 See, e.g., National Taxpayer Advocate 2018 Annual Report to Congress 91 (Most Serious Problem: Improper Earned Income Tax Credit Payments: Measures the IRS Takes to Reduce Improper Earned Income Tax Credit Payments Are Not Sufficiently Proactive and May Unnecessarily Burden Taxpayers), https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020/07/ARC18_Volume1_ MSP_06_ImproperEarnedIncome.pdf; National Taxpayer Advocate 2013 Annual Report to Congress 103 (Most Serious Problem: Earned Income Tax Credit: The IRS Inappropriately Bans Many Taxpayers from Claiming EITC), https://www.taxpayeradvocate.irs. gov/wp-content/uploads/2020/08/2013-ARC_VOL-1_S1-MSP-9.pdf. Updates in IRS databases allow us to identify the tax year at issue in audits that triggered a two-year ban. 31 The eighth month of FY 2023 was the most recent data available at the time we extracted the population of taxpayers where the IRS had imposed the two-year ban.
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The reviewers completed their reviews using a DCI created in SharePoint. The completed reviews were compiled into an Excel file, and this data was merged with other data, such as the audit project and tracking codes. The final sample of 352 was sufficient to project the sample results to the entire population of 3,153 returns where the IRS proposed a two-year ban in FY 2022 or through the first eight months of FY 2023, and it is statistically valid at the 95 percent confidence level with a margin of error of plus or minus five percent. If we are discussing a subset of the sample, we will footnote the confidence level and margin of error for that analysis. We will also report on some characteristics of the taxpayers in the sample, including the average income level of the taxpayers and the amounts of the credits claimed prior to the IRS audit disallowance and subsequent two-year ban.
FINDINGS
Overview In FY 2023, the IRS imposed the two-year ban against 2,724 taxpayers for improperly claiming the EITC, ACTC, or AOTC (or some combination thereof) compared to imposing the ban on 1,850 taxpayers in FY 2019 – a 47 percent increase. 32 The IRS often has imposed the ban against two or more credits claimed by the same taxpayer, most commonly EITC and ACTC. Figure 2.2.1 shows the imposition of the ban on the EITC, ACTC, or AOTC (or some combination thereof) in FY 2023 compared to FY 2019.
FIGURE 2.2.1, Comparison of Volumes of Two-Year Bans Imposed on EITC, ACTC, or AOTC, FYs 2019 and 2023 33
| Fiscal Year | Any of the Three Bans |
EITC Two-Year Ban |
ACTC Two-Year Ban |
AOTC Two-Year Ban |
|---|---|---|---|---|
| 2019 | 1,850 | 1,603 | 274 | 129 |
| 2023 | 2,724 | 1,423 | 2,481 | 216 |
| Percent Change | 47% | -11% | 805% | 67% |
As Figure 2.2.1 illustrates, the IRS’s imposition of the ban on taxpayers for improperly claiming the ACTC skyrocketed in FY 2023 to 2,481 taxpayers compared to just 274 in FY 2019 – an 805 percent increase.
Out of the 352 cases reviewed, taxpayers had a median adjusted gross income (AGI) of $18,501.
32 While the number of taxpayers receiving a ban increased 47 percent, the number of credits for which the ban was imposed increased 105 percent. 33 The FY 2023 row includes only those two-year bans imposed during FY 2023. Bans imposed in the last four months of FY 2023 were not included in the sample, as it was extracted prior to the completion of FY 2023.
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TAS Research Reports: Two-Year Bans
In 46 Percent of the Cases in Which the IRS Imposed Bans, the Taxpayer Either Did Not Participate in the Audit or Mail Sent to the Taxpayer Was Returned as Undeliverable IRS records may designate an account as “no show/no response” to indicate that the taxpayer did not participate in an audit, or the account may carry the notation that mail sent to the taxpayer was returned as undelivered. Out of the 352 cases reviewed, 162 taxpayers (or 46 percent) never responded to the audit, and only 16 percent of the no-responses were classified as undeliverable mail ( i.e., the audit notices were returned to the IRS). 34 The 46 percent is a significant increase from the results of the 2019 study, which had a no-response rate of only 19 percent. 35
Under its own procedures, the IRS may consider the taxpayer’s failure to respond to the audit notice as a reason for imposing the two-year ban when the IRS imposes the two-year ban systemically. Out of the 352 cases reviewed, the IRS systemically imposed the two-year ban 123 times, meaning in these cases the taxpayer’s failure to respond could be considered by the IRS as a reason for imposing the ban. Seventy-two of the 123 systemically proposed ban cases (59 percent) were no show/no response cases. The question is whether this procedure results in an appropriate determination.
Required Managerial Approval of the Bans Was Often Lacking The IRS imposed the two-year ban systemically in 123 out of 352 cases, or 35 percent of the time. Under procedures set out in the IRM, the IRS did not have to obtain managerial approval where the IRS imposed the ban systemically. This means that in the remaining 229 cases, the IRS was required to obtain managerial approval. However, out of the 229 cases reviewed, no managerial approval was obtained in 174 cases, or 76 percent. 36 This is a significant increase from the 54 percent finding in the 2019 study. 37
Form 886-A, Explanation of Items, Often Did Not Contain an Adequate Explanation of Why the IRS imposed the Ban as Required by IRS Procedures As Figure 2.2.2 shows, the explanation in Form 886-A was deemed inadequate in the majority of the cases reviewed.
34 Data discussed in the remainder of this section of this study was determined by a TAS review of 352 cases where the IRS implemented a two-year ban during FY 2022 or through the first eight months of FY 2023, preventing the taxpayer from claiming one or more of EITC, ACTC, or AOTC for the next two tax years. Note: the data in this particular finding, which was based on the data TAS collected from its DCI, was slightly different than the IRS’s data on the no-response rate for these cases found on the IRS’s Audit Information Management System. 35 National Taxpayer Advocate 2019 Annual Report to Congress 249 (Study of Two-Year Bans on the Earned Income Tax Credit, Child Tax Credit, and American Opportunity Tax Credit), https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020/11/ARC19 Volume1_TRRS_02_EITCban.pdf. 36 To satisfy the managerial approval requirements, the CEAS database must indicate that the manager has reviewed the file and agrees with the auditor’s proposal to impose the ban. See IRM 4.19.13.7.1.1, Supervisory Approval of Bans (Apr. 6, 2022), https://www.irs.gov/irm/part4/irm_04-019-013r. The margin of error for this subsample is 5.4 percent at the 95 percent confidence level. 37 National Taxpayer Advocate 2019 Annual Report to Congress 249 (Study of Two-Year Bans on the Earned Income Tax Credit, Child Tax Credit, and American Opportunity Tax Credit), https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020/11/ARC19 Volume1_TRRS_02_EITCban.pdf.
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FIGURE 2.2.2
Description of Form 886-A Statement About Why the Ban Was Proposed
183
Canned Insufficient Sufficient No Statement Unable to Determine
Of the 352 taxpayers in the sample, 349 were sent Form 886-A. 38 Out of these 349 cases, the explanation to the taxpayer on Form 886-A was deemed inadequate 81 percent of the time. Form 886-A had a canned statement in 48 percent of the cases. In five percent of the cases, the form had a canned statement along with some other explanation. Only 18 percent of the 349 Forms 886-A had a sufficient statement explaining the issue. The 2019 study determined that Form 886-A had an inadequate explanation 84 percent of the time. 39
Examples of canned statements (no specific taxpayer information) provided to the taxpayer are:
Example 1: Based upon the information we have available, we propose that you should be restricted from receiving the earned income credit for the following two years. This two-year ban is asserted for the reckless or intentional disregard of the rules and regulations regarding the EITC under Internal Revenue Code section 32(k)(1)(B)(ii).
Example 2: We determined that you recklessly or intentionally disregarded the rules and regulations when you claimed the child tax credit, additional child tax credit, or credit for other dependents. Under Internal Revenue Code section 24(g)(1), you are restricted from receiving any of these credits for the two tax years after the most recent tax year of our final determination. If you claim any of the credit(s) after the two-year restriction expires, you must complete and include Form 8862 with your tax return. If you claim the credit(s) and include Form 8862, we will determine if you are entitled to the credit(s). We will delay any refund until we make the determination and may contact you for additional information. If you do not include Form 8862 with the first tax return on which you claim the credit(s) after the twoyear restriction expires, we will disallow the credit(s).
38 Out of the 352 cases in the sample, in two cases the Form 886-A was not sent, and in three cases it could not be determined if the Form 886-A was ever sent to the taxpayer. Thus, it could be determined that a Form 886-A was sent in 347 cases. 39 National Taxpayer Advocate 2019 Annual Report to Congress 251 (Study of Two-Year Bans on the Earned Income Tax Credit, Child Tax Credit, and American Opportunity Tax Credit), https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020/11/ARC19_ Volume1_TRRS_02_EITCban.pdf. These results are within the margin of error of both samples at the 95 percent confidence level.
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TAS Research Reports: Two-Year Bans
In the Majority of Cases, the Statutory Notice of Deficiency Either Did Not Inform the Taxpayer Why the IRS Imposed the Ban, Provided Only a Canned Statement, or Provided an Original Statement That Was Insufficient Out of the 352 cases reviewed, the IRS issued statutory notices of deficiency in 281 cases. As Figure 2.2.3 illustrates, the explanation of the issue received by the taxpayer in the statutory notice of deficiency was typically insufficient or not included.
FIGURE 2.2.3
Description of Statutory Notice of Deficiency Statement
About Why Ban Was Proposed
153
Canned or Insufficient
No Statement Sufficient
Out of the 281 issued, 148 used canned statements, and five cases used original statements that were deemed insufficient for explaining the disallowance and why the IRS imposed the ban for a total of 153 cases, or 54 percent. 40 The IRS did not include an explanation of the disallowance or ban in 90 cases, or 32 percent, of the 281 statutory notices of deficiency. Only 38 out of the 281 cases, or 14 percent, contained sufficient statements. 41
Examiners’ Work Papers Did Not Always Clearly State Why the IRS Imposed the Two-Year Ban Out of the 352 cases reviewed, in 161 cases (46 percent) the examiners’ work papers had no statement as to why the IRS imposed the ban. In 54 (15 percent) of the 352 cases, the work papers indicated that the same credit had been disallowed in a prior year.
40 The margin of error for this subsample is 5.6 percent at the 95 percent confidence level. 41 The margin at the 95 percent confidence level is no more than 5.8 percent for this subsample of 281 cases.
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Sometimes Taxpayers Provided Documents to the IRS Showing They Believed They Qualified for the Credit Taxpayers submitted some of the requested documents in 85 of the 352 cases, or 24 percent of the time. This is far lower than the 65 percent finding in the 2019 study. 42
The IRS Inconsistently Imposed the Ban When There Were Prior Disallowances on the Credit and Frequently Imposed the Ban Even When a Prior Disallowance Was for a Different Reason for Which the IRS Applied the Ban Figure 2.2.4 shows when the IRS did or did not impose the ban on either the EITC, ACTC, or AOTC and whether there was a prior disallowance associated with imposing a ban or the lack thereof.
FIGURE 2.2.4
Two-Year Bans and Prior Disallowances
Earned Income Tax Credit
Ban
No Ban
Ban
No Ban
Ban
No Ban
16 60 105
Additional Child Tax Credit
46
49 51
American Opportunity Tax Credit
No Prior Disallowance Prior Disallowance - Different Reason Prior Disallowance - Same Reason
As Figure 2.2.4 illustrates, there are inconsistencies about when the IRS applies or does not apply the ban. For example, out of the 352 cases reviewed, no ban was applied in 105 cases (30 percent) even though there was a prior disallowance for the same reason for which the EITC was being audited. Additionally, the figure illustrates the IRS imposed the ban in several cases, even though the prior disallowance was for a different reason for which the IRS imposed the ban. Specifically, in 107 of the 352 cases (30 percent), the IRS did not previously disallow the same credit for the same reason for which the ban was imposed.
42 National Taxpayer Advocate 2019 Annual Report to Congress 254 (Study of Two-Year Bans on the Earned Income Tax Credit, Child Tax Credit, and American Opportunity Tax Credit), https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020/11/ARC19_ Volume1_TRRS_02_EITCban.pdf.
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Figure 2.2.5 shows the proximity of the prior audit resulting in a disallowance to the year in which the IRS imposed the ban.
FIGURE 2.2.5
Years Elapsed From Prior Audit Disallowance for Same Reason
Earned Income Tax Credit Additional Child Tax Credit American Opportunity Tax Credit
<=2 3-5 >=6
Prior audits resulting in a disallowance for EITC, ACTC, and AOTC took place three years or more prior to the imposition of the ban more than 50 percent of the time.
CONCLUSION
The IRS does not follow its own procedures when imposing the two-year ban. In a large number of cases, the auditor never obtained managerial approval when imposing the ban and failed to provide taxpayers with an adequate explanation as to why it was imposing the ban. Additionally, the IRS was inconsistent in imposing the two-year ban when considering prior disallowances. In over a quarter of the cases, it is unclear why the IRS imposed the ban, as there was no prior audit of any of the credits for which the two-year ban can be imposed ( i.e., EITC, ACTC, or AOTC). And, in more than half the cases where there was a prior audit of one of these credits, the audit occurred more than three years from when the IRS imposed the ban.
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RECOMMENDATIONS
The National Taxpayer Advocate recommends that the IRS:
Require managerial review and approval of all language in Form 886-A and the statutory notice of deficiency explaining the reason for the two-year ban.
Only impose a ban where the prior audit addresses the same rule under consideration in the current audit.
Not consider a prior audit of a refundable credit conducted more than three years from the date of the current audit.
In cases where the IRS imposes the two-year ban systemically, make additional attempts to reach the taxpayer when the taxpayer has not responded to the audit notice before considering the taxpayer’s failure to respond as reckless or intentional disregard of the rules and regulations.
Require IRS managers to conduct regular reviews of employees' cases and imposition of the two-year ban to ensure that they are following all IRS procedures.
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TAS RESEARCH REPORTS: Potentially Legitimate Taxpayers Not Receiving Their Refunds
Year 2020 Refund Because They Did Not Respond to an IRS Letter Requesting They Verify…¶
EXECUTIVE SUMMARY
This brief report summarizes a recently implemented TAS Research study on taxpayers likely eligible for refunds the IRS froze because of suspected identity theft. 1 Each year, the IRS freezes millions of refund returns with characteristics indicative of a potential identity thief having filed the return. However, about half of these returns are false positives and are authenticated by the legitimate taxpayer as properly filed returns. 2 Since 2021, the IRS only sends a single letter asking the taxpayer filing a return suspected of identity theft to authenticate their identity and verify their tax return information before it will release the claimed refund. 3 But each year, some taxpayers wait months to complete this process with the IRS, and many other taxpayers contact TAS months after they should have received their refund to find out where it is; others do not know or understand why they never received their refund check.
TAS believes many legitimate taxpayers may be entitled to refunds still frozen and continue to be in limbo while the IRS has not processed their returns. As IRS procedures only require one letter notifying the taxpayers of a possible issue, TAS is exploring the effect of sending subsequent letters to a sample of likely legitimate taxpayers. The letter offers TAS assistance for taxpayers to aid in the completion of the IRS identity verification process for their tax year (TY) 2020 refund, which remains frozen by the IRS. TAS mailed these outreach letters in early December 2023 and will send a follow-up letter in early January 2024 to those
1 The methodology to identify the population of likely legitimate filers was discussed with the IRS prior to its use. At the completion of the study, TAS will share the results with the IRS for its review and validation. 2 This study does not focus on taxpayers who are victims of identity theft refund fraud; rather, the focus is on taxpayers who filed legitimate returns but never responded to the IRS letter requesting the taxpayer authenticate their identity. For a discussion of the delays faced by taxpayers who were victims of tax-related identity theft refund fraud, see National Taxpayer Advocate 2023 Annual Report to Congress 78 (Most Serious Problem: Identity Theft: Lengthy Issue Resolution Delays and Inadequate Notices Burden Taxpayers Who Are Victims of Identity Theft or Whose Returns the IRS Has Flagged for Possible Identity Theft), https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2024/01/ARC23_MSP_06_Identity-Theft.pdf. 3 As a result of paper shortages and the significant increase in fraudulent returns during the pandemic, the IRS made the decision to only send a single notice in 2021 (generally affecting TY 2020 returns) requesting the taxpayer verify their identity. Notes from Systemic Advocacy and Refund Integrity and Compliance Services Executive call (Oct. 26, 2021) (on file with TAS).
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taxpayers who did not respond to the first outreach letter. TAS will track both the number of respondents and whether the taxpayer could successfully verify their identity and tax return information to release the frozen refund. TAS will report the results of this study in a future report.
INTRODUCTION
This report describes a TAS project recently initiated to determine if taxpayers with characteristics indicating likely eligibility for their claimed TY 2020 refund are indeed legitimate taxpayers entitled to the refund. The requested funds remain frozen because the taxpayer did not respond to an IRS letter requiring identity verification. On December 1, 2023, TAS mailed letters to nearly 4,000 taxpayers likely to be eligible for the refund from their TY 2020 return. 4 This letter offered the taxpayer TAS assistance with completing the IRS identity verification process. The taxpayer will be required to meet all IRS identity verification criteria but can work with TAS to walk them through the process to free up their refunds. TAS will send a follow-up letter to those taxpayers who do not respond to our first letter within about 30 days. This study will determine the percentage of taxpayers likely eligible for their frozen refunds who respond to the TAS letter, and of these individuals, how many can successfully verify their identity.
Beginning in 2021, the IRS began a procedure of only issuing one letter requesting the taxpayer authenticate. Unless special circumstances exist, such as the taxpayer resides in a federally declared disaster zone or the taxpayer requests the IRS reissue a request to authenticate identity letter, the IRS continues to only send a single letter requesting the taxpayer authenticate their identity before the IRS will issue the claimed refund. 5
TAS believes that the results of this study will help determine whether lack of taxpayer response to the IRS’s single letter requesting identity verification is often indicative of an illegitimate refund claim. Alternately, the results may show many of these returns are legitimate refund claims, strongly indicating the IRS needs to take additional actions to ensure it processes returns and sends refunds to legitimate taxpayers. If this study shows that many taxpayers are entitled to their originally claimed refund, the IRS may use this data to help modify its filters selecting refund returns likely submitted by identity thieves or modify its procedures for notifying taxpayers.
BACKGROUND
Through September 29, 2021, the IRS had selected 3.7 million returns into its Taxpayer Protection Program (TPP) because of suspected identity theft. The vast majority of these pertained to TY 2020 returns. 6 In calendar year 2021, the IRS suspected legitimate refund returns of being submitted by identity thieves over 60 percent of the time. 7
The IRS continues to hold TY 2020 refunds (generally submitted in 2021) because the taxpayer never responded to the IRS’s single letter notifying them of the need to authenticate their identity within 30 days before the refund would be released. When there is no response to the IRS letter requiring verification, the IRS presumes the refund is being claimed by an identity thief and continues to hold the refund and takes no further action. While the IRS will ultimately archive a return when a taxpayer response is not received, it generally does not complete the archiving process until the year after the return was initially due.
4 The criteria to determine likely legitimate taxpayers is described later in the Methodology section. 5 Internal Revenue Manual (IRM) 25.25.6.1.7, Taxpayer Protection Program Overview (Nov. 22, 2023), https://www.irs.gov/irm/part25/ irm_25-025-006r. IRM 25.25.6.6.2, Procedures for when the Caller Has Not Received or Lost the Taxpayer Protection Program (TPP) Letter (May 23, 2023), https://www.irs.gov/irm/part25/irm_25-025-006r. 6 IRS, Wage and Investment (W&I) Business Performance Review (BPR) Q3, FY 2021 (Nov. 2021). 7 IRS, W&I BPR Q3, FY 2023 (Aug. 2023).
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TAS Research Reports: Potentially Legitimate Taxpayers Not Receiving Their Refunds
Each year, thousands of legitimate taxpayers contact the IRS after the 30-day time period specified in the letter. Figure 2.3.1 depicts the number of TY 2020 returns where the taxpayer authenticated their identity well after the return filing or issuance of the IRS letter requesting authentication. Eventually, most of these taxpayers received their refunds, but some are still waiting for the IRS to finish processing their return and associated refund.
FIGURE 2.3.1, TY 2020 Returns Determined to Be Legitimate After the IRS Archived the Return Because of No Response to the IRS Request for Identity Authentication 8
| Tax Year | Number of Accounts Reversed With Refund |
Average Processing Time in Months for Taxpayer to Authenticate Identity |
Median Refund Amount |
|---|---|---|---|
| 2020 | 19,261 | 20 | $1,915 |
Figure 2.3.1 shows that thousands of legitimate taxpayers took an average of 20 months to authenticate their identity so that they could receive their TY 2020 refund. 9 At this time, we do not know why taxpayers waited so long. It could be they never received the letter, the taxpayer could have moved, the letter was returned undeliverable, the taxpayer did not understand what was required, or the taxpayer did not comply with the authentication criteria. 10
Taxpayers are often unaware of the IRS letter requesting the taxpayer authenticate their identity before their refund would be released and continue to wait for the processing of their refunds. TAS opens many cases each year from taxpayers who do not understand why they have not received their claimed refund.
These occurrences establish that legitimate taxpayers may not authenticate their identity for many months after the IRS froze the refund. Therefore, the concern that a sizeable number of taxpayers never contact the IRS to authenticate their identity, even though they are the rightful individual, is not unreasonable. The IRS should consider taking additional steps to verify the taxpayer’s identity.
OBJECTIVES
- Determine the percent of taxpayers who will respond to a TAS outreach letter offering to assist them
with navigating the IRS identity authentication process to receive a claimed refund, which is still frozen by the IRS.
- Determine the percent of respondents to TAS’s outreach letter offering to assist the taxpayer with the
IRS identity authentication process who can successfully complete the authentication process and quantify the amount of refunds issued as a result of taxpayer responses to the TAS letter.
8 IRS, Compliance Data Warehouse (CDW), Individual Master File (IMF) (Dec. 2023). The IRS generally archives frozen refund returns after not receiving a response from its letter requesting the taxpayer authenticate their identity. Taxpayers who respond to the IRS after it archives the return must wait for the IRS to establish the archived return on the Individual Master File. The average time is computed from the received date of the tax return to the input of the first transaction code (TC) 972 action code (AC) 124 or 129. The actual average time for a taxpayer to authenticate may be longer. In some cases, the IRS inputs a TC 972 AC 124 or 129 although no other actions are taken, and many months later inputs a new TC 972 AC 124 or 129 and then issues the refund. 9 The IRS archives frozen refund returns after not receiving a response from its letter requesting the taxpayer authenticate their identity. Taxpayers who respond to the IRS after the return is archived must wait for the IRS to establish the archived return on the Individual Master File. IRM 25.25.6.7.1, Taxpayer Protection Program (TPP) Assistors, Taxpayer Assistance Center (TAC) Assistors, and Identity Theft Victims Assistance (IDTVA) Assistors MFT 32 Reversal Criteria & Procedures (May 23, 2023), https://www.irs.gov/ irm/part25/irm_25-025-006r. 10 The IRS destroys letters to authenticate if returned as undeliverable. IRM 25.25.5.2.1.2, General Correspondence Identity Theft Response (Oct. 6, 2022), https://www.irs.gov/irm/part25/irm_25-025-005r.
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METHODOLOGY
TAS Research identified a population of individual taxpayers whose TY 2020 return triggered the fraud filters, and the IRS held the refund due to potential identity theft. These taxpayers, however, received their refund claimed in TY 2021, which indicates the possibility that identity theft was incorrectly identified in TY 2020, and the taxpayer did not respond to IRS notices and follow the remedial procedures for the IRS to release their TY 2020 refund. We also used several other characteristics and supporting data points to identify and refine the population of taxpayers most likely to be eligible for the refund still being held by the IRS. Criteria incorporated in the methodology include:
The taxpayer claimed a refund in both TYs 2020 and 2021.
Taxpayer must be 18 or older and with no taxable Social Security entered on Form 1040, unless the taxpayer’s age is at least 62.
There is no processing code on the taxpayer’s account that indicates identity theft case resolution is complete.
Wages from the Form W-2 for the primary or secondary taxpayer must be greater than zero.
Withholding specified on the taxpayer’s return must be no greater than $100 more than the taxpayer’s withholding shown on their Form W-2. 11
The taxpayer has not submitted Form 14039, Identity Theft Affidavit, and the taxpayer’s TY 2020 original return has not posted to the IRS Master File.
From the identified population, we created a stratified random sample by state and territory in combination with adjusted gross income (AGI) percentile ranges. The sample included nearly 4,000 taxpayers, 100 of whom were designated as a Spanish-speaking taxpayer or household.
TAS crafted an outreach letter, which was sent to the sample of taxpayers on December 1, 2023. 12 TAS provided taxpayers receiving these letters with a telephone number to contact the Local Taxpayer Advocate office in the District of Columbia for assistance with navigating the IRS identity authentication process. TAS began receiving calls and opening advocacy cases in response to its outreach letter on December 11, 2023. A follow-up letter was sent to non-respondents to the first letter during the first week of 2024.
ANALYSIS AND DISCUSSION
As indicated, we incorporated the specified criteria, indicative of returns with a high likelihood that the claimed refund was legitimate, identifying a population of over 88,000 individual taxpayers. These taxpayers reported a median AGI of less than $7,500 and claimed over $500 million in total unreceived refunds with a median refund of about $1,800. 13 Over a quarter of these taxpayers claimed the Earned Income Tax Credit (EITC) with a median EITC claim of more than $400. As these data points show, a substantial number of taxpayers with low or modest incomes likely in need of claimed refunds and credits are affected by the IRS’s broad identity theft filters and potential gaps in customer service.
11 Higher withholding reported on the tax return relative to the Form W-2 may be a greater indication of identity theft. 12 The TAS outreach letters were two-sided with an English and Spanish version of the text on opposing sides of the letter. 13 IRS, CDW, Individual Returns Transaction File and IMF (Sept. 2023). The average refund amount is over $5,500.
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TAS Research Reports: Potentially Legitimate Taxpayers Not Receiving Their Refunds
CONCLUSION
The primary purpose of this study is to determine if legitimate taxpayers are not receiving the refund to which they are entitled due to IRS fraud filters freezing their accounts and withholding payment. Specifically, TAS is exploring whether taxpayers will respond to TAS’s outreach letter offering assistance with navigating the IRS’s identity authentication process so they can receive their TY 2020 refund. The study will explore the frequency with which taxpayers receiving the letter respond to TAS, how often respondents can successfully complete the IRS identity authentication process, and the amount of money refunded to taxpayers. TAS understands that the IRS has a difficult task trying to prevent the issuance of refunds to identity thieves while also ensuring that legitimate taxpayers receive their refunds. But the IRS’s identity theft filters have consistently resulted in a high false positive rate, forcing many taxpayers with valid returns to complete verification steps they may not understand or that they require assistance in resolving. IRS procedures assume the taxpayer received the one letter it sent requesting the taxpayer contact the IRS to verify their identity.
Through our outreach efforts, TAS can better determine the frequency with which the IRS is denying legitimate taxpayers the refunds they deserve. While taxpayers need to be willing to respond to IRS letters requesting identity authentication, the IRS must ensure that it takes all steps necessary to ensure legitimate taxpayers receive and respond to these requests. TAS is concerned that the IRS’s single letter requesting the taxpayer authenticate their identity, which the IRS is not even sure the taxpayer received, is not sufficient effort. To add even more complexity, for the past three years, taxpayers with questions about verifying their identity have faced extremely low levels of service on the IRS’s TPP line. 14 Taxpayers have the rights to quality service, to pay no more than the correct amount of tax, and to a fair and just tax system . TAS has concerns that the IRS procedures do not adequately protect taxpayers’ rights.
14 The IRS’s Levels of Service on its TPP line for fiscal years 2021, 2022, and 2023 were 13.2, 12.6, and 31.0 percent, respectively. IRS, Joints Operations Center Snapshot Reports: Product Line Detail (weeks ending Sept. 30, 2021; Sept. 30, 2022; Sept. 30, 2023).
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www.TaxpayerAdvocate.irs.gov/AnnualReport2023
Publication 2104-B (Rev. 1-2024) Catalog Number 39588J Department of the Treasury Internal Revenue Service www.irs.gov