The downsized EITC certification pilot program.

• Author: Bauman, Christine C.
• Position: Earned income tax credit

In 2003, the IRS announced plans to undertake an earned income tax credit (EITC) certification program, targeting nearly 45,000 taxpayers in 2003 and 2 million in 2004; see Bauman, Tax Practice & Procedures, "EIC Verification Initiatives," TTA, July 2003, p. 427. However, in August 2003, the IRS announced (IR 2003-97) that it would downsize and revise its original EITC precertification program. As a result, it:

1. Delayed the program's launch date to the 2004 filing season, sending out audit notices during the last two weeks of December 2003.

2. Reduced the pilot sample size of "high-risk" taxpayers from 45,000 to 25,000 for the 2004 filing season. According to the Service, the reduced sample size was adequate to perform statistical analysis and provide an accurate assessment of the program's future course.

3. Agreed to direct additional resources to EITC outreach efforts.

4. Changed its view of the project from a precertification program to a test pilot, agreeing to seek outside expertise to validate sample selection and data. Although it remains unclear how the pilot's "success" will be measured, the IRS stated that it will carefully assess the pilot's results and performance before deciding on how to proceed with the program.

5. Introduced a revised Form 8836, Qualifying Children Residency Statement, to conduct the pilot certification. Form 8836 is required to be filed with the taxpayer's 2003 tax return, but cannot be filed electronically. The EITC portion of the taxpayer's refund is held pending review and acceptance of the taxpayer's supporting documentation of child residency.

Preliminary Findings

As of May 5, 2004, the IRS revealed that:

* Nearly 20% of the taxpayers who asked to participate in the pilot study failed to claim the EITC.

* Roughly 65% of the 25,000 pilot taxpayers had filed their returns and claimed the credit, while 15% had yet to file.

* Of the returns received, about two-thirds were still being processed (i.e., taxpayers failed to send any documentation...