CWLA Comments to the IRS and Treasury Department on the Earned Income Tax Credit and Kinship Families
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Pursuant to a request for comments on proposed changes in the application procedures for the Earned Income Tax Credit (EITC), CWLA submitted the following to the Internal Revenue Service and Treasury Department.
July 14, 2003
CC:PA:RU (Announcement 2003-40)
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20044
To: Internal Revenue Service and Treasury Department
The Child Welfare League of America (CWLA) submits the following comments on major changes the Internal Revenue Service has proposed, beginning this year, in the application procedures for the Earned Income Tax Credit (EITC). Certain EITC claimants raising a child would be required to "pre-certify" their eligibility by proving that the child lived with them for more than half of the year.
CWLA represents over 1,100 public and private nonprofit, child-serving member agencies across the country. Many of our members deal with the families that will be most effected by proposed IRS action. The new procedures, which would be phased in over several years, target all grandparents, uncles, aunts, and other relatives raising children who are their grandchildren, nephews, nieces, and other related children. These are the very families who represent "kinship" families in the child welfare field. In some instances, these kinship relationships are "voluntary" or arrangements that do not require formal court proceedings. Kinship care has been a growing and important option in the nation's child welfare system. According to the 2000 census, 2.4 million grandparents are taking on primary responsibility for their grandchildren's basic needs. More than six million children-approximately 1 in 12-are living in households headed by these grandparents or other relatives.
Many of these kinship families struggle economically and these are the very families your new requirements will target. These families need more support but as a result of this pre-certification, many will not apply for the EITC and will end up paying a higher income tax. According to a recent study by the Urban Institute, 31% of children in voluntary kinship care and 43% in private kinship care live in families with incomes less than the federal poverty level. All of these families, and many more families in the child welfare system, could have the Earned Income Tax Credit, a critical economic support, denied to them. We view this as harmful to a child population that needs help.
In light of this overarching concern we offer the following comments and criticisms of the IRS's proposed EITC "pre-certification."
Comment 1: Chilling Effect
We feel that the required certification could have a "chilling effect" on the families required to submit information. Realistically, these are families that have little contact with the IRS with the exception of April 15, of every year when they are required to submit their annual tax statement. To receive an IRS instruction in late summer or early fall may be quite disconcerting to the family in question playing on a potential fear of the Internal Revenue Service. If these families have access to a tax professional it is only through a local voluntary social service agency or a part-year business that provides tax advice and is open only during the first four months of each tax year. At the point you send these instructions out these families will have no where to turn for advice. The end result is they may decide not to risk what they view as a confrontation with the IRS and not apply for an EITC benefit they are eligible for and need.
Comment 2: Documentation
The IRS Form 8836 requires records from various parties that would show not just the address of said child but would also require that these records, from social service agencies, child care providers, leases, etc., provide dates the child lived with the applying adult. Many of these documents don't record time periods and such documents may only indicate residence of the child at the time a service or contact was made with the child and not a time period of when a child lived at a specific address.
Comment 3: Third Party Affidavit
The IRS specifically limits those who can offer proof of the qualifying child's residency to approximately eight individuals who would not be present in the child's home. A landlord may not even be present at or ever visit the residence of the applying family. The same is true of an employer, health care provider, member of the clergy, child care provider, or social service casework. In addition, any of these qualifying individuals will have to sign a statement under penalty of perjury. The reality is that you are asking people to swear that they know for a fact the time periods a child has lived at a residence in question. Even the most trusting of relationships between a caseworker or member of the clergy and the family in question could be tested under these requirements. As a result, there may be reluctance on the part of these third party witnesses to sign any statement on someone else's tax form. The "Proof of Residency" also limits who can offer proof of a child's residency. The most knowledgeable individual of a child's status in these families will likely be a neighbor or relative, yet they are not listed as potential "third party" affidavit signers.
Comment 4: Implementation
The IRS has indicated that it will test out this new process this summer on approximately 45,000 families and then will proceed with a much greater expansion next summer. This timetable is unrealistic and unscientific. The IRS will have to implement this test in the next few summer weeks, study the results, carrying out the normal IRS duties required at the end of the year and the first half of next year and also carefully study and implement the 2003 results through a much larger "pre-certification" by next summer. These timetables are unrealistic. We are concerned the full impact will not be known and many more families will be denied an EITC next year, despite the fact that they qualify and need the support.
Comment 5: Pre-Certification
The IRS has determined that there is an abuse of the EITC. This is not the only section of the tax code that is subject to abuse, yet the IRS has singled the EITC out for a new tax-filing requirement. This new requirement targets a specific group of low-income tax payers to qualify for a tax deduction-credit before the tax-filing period.
We would urge the IRS to use this time period to more carefully examine how great the abuse of the EITC is at this point. Some organizations have disputed or questioned the conclusions of previous studies on this matter. It is important that the IRS first determine the extent of abuse, determine how many families qualified for the EITC but do not receive it, and, based on this information, address both problems fairly and at the same time.
CWLA stands ready to assist the IRS in any outreach efforts that will help EITC-eligible families.
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