Shulman Promotes EITC as Help for Taxpayers Stung by Recession

By George.Yaksick, Jr., CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, Jan. 30, 2009.

IRS Commissioner Douglas H. Shulman repeated his pledge on January 30 to help taxpayers struggling during the recession and highlighted the Earned Income Tax Credit (EITC) as one way for qualifying individuals to pay less tax or get a refund. “We want to go the extra mile to ensure that taxpayers who are eligible for the EITC take the credit,” Shulman, who spoke during an IRS teleconference with reporters, said.

Refundable Credit

The EITC is a refundable credit for lower to moderate income working individuals and families. When the EITC exceeds the amount of taxes owed, it results in a refund to taxpayers who claim and qualify for the credit

The maximum credit for the 2008 tax year is $4,824 for a family with two or more children, $2,917 for a family with one child, and $438 for a qualifying single taxpayer. Income thresholds also apply. The pending American Recovery and Reinvestment Act (H.R. 598) would enhance the EITC for taxpayers with three or more qualifying children.

“Last year, 24 million Americans received nearly $48 billion from the EITC,” Shulman said. Nonetheless, one in four eligible taxpayers fails to claim the EITC each year. “The IRS wants eligible taxpayers to claim this credit.” The Service will open many of its Taxpayer Assistance Centers on Saturdays in February to help individuals with the EITC, he added.

Shulman emphasized that some individuals may be eligible for the EITC for the first time because of job loss or other reductions in income. “This is a significant credit that can make their lives a little easier.”

Refund Anticipation Loans

CCH asked Shulman if individuals may lose some of the EITC’s benefit if their refunds are refund anticipation loans (RALs). An RAL is a short-term loan, usually from five to 14 days, based on the taxpayer's expected refund. After the IRS processes the return and issues a refund, the IRS transfers the refund directly to the bank to repay the loan. The fees and interest rates charged by RAL providers have generated criticism from consumer advocates.

Shulman told CCH that individuals who use the Service’s taxpayer assistance centers and its Volunteer Income Tax Assistance (VITA) program would never be sold a RAL. “RALs are not something the IRS promotes.

“With the IRS Customer Account Data Engine (CADE), individuals who e-file their returns will receive their refunds in five days,” Lynn A. Schmidt, EA, Winter Haven, Fla., told CCH. Even with normal e-file processing, refunds are typically generated in 10 days, Schmidt said. These faster processing times should help to dim enthusiasm for RALs.

Recession

As layoffs increase and the economy falters, more taxpayers may find themselves unable to meet their federal tax obligations. Shulman said that the Service will be sensitive to taxpayers struggling for the first time to be compliant. Previously, Shulman had announced that IRS employees will have greater authority to suspend collection actions in cases where taxpayers simply cannot pay because of job loss.

The IRS is also expediting the process to subordinate or remove federal tax liens for distressed taxpayers.