Most Serious Problems — Earned Income Tax Credit112
Legislative
Recommendations
Most Serious
Problems
Most Litigated
Issues
Case Advocacy Appendices
married-but-indefinitely-separated taxpayers.
49
This single IRM provision invites examiners to first disal-
low EITC by misapplying the law, and to then compound the error by imposing the two-year ban.
50
The Avenues Available to a Taxpayer to Challenge an IRS Application of the Two-year Ban Are
Procedurally Complex.
When the IRS audits a taxpayer’s return and determines to disallow claimed EITC and impose the ban,
it issues a statutory notice of deficiency which includes notice of the IRS’s determination to impose the
two-year ban.
51
The taxpayer may petition the Tax Court for review of the disallowed EITC as well as
the determination to impose the ban.
52
If the taxpayer petitions the Tax Court, he or she may bear the
burden of proving the IRS erred in imposing the ban.
53
If the taxpayer does not timely file a Tax Court
petition, the additional tax, if any, will be assessed and the two-year ban will remain uncontested. IRS
records will reflect the two-year ban, and if the taxpayer claims EITC the following year, the credit will
be automatically disallowed even if the taxpayer otherwise qualifies for it.
54
The same deficiency proce-
dures also apply to a later year’s disallowance.
55
If the taxpayer files a Tax Court petition for review of a
later disallowance due to the ban, the court may consider whether the ban was properly imposed in the
earlier year because this is relevant to determining the tax for the later year, but the court would not have
jurisdiction to redetermine the tax for the earlier year when the ban was imposed.
56
We note that the Treasury Department’s fiscal year (FY) 2014 revenue proposals would allow the IRS to
use math error authority to disallow EITC if the taxpayer claimed the credit while subject to the two-year
ban.
57
Math error authority permits the IRS to assess a tax deficiency without issuing a statutory notice
49
See, e.g., The Ohio State University Research and Innovation Communications, Marital Separations an Alternative to Divorce for Poor Couples
(Aug.13, 2012), available at http://researchnews.osu.edu/archive/maritalsep.htm (last visited Sept,12, 2013). The research, carried out by
Dmitry Tumin and Zhenchao Qian showed that 15 percent of separations did not end in either divorce or reconciliation within ten years and that
couples in these prolonged separations tended to be racial and ethnic minorities. These couples also tended to have young children. and low
family income — the very population EITC is intended to reach.
50
The error is perpetuated in the IRM audit reconsideration provisions. IRM 4.13.3.18 (Sept. 30, 2010) describes the audit reconsideration proce-
dures and makes clear that the IRS can remove the ban and reverse disallowance of the EITC. However, it provides that “[i]f the taxpayer failed
to substantiate EITC entitlement for the year that triggered the ban, the audit reconsideration will be disallowed.” The provision seems illogical
because if the taxpayer initially substantiated entitlement to EITC the IRS would have allowed the EITC and not imposed the ban. Moreover, the
provision would appear to prevent audit reconsideration of bans imposed on taxpayers who simply did not respond to IRS requests for information
or whose mail was returned as undelivered.
51
The statutory notice of deficiency, authorized by IRC § 6212, informs the taxpayer of the additional amount of tax the IRS believes he or she owes
and advises of the right to petition the Tax Court for review of that determination. IRM 4.19.14.6.1.1 (6), (11) (Jan. 1, 2013); IRM 4.13.3.18
(Sept. 30, 2010).
52
See, e.g., Garcia v. Comm’r, T.C. Summ. Op. 2013-28 (Apr. 3, 2013) for the facts contained therein; under IRC § 7463(b), the opinion is not prec-
edent for any other case.
53
Tax Court Rule of Practice and Procedure 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). The National Taxpayer Advocate recom-
mends that Congress amend IRC § 32 to clarify that the burden of showing the appropriateness of the ban is on the IRS. See Legislative
Recommendation: Allocate to the IRS the Burden of Proving it Properly Imposed the Two-Year Ban on Claiming the Earned Income Tax Credit, infra.
54
IRM 4.19.14.6.1.1 (6), (11) (Jan. 1, 2013).
55
IRM 4.19.14.6.1.1 (11) (Jan. 1, 2013).
56
IRC § 6214(b) provides that the Tax Court “in redetermining a deficiency of income tax for any taxable year or of gift tax for any calendar year or
calendar quarter shall consider such facts with relation to the taxes for other years or calendar quarters as may be necessary correctly to redeter-
mine the amount of such deficiency, but in so doing shall have no jurisdiction to determine whether or not the tax for any other year or calendar
quarter has been overpaid or underpaid.” IRM 4.19.14.6.1.3 (Jan. 1, 2007) instructs employees that if the taxpayer petitions the Tax Court, they
should provide Chief Counsel attorneys with the complete case file for the year that is the subject of the Tax Court petition as well as the year in
which the ban was imposed.
57
Budget of the United States Government, Fiscal Year 2014 212, 219, available at http://www.whitehouse.gov/omb/budget/Overview;
Perspectives, Budget of the United States Government, Fiscal Year 2014 205, available at http://www.whitehouse.gov/omb/budget/Analytical_
Perspectives.