A few relatively minor changes to Form 1040 could yield improvements in preventing common taxpayer errors, the Treasury Inspector General for Tax Administration (TIGTA) said in an audit. Analyzing the approximately 7 million math error notices the IRS sends annually, TIGTA homed in on some of the most frequent taxpayer mistakes that it said could be attributed in part to confusing wording and design of the form.
For example, the exemption amount line (line 42 in the 2008 form) is not clearly labeled, TIGTA pointed out. Unlike the itemized or standard deduction line above it or the taxable income line below it, the line has no heading to denote that it applies to most taxpayers. And in several recent years, its purpose has been obscured by preferences for providing shelter to victims of Hurricane Katrina (2005 and 2006) and “Midwestern displaced individuals” (2008). Thus, for 2005, it read, “If line 38 is over $109,475, or you provided housing to a person displaced by Hurricane Katrina, see page 37. Otherwise, multiply $3,200 by the total number of exemptions claimed on line 6d.”
TIGTA found that errors associated with the line more than doubled during the two years it contained the Katrina clause but returned to their former level when wording close to that of the pre-2005 form was restored. (In 2004, the line read, “If line 37 is $107,025 or less, multiply $3,100 by the total number of exemptions claimed on line 6d. If line 37 is over $107,025, see the worksheet on page 33.”) TIGTA suggested labeling the line with a boldface heading “Exemptions” and putting the exemption formula before any provisions relating to natural disasters (although still prefaced by the phaseout threshold).
Also confusing to many taxpayers is box 6 for listing dependents for whom they are claiming exemptions. It includes check boxes for the child tax credit but without any indication of the differences in eligibility between qualified dependents and children for whom the child tax credit may be claimed. For the latter, the chief qualification is age (under age 17 at the end of the tax year). Although a note refers taxpayers to an instructions page where this requirement is made clear, errors could be reduced by also specifying beside the check boxes the eligibility cutoff year of birth for the child tax credit, TIGTA said, such as, for tax year 2008, “must be born after 1991.” In the same box, a warning that a Social Security or individual taxpayer identification number (ITIN) is required for each dependent could cut down the number of entries lacking one or entries of “applied for” (which was permitted in some situations before 1998).
TIGTA suggested that these and similar cautions and warnings could be highlighted with red ink. Eleven out of 20 state tax return forms TIGTA surveyed used color to highlight important features. But at least for the foreseeable future, the federal Form 1040 will stick to black with light blue shading. In the mid-1990s, appropriations for the Treasury Department restricted the IRS to the two colors, apparently in response to the full-color cover artwork on the 1040 package in 1995. The cover received “negative publicity” at the time, TIGTA said. Therefore, adding red would literally require an act of Congress, TIGTA conceded. The IRS said it will study better use of bolding and shading with the two colors it has. The other recommendations it mostly agreed with, although the Service noted that members of a few religious groups, such as the Amish, may be exempted from the SSN/ITIN requirement.
The report did not say whether TIGTA’s analysis distinguished between paper and electronic filings.
—Paul Bonner is a JofA senior editor. His e-mail address is pbonner@aicpa.org.
