While the individual income tax filing season ended Monday, Treasury and the IRS will continue gathering feedback as part of efforts over the past year and looking ahead to make the tax system more equitable and fair, according to Treasury's Equity Action Plan: One Year Progress Report released last week.
The report documents the department's participation in the Biden administration's policy initiative outlined in January 2021 by an Executive Order on Advancing Racial Equity and Support for Underserved Communities Through the Federal Government. Each federal department and agency was ordered to recognize and work to redress inequalities in its policies and programs that hinder equal opportunity. The order called for reports from each agency in one year, with plans to address barriers to full and equal participation in government programs and agency procurement and contracting.
The executive order also calls for more and better data on federal programs' operation and effects in terms of race, ethnicity, gender, and other characteristics, which the Treasury report specifically identifies as a goal.
Treasury reported on five areas of equity action under its purview, of which one was to ensure the tax system promotes a fair economy and that all Americans receive benefits for which they are eligible.
In discussing potential barriers to equity in taxation, Treasury said its Office of Tax Policy (OTP) has been working to develop reliable models for gathering taxpayer demographic data and analyzing its implications for tax policy and administration.
"Because data on race and ethnicity are not collected as part of the tax system, OTP is working with agencies across the federal government to pursue several approaches simultaneously," the report stated.
The data will then be used to validate statistical studies at the microdata level where legally feasible, while respecting "long-standing data protection protocols to prevent disclosure of taxpayer information," and in the aggregate where necessary. Practically, such data will figure in published studies beginning later this year of the racial, ethnic, and other demographic characteristics of recipients of the first two rounds of economic impact payments (EIPs) distributed by the IRS in 2020. Results on the third round of EIPs in 2021 will follow next year.
The data will help inform tax policy as it is being made by legislation and guidance and its administration, to better implement existing laws.
"An analysis of how the tax code affects different race and ethnic groups is central to understanding the consequences, both intended and unintended, of the nation's tax laws," Treasury said.
Treasury listed EIPs among its accomplishments so far under the action plan, noting that the IRS distributed more than 170 million EIPs totaling more than $400 billion.
Treasury also highlighted the IRS's work to implement and administer provisions of the American Rescue Plan Act (ARPA), P.L. 117-2, particularly, for the 2021 tax year, its expanded child tax credit (CTC) and earned income tax credit and advance payments of the CTC. Also, it pointed to the department's and IRS's efforts to promote the credits' being claimed by individuals in underserved communities who are not otherwise required to file a tax return. This outreach effort included more than 250 partner events regarding the CTC, online materials and toolkits, and free tax preparation days in nearly 30 cities in summer 2021.
The report also noted that, under ARPA, "many families in Puerto Rico are eligible for the full CTC benefit for the first time." Many Puerto Ricans are not required to file income tax returns, however, so outreach to taxpayers there "will require significant engagement" going forward, the report stated.
Separately on Monday, the IRS issued a statement noting that Puerto Rican taxpayers with qualifying children and no tax liability will be able to claim the CTC on 2021 returns long after the end of filing season.
"In fact, families who don't owe taxes to the IRS can file their 2021 tax return and claim the Child Tax Credit for the 2021 tax year at any point until April 15, 2025, without any penalty," the IRS stated. The Service also said it had already been "deeply engaged" in efforts on the island with a "broad range of community organizations" to promote the tax credit.
And in all of the United States, now that tax season for 2022 is concluded, Treasury will "listen and receive feedback on the impact and efficiency of outreach efforts" from community organizations, state and local governments, and other federal agencies. It will work with providers of volunteer income tax preparation programs and "philanthropic supporters" and coordinate these groups to share information about the volume and amount of benefit received by low- and middle-income families. The data also will be used to identify opportunities to "further strengthen future outreach and disbursements areas."
— To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.