RFI Capability Statements.docx

Request for Information In support of IRS Inflation Reduction Act Strategic Operating Plan Initiative 1.9 Help taxpayers understand and claim appropriate credits and deductions m Background Over the course of the last several decades Congress has given the IRS responsibility for delivering certain incentives through tax credits and deductions, including to small businesses and individuals. We recognize that to deliver on this mandate from Congress, we must incorporate the appropriate delivery of these incentives into every aspect of the IRS. Several IRS education and outreach programs facilitate taxpayer awareness, but many taxpayers remain unaware of tax credits and deductions for which they are eligible or face other barriers that deter them from claiming appropriate credits and deductions. For example, the IRS estimates that 21% of all eligible taxpayers did not claim the Earned Income Tax Credit in TY 2019.

To address this, the IRS Strategic Operating Plan for FY2023-2031 includes a designated focus on helping taxpayers understand and claim appropriate credits and deductions (IRA SOP Initiative 1.9). The IRS will remove barriers to claiming tax credits for eligible individuals and small businesses, including those who are not required to file tax returns, while maintaining robust measures to prevent inadvertent errors, fraud, and abuse. The IRS will expand outreach, education, and partnerships to help taxpayers access appropriate tax credits and deductions and to coordinate credit and deduction delivery across the IRS. The IRS will also review internal policies, processes and procedures to reduce barriers and burdens for taxpayers to claim appropriate credits and deductions. The IRS also seeks to measure uptake by eligible individuals and small businesses and estimate the share of eligible individuals and small businesses who do not claim their credits and deductions.

Although the IRS is accepting submissions with respect to all credits and deductions, we are particularly interested in responses directed towards credits and deductions having an impact on small businesses and underserved communities (including low income and gig workers), such as:

· Refundable credits directed towards lower-income individuals and other underserved communities (including Earned Income Tax Credit, Child Tax Credit, Premium Tax Credit, Saver’s Credit);

· Credits and deductions targeted towards supporting education (including American Opportunity Tax Credit, Lifetime Learning Credit, Educator Expense Deduction, Student Loan Interest Deduction);

· Credits and deductions that support the small business community including gig-economy workers and new business (including Work Opportunity Credit, Employer Social Security/Medicare Taxes Paid on Employee Tips Credit, Small Employer Pension Startup Costs Credit, Self-Employed Health Insurance Deduction, and Home Office Deduction).

Descriptions of these provisions and eligibility can be found in the appendix.

Responses Sought The IRS is seeking expert input to advance the goals of this initiative and enhance evaluation and learning processes in support of the Evidence Act. We’ve outlined three primary categories for which we are seeking responses: Barrier Analysis, Impact Assessment and Use of External Data.

For all responses, please include overviews of your capabilities and any prior experience that demonstrates your qualifications for completing the work of any submission for which you may want to work on with the IRS. Additional response criteria for each of the solicitation categories are also included, below.

Response Format: Please specify which categories you are submitting response(s) for, including Barrier Analysis, Impact Measurement, External Data, or Other Suggestion. Provide separate responses for each. We encourage each respondent to be concise and recommend (but do not require) responses be under 1,200 words (~2 pages) with 5-10 pages to present work product and capabilities (per response category). Both text as well as visual/graphic formats are acceptable. Please submit response emails to alicia.m.miller@irs.gov and (Procurement POC) with the subject “Response to RFI: IRA 1.9” by December 10, 2023.

Response Categories:

1) Barrier Analysis: Identify and evaluate barriers for claiming credits or deductions.

The primary focus is understanding what may prevent someone from claiming a credit or deduction for which they are eligible, ultimately leading to a taxpayer to pay more in taxes or receive lower refunds. We acknowledge that barriers may include language deficiencies, access to quality preparation services, financial constraints, trust in government, or other challenges related to tax law (numerous provisions, complexity in eligibility, etc.). Questions we may ask are whether it is a lack of awareness that the credits exist, a lack of understanding about eligibility, or some other reason?

Response Criteria: In your response, please include (a) a short description of the taxpayer population(s) on which you would focus (with eligibility for one or more of the aforementioned credits or deductions), (b) how you would approach identifying and uncovering barriers (focus groups, survey, etc.), and (c) how you would identify participants and engage this population (as appropriate) to better understand barriers.

In highlighting capabilities, also include examples of past performance in similar work and/or initiatives working with relevant populations. Populations may include low-income taxpayers, small businesses, or “gig” workers.

2) Behavior Change and Impact Assessment: Recommendations for an experimental design and/or evaluation strategy to measure impact of expanded IRS outreach and community engagement, where the impact would be increased credit claiming among eligible taxpayers or a given taxpayer group shows an improved experience with the process of claiming credits. Experimental designs and evaluation methodologies could address one or more of the following: direct-contact outreach, communications by third-party partners (such as state, federal, and local government agencies or corporate industry such as trade groups or employers) (for instance, a veterans group sending information to veteran members, on behalf of the IRS), in-person community educational events, or use of social media and/or other media advertisements. Responses may also include how you would apply behavioral insights to test various messaging, delivery methods, and timeframes to build evidence on the most effective strategies.

One example of program activities with a variation: The IRS previously delivered educational campaigns on refundable credits during filing season, beginning in January. The IRS is considering launching new campaigns coinciding with the release of software preparation services three-four months earlier (October-December). Your response might include how best to evaluate these campaigns and provide insights on the best timing, messaging, and overall marketing strategy with the goal of maximizing compliant claiming (from current filers as well as non-filers).

Response Criteria: Responses may, but do not need to, include proposed messages. We do want to see ideas for evaluating impact. In your response, please include (a) the type of program activity/activities that could be measured, (b) proposed metrics or methodology for impact assessment, and (c) what data would be needed and/or collected. Please include (d) any other details on potential activities (including how the IRS would structure outreach and communications) that would support these.

3) Use of External Data: Use of external data to assess taxpayer uptake (and underclaims) of credits or deductions. A preference would be given to existing data collection, but we will accept submissions for new data collection, as applicable.

Response Criteria: Please include (a) the data source, (b) how one would acquire it, (c) any information you may have regarding acceptable use of the data (such as details listed in agreements that would be signed when the data is collected), and (d) how you would use this to assess take-up (such as the extent of underclaims).

4) Other Suggestion: In the coming year, we will be considering opportunities to extend work toward other populations within the underserved community and/or additional credits and deductions. If you have evidence of barriers or challenges for other taxpayer groups on filing and credit claiming, we welcome additional submissions and capability statements around understanding barriers and improving compliant uptake of credits and deductions beyond our initial focus areas outlined above.

The IRS identified the following underserved communities in the Taxpayer First Act Report to Congress: taxpayers with limited English proficiency; Native American communities; members of the armed forces; taxpayers with disabilities, including taxpaying populations needing special assistance due to sight, hearing, dexterity, limited mobility, and cognitive challenges; elderly taxpayers; low-income taxpayers; taxpayers living in rural communities; and international taxpayers.

APPENDIX

The following are a selected set of credits and deductions identified for an initial focus area for barrier evaluation and communications. (The IRS may have separate efforts for other credits, such as clean energy, outside of the purpose of this RFI.) Provisions and eligibility criteria are found on subsequent pages.

Key Refundable Credits

· Earned Income Tax Credit

· Child Tax Credit

· Premium Tax Credit

· American Opportunity Tax Credit

· Savers Credit and Savers Match

Key Non-Refundable Credits

· Residential Clean Energy Credit

· Energy Efficient Home Improvement Credit

· Work Opportunity Credit

· Employer Social Security/Medicare Taxes Paid on Employee Tips

· Small Employer Pension Startup Costs

· Lifetime Learning Credit

· Employer Differential Wage Payment

Key Deductions

· Educator Expense Deduction

· Student Loan Interest Deduction

· Self-Employed Health Insurance

· Trade or Business Expense Deductions

· Startup Expense Deduction

· Home Office Deduction

Key Refundable Credits

§32 Earned Income Tax Credit

· Have worked and earned income under threshold amount adjusted annually.

· Have investment income below threshold (2023-$11,000)

· Have a valid Social Security number by the due date of your 2023 return (including extensions)

· Be a U.S. citizen or a resident alien all year.

· Not file Form 2555, Foreign Earned Income

· Meet certain rules if you are separated from your spouse and not filing a joint tax return

§24 Child Tax Credit

· Dependents generally must meet the definition of a qualifying child as defined in IRC § 152(c) with an exception for certain noncitizens and with a different age requirement: the child must not have attained the age of 17. See below:

· Be under age 17 at the end of the year.

· Be your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these (for example, a grandchild, niece or nephew)

· Provide no more than half of their own financial support during the year.

· Have lived with you for more than half the year.

· Be properly claimed as your dependent on your tax return.

· Not file a joint return with their spouse for the tax year or file it only to claim a refund of withheld income tax or estimated tax paid.

· Have been a U.S. citizen, U.S. national or U.S. resident alien

§36B Premium Tax Credit

· Paid your share of Marketplace insurance premiums.

· Have household income that falls within a certain range.

· Do not file a tax return using the filing status of Married Filing Separately.

· There is an exception to this rule for victims of domestic abuse and spousal abandonment.

· Cannot be claimed as a dependent by another person.

· Meet these additional requirements: In the same month, you or a family member:

· Have health insurance coverage through a Health Insurance Marketplace for which the share of the premium not covered by advance credit payments is paid by the due date of your return.

· Are not able to get affordable coverage through an eligible employer-sponsored plan that provides minimum value.

· Are not eligible for coverage through a government program, like Medicaid, Medicare, CHIP or TRICARE.

· Modified for 2021 – If you, or your spouse (if filing a joint return), received unemployment compensation for any week during 2021, your household income is considered to fall within the lowest range eligible for PTC and therefore receive the maximum amount of PTC.

§25A American Opportunity Tax Credit

· Must have paid qualified education expenses for higher education.

· Must have paid the education expenses for an eligible student.

· The eligible student is either you, your spouse, or a dependent whom you claim on your tax return.

To claim the full credit, modified adjusted gross income (MAGI) must be less than a threshold amount, ($80,000 or less for individuals or $160,000 or less for married filing jointly) adjusted annually. The credit begins to phase out above the threshold limits and disappears entirely if MAGI is above a certain limit (2023 - $90,000 for individuals and $$180,000 for MFJ)

§25B & §6433 Saver’s Credit & Saver’s Match

The saver's match offers a 50% match that doesn't change based on your income among those who qualify for the match. The Saver's Match will replace the Saver's Credit in 2027, changing from a credit paid as part of a tax refund into a federal matching contribution that must be deposited into a taxpayer's IRA or retirement plan. The match program is equal to 50% of IRA or retirement plan contributions, up to $2,000 per individual.

Of course, the final qualification is that you make a contribution to a retirement account. There's lots of flexibility here because a wide range of retirement accounts are included: traditional and Roth IRA, traditional and Roth 401(k) or 403(b), governmental 457(b) plan, SIMPLE and SEP IRAs, as well as TSPs.

Upcoming- Saver’s match goes into effect in 2027.

Key Non-Refundable Credits

§25D Residential Clean Energy Credit

You can't claim the credit if you're a landlord or other property owner who doesn't live in the home.

You may be able to claim a credit for certain improvements made to a second home located in the United States that you live in part-time and don't rent to others. You can't claim a credit for fuel cell property for a second home or for a home that is not located in the United States.

Note: The credit is limited to the tax owed, but any unused credit may be carried forward to tax owed in future years.

Credit Amount- Bonus

N/A

For years prior to 2022, the credit percentage has varied. The credit percentage was 30% for property placed in service in 2018 and 2019. The credit percentage was 26% for properly placed in service in 2020 and 2021.

§25C Energy Efficient Home Improvement Credit

qualified energy efficiency improvements installed during the year, residential energy property expenses, and home energy audits from 2023 through 2032.

NOTE: The credit is limited to tax owed. Any unused credit may not be carried forward.

Credit Amount- Bonus

N/A

Prior to 2023, this credit had a lifetime limitation of $500. The credit equals 10% of certain qualified expenses such as insulation material, exterior doors, metal or asphalt roof, and exterior windows and skylights with a credit limit on windows ($200). In addition, the credit is allowed for the cost of certain expenses, with limits, for energy-efficient building property ($300), qualified natural gas, propane, or oil furnace or hot water boiler ($150), and advanced main air circulating fan ($50).

§51(a) Work Opportunity Credit

· Veteran

· Non-Veteran

· Long-term unemployed

· SNAP recipients.

· Temporary Assistance for Needy Families (TANF) recipient

· Long-Term Family Assistance recipient who are members of a family that have received TANF benefits for at least 18 consecutive months.

· Supplemental Security Income recipients

· Vocational rehabilitation referrals

· Ex-Felons

· Designated community residents

· Summer Youth program participants who are 16-17 years old, work between May 1 and September 15, and live in a designated community area.

· WOTC is non-refundable, meaning the business must have a tax liability against which to use the credit.

· Unused credit can be carried back one year and carried forward for 20 years.

WOTC is authorized until December 31, 2025.

Credit Amount- Bonus

N/A

§45B Employer Social Security/Medicare Taxes Paid on Employee Tips

1. Had employees who received tips from customers for providing, delivering, or serving food or beverages for consumption if tipping of employees for delivering or serving food or beverages is customary.

2. During the tax year, paid or incurred employer social security and Medicare taxes on those tips.

To be eligible for the credit, restaurants must determine that all non-exempt employees are compensated at least the federal minimum wage for hours worked. If the state that the restaurant resides in has a higher minimum wage rate, the higher wage applies. Compensation may be totaled from different types of compensation received, such as hourly wages, tips and gratuities that the staff member records, and meals that are provided by the restaurant to the employee. (*NOTE, several states do NOT allow the tip tax credit to be taken at all)

§45E Small Employer Pension Startup Costs

· You had 100 or fewer employees who received at least $5,000 in compensation from you for the preceding year.

· You had at least one plan participant who was a non-highly compensated employee (NHCE); and

· In the three tax years before the first year you’re eligible for the credit, your employees weren’t substantially the same employees who received contributions or accrued benefits in another plan sponsored by you, a member of a controlled group that includes you, or a predecessor of either.

· $500; or

· The lesser of:

· $250 multiplied by the number of NHCEs who are eligible to participate in the plan, or

· $5,000.

Credit Amount- Bonus

§25A Lifetime Learning Credit

· Be enrolled or taking courses at an eligible educational institution.

· Be taking higher education course or courses to get a degree or other recognized education credential or to get or improve job skills.

· Be enrolled for at least one academic period beginning in the tax year.

· There are income limitations that change yearly, which result in phase outs and disallowance of the credit if exceeding a certain dollar amount of Modified Adjusted Gross Income. (2023-$90,000 S/HoH/Qualified Surviving Spouse with Dependent or $180,000 for MFJ)

· You cannot claim the credit if:

· You’re claimed as a dependent on another person’s tax return,

· Your filing status is MFS,

· You (or your spouse) were a nonresident alien for any part of the tax year and didn't elect to be treated as a resident alien for tax purposes, or

· The student has not been issued a TIN by the due date of their tax return (including extensions).

§45P Employer Differential Wage Payment

· The employer must have made payments to an individual with respect to any period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days, and

· The payments represent all or a portion of the wages the individual would have received from the employer if the individual were performing service for the employer.

· Eligible payments are limited to $20,000 per employee.

Key Deductions

§62(a)(D)(2) Educator Expense Deduction

§221 Student Loan Interest Deduction

§162(l) Self-Employed Health Insurance

NOTE: The amount of the allowable deduction cannot exceed the total cost of premiums paid minus the allowable Premium Tax Credit.

§162 Trade or Business Expense Deductions

§195 Startup Expense Deduction

Taxpayers can elect to expense up to $5,000 of business startup expenses. The $5,000 deduction is reduced by the amount of total startup costs that exceed $50,000

· It's a cost a business could deduct if they paid or incurred it to operate an existing active trade or business, in the same field as the one the business entered into.

· It's a cost a business pays or incurs before the day their active trade or business begins.

§162, 280A Home Office Deduction

NOTE: Partners may claim the home office as unreimbursed ordinary and necessary expenses paid on behalf of the partnership if required to pay these expenses under the partnership agreement.