Changes should be made in the layout and typeface of 1040 individual tax forms, including more use of boldface, colors and explanations, to help reduce taxpayer errors, recommends a new government report.

The Treasury Department’s Inspector General for Tax Administration noted in the report that each year, the IRS sends out more than 7 million math error notices informing taxpayers of mistakes in their tax returns. More than 2.3 million of those errors could have resulted from unclear or inadequate forms, TIGTA noted. An analysis of taxpayer errors on 2005 tax returns identified three areas where modifying the 1040 and its instructions could reduce errors. These included errors made computing the deduction for personal tax exemptions; the omission of dependent Social Security numbers or Individual Taxpayer Identification Numbers; and children claimed for the Child Tax Credit who exceeded the age limit. 

Taxpayers made more than 210,000 errors computing their exemption amounts. Another 170,000 taxpayers failed to include their dependent’s SSN or ITIN on the 1040, and approximately 137,000 taxpayers were denied the Child Tax Credit in 2006 because the child’s age exceeded the age requirement.

“Changes to tax forms and instructions could reduce some of the errors made by taxpayers on their individual income tax returns,” said TIGTA Inspector General J. Russell George in a statement. “Moreover, simplifying the filing process for taxpayers by clarifying forms and instructions increases compliance and reduces burden.”

TIGTA recommended that the IRS use improved labeling, including boldface type to draw taxpayers’ attention to instructions. Other changes to the 1040 recommended by TIGTA include adding language explaining the purpose and description of the exemption line; a statement that an SSN or ITIN is required for each dependent claimed; and the inclusion of the qualifying age requirement necessary to claim the Child Tax Credit.

TIGTA also recommended that the IRS seek congressional approval to use additional colors on tax returns and instructions to highlight important warnings and information. Congressional approval would be needed because the IRS used multiple colors on the cover of of its 1995 tax packet and received some negative publicity. After that happened, Congress mandated in the Treasury Department Appropriations Act of 1997 that the IRS could use only two ink colors on tax packages.

In response, the IRS said it would continue analyzing common taxpayer errors and agreed to modify the language explaining the Child Tax Credit. The IRS also said it would consider how best to educate taxpayers of the need to include an SSN or ITIN for each dependent claimed as an exemption.

The IRS did not comment on the color recommendation, but noted that matters of tax policy  are within the jurisdiction of the Treasury Department's Office of Tax Policy, and a copy of the report will be forwarded to that office. However, IRS management agreed to conduct a review of where it could more effectively use shading, bolding, and other changes such as font sizes on the 1040 to highlight the most important areas.

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