Attitudes towards collection and request to file letters

Prepared for:
Canada Revenue Agency
FINAL REPORT
February 2011
POR 050-10
Contract # 46558-111001/001/CY

Prepared by:
Sage Research Corporation

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Executive Summary

To ensure that the Canada Revenue Agency (CRA) remains a trusted model of tax and benefit administration, one of the Agency's goal is facilitating compliance for for taxpayers. In support of this goal, one of the priorities of the Taxpayer Services Debt Management Branch is to enhance strategies to manage payment noncompliance, in order to increase the number of taxpayers who file and pay on time.

When an individual taxpayer's debt first enters the Collections continuum, it is assigned to a specific automated strategy that often includes the issuance of a collection letter as the first step. The goal is to resolve the debt at this early stage, avoiding the need for more resource intensive collection activities later on. For these letters to be effective, the messaging must ensure taxpayers are informed of their obligations, their rights, and the payment options available. A well written letter containing this information should also motivate the taxpayer to resolve the outstanding amount.

Similarly, when a taxpayer has not filed an individual return and enters the Compliance continuum, the account may be identified in the selection of accounts that will receive an automated request or demand to file.. Like the collection letters, the goal of issuing these requests or demands is to have the taxpayer understand their obligations and file the outstanding return.

The purpose of the research was to assess taxpayer reactions to the following letters:

• The first collection letter (Letter 17) usually sent to someone with a tax debt: Participants first reviewed and discussed the current version of this letter, and then they reviewed and discussed a proposed alternative version of this letter
• A proposed new version of the "second collection letter" (Letter 20) – i.e., the letter typically sent to someone who did not respond to the first collection letter
• A proposed new Request to File letter which combines several current versions of the letter

Eight focus groups were conducted November 16-23, 2010, in Toronto, Brampton, Halifax and Montreal. All participants had owed more than $50 in tax at the tax filing deadline two or more times in the past five years, half the participants had been late paying a tax amount and been charged interest or penalties as a result, and at least several participants in each group had filed their tax return late sometime in the past five years. It is important to note that this research was qualitative in nature, not quantitative. As such, the results provide an indication of participants' views about the topics explored, but cannot be statistically generalized to the full population.

This cost of the research was $41,532.17 (HST excluded).

Current vs. Proposed Letter 17

Most participants strongly preferred the proposed Letter 17 over the current version both in terms of tone and perceived effectiveness in motivating a person with tax debt to call the CRA.

With regard to perceived effectiveness, most participants said they would be more likely to call the CRA in response to the proposed letter than the current letter. This included participants who said they would probably have called in response to the current letter, but who said they would feel less anxious about calling in the context of the proposed letter.

The main reasons for the greater perceived effectiveness are the friendlier tone of the letter and fundamentally, the perception that the CRA agent will work with you to develop a reasonable payment plan to help you pay your taxes due. An issue with the current letter is that some perceived it as saying the CRA requires full payment immediately, and this led some to say they would not call the CRA if they did not have enough money to pay the entire amount owing.

There were also other elements of the letter cited by participants as contributing to the overall friendlier tone, including the listing of payment options on the front side of the letter, stating the CRA hours of operation, and the sentence about CRA agents that They will be pleased to help you.

Another element of the proposed Letter 17 that contributed to its greater perceived effectiveness in motivating action was the inclusion of the reference to "compound daily interest".. For many participants this added to the perceived urgency of starting to make payments because of the impression that this type of interest rapidly accumulates over time.

Participants made suggestions for changes to the proposed Letter 17, some of which were:

• Many participants suggested that the interest rate be stated – for example, so they could prioritize paying their tax bill relative to other bills. Note, though, that to the extent the CRA's interest rate is lower than that charged by other creditors that could lead to further delay in paying the tax debt.
• Some participants said the letter should state a date by which payment can be made such that no further interest would be charged.
• Some participants suggested that phone numbers be included in the body of the letter rather than at the top.

Proposed Letter 20

In the context of the scenario where a person did not respond to the "first letter" (proposed Letter 17), most participants perceived this "second letter" as very likely to now motivate action. This is because of the legal actions described in the first paragraph. These were widely seen as very serious consequences which people will want to avoid.

Many appreciated that the letter continues to offer the possibility of flexible payment arrangements that do not require paying the full amount all at once, and contains "friendly" elements such as the hours of operation and the sentence, They will be pleased to help you. Most perceived a good balance between the threat of legal action but also the CRA's continued willingness to work with the person on payment arrangements. The latter message is important to make people feel comfortable about calling the CRA even if they are unable to immediately pay the full amount.

The large majority of participants felt the tone of the letter is appropriate given that it is a "second letter" – i.e., it is perceived as appropriate to emphasize the serious legal actions that might be taken.

With regard to participant suggestions, some were the same suggestions made for the proposed Letter 17, including:

• State the interest rate.
• State a date by which payment can be made such that no further interest would be charged.
• Insert the telephone number to call in the sentence encouraging calling to discuss payment arrangements.

Examples of other participant suggestions include:

• Some participants suggested adding a telephone number in the paragraph on filing an objection to a Notice of Assessment.
• Several participants suggested a time frame be stated for when legal action might be taken, as they felt this could be a further incentive to take action.
• Several participants suggested that if their credit rating is affected by not paying the tax bill, that should be noted in the letter as that is perceived as another serious consequence.

Proposed Request to File Letter

A large majority of participants said they would probably file their return, or at least call, if they were the person in the scenario and they received this letter. There were three primary motivating elements in the letter:

• The 30-day time frame conveys concretely that the CRA wants the return to be filed "now."
• The two bullet points about the consequences of not filing within 30 days describe actions that are perceived as serious.
• The letter refers to penalties and to interest that is compounded daily, and "compound daily interest" is typically perceived as accumulating quickly.

Some participants also said the reference to receiving benefits and credits could be motivating, depending on the person's financial circumstances.

Most participants felt the tone of the letter was appropriate.

Examples of participant suggestions for changes included:

• Quite a few participants found the second sentence of the first paragraph confusing and suggested it be dropped. Your return was due by April 30 of the first calendar year following the referenced tax year or by June 15, if you or your spouse, or common-law partner, carried on a business in the tax year referenced above.
• Some participants said they might not respond to the letter if the circumstance was that they knew they owed tax for the requested year but could not afford to pay the full amount of the tax owing. They suggested this possibility be acknowledged in the letter and addressed in a manner similar to that used in the proposed Letter 17.
• Some participants suggested streamlining the text a bit by dropping the references to specific sections of the Income Tax Act on the grounds that this is not useful information for most people.
• Some participants did not immediately notice the tax year being requested. They suggested the tax year be stated in the first sentence of the letter (currently the letter refers to the tax year shown above), or, if the current format is retained, printing the tax year in bold type.

Date modified:

2011-05-26