August 08, 2019 Pro Bono Matters

The Variety of Work in Low-Income Taxpayer Clinics

By William Schmidt, Low-Income Taxpayer Clinic Director, Kansas Legal Services

This article focuses on unique aspects of low-income taxpayer clinics (LITCs) beyond case work. It hopefully introduces readers to the variety of issues that LITCs address and the way the clinics function and operate that may be somewhat surprising for those who have not been with LITCs in the past.

Do Low-Income People Have Tax Problems?

This is often one of the first questions we get concerning our clinics. Some people assume that low-income people just do not report income or would not be covered under the reporting requirements. Either way, the assumption is that these people do not file tax returns and thus have no tax problems. Problem solved and no need for this kind of clinic. Why are we wasting everyone’s time?

There are several responses to this presumption. It is important to recognize that when a taxpayer comes into the clinic, we are looking at the individual’s current income. The individual may not have enough income now and so qualifies for help from LITCs at this point, but there may nonetheless be a tax problem from earlier times that has not been resolved and is still stuck to the taxpayer. Much like a person caught in quicksand, the taxpayer needs assistance to move away from a sticky situation that cannot be ignored. One example would be a person who made a good amount of money when self-employed, never paid quarterly estimated taxes, and is now without a business, broke, and staring at IRS notices. There are people in this situation who still feel the economic impact of the Great Recession and its aftermath and have to deal with tax debts that are within the 10-year collections statute of limitations.

Furthermore, low-income people have many of the same tax problems that higher income people have. Identify theft and innocent spouse cases are just two examples of problems that arise for low-income and high-income taxpayers alike. While low-income taxpayers may present a more sympathetic case to the Innocent Spouse department, they often have similar issues as their high-income peers.

In addition, tax issues that may exist for many taxpayers can be disproportionately burdensome for low-income taxpayers. Frozen refunds, an increase in income because of IRS adjustments, or the loss of an earned income tax credit can mean the loss of needed money that could take months to resolve or never get resolved. There are often additional issues when working with the elderly, disabled and English as a Second Language clients. When we get positive results for them, it is truly satisfying.

Finally, low-income clients often need help in dealing with the tax bureaucracy. It can be difficult to navigate the waters of tax problems even for sophisticated, high-income clients, but they can generally hire the tax assistance they need. Low-income clients do not have access to such help, so LITCs are able to fill that gap. For example, it can be difficult for low-income taxpayers to gather or find the paperwork to respond to an audit. We often work as a buffer between the taxpayers and the IRS, guiding clients on what documents to provide and helping them to meet deadlines. Without that assistance, low-income taxpayers have difficulty participating in this process. The resulting tax debt and collection issues can only increase the injustices they face with poverty.

What Kind of Cases Do You Handle in LITCs?

In an earlier Tax Times article,Erin Stearns and Tameka Lester provided an in-depth review of the collection alternatives of installment agreements, Currently Not Collectible (CNC) status, and Offers in Compromise (OIC). That article details the kind of work that LITCs do to help people with little to no money deal with IRS Collections. In short, installment agreements are a payment plan and OICs are a settlement offer to the IRS. CNC status gets the account put on hold with the IRS so that IRS Collections does not take further action to collect on the debt beyond applying refunds to the debt.

LITCs deal with additional issues beyond collection alternatives when it comes to taxpayer liabilities, such as the similarly named injured spouse and innocent spouse cases. Injured spouse cases involve a joint tax return where one spouse’s refund went to pay the other spouse’s government debt: in these cases, the first spouse wants to get that part of the refund back and so files an injured spouse claim. Innocent spouse cases also involve a joint tax return, but the parties have a liability. Since joint tax returns bring joint and several liability, both spouses are liable for the debt even when one spouse dies or there has been a legal action such as a divorce or legal separation. A spouse can file for innocent spouse relief to divide the liability so that a portion or all of the liability goes from one spouse to the other. Factors the IRS uses to evaluate whether to grant relief can include the education of the parties, how involved they were with tax filing, and if there was domestic abuse during the marriage.

LITCs also assist taxpayers dealing with identity theft issues that affect their taxes. Identity theft cases usually come in two varieties, refund-related identity theft or employment-related identity theft. For refund-related identity theft, the impersonator takes a false action to try to intercept the taxpayer’s refund. For employment-related identity theft, the impersonator provides a false tax identification number, like a social security number, to an employer to get work. The problem is that the IRS may contact the person who actually has that social security number about unreported income.

Often, a client has received an IRS letter and needs assistance of some kind. For example, a taxpayer will often need assistance when there has been some form of audit or examination. It may be that the IRS states that the client has not reported all income. It also could be that the client claimed credits or deductions on a tax return for which the IRS requests proof. This begins with a client conversation to uncover the truth about the tax filing. From there, it is necessary to determine what paperwork is necessary to prove the client’s case. In a similar fashion, the client may come in and disagree with an audit’s results, asking for an audit reconsideration request. Sometimes this takes considerable one-on-one work to get the client organized well enough to convince the IRS to change its position.

When a debt such as a student loan, mortgage, or car loan is forgiven by a business, the debtor is usually happy but may not realize that the IRS treats that cancelled debt as income. LITCs often work to assist clients who were insolvent or need other assistance to deal with cancellation of debt income that has led to tax problems.

Certain notices regarding liens or levies allow for a taxpayer to file for a Collection Due Process hearing. The Collection Due Process hearing allows for further review of the taxpayer’s case by IRS Appeals and may allow for a collection alternative to be approved. If the taxpayer does not like the decision from Appeals, there is the potential to petition the Tax Court.

Some taxpayers who believe they are employees working for an employer may be shocked when a Form 1099-MISC appears, showing that the business has treated the individual as an independent contractor for tax purposes. This requires that the individual pay the associated employment taxes. That individual may want to file Form SS-8 for the IRS to make a determination of worker status for purposes of federal employment taxes and income tax withholding. LITCs can provide assistance in preparing the form.

Clinics that are able to work with non-citizens may assist with ITIN filing or helping non-citizens take care of tax issues as part of the immigration process. ITIN filing also requires the gathering of documents.

Various notices such as a Notice of Deficiency or Notice of Determination have a deadline for filing a petition with the U. S. Tax Court. The Tax Court is based in Washington, D.C. and sends judges to select cities throughout the year. While several of the kinds of cases discussed above deal with a client’s IRS issues on an administrative level, Tax Court cases involve court procedure and litigation for an entirely different type of case. LITCs can provide full representation. This year the Tax Court allows limited entries of appearance during scheduled trial sessions.2

Case work is not the only area that needs focus from LITC employees. We rely on grants from the IRS and other sources to fund our activities. The IRS grant requires that we provide outreach and education to the public regarding tax topics.That may require public speaking or writing articles. For example, in addition to this article for the Tax Times, I regularly write for the Procedurally Taxing blog on designated orders from the Tax Court. I also record and produce my own podcast about the LITC called Tax Justice Warriors. We are also required to provide grant reports at different times during the year.

Working in an LITC means being versatile because of the variety of cases. It requires tax knowledge but directing an LITC also takes administrative skills to function and be effective under the IRS grant.

What Differences Are There Between Legal Aid and Law School LITCs?

One of the largest differences between these organizations is the source of their funding. For legal aid, a major funding source other than the IRS grant is funding from the Legal Services Corporation, which has significant restrictions on use of its funding. Some examples that affect the LITC world are restrictions on aid for non-citizens and prisoners. These restrictions are detailed in a handy chart on the Legal Services Corporation website. LITCs at law schools often receive significant funding from the law school or university itself. LITCs that do not fit in those categories may be independent of these funding sources. Each funding source may or may not have restrictions that require navigating. It is always helpful when you can refer a taxpayer in a restricted subject area to another LITC that does not have those restrictions.

Another major difference is the kind of workers available for the LITC. In a legal aid environment there might not be many people who know anything about tax law. In fact, the LITC director might be a staff attorney recruited from another area to fill the slot of tax attorney. That person might not receive much training and may learn on the job what they can to represent clients with tax problems. Other attorneys are required to split their time between tax and other areas of law since there may not be sufficient funding to focus fulltime on tax.

At a law school, there are professors and students involved in the clinic. Professors have the tax knowledge and manage the cases (though some of them may also learn in trial-by-fire situations if it is not an area of their expertise). Students work the cases under the supervision of the professors in their own form of on-the-job training. Clinical work at a law school may mean that the client has to get acquainted with a new student intern each semester. The student’s tour of duty for the semester also leads to logistics difficulties to insure the student has a power of attorney allowing communications with the IRS before the semester’s end.

Of course, a main difference between law school LITCs and LITCs that are not at law schools is that the law school LITC employees and directors are often doing double duty. They not only try to manage the cases, but they also manage the students with the goal of teaching them at the same time. LITC professors might also teach a class at the law school on tax controversy work or some other tax topic.

How Does It Work When a Single LITC Covers an Entire State?

This is an area that does not affect every LITC, but one I think about fairly often. The Kansas Legal Services LITC is the only LITC for the state. In fact, there are 16 LITCs that serve their entire states.4

So the question arises—how can I provide service for everyone in Kansas from the eastern edge of the state? To be honest, I can’t. My client intakes are only a fraction of the tax issues for low-income people within my state. My clinic is relatively new (started in 2015) and I keep trying to get the word out in Kansas that assistance for tax problems is available. I try to build my clientele because I feel a responsibility as the sole LITC providing coverage.

It is also easier for me to focus on the eastern half of the state, which has the larger cities. I think it is difficult to get the word out to the western half, which is more rural and has a larger farming population.

Something that helps is the nature of tax controversy work. For work with the IRS, there may not have to be a public appearance. Often dealing with the IRS may be by phone, fax, or mail. With clients, long distance communication still often works out just as well. It is not perfect since there are some clients who would like the personal touch of an in-person meeting, but we have to work with what we can.

I have tried to make friends with the LITCs in neighboring states. It helps that we are a friendly group, so it is easy to contact another LITC for advice or networking. For example, I have two LITC neighbors in the Kansas City area on the Missouri side: Legal Aid of Western Missouri and the University of Missouri-Kansas City School of Law. It is comforting to know they are available for conference calls, collaboration, or client referrals when there is a conflict of interest.

Is There Specialization by LITCs?

Some LITCs hold conference calls to work together on specific topics. Those clinics have joined together regarding assistance for farm workers, immigrants, or Native Americans, among other groups. Depending on the state’s population and location of the LITC, that may be a major issue for an LITC’s clientele. Certain clinics are able to prepare more tax returns or ITIN applications than others. It all may depend on funding sources and the setup for the clinic.

Do LITCs Have a Need for Volunteers?

The answer is “yes!” on a couple of levels. There is always work that can be done at an LITC. We welcome volunteers and will do what we can to get them involved. A volunteer can learn about tax law, especially tax controversy work with the IRS, and gain experience.

I always tell people who want to help that they can get involved in the tax issues as much as they would like, and I will guide them through the process. If they want to get more involved, that is fine. Like some students, volunteers often would prefer to provide help that does not require much math.

For CNC status or making an OIC, it is necessary to ask for financial information from a client. It does not take special tax knowledge to get that information from a client. People from non-attorneys to the tax averse would be able to provide assistance to a tax attorney in that fashion.

Another way people providing volunteer assistance for an LITC help is in getting funding. The IRS funding requires other matching funds. A volunteer’s time counts as billable hours for those matching sources. In other words, volunteer time not only provides help with the cases, it also provides help with funding.

Those of us at LITCs appreciate the assistance the ABA Tax Section provides. We appreciate those who have volunteered their time or helped in other ways. If you want to join with those who volunteer at an LITC, we would be grateful as you give back within your community. ■

  1. Erin H. Stearns & Tameka E. Lester, Navigating IRS Collections and Presenting Special Circumstances, ABA Tax Times (Feb. 2019).
  2. U.S. Tax Court Administrative Order No. 2019-01.
  3. IRS Publication 3319 at 38-40.
  4. Publication 4134 provides that Alaska, Alabama, Delaware, Iowa, Kansas, Louisiana, Maine, Mississippi, Montana, Nebraska, New Hampshire, Oklahoma, Rhode Island, South Carolina, South Dakota, and Vermont each have only one LITC within their states. Now, those LITCs may not have the entire state within their coverage area.

Section of Taxation members can discuss this article in the ABA Tax Times Community. ➔