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74–412 PS 2001

TAXPAYER ADVOCATE REPORT AND LOW-INCOME

TAXPAYER CLINICS

HEARING

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT

OF THE

COMMITTEE ON WAYS AND MEANS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

JULY 12, 2001

Serial No. 107–32

Printed for the use of the Committee on Ways and Means

(

ii

COMMITTEE ON WAYS AND MEANS

BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois

E. CLAY SHAW, JR., Florida

NANCY L. JOHNSON, Connecticut

AMO HOUGHTON, New York

WALLY HERGER, California

JIM MCCRERY, Louisiana

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JIM NUSSLE, Iowa

SAM JOHNSON, Texas

JENNIFER DUNN, Washington

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHIL ENGLISH, Pennsylvania

WES WATKINS, Oklahoma

J.D. HAYWORTH, Arizona

JERRY WELLER, Illinois

KENNY C. HULSHOF, Missouri

SCOTT MCINNIS, Colorado

RON LEWIS, Kentucky

MARK FOLEY, Florida

KEVIN BRADY, Texas

PAUL RYAN, Wisconsin

CHARLES B. RANGEL, New York

FORTNEY PETE STARK, California

ROBERT T. MATSUI, California

WILLIAM J. COYNE, Pennsylvania

SANDER M. LEVIN, Michigan

BENJAMIN L. CARDIN, Maryland

JIM MCDERMOTT, Washington

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

JOHN S. TANNER, Tennessee

XAVIER BECERRA, California

KAREN L. THURMAN, Florida

LLOYD DOGGETT, Texas

EARL POMEROY, North Dakota

ALLISON GILES, Chief of Staff

JANICE MAYS, Minority Chief Counsel

SUBCOMMITTEE ON OVERSIGHT

AMO HOUGHTON, New York, Chairman

ROB PORTMAN, Ohio

JERRY WELLER, Illinois

KENNY C. HULSHOF, Missouri

SCOTT MCINNIS, Colorado

MARK FOLEY, Florida

SAM JOHNSON, Texas

JENNIFER DUNN, Washington

WILLIAM J. COYNE, Pennsylvania

MICHAEL R. MCNULTY, New York

JOHN LEWIS, Georgia

KAREN L. THURMAN, Florida

EARL POMEROY, North Dakota

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records

of the Committee on Ways and Means are also published in electronic form. The printed

hearing record remains the official version. Because electronic submissions are used to

prepare both printed and electronic versions of the hearing record, the process of converting

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process

is further refined.

iii

C O N T E N T S

Page

Advisories announcing the hearing ........................................................................ 2

WITNESSES

Internal Revenue Service, Nina E. Olson, National Taxpayer Advocate ............ 6

Book, Leslie, Federal Tax Clinic, Villanova University School of Law ............... 41

Cohen, Alan H., Low-Income Taxpayer Clinic, Ithaca College ............................ 31

Community Tax Aid, Inc., Jeffrey S. Gold ............................................................. 60

Community Tax Law Project, Timothy B. Heavener ............................................ 48

Rich, Dixon R., Jr., Low-Income Taxpayer Clinic, University of Pittsburgh

School of Law ........................................................................................................ 36

Spragens, Janet, Federal Tax Clinic, Washington College of Law, American

University ............................................................................................................. 53

SUBMISSIONS FOR THE RECORD

Center for Law & Human Services, Chicago, IL, statement ................................ 71

Hood, Edwin T., University of Missouri-Kansas City School of Law, letter ....... 72

Tharrington, Angel, University of North Carolina at Greensboro, letter and

attachment ............................................................................................................ 73

(1)

TAXPAYER ADVOCATE REPORT AND

LOW-INCOME TAXPAYER CLINICS

THURSDAY, JULY 12, 2001

HOUSE OF REPRESENTATIVES,

COMMITTEE ON WAYS AND MEANS,

SUBCOMMITTEE ON OVERSIGHT,

Washington, DC.

The Subcommittee met, pursuant to notice, at 6:05 p.m., in room

1100 Longworth House Office Building, Hon. Amo Houghton

(Chairman of the Subcommittee) presiding.

[The advisory and revised advisory announcing the hearing follows:]

2

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON OVERSIGHT

FOR IMMEDIATE RELEASE CONTACT: (202) 225–7601

July 3, 2001

No. OV–4

Houghton Announces Hearing on

Taxpayer Advocate Report and Low-Income

Taxpayer Clinics

Congressman Amo Houghton (R–NY), Chairman, Subcommittee on Oversight of

the Committee on Ways and Means, today announced that the Subcommittee will

hold a hearing on the Taxpayer Advocate report and the Low-Income Taxpayer Clinic program. The hearing will take place on Thursday, July 12, 2001, in the

main Committee hearing room, 1100 Longworth House Office Building, beginning at 2:00 p.m.

Oral testimony at this hearing will be from invited witnesses only. However, any

individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Subcommittee and for inclusion in the printed record of the hearing.

BACKGROUND:

The position of Taxpayer Advocate was established by the 1996 Taxpayer Bill of

Rights, replacing the original Taxpayer Ombudsman that had been created by the

Internal Revenue Service (IRS) in 1979. Taxpayers suffering significant hardships

or long delays can appeal to the Taxpayer Advocate Service for assistance. The Taxpayer Advocate must submit a report each year to the Committee on Ways and

Means and identify its objectives for the coming fiscal year.

Section 3601 of the IRS Restructuring and Reform Act of 1998 established a pro- gram to grant up to $6 million to low-income taxpayer clinics. This program arose

from a 1997 recommendation by the National Commission on Restructuring the IRS

that the IRS provide financial assistance to these clinics. No clinic can receive more

than $100,000 per year; the funds must be matched by private money and each clinic must re-apply for a grant after three years.

In announcing the hearing, Chairman Houghton stated, ‘‘The Taxpayer Advocate

Service is already showing great strength in providing an independent voice for taxpayers. In addition, a true success story of the IRS Restructuring Act is the funding

for low-income taxpayer clinics, which provide valuable assistance to taxpayers having problems with the IRS.’’

FOCUS OF THE HEARING:

Congress will review the Taxpayer Advocate report in order to assess the mission

and priorities for the upcoming year. The hearing will also address the functioning

and funding of the Low-Income Taxpayer Clinic program.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

Any person or organization wishing to submit a written statement for the printed

record of the hearing should submit six (6) single-spaced copies of their statement,

along with an IBM compatible 3.5-inch diskette in WordPerfect or MS Word format,

with their name, address, and hearing date noted on a label, by the close of business

on Thursday, July 26, 2001, to Allison Giles, Chief of Staff, Committee on Ways and

Means, U.S. House of Representatives, 1102 Longworth House Office Building,

Washington, D.C. 20515. If those filing written statements wish to have their statements distributed to the press and interested public at the hearing, they may deliver 200 additional copies for this purpose to the Subcommittee on Oversight office,

3

room 1136 Longworth House Office Building, by close of business the day before the

hearing.

FORMATTING REQUIREMENTS:

Each statement presented for printing to the Committee by a witness, any written statement

or exhibit submitted for the printed record or any written comments in response to a request

for written comments must conform to the guidelines listed below. Any statement or exhibit not

in compliance with these guidelines will not be printed, but will be maintained in the Committee

files for review and use by the Committee.

1. All statements and any accompanying exhibits for printing must be submitted on an IBM

compatible 3.5-inch diskette in WordPerfect or MS Word format, typed in single space and may

not exceed a total of 10 pages including attachments. Witnesses are advised that the Committee will rely on electronic submissions for printing the official hearing record.

2. Copies of whole documents submitted as exhibit material will not be accepted for printing.

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material

not meeting these specifications will be maintained in the Committee files for review and use

by the Committee.

3. A witness appearing at a public hearing, or submitting a statement for the record of a public hearing, or submitting written comments in response to a published request for comments

by the Committee, must include on his statement or submission a list of all clients, persons,

or organizations on whose behalf the witness appears.

4. A supplemental sheet must accompany each statement listing the name, company, address,

telephone and fax numbers where the witness or the designated representative may be reached.

This supplemental sheet will not be included in the printed record.

The above restrictions and limitations apply only to material being submitted for printing.

Statements and exhibits or supplementary material submitted solely for distribution to the

Members, the press, and the public during the course of a public hearing may be submitted in

other forms.

Note: All Committee advisories and news releases are available on the World

Wide Web at ‘‘http://www.house.gov/wayslmeans/’’.

The Committee seeks to make its facilities accessible to persons with disabilities.

If you are in need of special accommodations, please call 202–225–1721 or 202–226–

3411 TTD/TTY in advance of the event (four business days notice is requested).

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.

NOTICE—CHANGE IN TIME

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON OVERSIGHT

FOR IMMEDIATE RELEASE CONTACT: (202) 225–7601

July 9, 2001

No. OV–4-Revised

4

Change in Time for Subcommittee Hearing

on Taxpayer Advocate Report and Low-Income

Taxpayer Clinics

Congressman Amo Houghton, (R–NY), Chairman of the Ways and Means Subcommittee on Oversight, today announced that the Subcommittee hearing on the

Taxpayer Advocate Report and Low-Income Taxpayer Clinics, previously scheduled

for Thursday, July 12, 2001, at 2:00 p.m., in the main Committee hearing room,

1100 Longworth House Office Building, will be held instead at 4:00 p.m.

All other details for the hearing remain the same. (See Subcommittee Advisory

rupt, but I think we would like to start the hearing on the Report

No. OV

Chairman H

–4 released on July 3, 2001.)

OUGHTON. Ladies and gentlemen, this is rather abf of the Taxpayer Advocate of the Oversight Committee.

So would you all come up here. And, frankly, if it is all right with

you, Mr. Coyne, maybe we could all come up in terms of the

panel—Ms. Olson but also Professor Book and Professor Spragens,

Professor Rich and Professor Cohen and Mr. Heavner and Mr.

Gold. I don’t know if you can all sit at that table, but if you can,

it would be great.

Again, I apologize very much. It was all Mr. Coyne’s fault. And

we are going to start this thing and end it promptly.

What I would appreciate you doing, if you could, is if there is

anybody who has to leave early—I know Mr. Coyne has to leave— that we will just put you right on after Ms. Olson.

So if that is OK, then why don’t we just start. I have just got

a couple of comments to make.

I am delighted you all are here. I thank you for your patience.

These are important hearings. Particularly we are going to review

the report of the Taxpayer Advocate, who is doing an absolutely

outstanding job, Nina Olson. You all know her. You know her reputation. She has done a great job.

Then, following Ms. Olson, we are going to have representatives

of low-income taxpayer clinics.

You probably know, if not, let me say that in 1998 Congress recognized the need to provide assistance to taxpayers who are not

able to afford proper assistance when faced with significant Internal Revenue Service (IRS) problems. So why don’t we go into our

testimony; and, Ms. Olson, if you could begin we sure would appreciate—oh, wait a minute, wait a minute. I am sorry. Mr. Coyne has

got a statement.

[The opening statement of Chairman Houghton follows:]

Opening Statement of Hon. Amo Houghton, M.C., New York, and Chairman,

Subcommittee on Oversight

Good afternoon. Our hearing today will review the report of the Taxpayer Advocate and receive the views of individuals who run clinics that assist low-income taxpayers. While these are two distinct programs within the Internal Revenue Service,

they share the common goal of assisting taxpayers with the maze of laws, regulations and procedures of our income tax system.

Our first witness, the Taxpayer Advocate, Nina Olson, also provides a unique

bridge between the activities of the Taxpayer Advocate Service and the performance

of Low-Income Taxpayer Clinics. Ms. Olson was a leader in the low-income tax

world, having established the first clinic some nine years ago.

5

We value the mission of the Taxpayer Advocate Service—that of advocacy on behalf of taxpayers. While working within the IRS structure, we expect Taxpayer Advocates to be a strong voice for the little guy. And we expect the IRS Commissioner

and the other functional units in the IRS to listen to the recommendations of the

Taxpayer Advocate.

Your key goals, advocating changes in tax law or procedures that reduce taxpayer

burden, and assisting taxpayers in resolving problems with the IRS, are ones that

we in Congress, on a bipartisan basis, strongly support. We look forward to working

with you in achieving your mission.

Our second panel today is comprised of representatives of Low-Income Taxpayer

Clinics. In 1998, Congress recognized the need to provide assistance to taxpayers

who are not able to afford proper assistance when faced with significant IRS problems.

The low-income taxpayer clinic program provides grants to law, business, or accounting schools, or to nonprofit groups providing tax assistance. This funding, a

total of only $6 million from the IRS budget, and limited to matching private funds

up to $100,000 per clinic per year, enables low-income taxpayers to receive appropriate representation when faced with disputes with the IRS. In addition, the clinics

provide important tax information to individuals for whom English is a second language.

I’m very pleased that one of our witnesses today is Professor Allen Cohen, representing the Ithaca College Low-Income Taxpayer Clinic. This clinic serves many

taxpayers in my district in New York, and I appreciate your important work.

Many of our hearings and the daily stories in the papers focus on problems with

the Internal Revenue Service. The IRS does have problems, but today we are

pleased to talk about two successes—the Taxpayer Advocate Service and Low-Income Taxpayer Clinics.

ment for the record so we can move along with the hearing.

I am pleased to yield to our ranking Democrat, Mr. Coyne.

Mr. COYNE. Mr. Chairman, I just would like to submit a statef Chairman HOUGHTON. OK. Fine.

[The opening statement of Mr. Coyne follows:]

Opening Statement of Hon. William J. Coyne, M.C., Pennsylvania

As Ranking Member of the Subcommittee on Oversight, I want to welcome Ms.

Nina Olson to today’s hearing. Ms. Olson is the Internal Revenue Service’s new Taxpayer Advocate and an articulate spokesperson for taxpayers in need of assistance.

It is particularly appropriate that her testimony is followed by distinguished representatives of low-income tax clinics throughout the country. Ms. Olson is one of

the country’s best known advocates of low-income taxpayer assistance and an excellent choice to head the IRS National Taxpayer Advocate’s Office.

As a Member of the IRS Restructuring Commission, I remember well our discussions about how fairness dictates that all taxpayers have access to professional assistance in resolving their tax controversies with the IRS. Too often simple IRS notices or minor amounts of taxes due can turn into complicated and expensive tax

problems. Many taxpayers do not know how to navigate the multi-faceted IRS system. This is particularly true for those who cannot afford to hire accountants or are

not proficient in English. This is why I urged the IRS Commission and the Ways

and Means Committee, in adopting the 1998 IRS Restructuring and Reform Act, to

include special matching funds for tax clinics to serve those in need.

The tax clinic program has been in place now for three years and, by all reports,

it has been a great success. The grants for low-income clinics have grown each year

and, for fiscal year 2001, are funding over 102 clinics at a total cost of $6 million.

This is a program that deserves our support.

I am personally proud that two universities located in Pittsburgh, Pennsylvania,

are operating low-income tax clinics. The University of Pittsburgh School of Law

and the Duquesne University School of Law are recipients of low-income tax clinic

grants, and they are doing a great job. I want to personally welcome Mr. Dixon

Rich, from the Pittsburgh Law School clinic. Professor Rich and Clinic Director Martha Mannix have been instrumental in providing my constituents with top-rate assistance in handling IRS tax problems.

I also want to thank Subcommittee Chairman Houghton for arranging this hearing. Oversight of IRS programs is one of the most important things this SubVerDate 11-MAY-2000 02:53 Sep 08, 2001 Jkt 074412 PO 00000 Frm 00009 Fmt 6633 Sfmt 6621 E:\HR\OC\B412.XXX pfrm02 PsN: B412
6

committee does. There is much we can learn from our hearing witnesses today. In

reviewing operation of the tax clinic program, I look forward to our discussion

of:how the program can be improved,what low-income tax clinic taxpayers find most

difficult in complying with our tax laws, andwhich tax code provisions could be simplified to reduce complexitytaxpayer confusion, and unnecessary dealings with the

IRS

This information will be particularly helpful during the Subcommittee’s joint

hearing next week on tax simplification.

Thank you.

Chairman HOUGHTON. Would anybody else like to

f —would you

like to say something?

OK. Good. So what I would like to do is if I could call on Ms.

Olson first, and then I will go right to Alan Cohen. All right. Thank

you very much.

STATEMENT OF NINA E. OLSON, NATIONAL TAXPAYER

ADVOCATE, INTERNAL REVENUE SERVICE

Ms. OLSON. Mr. Chairman and Members of the Committee,

thank you for inviting me here today to discuss the Taxpayer Advocate Service’s (TAS) plans for fiscal year 2002.

First, I would like to thank you for your support and guidance

that the Subcommittee has given me personally and the Taxpayer

Advocate Service collectively. Your interest encourages us to meet

our goals as defined by the Restructuring Act.

What is the Taxpayer Advocate Service’s mission? section 7803

sets out four objectives. Only one of those objectives addresses direct casework. The other three involve advocacy about systemic

problems.

TAS, as we call the Taxpayer Advocate Service, is first charged

with helping taxpayers resolve their problems with the IRS. I find

it very interesting that Congress does not direct TAS to actually do

the problem solving. That is the difference from the former problem

resolution program, where problem resolution officers actually

made decisions on cases, pursuant to the district director’s authority.

With the independent reporting structure of TAS under the National Taxpayer Advocate, TAS employees derive their authority

from the statute and from the National Taxpayer Advocate.

What powers—or authorities—do the Taxpayer Advocate Service

employees have to accomplish its mission?

First, we have the ability to issue Taxpayer Assistance Orders.

Under 7811 we can order the IRS to cease an action or to take an

action. As best as I can determine, these actions are limited to procedural provisions. That is, a TAS employee can stop a levy if it

will create a significant hardship, but he or she cannot order a revenue officer to accept a particular offer in compromise or require

a revenue agent to reach a specific result in an audit. We can only

ask them to review the case and consider our recommendations.

In addition to our statutory authority, the Commissioner has determined that it makes good sense for TAS employees to actually

resolve simple repetitive or routine cases. I believe that this combination of statutory and what we call delegated authorities enVerDate 11-MAY-2000 02:53 Sep 08, 2001 Jkt 074412 PO 00000 Frm 00010 Fmt 6633 Sfmt 6602 E:\HR\OC\B412.XXX pfrm02 PsN: B412
7

ables TAS to help taxpayers resolve their tax problems without

turning the Taxpayer Advocate Service into a shadow IRS.

I must stop here, however, to acknowledge that there is a missing link in the tax system. There are cases where the IRS cannot

correct its errors or mistakes because the laws prevent us from

doing so. This happens in all legal systems; and where the remedy

at law fails or is insufficient, equity steps in. Such a remedy would

be unique in a tax administration system. I believe, however, that

Congress should vest the Commissioner with that authority to

render equitable relief in instances of hardship where the IRS has

committed a wrong that shocks the conscience of all taxpayers if

it went uncorrected. It may also be appropriate to authorize the

National Taxpayer Advocate to recommend such relief to the Commissioner and to investigate the proposed possible hardship. We

are working on this proposal and hope to include it in our December report to you all.

The pressures on TAS to assume more and more responsibility

for actually deciding taxpayer cases is illustrated by our recent inventory study. This study demonstrates that for fiscal year 2000

and year to date 2001 over 80 percent of the cases that came to

TAS during that period arrived because of the Service’s failure to

timely act or because of some other systemic failure. It is stunning

to me that so much of our inventory consists of essentially overflow

from the Service’s operating divisions.

There are many reasons for this predicament. First and foremost

is the issue of resources. Our study indicates that when IRS examination or collection employees are pulled away from their regular

duties, as they have been in the last few filing seasons when they

fill in on phones or walk-in sites, cases back up in operating divisions and ultimately end up in TAS. With the stable initiative, we

expect the situation to improve.

A second reason for the overflow is a historical lack of attention

to planning around normal business cycles. It is my opinion that

in the past planning for examination and collection initiatives occurred in somewhat of a vacuum. For example, the Service might

plan to send out deficiency notices on December 29th. This notice

gives the taxpayer 90 days to file in Tax Court to protest a proposed assessment. The taxpayer can call the IRS during the 90-day

period to attempt to resolve the case. But the 90-day period occurs

during filing season when our phone traffic is greatest. So the taxpayer is unable to reach the IRS, doesn’t file in Tax Court because

they are scared and ultimately ends up in TAS after the 90 days.

This situation could be avoided with more careful IRS planning.

I am pleased to report that TAS has gotten the attention of the

IRS on this issue. TAS representatives are now regularly included

in task forces, compliance initiatives and employee meetings. For

example, we are active participants in the recent offer in compromise designed task force and are participating in the exam reengineering design team.

The TAS inventory study enables us to present the operating and

functional divisions with concrete information that they can incorporate in their planning processes.

Recently, we provided Wage and Investment with inventory figures on a particular area called uncontrolled correspondence. TaxVerDate 11-MAY-2000 02:53 Sep 08, 2001 Jkt 074412 PO 00000 Frm 00011 Fmt 6633 Sfmt 6602 E:\HR\OC\B412.XXX pfrm02 PsN: B412
8

payer correspondence is controlled when we receive it at the IRS

and enter it on our document retrieval system. When an item is entered on that system taxpayers can call the IRS and we can tell

where it is and check on the processing of that document, where

it is in the IRS. If correspondence is uncontrolled, we can only tell

that it has been received and we can’t answer any taxpayer questions. These cases fall out to TAS.

As a result of us showing the Wage and Investment Division

what was happening with TAS receipts in response to their uncontrolled correspondence, Wage and Investment improved their controlled correspondence by 15 percent through the first 6 months of

the fiscal year. We were then able to see a 10-percent decline in

TAS uncontrolled correspondence cases. This direct correlation

came from our working off of our inventory study.

We are currently providing monthly inventory updates to the operating divisions and will continue to use that data to encourage

them to handle their cases better and prevent them from coming

to TAS.

I believe that the Taxpayer Advocate Service needs to better articulate the nature of its advocacy. We are often the first people in

the IRS to hear the taxpayer out in full. We can help the taxpayer

work through the maze of IRS procedures and functions; we can assess the merits of the case and make a recommendation about the

disposition of the case. If we feel the IRS is not responding appropriately to the taxpayer situation, we can keep advocating, raising

the issue up through the Service to highest levels; and, most importantly, if we and the rest of the Service are unable to offer the taxpayer relief because of an administrative or legislative impediment,

we can advocate to the IRS or to you in Congress for administrative or legislative change.

These tasks require discipline, vision and dedication. I believe

that the employees of the Taxpayer Advocate Service possess all

three qualities.

Thank you.

Chairman HOUGHTON. Thank you very much.

[The prepared statement of Ms. Olson follows:]

Statement of Nina E. Olson, National Taxpayer Advocate, Internal Revenue

Service

THE NATIONAL TAXPAYER ADVOCATE’S FISCAL YEAR 2002

OBJECTIVES REPORT TO CONGRESS

BACKGROUND

The Internal Revenue Service Restructuring and Reform Act of 1998 (Public Law

105–206, ‘‘RRA 98’’) requires the National Taxpayer Advocate to submit semiannual

reports to the House Ways and Means Committee and the Senate Finance Committee. The reports must be submitted directly to the Committees without any prior

comment from the Internal Revenue Commissioner, the Secretary of the Treasury,

any other Treasury officer, or the Office of Management and Budget. The first report, to be submitted by June 30 of each year, must identify the objectives of the

Taxpayer Advocate Service for the fiscal year beginning in that calendar year. This

report is submitted in accordance with Internal Revenue Code (IRC) Section

7803(c)(2)(B)(i); it details the activities and objectives planned by the Office of the

National Taxpayer Advocate for Fiscal Year 2002.

INTRODUCTION

In his Fiscal Year 2001 Objectives Report to Congress, National Taxpayer Advocate W. Val Oveson identified six major objectives for the Taxpayer Advocate Service

9

(TAS). These objectives encompass a broad array of activities. The objectives derive

from TAS’ Congressional charge, found in IRC Section 7803(c)(2), to assist taxpayers

in resolving problems with the Internal Revenue Service (IRS), and to identify and

propose administrative or legislative solutions to those problems arising from taxpayer dealings with the IRS. These objectives are set forth in Appendix I.

Since assuming the position of National Taxpayer Advocate on March 1, 2001, I

have worked to refine TAS’ strategic goals in order to implement the objectives described above. The Taxpayer Advocate Service identified several major strategies,

operational priorities, and improvement projects for fiscal years 2002 and 2003 as

part of the Service’s strategic planning process. TAS’ four major strategies for fiscal

years 2002 and 2003 are as follows:

• Advocate changes in tax law or procedures that reduce taxpayer burden and improve IRS effectiveness; • Identify significant sources of TAS casework and work with the Operating Divisions on strategies to reduce inappropriate TAS workload; • Improve TAS’ ability to identify and respond to taxpayer concerns; and • Ensure that the human resources component of the Taxpayer Advocate Service

is adequate to meet its workload demands.

I submit for your review and comment, in the pages following, reports of various

TAS operational areas and programs that address these major strategies. I include

descriptions of our current and future plans for case processing (including the delegation and implementation of additional case resolution authorities); systemic advocacy (including the Annual Report to Congress); human resources (staffing and

training); toll-free telephone access to TAS caseworkers; communications and liaison

(internal and external outreach and publicity); and citizen advocacy panels.

I believe these activities present a clear picture of the nature and scope of the

Taxpayer Advocate Service’s efforts to assist taxpayers resolve tax problems, be they

individual cases or systemic in nature. However, I have also identified several

themes for fiscal year 2002 which bridge all of the Taxpayer Advocate Service’s operations and which speak to its fundamental mission of advocacy on behalf of taxpayers. Each of these inquiries will assist the Taxpayer Advocate Service in developing a definition of advocacy, a code of practice for its employees, and an understanding of its underlying, or core, values.

Some of the issues we expect to explore during fiscal year 2002 and thereafter

include:

What does it mean to be a taxpayer advocate within the Internal Revenue Service? Congress charged the National Taxpayer Advocate and her employees with assisting taxpayers to resolve their tax problems. Under what circumstances may a taxpayer advocate refuse to accept a case or say ‘‘no’’ to a

taxpayer? Should a TAS employee advance a taxpayer’s position, regardless of

its merits? At what point should a taxpayer advocate accept the Internal Revenue Service’s determination in a given case and cease to advocate on behalf

of the taxpayer?

What is the extent of the National Taxpayer Advocate’s (and her

delegatees’) authority to resolve taxpayer problems? Are TAS employees

merely facilitators or mediators between taxpayers and other IRS functions?

Should they be authorized to render substantive determinations in taxpayer

cases? What role should TAS play in taxpayer examinations that are open in

other IRS operating divisions?

What is the appropriate composition of TAS inventory according to

hardship criteria? As a general rule, should TAS receipts reflect a predominance of financial hardship cases over those involving a delay of more than 30

days over normal processing time? In achieving the appropriate balance, what

efforts should TAS undertake to reach out to taxpayers who have given up on

their cases or who have fallen between the cracks of our tax administration system?

What standards of practice should TAS employees be held to? Should

we zealously advocate for a taxpayer’s position or temper our representation

with objectivity and independence? When should Local Taxpayer Advocates

keep taxpayer contact or communications confidential from the rest of the Service? To whom do TAS employees owe a duty of care?

What is the appropriate measure of the Taxpayer Advocate Service’s

performance and success? Should casework be measured by the number of

cases closed, or the number of days it takes to complete a case, or the decline

in the number of cases received? Should advocacy be measured by the number

of Taxpayer Assistance Orders or Taxpayer Advocate Directives issued, or the

number of advocacy projects started (or completed), or the number of legislative

10

recommendations adopted, or the inclusion of TAS representatives in IRS planning meetings, task forces, and other initiatives?

Fiscal Year 2002, then, will witness the beginning of the Taxpayer Advocate Service’s exploration of its core values. We will conduct this inquiry using a number of

methods including:

• internal dialog within the Taxpayer Advocate Service;

• discussions with other IRS employees, managers, executives, and the National

Treasury Employees Union;

• presentations to and discussions with members of Congress and their staffs,

and with taxpayers, tax practitioners, and other professionals;

• analysis of TAS’ casework and methodologies; and

• examination of the standards of practice to which external taxpayer advocates

adhere.

I do not expect that the Taxpayer Advocate Service will answer these questions

during fiscal year 2002. I do, however, anticipate that TAS will undertake this inquiry and that we will be open to new approaches and models, even as we affirm

old ones. The Taxpayer Advocate Service will evolve its own standards of practice,

to which its employees can both aspire and adhere. I am honored to be a participant

in this process, and I look forward to reporting to you in the future about our

progress toward these goals. In the sections that follow, I believe you will see how

the Taxpayer Advocate Service plans to establish a foundation for success in this

exciting endeavor.

TAXPAYER ADVOCATE SERVICE CASEWORK

Derivation of TAS Authority

Prior to the creation of the Taxpayer Advocate Service as a separate and independent function within the Internal Revenue Service, cases involving significant

taxpayer hardship were addressed through the Service’s Problem Resolution Program (PRP). Problem Resolution personnel were located in each district, region, and

service center, as well as in the National Office. Although in most instances the

Taxpayer Assistance Order (TAO) authority provided in section 7811 of the Code

was delegated to Problem Resolution caseworkers, in practice this authority was not

the basis upon which the vast majority of taxpayer issues and problems were resolved.

Generally, Problem Resolution personnel were district or service center employees. They did not report to the Taxpayer Advocate or the Taxpayer Ombudsman but

to the individual district or service center director for their post of duty. Since district directors were delegated broad authority to address, administer, and enforce

the internal revenue laws, employees of the district (including Problem Resolution

personnel) were able to resolve many taxpayer issues based on the authority delegated to the district or center director, irrespective of it being specifically related

to a position description.

Many people, both within and outside the IRS, believe that Problem Resolution

personnel exercised their authorities as a function of their positions as Problem Resolution caseworkers. In actuality, these authorities (except those described in IRC

Section 7811) derived from the reporting relationship of the employee to the district

or center director, and the director’s authority to enforce and administer the internal revenue laws. The ability of a Problem Resolution caseworker to address substantive issues of the taxpayer or to take certain administrative actions not currently available to the Taxpayer Advocate Service (TAS) was unrelated to his or her

PRP status, but rather a function of his or her status as a district or center employee.

Congress changed the Taxpayer Advocate Service’s organizational reporting structure in RRA 98 in order to ensure an independent problem-solving function within

the IRS. The prior IRS Problem Resolution Program was replaced by a system of

local and area Taxpayer Advocates who report directly to the National Taxpayer Advocate—the Taxpayer Advocate Service.

Beginning in 1998, the structure of the entire IRS changed. Authorities that were

delegated to the various field components of the Service responsible for administration and enforcement processes (district directors and service center directors) are

now delegated to the Operating Division within the Service responsible for administering those issues (Wage and Investment, Tax Exempt/Government Entities,

Small Business/Self Employed, and Large and Mid-Sized Business). Taxpayer Advocate Service employees are not included in this delegation chain, since Congress

mandated that TAS employees report to the National Taxpayer Advocate.

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The Taxpayer Advocate Service’s Authority Today

Under the new IRS reorganization, the National Taxpayer Advocate (NTA) possesses certain statutory authorities that enable her to assist taxpayers who are experiencing or are about to experience a significant hardship. These include the authority to issue a Taxpayer Assistance Order (TAO), either ordering the IRS to take

an action or to cease an action (a ‘‘direct’’ TAO) or ordering the IRS to review a decision already or about to be made (a ‘‘review’’ TAO). TAOs may be issued by the

NTA, taxpayer advocate area directors, and local taxpayer advocates. TAOs are reviewable by the Commissioner, Deputy Commissioner, and National Taxpayer Advocate.

The Commissioner has delegated to the National Taxpayer Advocate the authority

to issue a Taxpayer Advocate Directive (TAD), addressing a system-wide administrative or procedural problem affecting many taxpayers. The TAD must address a

process or procedure that creates undue burden, infringes upon the rights of taxpayers, or results in inequitable treatment of taxpayers. The National Taxpayer Advocate has the sole authority to issue a TAD. TADs are reviewable by the Commissioner and Deputy Commissioner of Internal Revenue.

Absent any other delegation of authorities from the Commissioner of Internal

Revenue, the ability of the National Taxpayer Advocate or her employees to act on

behalf of taxpayers is limited to those actions described in these statutory authorities. Since the establishment of the Taxpayer Advocate Service in RRA 98, the Commissioner has delegated to the National Taxpayer Advocate numerous authorities

relating to procedural resolution of taxpayer problems. The NTA has, in turn, redelegated them to TAS employees.

On January 17, 2001, the Commissioner delegated the accounts management authority of the Customer Service function to the National Taxpayer Advocate. The

NTA will redelegate these authorities, contained in the Internal Revenue Manual,

to TAS employees at the beginning of fiscal year 2002, following an intensive allTAS training program during the late summer and early fall of 2001. These authorities enable TAS employees to perform many of the Customer Service related functions on routine cases that do not involve substantive determinations and thereby

provide more efficient service to taxpayers.

It is a misnomer to describe the Taxpayer Advocate Service’s authority to resolve

taxpayer problems as ‘‘merely’’ procedural. While it is true that Taxpayer Advocate

Service employees cannot and should not make substantive determinations in cases,

they can still influence the outcome of a case. TAS employees can make sure that

IRS employees making the substantive determination have all of the information

necessary for making an informed decision. They can also make a recommendation

of an appropriate resolution to the deciding employee. Finally, if the TAS employee

believes that another function reached an incorrect result, the employee can continue to discuss the case with that function, including managers, and ultimately elevate it up to the National Taxpayer Advocate.

TAS employees have the ability and obligation to advocate on behalf of taxpayers,

to the extent appropriate for each case. The Taxpayer Advocate Service will undertake a program-wide analysis of ‘‘advocacy’’ during fiscal year 2002. We will develop

training materials and workshops that highlight advocacy, case preparation and

presentation, conflict management, and negotiation skills.

The Taxpayer Advocate Service must not set itself up as a second IRS. We cannot,

through our desire to resolve individual cases, become an accomplice to masking and

sustaining systemic problems. Advocacy sometimes entails stepping back and taking

a broader view of the situation and proposing a system-wide solution. The National

Taxpayer Advocate believes that this approach is authorized by Congress in IRC

Sections 7803 and 7811.

National Customer Service Agreements

Taxpayers turn to the Taxpayer Advocate Service for relief when Internal Revenue Service processes and procedures do not work as intended. The National Taxpayer Advocate is committed to providing immediate assistance and to working with

IRS Operating and Functional Divisions to improve service to taxpayers.

During fiscal year 2001, the Taxpayer Advocate Service developed a template for

agreements that we propose to enter into with each of the divisions with regard to

the processing of TAS cases by Operating and Functional Division employees. These

National Customer Service Agreements will clearly define the roles and responsibilities of all individuals involved in TAS casework.

The Taxpayer Advocate Service expects that these agreements will help to ensure

consistency with both taxpayer treatment and case processing. We also hope to establish uniform standards for the processing of work when TAS employees do not

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lem. We believe that the National Customer Service Agreements will enable us to

measure our performance against defined expectations and standards. We plan to

negotiate, execute, and implement these agreements during fiscal year 2002.

The Taxpayer Advocate Service is currently operating in an environment where

there are numerous local agreements for processing cases but no one consistent vehicle to provide direction to all employees throughout the Internal Revenue Service.

In crafting the National Customer Service Agreements, we plan to review the existing local agreements and determine the best practices for different types of cases

and procedures. These best practices will be incorporated into the National Customer Service Agreements.

There may be instances when the National Customer Service Agreements do not

meet the specific needs of local areas. In these cases, we will work with the local

areas and the Operating and Functional Divisions to develop site-specific procedures. We will also continue to review the National Customer Service Agreements

to ensure that we are handling taxpayer cases in the most expeditious and accurate

manner possible.

TAS ADVOCACY INITIATIVES

Casework is only one aspect of the Taxpayer Advocate Service’s activities. TAS

is also charged with advocating for systemic changes that will help resolve taxpayer

problems. Internal Revenue Code Section 7803 requires the Taxpayer Advocate

Service to identify areas in which taxpayers experience problems with the IRS and

to propose possible administrative and legislative changes that may mitigate such

problems.

The Taxpayer Advocate Service’s advocacy function, which culminates annually in

the National Taxpayer Advocate’s Activities Report to Congress, is not divorced from

the TAS casework component. Our casework frequently helps us identify specific

problems that affect a large number of taxpayers which can only be solved at the

operating division or Service-wide level or through legislative changes. The TAS Inventory Study, discussed in this Report, is a valuable tool for advocacy as well as

case and personnel management.

Operating Division Taxpayer Advocates

The TAS advocacy function is primarily conducted by advocacy analysts reporting

to two Operating Division Taxpayer Advocates (ODTAs), who in turn report to the

ODTA Executive. Each Operating Division Taxpayer Advocate is responsible for

issues arising in two of the four Operating Divisions—Wage and Investment/Tax Exempt Government Entities and Small Business Self-Employed/Large and Mid-sized

Businesses.

Operating Division Taxpayer Advocates are responsible for identifying and raising

the awareness of systemic issues within IRS Operating and Functional Divisions

that impact taxpayers. They work with the Operating and Functional Division managers to determine the best solutions for systemic problems and to build support for

initiating changes in policies and procedures to resolve those problems.

Advocacy Analysts are located in various TAS offices throughout the nation. They

work with the Operating and Functional Divisions to identify and analyze the root

cause(s) of taxpayer problems. They also support joint advocacy projects and efforts.

The advocacy analyst’s ultimate objective is to prevent or reduce taxpayer burden,

represent taxpayer interests during the decision-making processes, improve customer service, and address inequitable treatment of taxpayers.

All Taxpayer Advocate Service employees are encouraged to identify potential advocacy issues and submit advocacy suggestions to the appropriate Operating Division Taxpayer Advocate. The ODTA staff screens the suggestions for quality and

currency; suggestions are then entered into a tracking database. Suggestions may

be assigned to an advocacy analyst or referred to the appropriate Operating or

Functional Division for further action. The ODTA staff monitors and reports on

project activities in a variety of ways; examples include:

• Advocacy projects are tracked using the Service-Wide Action Plan (SWAP) database system. ODTA advocacy analysts use the system to establish project plans,

update project information, and monitor project status. Advocacy analysts

across the country can access the database.

• Advocacy analysts use the SWAP system data to prepare project status reports

for the ODTA Directors and Executive Director and the National Taxpayer Advocate. ODTA Directors also use the system to submit quarterly updates as part

of the Business Performance Review System (BPRS). The NTA briefs the Commissioner on the information included in BPRS reports.

• Taxpayer Advocate white papers, position papers involving administrative or

legislative recommendations that address taxpayer problems, are issued interVerDate 11-MAY-2000 02:53 Sep 08, 2001 Jkt 074412 PO 00000 Frm 00016 Fmt 6633 Sfmt 6621 E:\HR\OC\B412.XXX pfrm02 PsN: B412
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mittently in response to issues arising outside the Annual Objectives Report

cycle.

The Taxpayer Advocate Service also receives many legislative proposals from TAS

and IRS employees as well as from taxpayers, the Citizen Advocacy Panels (CAPs),

and the tax practitioner community. The team that prepares the Annual Activities

Report to Congress reviews the proposed legislative recommendations and further

develops suggestions that address tax law complexity, taxpayer equity, or taxpayer

burden.

Annual Activities Report to Congress

The National Taxpayer Advocate is required to report to Congress at the end of

each calendar year about its activities for the past year. Among other items, this

report must contain a summary of the 20 most serious taxpayer problems and the

10 most litigated tax issues. This report also provides recommendations for resolving or mitigating those problems and compliance burdens through either administrative or legislative action. IRC Section 7803(c)(2)(B)(ii).

The 2001 Annual Activities Report to Congress will reflect some changes in approach from previous reports. For example, we will present two lists of the 20 most

serious taxpayer problems. We will draw one list from the Taxpayer Advocate Management Information System (TAMIS) which will indicate the 20 issues (broadly defined) about which taxpayers most frequently request help from the Taxpayer Advocate Service. Our second ‘‘Top 20’’ list will be developed by a team of TAS advocacy

and casework employees. This list will be drawn from the collective knowledge and

experience of TAS employees.

We will report on our legislative and administrative recommendations in three

ways. First, we will propose at least five recommendations that address issues of

broad taxpayer impact. We will identify the number and categories of taxpayers affected and the paperwork, processing, and compliance burdens associated with those

issues, both from the taxpayer and IRS perspectives. We will also identify any privacy or business systems implications of these issues. We will describe the operation

and history (where appropriate) of each of these provisions. Finally, we will submit

a proposal to eliminate or lessen the problem for taxpayers.

The second list of recommendations will include descriptions of proposals that are

currently under consideration by the Taxpayer Advocate Service but are not yet developed to the level of a recommendation. We believe this list is valuable because

it identifies issues that have already surfaced as problems but do not have a readily

achievable solution as of report publication. The Taxpayer Advocate Service will continue to work on these issues. They may form the basis of legislative recommendations in future annual reports or in TAS white papers. We believe that by identifying the problems we will encourage informed discussion about them and speed resolution.

The final list of recommendations will consist of brief proposals that have been

identified by TAS employees, IRS Operating or Functional Division employees, tax

professionals, or taxpayers as problems requiring a legislative solution. The proposals included in this list will all need further development; however, we hope that

their inclusion will stimulate interest and solicit additional information and solutions from the public and the IRS.

The Taxpayer Advocate Service employees who are working on the Annual Activities Report are approaching their work with one overriding question in mind—what

is the particular perspective or piece of information that the Taxpayer Advocate

Service can contribute to the discussion that is unique to TAS? Clearly, Congress

felt that the Taxpayer Advocate Service could add something to Congress’ own analysis of taxpayer problems. Thus, we hope that the National Taxpayer Advocate’s

2001 Annual Report to Congress will not be a re-hash of old solutions but will provide fresh insight, information, and experience from the point of view of advocates

who operate within the IRS.

TAXPAYER ADVOCATE SERVICE INVENTORY STUDY

Background

Understanding the Taxpayer Advocate Service case inventory is an essential first

step to accomplishing the Taxpayer Advocate Service’s strategic objectives. (See Appendix II.) During fiscal year 2001, we conducted a study to determine the major

components of TAS caseload and the relationship between Operating Division inventories and TAS receipts. The study results provide the framework for our fiscal year

2002–2003 strategic plans. In fiscal year 2002, we will continue to update our study

monthly to identify workload trends and emerging issues. We will share this analysis with the Operating Divisions and use the study to coordinate our approach to

systemic problem solving.

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Inventory Study Methodology

During fiscal year 2001, the Taxpayer Advocate Service convened an inventory

study task force. The task force members gathered report data from TAS and Operating Division management information systems. They captured TAS receipts by

month for fiscal years 2000 and 2001. They then linked TAS receipts to Operating

Division inventories for the same periods, using major issue codes. (Major issue

codes are numeric codes utilized on the Taxpayer Advocate Management Information System (TAMIS) to indicate the major issue presented in each TAS case.) The

task force used data from Operating Division reports to capture receipts, closures,

and ending inventories. TAS focused on Operating Division ending inventories because we believed that, as ending inventories increase and age, taxpayers begin to

turn to TAS for assistance.

The Taxpayer Advocate Service previously identified problems with major issue

code accuracy. The data reviewed by the task force reflected these problems, and

the team took steps to address the issues in our study. The study team sampled

850 cases to test the accuracy of the major issue codes assigned to the cases. In

some instances, results from this sample led to the reassignment of cases by major

issue code (for analysis purposes only).

We initially selected five program areas for review based on perceived inventory

problems and level of TAS impact:

1. Accounts Management (Adjustment) Correspondence,

2. Automated Underreporter (AUR),

3. Earned Income Tax Credit (EITC),

4. Innocent Spouse, andOffers in Compromise (OIC).

We established a correlation between IRS Operating Division ending inventories

and TAS receipts for fiscal year 2000. We wanted to see if we could predict TAS

workload receipts in important program areas based on the inventory relationships.

We later expanded the study to address ten major categories of TAS receipts/Operating Division inventory using fiscal year 2001 receipts:

Continued from Fiscal Year 2000 Added for Fiscal Year 2001

1. Accounts Management (Adjustment) Correspondence6. Audit Issues (Other than EITC)

2. Automated Underreporter (AUR) 7. Collection Issues, other than Offer In

Compromise (OIC)

3. Earned Income Tax Credit (EITC) 8. Other (Miscellaneous)

4. Offer In Compromise (OIC) 9. Processing Returns

5. Innocent Spouse 10. Refunds (Lost/Stolen/Undeliverable)

We continue to make predictions as we update our inventory study data monthly.

Using our current data, we are now able to identify workload trends. Some trends

are attributable to the normal IRS workload shifts associated with filing season.

Others reflect changes in Operating Division programs and shifting staffing allocations. We continue to refine our analyses as we gather additional data and observe

these trends.

Inventory Study Results

The results of the study provide data for TAS to use in achieving our strategic

objectives.

Identify Significant Sources of Taxpayer Advocate Casework. Current data

indicates that most taxpayer cases come to TAS as a result of systemic or procedural problems (including delay) and not as the result of significant hardship, threat

of adverse action, irreparable harm, or significant cost concerns—the issues that

TAS is uniquely designed to resolve. As illustrated in Figure 1, only 14 percent of

cases meet significant hardship criteria, as defined by IRC Section 7811(a)(2)(A),

(C), and (D). These cases are shown in Figure 1 as criteria codes one through four.

Cases in which the IRS did not achieve intended results within expected periods

comprise 80 percent of TAS receipts. These cases are shown in Figure 1 as criteria

codes five through seven.

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FIGURE 1

Major sources of TAS Inventory are shown in the Figure 2. We identified a strong

relationship between Operating Division workload delays and TAS receipts in the

fiscal year 2000 inventory study. First, we found that the percentage of taxpayers

likely to contact TAS for assistance is much higher in cases in which taxpayer refunds are delayed. Second, as inventories in the Operating Divisions increase and/

or age, there is a similar increase in TAS receipts.

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KEY

AUR—Automated Under Reporter

EITC—Earned Income Tax Credit

OIC—Offer in Compromise

FIGURE 2

The relationship between TAS receipts and adjustment inventories is shown in

Figure 3. As the inventory builds in the Operating Divisions, TAS receipts build as

well.

17

FIGURE 3

Operations’ improvements in service led to corresponding reductions in TAS inventory receipts. The Wage and Investment Operating Division achieved a 15 percent improvement in controlling taxpayer correspondence in Adjustments for the

first half of fiscal year 2001. ‘‘Controlled’’ correspondence is written taxpayer communication that is received by the IRS, and entered onto the Integrated Data Retrieval System (IDRS). Once an item is entered on IDRS, all employees with IDRS

access can identify that the correspondence has been received and is in the queue

for being worked. TAS experienced a corresponding 10 percent reduction in Adjustments inventory receipts, even as Service-wide total adjustments inventories increased. By entering taxpayer correspondence into the IDRS database sooner, Wage

and Investment is able to respond directly to taxpayer follow-up inquiries instead

of referring the case to the Taxpayer Advocate Service.

The Wage and Investment Operating Division also achieved a significant improvement in IRC Section 6015 (‘‘Innocent Spouse’’) case processing by consolidating the

program, strengthening communication with taxpayers, and streamlining work processes. Innocent spouse claim processing periods are lengthy in order to protect the

rights of both parties filing a joint return, therefore, program improvements are not

reflected quickly in TAS inventories. Even so, the Taxpayer Advocate Service is already experiencing a 16 percent decrease in case receipts.

Work with IRS to Improve Service; Advocate Changes in Tax Law or Procedures. TAS inventories are due, in part, to staffing shortages in the Operating Divisions. As Operations workload ages due to staffing shortfalls, taxpayers are negatively impacted.

The inventory study points to areas in which service can be improved, whether

through streamlining work processes, adjusting the workload mix to minimize the

impact of seasonal workload pressures on taxpayers, or making legislative recommendations to improve program administration. We are discussing the study with

the Operating Divisions and are exploring with them ways to improve service. In fiscal year 2002, TAS will be able to identify each case’s point of origin by business

unit (e.g. Wage and Investment or Appeals). The ultimate goal is to provide better

service to the public at the first point of contact with the IRS thereby reducing the

need for taxpayers to come to the Taxpayer Advocate Service.

One area of mutual concern is the growing Earned Income Tax Credit (EITC) inventory. This program, more than most, affects taxpayers whose refunds are delayed. As the Operating Divisions continue to focus on improving compliance in the

EITC population, we expect a dramatic increase in TAS receipts. Based on current

fiscal year 2001 receipts and aging inventories in the Operating Divisions, we predict a 50 percent increase in TAS EITC receipts. TAS and the Wage and Investment

18

Operating Division have agreed to work together to improve EITC audit processes

and procedures.

We have not assessed the potential impact of recent changes in tax law in the

EITC program, or changes recommended in the National Taxpayer Advocate’s Fiscal

Year 2000 Annual Activities Report to Congress, on future EITC inventories.

Ensure TAS Employees Can Meet Workload Demands; Improve Ability to

Respond to Taxpayer Concerns. The National Taxpayer Advocate believes that

current TAS staffing levels should be maintained during fiscal years 2001 and 2002.

I derive this conclusion from the TAS casework levels projected in the inventory

study. The projected levels were based on our analysis of past receipts and adjusted

for changes in programs within the Operating Divisions.

While we do not expect the total numbers of receipts to change significantly, we

believe there may be a shift in the inventory mix and in workload locations. As IRS

consolidates programs such as Offers in Compromise and EITC to specific sites, we

may need to change the TAS offices assigned to resolve the cases. We will analyze

inventory and predict workload shifts based on the Operating Divisions’ program

strategies and workload consolidation plans.

Understanding the workload mix and the ways in which it is expected to change

will be useful in recruitment and training decisions. As the workload shifts, training

plans will be adjusted to fill knowledge and skill gaps. Managers may need to recruit employees with the necessary skills to meet new workload demands. Throughout fiscal year 2002 and thereafter, TAS managers, executives, and Strategic

Human Resources staff, in partnership with the National Treasury Employees

Union (NTEU), can utilize the inventory analysis and predictions of workload shifts

to plan for employee recruitment and development.

Summary

This study suggests that the Taxpayer Advocate Service should continue to monitor receipts by category to identify trends in Operating Division inventories. Using

this data, TAS will work with the Operating Divisions throughout fiscal year 2002

to improve service, which should ultimately reduce the number of cases that are

transferred to TAS due to service delays, or system or procedural problems. We will

continue to provide updates of the inventory study to TAS leadership, interested Operating Division Commissioners, and NTEU.

TAS EMPLOYEE TRAINING INITIATIVES

Introduction

A highly skilled, well-trained workforce is key to the accomplishment of the Taxpayer Advocate Service’s mission. During fiscal year 2002, we will focus on the development and execution of a corporate approach to training and education. This effort, which will incorporate both strategic and tactical initiatives, will ensure that

TAS employees are provided the skills and abilities they need to perform their jobs

and will also promote their professional development and career progression within

both TAS and the IRS.

Development of A Strategic—Multi-Year Training Plan

With the assistance of a contractor experienced in strategic planning, we will design the first ever TAS four-year strategic training plan. The plan will enable the

Taxpayer Advocate Service to develop employees in response to evolving customer

and casework bases. The plan will also allow us to recruit and retain those employees, by demonstrating the organizational commitment to their professional and personal development.

The multi-year training plan will include an annual TAS-wide training meeting

that will offer beginning and advanced training programs for TAS employees. Session topics may included technical skills, conflict management, case management,

management techniques, communications skills, ethics, stress management, Taxpayer Advocate Management Information System (TAMIS), and the legislative process. The TAS-wide program will be complemented by training sessions held at local

offices designed to address issues specific to those locales. TAS will also coordinate

with the other Operating and Functional Divisions so that TAS employees can attend training programs offered by other divisions.

The Taxpayer Advocate Service recently established a TAS training advisory

board with our collective bargaining partner, the National Treasury Employees

Union (NTEU). This board will assist in the review and monitoring of the TAS

training effort, the evaluation of training priorities, and the crafting of training recommendations to the National Taxpayer Advocate. Customer needs will be garnered

from a number of sources, including employee and customer satisfaction surveys,

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sions. TAS Strategic Human Resources will review the information and develop and

deliver training effectively and efficiently.

The TAS four-year strategic plan will:

• Use computer technology to develop and maintain a well-informed and trained

workforce (E-learning). This IRS corporate strategy aims to leverage technology

to deliver 70 percent of skills and competencies through E-learning by fiscal

year 2007.

• Monitor the creative, no-cost method for promoting employee computer training

piloted by the United States Postal Service.

• Leverage limited TAS resources by combining our training efforts with those of

other IRS Operating and Functional Divisions.

• Explore the availability of out-service training offered by both governmental

(United States Department of Agriculture) and private sector entities, and by

professional associations (e.g., Attorneys, CPAs and Enrolled Agents).

• Design and conduct training initiatives to address the 20 most serious problems

encountered by taxpayers, as identified in the National Taxpayer Advocate’s

Annual Activities Report to Congress.

• Build plan flexibility so that TAS can be responsive to our external customers,

the taxpayers. For example, TAS may need to pursue a multilingual initiative

in order to improve access to services for taxpayers with limited English proficiency. We may need to develop and deliver training for IRS and TAS employees so that they can better understand and respond to taxpayer issues and

questions. In addition, TAS employees may require specific communications

training to assist in taxpayer outreach.

• Coordinate with other divisions to crosstrain TAS and Operating and Functional Division employees during formal training sessions and Continuing Professional Education (CPE) sessions.

Tactical Annual Training Plan

The Taxpayer Advocate Service will closely coordinate its tactical annual training

plan with the four year strategic training plan. The annual plan will address current organizational and employee needs, such as those involving technical components (e.g., IRC Section 6413) and automation components (Taxpayer Advocate

Management Information System (TAMIS) and Integrated Case Processing (ICP)

training), and those necessary to accomplish our casework (the Executive Correspondence Management System (ECMS) and core leadership skills).

Through its annual plan, TAS can assess the organization’s ability to address existing technical and programmatic training needs. The Taxpayer Advocate Service

will respond to current needs in TAS or in other divisions, such as those evidenced

around the delegation of authorities training, and also be proactive with our customers, internal as well as external.

In addition to incorporating component specific interests (e. g. innocent spouse),

the plan will:

• Utilize available outservice training in order to free up internal training development resources.

• Expand the process of informing and educating the public about their right to

seek assistance through the Taxpayer Advocate Service.

• Continue the integration efforts with our Citizen Advocacy Panels (CAPs).

• Coordinate with Operating and Functional Divisions to crosstrain TAS and Operating Division employees in the development and delivery of training.

• Develop and deliver training in response to congressional legislation and/or executive direction.

• Continue implementation of an employee training tracking system so that every

TAS employee’s training and development remains an organizational priority

and is advanced.

The Taxpayer Advocate Service must provide its employees with the requisite

tools to accurately identify and respond to taxpayer concerns. By setting training

priorities, which reflect both corporate goals and the needs of TAS employees and

customers, the Taxpayer Advocate Service will maintain a capable and informed

workforce. These TAS training initiatives are expected to yield improved business

results and better customer and employee satisfaction.

Nation taxpayer advocate TOLL-FREE line

NTA Toll-Free Line (1–877–777–4778)

In his Fiscal Year 2001 Objectives Report to Congress, the National Taxpayer Advocate reported the expansion of the National Taxpayer Advocate (NTA) Toll-free

line. The NTA Toll-free line provides cost free access to the Taxpayer Advocate ServVerDate 11-MAY-2000 01:34 Sep 08, 2001 Jkt 074412 PO 00000 Frm 00023 Fmt 6633 Sfmt 6621 E:\HR\OC\B412.XXX pfrm02 PsN: B412
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ice for issues that have not been resolved through the IRS’ normal channels. The

service is available to taxpayers 24 hours a day, seven days a week.

Each call to the NTA Toll-Free line is screened by a customer service representative to determine if the taxpayer’s inquiry meets Taxpayer Advocate Service criteria.

If the call does not meet TAS criteria, the call is transferred to an IRS employee

with the appropriate skills and training to answer the call. When the call does meet

TAS criteria, NTA Toll-Free customer service representatives try to resolve the

issue while the taxpayer is on-line. If they are unable to resolve the case on-line,

the call is transferred to the appropriate local TAS office for resolution.

In fiscal year 2000, NTA Toll-Free customer service representatives answered

more than 295,000 calls. From October 1, 2000, through May 5, 2001, more than

243,000 calls have been answered. We continue to market the program and educate

taxpayers as to when it is appropriate to seek assistance from the Taxpayer Advocate Service. Thus, we expect increased NTA Toll-Free traffic during fiscal year

2002.

The NTA Toll-Free line continues to be staffed and managed by the Wage and

Investment and Small Business/Self-Employed Operating Divisions. We gratefully

acknowledge the Operating Divisions’ ongoing support for this service to taxpayers

and the excellent work of the customer service representatives who answer the calls.

These employees often provide the first meaningful step toward case resolution.

Toll-Free Access to individual TAS Caseworkers

Background

Customers of the Problem Resolution Program who were interviewed in 1994

using focus group interview techniques identified the following customer expectations with respect to communications:

• To be given the name of the contact person, and the direct telephone number

of that person. ‘‘A single point of contact was considered ‘‘the single most important element in providing high quality service.

• To be kept advised of unexpected delays, recognizing that the complexity or seriousness of the issue determines the frequency of contacts

Our analysis of the focus group data indicated that taxpayers with complex cases

expect frequent updates, but that they recognize the cost of employing people to

place calls may be prohibitive. In addition, the focus group data indicate that while

taxpayers may be willing to initiate an inquiry about the status of the problem, the

cost of the telephone call could be a factor in their decision to make such calls.

Taxpayers do not care if their problem is worked by a caseworker in another city,

as long as the resolution meets their expectations

‘‘Most of the respondents said they prefer toll-free access to the

case worker, citing lengthy telephone calls and being placed on

hold as reasons.’’

In 1999, the Taxpayer Advocate Service established and began marketing a dedicated toll-free telephone number for taxpayers who need assistance (the NTA Tollfree line). This number enables taxpayers to initiate cost-free contact with TAS on

issues or problems that meet TAS’ program criteria. In the current environment,

once a taxpayer’s issue is accepted as a TAS case and a caseworker is assigned to

resolve it, the taxpayer must then pay for any subsequent telephone calls to the

caseworker.

Providing toll-free service to individual TAS caseworkers is a logical extension of

the services already offered by the Taxpayer Advocate Service to help taxpayers to

resolve their problems where standard IRS procedures have failed or proven inadequate. Toll-free access to assigned caseworkers is an especially critical factor in the

more complex cases, or when initial time estimates for case resolution are inaccurate, leaving the taxpayer in the uncertain state of not knowing what, if anything,

is being done to resolve his or her situation. The taxpayer will be less anxious if

he or she can reach the caseworker directly to provide additional information or to

obtain a case update. If a taxpayer is reticent to call the caseworker because of long

distance telephone charges, it impedes both communications and taxpayer confidence in the process.

During the second half of fiscal year 2001, the Taxpayer Advocate Service will

begin a two month test in four offices to provide taxpayers with toll-free access to

the Taxpayer Advocate Service caseworker assigned to their case. This service will

relieve taxpayers of the financial burden of making toll calls to resolve their tax

problems. The test will be completed in September 2001, and the results evaluated

relative to operational issues as well as the operational costs and benefits, to determine whether toll-free service should be extended to all TAS offices and customers.

21

This project is included in the Taxpayer Advocate Service’s strategic plan for fiscal

years 2002–2003.

Projected Benefits of Providing Toll-Free Service to TAS Customers

The implementation of this proposal is projected to:

• Remove a potential barrier to case resolution by providing an additional, costfree avenue of access for taxpayers to their caseworker. • Reduce burden placed on taxpayers who incur long distance telephone toll

charges in the current environment. • Provide free access for customers who have no telephone service and who would

otherwise experience hardship in contacting their caseworker. • Enhance both communications and the perceived ′′relationship′′ between the two

parties and thereby facilitate the resolution of the issue being worked. • Streamline the service process by more efficiently connecting the taxpayer requiring assistance with the IRS employee who provides the assistance. • Relieve NTA toll-free assistors of the responsibility for transferring taxpayers

entering the current NTA toll-free line to their caseworker thus reducing the

perception among NTA assistors that they serve as long-distance operators.

Test Objectives

The Taxpayer Advocate Service hopes to extend toll-free access to TAS caseworkers in one-half of its field offices during fiscal year 2002. However, before we

implement this program, we must address some issues relating to costs and risks.

We plan to resolve two specific concerns through the fiscal year 2001 toll-free access

pilot program:

• Estimate overall costs of nationwide implementation; identify hidden

costs. An initial assumption of this test is that the IRS is presently paying for

long-distance phone service when TAS customers ask caseworkers to call them

back (to avoid toll charges) or when the NTA toll-free call site transfers callers

to their caseworkers. Providing toll-free service would reduce these

‘workarounds’ and the telephone/personnel costs associated with them would

offset the cost of establishing toll-free service. The test will attempt to quantify

the extent to which the costs incurred in the current environment help to offset

the cost of providing toll-free service.

• Identify risks and operational issues associated with providing this service to TAS customers. Providing toll-free access to caseworkers could result in

negative outcomes. For example, customers may take advantage of this service

to present issues unrelated to the TAS case. Such unintended outcomes, if occurring with significant frequency, could consume caseworker time, which could

be spent on resolving other, more pressing taxpayer issues. The test will therefore develop and evaluate procedures that redirect taxpayers with closed TAS

cases back into the mainstream IRS functions.

Costs of Providing Toll-Free Service

If the test results indicate that there are net operational benefits to providing tollfree service to caseworkers without any significant offsetting problems, the National

Taxpayer Advocate will expand this service to all local TAS offices during fiscal

years 2002 and 2003. As noted above, it is anticipated that offsetting savings from

reducing ‘workaround’ situations (including eliminating unproductive staff time and

associated telephone charges) should significantly reduce the cost of implementing

a toll-free service.

Customer Service

Toll-free numbers for caseworkers will certainly increase taxpayer access to the

Taxpayer Advocate Service. However, toll-free access does not eliminate TAS employees’ obligation to provide their client-taxpayers with regular updates and status

reports on case progress. During fiscal year 2002, the Taxpayer Advocate Service

will continue its review of TAS case processing and instructional materials to ensure

that employees are clearly instructed to contact taxpayers at appropriate intervals

during the case resolution process.

TAS COMMUNICATIONS STRATEGY

The Taxpayer Advocate Service’s initial marketing campaign, following the enactment of RRA 98, was primarily created to inform individuals of our evolution from

the former Problem Resolution Program to the newly modernized Taxpayer Advocate Service. Implemented in March 2000, the initial campaign achieved ‘‘brand recognition’’ of the new organization with both IRS employees and taxpayers. The Taxpayer Advocate Service is also easily recognized within both the practitioner and

congressional communities.

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In fiscal year 2000, The Taxpayer Advocate Service expanded its outreach activities to the general public. Local Taxpayer Advocates were required to develop outreach plans using demographic information developed by internal research that

identified potentially underrepresented taxpayer populations.

The Taxpayer Advocate Service continues to search for the most efficient and cost

effective methods of reaching taxpayers who are most in need of our services. Over

the next two fiscal years, the Taxpayer Advocate Service will undertake several initiatives that will heighten public awareness of our services and offer them to the

appropriate individuals. We will also continue to analyze the impact of the IRS’ modernized organizational structure on TAS outreach strategies both within and

outside the IRS. A few of our initiatives are discussed below: • During fiscal year 2002, the Taxpayer Advocate Service will conduct formal research to determine markets where taxpayers are potentially under-represented

and most in need of our services. We will build upon our fiscal year 2000 internal research efforts and conduct external research with an independent marketing firm. The resulting data, along with updated demographic information,

will be used to refine our current marketing campaign. • The Taxpayer Advocate Service will develop an intensive communications plan

using various communications vehicles, including television, radio, and print

media. TAS will also build a focused outreach strategy, both nationally and locally. We will research the needs of our audience and tailor our education and

marketing campaigns accordingly. We will develop specific communications

plans for taxpayers who speak little or no English or who have low literacy levels.

• The Taxpayer Advocate Service will continue to increase awareness among its

internal and external partners of its advocacy role. We will achieve this by communicating our advocacy projects and successes through a variety of methods

including Congressional testimony, the Annual Reports to Congress, collaboration with local Strategic Relationship Management councils, and other IRS partners.

• We plan to share, both internally and externally, the actions taken to address

the 20 most serious problems facing taxpayers as identified in the National Taxpayer Advocate’s Annual Report to Congress. The Taxpayer Advocate Service

will place updated information on the IRS Web page, publish our strategic assessment, and conduct liaison meetings informing stakeholders of actions, successes, and challenges. By doing so, we will demonstrate and communicate the

value of each individual’s input and role in the effective administration of the

tax system.

• During fiscal year 2002, the Taxpayer Advocate Service will continue to partner

with the IRS Operating and Functional Division Commissioners to enhance and

promote problem-solving initiatives. We will support current efforts to educate

IRS employees about the Taxpayer Advocate Service’s mission and case criteria,

through formal training, informal meetings, and participation in various task

forces.

As National Taxpayer Advocate, I will continue my practice of appearing at meetings of Operating and Functional Division employees, participating in panel discussions, and holding town hall meetings with both TAS and other IRS employees. I

will also continue to appear at programs sponsored by practitioner groups as well

as at Citizen Advocacy Panel meetings. I will continue to make myself available to

the media so that I can communicate the Taxpayer Advocate Service’s mission as

well as discuss specific issues we may be facing. Finally, I will continue to meet

with members of Congress to discuss matters of concern to them or to taxpayers.

The Taxpayer Advocate Service believes its communications strategy—of open access, outreach, and partnership—will ensure that taxpayers who require our services will know where to find them. This strategy should also result in appropriate

referrals being forwarded to our organization. We will strive to clearly define and

communicate our mission to taxpayers, to other IRS employees, to TAS employees,

and to tax practitioners.

TAXPAYER ADVOCATE SERVICE MANAGEMENT INFORMATION SYSTEM (TAMIS)

The Taxpayer Advocate Management Information System (TAMIS) is a nationwide database designed to automate controlling and processing Taxpayer Advocate

Service cases. Taxpayer cases that meet TAS criteria, as well as Congressional contact cases, are controlled on TAMIS. Once a case is input, a taxpayer can call the

National Taxpayer Advocate toll-free number, or any of the local TAS offices, and

be given the current status of his or her case. All cases, both open and closed, are

stored on the database.

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Employees can document cases on-line, which reduces the need to keep paper copies of case histories. Employees can also indicate the Next-Action-Date for a case.

This function helps caseworkers deliver customer service and aids inventory management.

TAS management officials use TAMIS to actively manage the case inventory, to

generate reports of program statistics (e.g., the number of closed cases within a window of time), and to monitor TAS casework balanced measures. TAMIS data is used

to identify trends in casework and is critical to our continuing TAS Inventory Study.

Case-related trends also help the Taxpayer Advocate Service identify advocacy

issues as well as technical training needs. Additionally, we use TAMIS data as one

tool in the identification of the 20 most serious taxpayer problems included in the

National Taxpayer Advocate’s Annual Activities Report to Congress.

Given the numerous uses for TAMIS information, it is absolutely vital that

TAMIS data be accurate. TAMIS’ interface must be user-friendly and the system

must be designed so that it will capture the appropriate data. We believe that our

proposed fiscal year 2002 TAMIS improvements will achieve these objectives.

Fiscal Year 2002 TAMIS Improvements

The TAMIS database is enhanced on an ongoing basis, often in response to suggestions from our employees. We recently added new fields in response to the changing structure of the Internal Revenue Service. These new fields will track the Business Operating Division point of case origin and the level of case complexity.

In fiscal year 2001, the Taxpayer Advocate Service convened a team to improve

the TAMIS data input instructions for our employees. The instructions will be incorporated into the next revision of the Taxpayer Advocate Handbook, Internal Revenue Manual (IRM) 13. In addition to providing input instructions, we will give improved directions regarding various major issue codes. We plan to develop and conduct a training course during fiscal year 2002 that will focus on key input fields

and TAMIS instructions in IRM 13. Our training will emphasize the importance of

TAMIS data accuracy.

The Taxpayer Advocate Service’s long-range goal is to change the software application which runs TAMIS. Currently, we use a UNIX based program. TAMIS will

be moving to Oracle by December 2002. A redesign team is currently meeting to develop the database. When this conversion is completed, TAMIS will operate in a

user friendly Windows environment and have expanded data collection capabilities.

TAS-NTEU NATIONAL PARTNERING COUNCIL

The Taxpayer Advocate Service and the National Treasury Employees Union

(NTEU) have established a National Partnering Council (NPC) to provide advice to

TAS senior management about programs and decisions that directly affect employees. The National Partnering Council is co-chaired by the Deputy National Taxpayer

Advocate and NTEU’s Assistant Counsel for Negotiations. The Council includes TAS

Directors and NTEU representatives.

The National Partnering Council’s mission is to serve as an integrative decisionmaking body for the Taxpayer Advocate Service. Although management retains its

right to make decisions, and NTEU retains its right to bargain and negotiate, the

National Partnering Council affords TAS leadership and NTEU representatives with

an opportunity to discuss employee concerns at the earliest stages of decision-making. We expect that if used appropriately, there will be fewer issues to bargain and

that when bargaining is required, the parties will be better prepared to discuss

issues and negotiate agreement. The National Partnering Council also provides

ideas and suggestions for the TAS Strategic Planning and Business Performance Review process. In this way, the Council links partnering efforts with TAS performance improvement.

At its first meeting in January 2001, the National Partnering Council established

three working groups, which address NTEU/Manager partnering relationships; TAS

technology needs; and employee satisfaction coordination (i.e., SURVEY 2001, an

IRS survey document used to monitor and address employee satisfaction issues

throughout the Service, the employee suggestion program, training needs, and other

initiatives to support employee satisfaction). More recently, the National Partnering

Council addressed the TAS strategic plan, TAS oversight of the President’s Quality

Award (PQA) assessment process, and delegations of authority to TAS employees.

The National Partnering Council meets six times a year. During fiscal year 2002,

the TAS–NTEU National Partnering Council will continue to explore ideas and initiatives for improvement of Taxpayer Advocate Service operations. Scheduled topics

include the National Partnering Council’s role in the IRS Strategic Assessment

Process; establishing a direct communications link to the National Partnering Council so that employees and managers can suggest ideas and receive information; deVerDate 11-MAY-2000 01:34 Sep 08, 2001 Jkt 074412 PO 00000 Frm 00027 Fmt 6633 Sfmt 6621 E:\HR\OC\B412.XXX pfrm02 PsN: B412
24

veloping unique and innovative ways to serve our customers and our employees; and

oversight of TAS-wide improvement initiatives.

CITIZEN ADVOCACY PANELS (CAP)

The Citizen Advocacy Panels were established beginning in June 1998. They have

proven to be a valuable partner, providing a forum for direct citizen input into IRS

decision making. Meeting schedules for the CAPs vary, however, each panel meets

at least quarterly and the meetings are open to the public. During fiscal year 2001,

the Department of the Treasury, in response to CAP member suggestions, expanded

the geographic boundaries of three of the four CAPs.

The South Florida CAP changed it’s name to Florida CAP and now includes all

64 counties in the state of Florida. Illinois joins the states of Wisconsin, Iowa and

Nebraska to form the Midwest CAP. The Brooklyn CAP changed it’s name to the

New York Metro CAP, which includes the five boroughs plus Nassau and Suffolk

counties. Washington, Oregon, Alaska, and Hawaii continue to comprise the Pacific

Northwest CAP.

When the initial commitment of each CAP member expired in March 2001, half

of the panel members agreed to extend their terms for one year to provide continuity to the panel and allow for staggered terms. Treasury and the IRS developed

a new recruitment model. The 2001 recruitment process incorporated lessons

learned from the 1998 pilot, and focused on the underrepresented geographic areas.

The CAPs kicked off a new marketing campaign in May 2001. The new marketing

material was developed to reach more and underrepresented taxpayers. In fiscal

year 2002, the CAPs will expand their outreach activities. The CAPs will continue

to serve as focus groups for the IRS in the areas of: notice re-design, penalty and

interest administration, filing season walk-in site locations, nationwide roll-out of

tax kiosks, and implementation of new Employer Identification Number (EIN) processes.

The Taxpayer Advocate Service provides staff and research support to the panels,

sponsors their recommendations within the IRS, and guides the recommendations

through the appropriate channels. Annual Reports are submitted to the Secretary

of the Treasury and the IRS Commissioner. Copies of all reports, events, meeting

agenda’s and minutes, and success stories can be found on their website at

www.improveirs.org.

BALANCED MEASURES

TAS developed ten balanced measures focused on customer satisfaction, employee

satisfaction, and business results as part of our modernization efforts. During fiscal

year 2001, we implemented nine of the measures and are collecting data to establish

baselines for our organization. Our tenth measure addresses internal customer satisfaction and will provide an assessment of TAS work products and business relationships from the perspective of the other IRS Operating and Functional Divisions.

We will work jointly with the IRS Operating and Functional Divisions to further

analyze the best means to implement and monitor this assessment as well as to establish National Customer Service Agreements. This measure is particularly sensitive since we must work effectively within the IRS while providing the service expected to our most important customers, taxpayers. Our balanced measures are set

forth in Appendix III.

In one effort to engage front-line managers in our balanced measures program,

we are currently expanding our balanced measures to include local level goals. During fiscal year 2001, local goal setting will be limited to quality business results

since we are still baselining many of our balanced measures. We selected two quality business results measures (casework quality index and case cycle time) for local

level goals and are making refinements as a result of the Strategic Assessment process. In Fiscal Year 2002, we will evaluate the initial results and plan to expand

local level goals to more of our balanced measures.

During fiscal year 2002 we will monitor our balanced measures, strategic objectives, and program goals and make improvements in partnership with the National

Treasury Employees Union. We will verify that our measures help us deliver the

unique mission of the Taxpayer Advocate Service:

‘‘We help taxpayers resolve problems with the IRS and recommend

changes that will prevent the problems.’’

Conclusion

In this report, I have set forth an aggressive program for fiscal year 2002 and

identified our essential areas of focus. The dedicated employees in the Taxpayer Advocate Service continue to face challenges related to our independence and modernization; however, the Taxpayer Advocate Service is poised to undertake the chalVerDate 11-MAY-2000 01:34 Sep 08, 2001 Jkt 074412 PO 00000 Frm 00028 Fmt 6633 Sfmt 6621 E:\HR\OC\B412.XXX pfrm02 PsN: B412
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lenging and interesting work ahead. I look forward to building on this foundation

and exploring the profession of advocacy within the Internal Revenue Service.

Thank you for the opportunity to report on my fiscal year 2002 objectives.

Appendix I

TAXPAYER ADVOCATE SERVICE FISCAL YEAR 2001 OBJECTIVES

1. Assist taxpayers in resolving problems with the IRS.

2. Identify and address systemic and procedural problems through analysis of the

underlying cause of the problem in order to take corrective action.

3. Identify and address operational issues that affect taxpayers.

4. Represent taxpayers’ interests in the formulation of policies and procedures.

5. Identify and develop legislative proposals to simplify the tax code and reduce

taxpayer burden.

6. Expand Taxpayer Advocate Services’ outreach opportunities to assist and educate external customers.

Appendix II

FISCAL YEAR 2002–2003 STRATEGIC OBJECTIVES

Major Strategies Operational Priorities Operational Priorities and Improvement Projects

1. Advocate changes in tax law

or procedures that reduce taxpayer burden and improve IRS

effectiveness

• Report to Congress the

most serious problems facing

taxpayers

• Develop and recommend

legislative proposals to address tax law complexity, equity, and taxpayer burden

• Advise Congress’ Joint

Committee on Taxation on the

complexity of legislation being

considered

• Continue to work with Operating Divisions and Members of Congress to achieve a

less burdensome process in

key areas of the tax law; assist in simplifying forms and

instructions.

• Partner with Research and

W&I on a study of the most

significant errors on individual income tax returns.

• Systematically analyze the

inventory of advocacy projects

to improve overall IRS service

to taxpayers and reduce the

number of cases coming to

TAS.

2. Improve TAS’ ability to

identify and respond to taxpayer concerns

• Train staff on the Taxpayer

Advocate Management Information System (TAMIS) and

Intelligent Query

• Seek resource support

through Research to develop

an improved process for gathering and analyzing data to

report to Congress on the top

20 taxpayer concerns

• Increase public awareness

of TAS

• Ensure that TAS employees

have the authorities necessary to resolve taxpayer

problems

• Review/revise case criteria

guidelines to ensure that TAS

workload is focused on taxpayers with hardships.

• Develop supporting information for legislative recommendations that address

underlying causes of workload.

• Conduct focus groups and

surveys.

• Conduct focused outreach to

practitioners and community

liaisons.

• Conduct a quality assessment of center campus casework to determine why the

Casework Quality Index

scores of the campuses are so

much lower than other offices.

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Major Strategies Operational Priorities Operational Priorities and Improvement Projects

Improvement Projects:

• Redesign and upgrade

TAMIS to improve trend analysis and to capture relational

data for root cause analysis.

• Examine the feasibility of

providing taxpayers with tollfree telephone access to TAS

caseworkers.

3. Identify significant sources

of TAS casework and work

with Operating Divisions on

strategies to reduce inappropriate TAS workload.

• Plan/implement outreach

efforts to taxpayers

• Propose content for Operating Division procedures

manuals and training that

leverages TAS experience

• Examine the sources of TAS

casework to determine whether work being performed is in

accord with TAS’ legislative

mandate

• Joint educational outreach

efforts with Small Business/

Self-Employed to address rising trend of unreported income by sole proprietors.

• Conduct ongoing TAS inventory Study and consult

regularly with the Operation

Divisions to analyze underlying causes of taxpayer problems and identify changes to

mitigate those problems.

4. Ensure that the human resources component of the Taxpayer Advocate Service is adequate to meet its workload demands

• Assure that the human resources component of the TAS

organization is adequately

sized, trained and supported

• Revisit the staffing model

study.

• Complete the hiring process

to ensure that TAS is able to

adequately address taxpayer

problems and systemic issues.

• Design and implement a

comprehensive, multi-year

training program for TAS.

• Coordinate with Operating

Divisions to cross-train TAS

and OD employees during formal training sessions and

CPE.

Appendix III

TAXPAYER ADVOCATE SERVICE BALANCED MEASURES

CATEGORY BALANCED MEASURE DEFINITION

Employee

Satisfaction

Employee satisfaction

score

The average level of employee satisfaction,

determined though the use of surveys.

Customer

Satisfaction

External customer satisfactionThe average level of customer satisfaction determined through the use of vendor conducted transactional surveys.

Internal customer satisfactionBeing developed.

Business Results (Quantity)

Closed cases A count of closed TAS cases. This measure does

not include non-criteria cases, such as duplicate

controlled correspondence cases.

Outreach resources spent

versus plan

A comparison of planned versus actual outreach

hours spent as outlined in local TAS outreach

plans.

Outreach effectiveness The percentage of cases that come to TAS through

direct taxpayer contact versus case referrals from

Operating Division employees.

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CATEGORY BALANCED MEASURE DEFINITION

Immediate advocacy

interventions

The number of actions taken expeditiously to correct a systemic problem when there is not enough

time for the normal corrective process.

Business Results(Quality)Case cycle time The average time (TAS received date to TAS

closed date) to resolve all regular cases worked in

TAS. This measure does not include non-criteria

cases, such as duplicate controlled correspondence

cases.

Casework quality index A measure of TAS effectiveness in meeting customer expectations based on a random sample of

cases reviewed and scored against customer service standards of timeliness, accuracy, and communication.

Long-term advocacy proposalsThe number of substantive initiatives being

worked by the Operating Division Taxpayer Advocate Staff to improve IRS processes and procedures.

tions?

Chairman HOUGHTON. Mr. Coyne, would you like to ask quesf Mr. COYNE. Thank you, Mr. Chairman.

Ms. Olson, in your earlier role as the head of the first independent low-income tax clinic, what were the major reasons at that

point that taxpayers sought clinic advice?

Ms. OLSON. Many of them were collection issues or earned income credit issues.

Mr. COYNE. Earned income credit?

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Ms. OLSON. Earned income credit cases, and many of the earned

income credit cases were in the collection arena. The taxpayers had

not been able to represent themselves well in the examination

audit side, and the decision just stood that they weren’t entitled to

it, and so we were dealing with collection issues at the same time

as trying to prove that they were entitled to the earned income

credit.

We also saw things like independent contractor employee classification people being treated as an independent contractor and not

paying Social Security tax on their wages and owing tax because

of that, but, again, we were in the collection mode there as well.

Mr. COYNE. As we move ahead in simplification of the Tax Code,

do you have any recommendations today that the Committee ought

to take into consideration?

Ms. OLSON. I do believe that the Joint Committee’s complexity

report and—simplification and complexity report—the uniform definition of a qualified child for the earned income credit, head of

household, dependency exemption will go a long way toward simplifying the law for a large number of taxpayers. It will also simplify

the administration of that provision, the earned income credit. Because by coming up with a uniform definition it will be easier for

the IRS to test whether somebody meets that test. It is less complex, we’re going to make less intrusive inquiries, and we can use

third-party information to do it. So, in many instances, we wouldn’t

even have to contact the taxpayer before we could conclude, yes,

they are entitled to it. So that would both administratively and for

taxpayers reduce burden enormously.

Mr. COYNE. Well, thank you for your service as National Taxpayer Advocate; and thank you, Mr. Chairman.

Chairman HOUGHTON. Thank you. Mr. Portman.

Mr. PORTMAN. Thank you, Mr. Chairman.

Ms. Olson, we appreciate your testimony today and, more importantly, the work you are doing as a Taxpayer Advocate. You

jumped into this with a lot of great experience, including with some

of your colleagues who are on the panel with you this afternoon,

and a lot of energy and enthusiasm, and this report reflects that.

You have set out in this report some fairly ambitious objectives

for the next fiscal year. You have also indicated some of these objectives may not be achieved in the next fiscal year and some of the

questions may not be answered.

I guess I have two questions for you. One would be, do you feel

as though the current focus on individual cases—the caseload is

growing, and it is—one of the objectives you are going to do is to

look into whether that is appropriate and how that might be

changed over time, but do you feel as though you have adequate

time to address some of the root causes of some of the complexity

and some of the problem areas per Mr. Coyne’s question, or do you

feel as though you are just so overwhelmed with individual cases

and managing that that you do not have time to back up and take

a look at some of the root causes?

Ms. OLSON. I think that actually we have a very good balance

right now in terms of being able to look at the larger issues and

to give you information that you need and can use. The cases that

I am concerned about us getting are what I call the overflow cases,

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the ones that should have been resolved at the first point of contact, the operating divisions; and what is heartening to me is that

I have been very vocal within the IRS about this happening.

Again, our inventory studies showing that 80 percent of our cases

are made up of that, that is to me an unacceptable ratio and that

we are going straight back to the operating divisions to find out

why this is happening and how that can be changed. I feel that if

we get that under control then the cases that we really are getting

into, the Taxpayer Advocate Service, will be ones that are indicating either legislative or administrative problems, not just overflow problems, but things that need to be fixed in one of those two

arenas and will point out things that then we should be working

on on a policy or recommendation side. I am concerned that we are

not getting as much information as we could because we are dealing with these overflow cases.

Mr. PORTMAN. So many of those cases are simply first impression

cases, they haven’t exhausted the normal procedures and therefore

may or may not reflect some more serious problems with the system or laws as they stand or practices, procedures.

Ms. OLSON. Right.

Mr. PORTMAN. The other question I have is really one of a judgment call on your part. I again am impressed with the goals that

you are undertaking over the next fiscal year and, as you say in

this report, beyond, but I am also concerned that you may be taking on too much.

As the IRS goes through a very difficult time of compliance with

some of the legislation passed in the IRS Restructuring and Reform

Act 1998 (RRA) and some of the internal changes that actually

began before RRA was enacted, including restructuring, including

new performance measurements, including the modernization efforts, there are—and including figuring out how to deal with some

of the new RRA restrictions on individual employees, it is a concern

of mine that the Taxpayer Advocate continue to do its job in a

steady and focused basis and not add to, frankly, some of the dislocation and confusion that is going on with the restructuring and

reorienting of the IRS. Yet your questions that you anticipate looking at in the next fiscal year are very fundamental questions.

For instance, what is the role—what is the extent to which you

should be resolving problems rather than kick them back into the

normal system? What should the appropriate composition be of

your inventory according to hardship criteria? What standard

should you be held to? What is the appropriate measure of success,

which is a difficult question again the larger entity is working

through.

My only question to you is, is this the appropriate time for you

to take on some more of these fundamental issues when through

RRA we just went through this process in a sense looking at what

happened in 1996, coming back in 1998, reviewing it, establishing

more independence, establishing, frankly, some better pay so that

we could attract and keep good people in the Taxpayer Advocate

system. Is this the right time to be going back and looking at some

of these fundamental problems when the caseload is high and the

system itself is under quite a bit of stress?

30

Ms. OLSON. My employees—those questions came in large instances because my employees were asking them of me. The question about when can we say no to cases is very hot in their minds,

and I felt that we needed to begin a discussion about it.

Mr. PORTMAN. Saying no to cases as they come from the Service

or saying no because they think the taxpayer may not have a valid

case?

Ms. OLSON. Saying that this is not yet a Taxpayer Advocate

Service case. They were asking me that question, and I thought we

needed to begin that dialog, not reach an answer necessarily because I think it is a very difficult question, but to ignore it would

be putting them in a state of limbo.

Mr. PORTMAN. The simple answer would be in the overflow cases

that it is not, because it would be again a case of first impression

without going through the normal process.

Ms. OLSON. Right, and yet where is the rest of the IRS at the

time? Can we send them back if there is nobody there to take them

because they are dealing with something else? That is a difficult

thing. The same kinds of questions. What does it mean to be an

advocate?

To some extent, that was in response to many people that I

heard from the practitioner community saying to me we had a case,

the Taxpayer Advocate helped us take it to exam, and exam said

the same answer that they have given us all along. And the Taxpayer Advocate said, well, this is what exam said; and they didn’t

push back, they didn’t say, well, think about this again.

So we thought that there should be a beginning of a dialog about

what is advocacy within the IRS, how is it different from being an

advocate outside of the IRS. And my employees, when I started

talking about that in townhall meetings, were very excited about

that. I think it is helping them define for themselves what their

role really should be, and I am looking at this as a discussion with

them, and so far they have stepped up to the plate. It is not a burden for them.

Mr. PORTMAN. Without necessarily sort of turning the Taxpayer

Advocate system upside down, as we have done with the IRS, for

good reason, but without distracting folks from their primary mission.

Ms. OLSON. Right.

Mr. PORTMAN. Thank you, Mr. Chairman.

Chairman HOUGHTON. Mr. Pomeroy.

Mr. POMEROY. Well, considering the hour and other witnesses,

Mr. Chairman, I will be very brief.

I would just first of all want to commend Ms. Olson.

The public perception of a tax collection system that operates

with integrity and responsiveness is incredibly important. Often

Congress I think, even while it is legitimately concerned about inequities in the Tax Code or operations of tax collection, end up

scoring the cheap political hit of demonizing the IRS and in the end

just bringing discredit upon this essential function of government.

That really serves no constructive purpose, spreads broad constructive cynicism, and increases noncompliance.

Basically this Taxpayer Advocate function is a very important

and appropriate way in which we try to listen very carefully to the

31

taxpayers, respond to them, make systems changes that the input

brings us to. So as the person in charge of all that I really do commend you.

I would say that your work is not complete in that 12 States do

not have clinics, and one of them is mine, and I would like to work

with you on that. Certainly, the 102 tax clinics in the 38 States

where you have reached already, pretty darn impressive, and let’s

get a 50–State representation, with North Dakota being the 39th.

Ms. OLSON. I agree.

Mr. POMEROY. I yield back, Mr. Chairman.

Chairman HOUGHTON. OK. Fine. I am not going to ask any questions because I will be able to talk to you personally here, but I

want to thank you very much. If you want to stay, fine. You don’t

have to. What we will do is go right on to the other Members of

the panel.

I have got three people who evidently have to get out of here

fast—Alan Cohen, Dixon Rich. Is that right, Mr. Rich?

Mr. RICH. I have an 8 o’clock flight, so I am in no rush, I don’t

think.

Chairman HOUGHTON. Anyway, I am going to call on Mr. Cohen

first.

STATEMENT OF ALAN H. COHEN, DIRECTOR, LOW-INCOME

TAXPAYER CLINIC, ITHACA COLLEGE, ITHACA, NEW YORK

Mr. COHEN. Mr. Chairman and distinguished Members of the

Subcommittee, I am pleased to appear before you today to address

the Subcommittee on matters relating to funding and performance

of low-income taxpayer clinics.

The Low-Income Taxpayer Clinic at Ithaca College.

Ithaca College is a fully accredited, independent institution of

higher education offering bachelor’s and master’s degrees to approximately 6,000 students. Tompkins County, New York, has

98,000 residents. Nineteen percent of them are below the poverty

level, and 11 percent represent English as a second language (ESL)

communities.

This tax season, senior accounting majors had training in 6 credit hours of taxes and also passed the Volunteer Income Tax Assistance program (VITA) volunteer exam certification. Sixty-five ESL

taxpayers, approximately 40 families, tax preparation was conducted at the ESL community sites because it is easier for ESL

taxpayers to be more familiar with locations and translators. Returns were computerized and e-filed; and, in addition, 70 international students were assisted at more workshops in the preparation of 1040 NRs.

To insure quality control in the preparation of ESL tax returns,

the clinic participated in a peer review of client tax workpapers.

The accounting firm of Dannible & McKee CPAs of Syracuse, New

York, conducted an on-site review of the clinic’s 2000 tax practice.

At a meeting at the IRS Buffalo District in September, the IRS

administrators confirmed that approximately only 2 percent of the

taxpayers of Tompkins County were selected for a tax audit; and

few, if any, were low-income taxpayers.

Given this information, advocacy services of an LITC in a less

densely populated rural environment may have fewer clients to

32

serve. We recognize that the most controversial issue at this time

is LITC compliance and that our area has one of the largest percentage of individuals below the poverty level. If the Service decides to initiate compliance testing with respect to LITCs, a partnership with LITCs could prove most advantageous.

Tax advocacy is surely needed, but is this the only solution to the

low-income taxpayer problem? I think not. There are approximately

12 to 15 million taxpayers who would qualify as low-income taxpayers. It makes perfect sense that the issue of clearly understanding technical tax complexities are similar for low-income taxpayers as well as ESL clients. The bigger and as yet unmet need

of low-income taxpayers is tax preparation.

This past tax season the Service prepared approximately 500,000

tax returns, primarily for low-income taxpayers. The returns were

prepared by revenue agents, supervisors and other selected IRS

technicians who were reassigned to the taxpayer assistance centers

across the Nation. What is the cost of this service? What is the lost

opportunity cost to the IRS? Is there a better way?

I and many others believe pilot programs are needed immediately to more fully address the needs of low-income taxpayer

preparation, to work more closely with the IRS to increase compliance and accuracy for earned income tax credits (EITC) and other

low-income taxpayer issues and, most importantly, to assist the

IRS in shifting the unrealistic burden that it has undertaken as

the tax preparer for one-half million taxpayers.

Business schools and accounting programs could also provide an

excellent venue for low-income taxpayer preparation. Funding

guidelines could be similar to the LITC grant application process.

Resources could be used for training, computers, procedures for

electronic filing.

In summary, the LITC grant project for academic institutions is

an excellent example of scholarship of engagement. The LITC

connectiveness of government, taxpayers, private/non-profit institutions and the classroom all combine to provide a truly needed service. Everyone benefits: The eligible taxpayer receives a very needed

free professional service; the academic institution fulfills its community responsibilities for outreach; the government achieves compliance and increased electronic filing; and the classroom environment flourishes. The LITC at Ithaca College ranks as one of the

most rigorous and rewarding college experiences for the student

volunteers.

Mr. Chairman, thank you for this opportunity to come before this

Subcommittee and discuss the impact LITCs are having on taxpayers.

[The prepared statement of Mr. Cohen follows:]

Statement of Alan H. Cohen, Director, Low-Income Taxpayer Clinic, Ithaca

College, Ithaca, New York

Mr. Chairman and Distinguished Members of the Subcommittee:

I am pleased to appear before you today and to address the Subcommittee on matters relating to funding and performance of Low Income Taxpayer Clinics (LITCs).

The LITC at Ithaca College, Tompkins County New York

Ithaca College is a fully accredited, independent institution of higher education,

offering bachelor’s and master’s degrees to approximately 6000 students (Fall 2000).

The School of Business offers B.S. degrees in Accounting and Business AdministraVerDate 11-MAY-2000 01:34 Sep 08, 2001 Jkt 074412 PO 00000 Frm 00036 Fmt 6633 Sfmt 6621 E:\HR\OC\B412.XXX pfrm02 PsN: B412
33

tion, as well as an MBA degree. Within the Business Administration degree are concentrations in Accounting, Electronic Commerce, Finance, Human Resource Management, International Business, Legal Studies, Marketing, and Management.

The College is located in Tompkins County, which has about 98,000 residents. In

addition to the permanent residents and Ithaca College’s student population, Cornell University enrolls nearly 18,000 students including 7,000 graduate students.

Approximately 7.3% of the Town of Ithaca’s population is of Asian origin, primarily

Chinese, and there are sizeable Hispanic and Eastern European communities. In addition, a substantial number of Cornell students, especially graduate students,

speak English as their second language (ESL). Tompkins County has one of the

highest percentages in the state of individuals below the poverty level—18.9% of the

county’s population according to 1990 census data. In addition, most of the immediately surrounding counties are, like Tompkins, marked by farms and small villages with low average family incomes and limited resources for tax preparation

and/or advocacy services. The IC LITC serves Tompkins County and the contiguous

counties of Cayuga, Seneca, Schuyler, Cortland, Tioga and Chemung within a 50-

mile radius of the City of Ithaca.

The Ithaca College LITC initial grant was approved on April 1, 2000, with an extension to December 31, 2000. The initial start-up phase occurred over the nine

months from April 1 to December 31, 2000. From April 1, 2000, the LITC developed

partnerships with a community network that began contact with target groups of

ESL and low-income taxpayers. The start-up period was used to establish contracts

and create a strong infrastructure for the 2000 tax year.

The clinic established an ongoing community action group to assist and advise

ways to best contact target groups. Members included Ed Swayze of the Tompkins

County Information and Referral Service, Ann Gifford of Cornell Cooperative Extension (which has broad, multi-county regional outreach), and Jeanne Henderson of

RSVP. The group meets monthly.

During the nine-month grant period, a wide variety of community partners were

enlisted and oriented.

Community Partners ESL/Low-Income

• BOCES (Board of Cooperative Educational Services)555 Warren

Road, Ithaca, NY 14850.

ESL

• Literacy Volunteers of Tompkins County Inc. 124 W. Buffalo

Street, Ithaca, NY 14850.

ESL

• Ithaca Housing Authority798 S. Plain Street, Ithaca, NY 14850 ESL

• Catholic Charities of the Southern Tier/Hispanic

Community324 W. Buffalo Street, Ithaca, NY 14850.

ESL

• Cornell University UAW Union ESLLow-Income

• Greater Ithaca Activities Center (GIAC)318 N. Albany Street,

Ithaca, NY 14850.

Low-Income

• Southside Community Center, Inc.305 S. Plain Street, Ithaca,

NY 14850.

Low-Income

• TCE/RSVP121 W. Court Street, Ithaca, NY 14850 Low-Income

In all of the above, there was a substantial and successful effort to make community network partners aware of ESL and advocacy services and to create an infrastructure for the 2000 tax season.

Publicity was extremely thorough and extensive, and will continue under secondyear funding. Steps taken included:

• Letters to 67 Human Resources Directors of Corporate/Social Services Agencies (Letter, business card, brochure)

• Tompkins County Website—Informational and Referral Services (Human

Services Conditional)

• Design/Production—Poster

• Design/Production—Brochure Distributed to Social Services brochure racks at

21 locations and distributed with program letters.

• Newspaper Announcements: Ithaca Journal, Pennysaver, Cortland Standard

• Radio: Public Service Announcements (Continued 2001 grant period)

34

Tax Season Calendar 2000

ESL—Targeted groups were not able to participate in the 1999 tax season due to

the lateness of grant awards. Therefore, all efforts were directed towards Community Partnerships, ESL classes, and administrative setup to provide preparation for

the 2000 tax season.

The 2000 tax season commenced February 1, 2001. Our clinic had twelve senior

accounting majors as LITC Volunteers. Each student was required to take a 3 credit

senior-level tax course (Fall 2000) and a 3 credit senior tax workshop course (Spring

2001). In addition to the traditional syllabus requirements, all tax volunteers completed the Volunteer/Income Tax Assistance (VITA) Workbook and Compliance

Exam. Supplemental VITA tax material for resident and non-resident aliens was

also provided by the IRS. Specific training regarding ESL taxpayers was also delivered by Community Partners experienced with ESL constituencies.

Prior to the tax preparation season, arrangements were made with Community

Partners to conduct onsite tax preparations at their own locations. This allowed ESL

tax clients easy access of location and familiarity with translators. Forty families

were serviced at three different site locations.

All tax returns were computerized and all but one was electronically filed. The

one exception was that of a family whose son had independently filed, therefore preventing the full utilization of a dependency exemption. The son’s return needed to

be amended and both parties filed manually. Another very rewarding experience

concerned a Russian family, mother and daughter. The daughter spoke English and

translated for the family. The tax return was eligible for the EIC and Child Credit.

The taxpayer received a substantial refund and the mother and daughter were overwhelmed with joy.

Additionally, four separate workshops were provided to Ithaca College international students. Approximately 60 taxpayers participated in the hands-on tax

preparation of their federal and New York State non-resident tax returns. At one

of the workshops, an Ithaca College international student questioned an IRS deficiency letter regarding his 1999 federal non-resident return. Apparently, an income

tax had been assessed on scholarship income. The student taxpayer, being unfamiliar with IRS tax correspondence, paid the tax deficiency of approximately

$2,100.00. After proper review, an amended tax return was filed and the student

received a full refund.

To insure quality control in the preparation of ESL tax returns, the clinic participated in a peer review of client tax workpapers. The accounting firm of Dannible

& McKee CPAs of Syracuse, New York, conducted an onsite review of the clinic’s

2000 tax practice. An unqualified report was issued and no material exceptions were

noted. For the record, on behalf of the LITC Volunteers and Ithaca College, a sincere thank you to Mr. Christopher Didio, partner, Bridget Reilly, staff assistant, and

the firm of Dannible & McKee CPAs, for volunteering the critically needed independent quality control review.

LITC Funding and Application Process

The grant period 10/1/99–9/30/00, which was Ithaca College’s first year, was not

approved for funding until March 30, 2000. The administrative delay prevented ESL

tax preparation for the 1999 tax season. Notwithstanding this event, the clinic commenced its start-up phase on April 1, 2000. The grant period then was administratively extended from 9/3/00 to 12/31/00, to allow for easier record-keeping and a better matching of academic and government calendars. This change to a calendar year

grant was well received by grant recipients.

Competition for the 2001 LITC Grant was very keen. Increased applications and

IRS competitive checklists made the selection process rigorous. Ithaca College received a grant in the amount of $26,867. The Ithaca College administration and faculty are extremely proud to be part of the 2001 academic grant recipients, which

represent many prominent academic institutions across the nation.

The Partnership Between the LITC and the IRS

Almost immediately, grant recipients urged the IRS to take an active role in promoting LITCs to eligible taxpayers. The clinics were in favor of ‘‘stuffers,’’ announcements of LITCs, their services and locations. The stuffers would be added to the IRS

mailings pertaining to audit, compliance inquiries (EITC), collection and other taxpayer correspondence. This is a very delicate and sensitive issue and currently the

Service is working on a solution.

On September 7, 2000, I traveled to Buffalo, NY, for a meeting with Hanna Cohn,

Director of the LITC at Volunteer Legal Services of Monroe County New York, the

Buffalo District Director, and various IRS department administrators. At that meeting, many issues were discussed, two of which were significant. First was the promVerDate 11-MAY-2000 01:34 Sep 08, 2001 Jkt 074412 PO 00000 Frm 00038 Fmt 6633 Sfmt 6621 E:\HR\OC\B412.XXX pfrm02 PsN: B412
35

ise of active participation from the IRS regarding stuffers and marketing. Second

and more importantly was the issue of our local IRS office (Elmira-Binghamton, NY)

contacting or referring low-income taxpayers who are currently being examined to

the Ithaca College LITC. I was graciously allowed to ask questions regarding the

total number of current audits, collection proceedings and EITC compliance letters.

Without being specific, I was informed that the audit selection process covered approximately 2% of the taxpaying population and substantially all were not with lowincome taxpayers. If this is correct, advocacy services of an LITC in a less densely

populated rural environment may have fewer clients to serve. We recognize that the

most controversial issue at this time is EITC compliance and that our area has one

of the largest percentages of individuals below the poverty level—18.9%. If the Service decides to initiate compliance testing with respect to EITCs, a partnership with

LITCs could prove most advantageous.

As part of the LITC grant, recipients were required to participate in an annual

tax conference. In April 2001, the group met in Washington, DC, sponsored by the

American Bar Association Section of Taxation. The first day was devoted to the IRS,

grant procedures, and administrative audit requirements. The groups were separated into academic and non-profits. The second day was spent discussing advocacy

and was expertly facilitated by the presentations of law school faculty. This was my

first meeting at a LITC conference. In the future, more emphasis should be placed

on ESL problems and solutions. The partnership between the IRS and LITC is new;

it has to mature. Given the new climate at the IRS, I am confident the relationship

will grow and be beneficial to the targeted taxpayers.

Are LITC’s Fulfilling all the Needs of Low Income Taxpayers and ESL Constituencies?

The beginning years of the LITC grant program have had a successful record of

increasing grant applications and increased funding. Academic and non-profit institutions have answered the call and are providing the advocacy for low-income taxpayers and professional tax services for ESL constituencies. A review of the 2001

grant recipients includes, among others, professionally qualified advocates from

well-known law schools, universities, and established legal clinics. The remainder of

grant recipients represent specific ESL contingencies. I am confident as applications

increase further that additional funds will be made available by Congress to continue this outstanding program.

Tax advocacy is surely needed, but is this the only solution to the low-income taxpayer problem? I think not. There are approximately 12–15 million taxpayers who

would qualify as low-income taxpayers. Nina Olson stated in her testimony to this

committee on April 3, 2001, ‘‘—essentially taxpayers whose income is so low as to

be eligible for the Earned Income Credit are a captive market for return preparers

who are not very accurate or who are not making the proper inquiries for their clients in order to accurately complete returns.’’ Ms. Olson also remarks about the

non-compliance problems of the EITC. It makes perfect sense that the issues of

clearly understanding technical tax complexities are similar for low income taxpayers as well as ESL clients. The bigger, and as yet, unmet need of low-income taxpayers is tax preparation.

Recently the Internal Revenue Service reorganized; this great undertaking is an

exciting administrative change. The Service’s enlightened attitude towards taxpayers is refreshing. However, does the IRS also believe that tax preparation to lowincome taxpayers is important? Absolutely! This past tax season, the Service prepared approximately 500,000 tax returns primarily for low-income taxpayers. The

returns were prepared by Revenue Agents, supervisors, and other selected IRS technicians who were reassigned to Taxpayer Assistance Centers across the nation.

What is the cost of this service? What is the lost opportunity cost to the IRS? Is

there a better way?

Mr. Chairman, our own Congressional district has an unusually large number of

citizens below the poverty level. When you apply the 250% of poverty level limit required by LITCs, the eligible taxpayers increase. In Tompkins County, which has

approximately 98,000 people, possibly 20,000–25,000 could qualify as low-income

taxpayers.

In Ithaca, taxpayer preparation for low-income taxpayers is provided by one TCE

Clinic, RSVP, which services 1,200 taxpayers, and one VITA site at Ithaca College,

which assists 200 taxpayers. Where do the remaining low-income taxpayers go? Is

the tax preparation fee commensurate with the professional service performed? Are

there hidden fees for processing and fast refunds?

I and many others believe pilot programs are needed immediately to more fully

address the needs of low-income taxpayer preparation, to work more closely with the

IRS to increase compliance and accuracy for EITCs and other low-income taxpayer

36

issues, and most importantly, to assist the IRS in shifting the unrealistic burden

it has undertaken as the tax preparer for one-half million taxpayers.

One proposal already being considered in the Senate is funding for VITA programs. VITA sites now provide an excellent venue for low-income taxpayer preparation. Funding guidelines would be similar to the LITC grant application process. Resources could be used for training, computers and procedures for electronic filing.

VITA programs can now process tax returns (computerized/e-filed) for approximately

$25. When you contrast this with the IRS’s cost per tax return, VITA funding as

a pilot project is worth exploring.

Summary

In summary, the LITC grant project for academic institutions is an excellent example of the Scholarship of Engagement. The LITC connectiveness of government,

taxpayers, private/non-profit institutions and the classroom, all combine to provide

a truly needed service. Everyone benefits: the eligible taxpayer receives a very needed free professional service; the academic institution fulfills its community responsibility for outreach; the government achieves compliance and increased electronic filing; and the classroom environment flourishes. If properly supervised, the classroom

becomes a professional tax practice. This environment nurtures communication

skills, training, computerization, tax work papers, quality control, electronic filing,

and professionalism. The LITC at Ithaca College ranks as one of the most rigorous

and rewarding college experiences for the student volunteers.

Mr. Chairman, thank you for this opportunity to come before this subcommittee

ciate you being here representing our part of the country. You are

and discuss the impact LITCs are having on taxpayers.

Chairman HOUGHTON. Thanks a lot, Mr. Cohen. I really appref great. If you have to leave, do so or at any time because we are

going to go through the panel and then have some questions.

So what I would like to do is to ask Mr. Rich—Mr. Rich, would

you like to testify? Why don’t you just turn on the mike then.

STATEMENT OF DIXON R. RICH, JR., ADJUNCT PROFESSOR,

AND FACULTY MEMBER, LOW–INCOME TAXPAYER CLINIC,

UNIVERSITY OF PITTSBURGH SCHOOL OF LAW, PITTSBURGH, PENNSYLVANIA

Mr. RICH. Thank you. Good afternoon or at this point good

evening, Mr. Chairman and Members of the Oversight Subcommittee; and I would particularly like to thank Congressman

Coyne for inviting me personally down to explain the University of

Pittsburgh’s program to you.

Basically, I would like to discuss three aspects of the program—

basically, our clients, our students and our cases—and then, second, like to take a look at a short review of what has worked good

for us and what hasn’t and then a recommendation, third.

Specifically, the University of Pittsburgh School of Law has a tax

advocacy LITC. We don’t prepare tax returns. We help people with

problems with the IRS. We answer all calls, and we refer taxpayers

that have preparation problems to the VITA programs that exist in

the area. And if a taxpayer calls with a frivolous claim, we send

them on their way. We don’t waste any time on frivolous claims.

Where our clinic is located, it is centrally located in Pittsburgh,

at the University of Pittsburgh Law School next to the Law Library. The building is open during the day and the evenings so people that have to work don’t have to miss work to meet with us.

It is a great opportunity because in the Pittsburgh area prior to

this clinic there was no place low-income taxpayers could go for

37

help except the IRS, and when they go to the IRS—and they have

expressed this and the clients I have talked to—they don’t get the

same comfort level that they do coming to talk to us. Once they realize that they are talking to somebody on a confidential basis and

they can tell us the whole story, whereas if they are talking to the

IRS they have to watch what they say, I think that also speeds up

their process. Because once they know that we are available, they

are willing—the last thing they want to do is have a tax problem

hanging over their head. But the second-to-last thing they want to

do before that is to call themselves. So if they understand, hey, we

can talk to these people, we can sign a power of attorney, and they

can take care of the problem with us, I mean, we have to pay whatever we owe or do whatever we have to do, but it really helps resolve problems a lot quicker.

To respond to what Nina said, when somebody gets a notice in

the mail, they get one notice, they don’t do anything. They get two

notices, it starts snowballing on them. Then, before you know it,

they are in collections when they might have had just to send a

birth certificate in to prove that their child they claimed the earned

income credit for was actually their child.

Because one thing that I have found is that you don’t run into

traditional family units. You might have people with last names

being the mother of somebody, you know, and it is just not as easy

as it used to be to prove these things.

So having qualified students—and our students, second—and

third-year students, a lot of them have a surprising amount of general and public accounting experience; and they are almost all law

clerks. So they are very well represented, and the IRS has been

very cooperative in working with the students. Also, the IRS in our

area has been very cooperative in helping get our names out.

The Collections Division is an area—and that is the one recommendation I have to make—is the one area where we could help

a little more with getting notices—because lawyers aren’t allowed

to target people, but in this instance where you have a notice going

to taxpayer, it is easy to—well, I shouldn’t say it is easy because

of the logistics of which taxpayers get the notice and not—but to

stick a little piece of paper in the notice that says, here, if you are

within 250 percent of the poverty level you can call these people

and get help. I think that really speeds up the process, and it

might cut into the dead weight that Nina’s coming across.

In particular, we have had all kinds of clients. Our clients are

singles, single and married moms and dads, abused spouses, disabled taxpayers and retired taxpayers. The types of situations and

the cases we have—we have had two Tax Court cases. I have only

been there a year, but we have had two Tax Court cases, both of

which we have prevailed on, and stipulated cases where there

aren’t any trials. We just go in and prove—we sit down, do what

we have to prove, and the case is over. We are not wasting any Tax

Court time.

We have also had a lot of issues with dependency and claiming

exemptions, filing status, proving head of household, things like

that, and offers in compromise, installment agreements, formally

and informal, cases where we have the IRS, the Service Center will

issue out a 1099 matching audit.

38

Well, this one poor lady, a relative did her tax return for her. She

got a big tax bill. Well, what we did—she did miss some income,

but what she also missed was a bunch of expenses and deductions.

We took care of that. She still owes a little money, but it is a whole

lot less. That was for 1999, and for 2000 we are just going to do

the same thing. So we are really killing two birds with one stone

there. You know, we have one taxpayer and we have cleaned up

2 years in matter of a couple of months.

So I think this is one area I know in the Pittsburgh area where

there were no legal clinics before. If you had a family problem, you

could go to one place, but you couldn’t go to anyplace with a tax

problem.

The one area where I really think the IRS and where I would

recommend we help is the stuffer notices. I know in Pittsburgh, the

appeals office, the taxpayer service office, the walk-in office, they

have been very helpful. They tell people, hey, if you have a problem, call these people and PITT will help you. But the actual notices, the collection notices that go out of Philadelphia and the

automated collection system, if you could stick notices in them, I

think you could really help a lot of taxpayers and cut down a lot

on—you could target who we need to help.

I mean, targeting people when you are a lawyer isn’t good, but

in this situation, I mean, that is our audience. Taxpayers are who

we are supposed to help. They get a notice, and it would be easy,

I would think, to include our blue stuffer notices with all of the

other notices that go out of Philadelphia.

From the students’ perspective, I think it really helps our students in the skill of learning how to meet a client, to gain their

confidence and to interview a client and to gather the information

necessary to prove your case to the IRS, especially in our situations

because sometimes the evidence isn’t as clear. There isn’t a checkbook or leases, things that normal people have.

In closing, I really thank the fact that you are giving low-income

taxpayers an opportunity for confidential independent help other

than the IRS. When they walk into our office they are nowhere

near the Federal building, and it gives them a comfort level and

gives them the ability to promptly respond without having a sword

or something hanging over their head.

Thank you very much for giving me the time this afternoon. My

testimony goes into a lot more detail, but I just wanted to really

concentrate on the fact that, up until you guys and ladies have

started this program, there was no other program like this, and I

want to thank Nina for doing so.

[The prepared statement of Mr. Rich follows:]

Statement of Dixon R. Rich, Jr., Adjunct Professor, and Faculty Member,

Low-Income Taxpayer Clinic, University of Pittsburgh School of Law,

Pittsburgh, Pennsylvania

Good afternoon, Mr. Chairman and Members of the Oversight Subcommittee. My

name is Dixon R. Rich, Jr. I am a tax attorney in Pittsburgh, Pennsylvania, and

an adjunct professor at the School of Law of the University of Pittsburgh. I have

been involved as a faculty member of the Low-Income Taxpayer Clinic for the past

year.

I wish to thank the Subcommittee and Congressman William Coyne in particular

for this opportunity to share our perspective of and our experience with the LowIncome Taxpayer Clinic at the University of Pittsburgh. I would also like to extend

39

the regrets of Clinic Director, Professor Martha M. Mannix, who is unable to take

part in the hearing today.

We greatly appreciate the three-year funding from the Internal Revenue Service

(IRS) and believe the Low-Income Taxpayer Clinic (LITC) provides a much-needed

community service to individuals who have few other avenues of assistance, at the

same time it is a unique and valuable professional learning experience for second

and third year law students.

I would like to cover three aspects of our experience for you: first, a brief description of the Clinic at the Law School including its history, its clients, its students

and its cases; second, a short review of what has gone well for us and our clients;

and third, a recommendation for the future that we believe could improve what is

already a highly-effective program.

The Low-Income Taxpayer Clinic at the University of Pittsburgh is one of PITT

Law School’s four student clinics: tax law, health law, elder law and environmental

law, that provide important legal services to the community and professional,

hands-on training for future lawyers. As a result of receiving the funding award

from the IRS, Professors Martha M. Mannix, Thomas D. Arbogast and Leo N. Hitt

organized the Clinic during 1999, which then opened its doors to clients and students in January 2000.

Specifically, the University of Pittsburgh School of Law LITC is an ‘‘advocacy clinic.’’ We assist low-income taxpayers with resolving open issues with the IRS. We respond to all inquiries and refer tax preparation requests to local VITA programs.

PITT’s LITC is housed adjacent to the law library with the Law School’s other student clinic offices, where Ms. Stacey Patrick, our LITC administrative assistant, receives client and student messages and correspondence and maintains our client

files.

The Clinic is centrally located on the main boulevard in the Oakland neighborhood of Pittsburgh and easily accessible by public transportation. The building is

open during the day and evening, enabling students to meet with taxpayers without

taxpayers missing work.

The LITC program provides low-income taxpayers an opportunity for free tax assistance that is confidential and independent from the Internal Revenue Service.

Unlike the IRS Walk-in Taxpayer Assistance offices, our LITC is physically separate

and independent from the IRS. This provides low-income taxpayers with a comfort

level they cannot obtain from assistance provided by IRS employees.

Prospective clients usually ask about our connection with the IRS. Once they understand we are independent and that their conversations are confidential, clients

feel more relaxed and are more inclined to fully explain their situation. By executing

a Power of Attorney, low-income taxpayers are afforded representation before the

IRS and the luxury of not having to personally talk and correspond with IRS employees. Clients are candid that the anxiety of talking with IRS employees creates

stress that snowballs with each notice and delays them from responding to IRS notices. After contacting a LITC, an eligible taxpayer is more likely to promptly respond to IRS notices.

During the past year, we have been contacted by approximately sixty (60) taxpayers and have accepted and represented thirty-eight (38) clients. Our clients are

all ages and consist of singles, single and married moms and dads, abused spouses,

disabled taxpayers and retired taxpayers.

This past year we had eight (8) students during the fall 2000 semester and ten

(10) during the spring 2001 semester, nine (9) women and nine (9) men. Many of

the students have public accounting, general accounting or law firm clerking experience, so our clients are represented by qualified students that are assisted and

closely monitored by our LITC faculty. Upon receipt of an inquiry, a specific student

is assigned to contact the taxpayer and interview them to determine their eligibility.

If the taxpayer is eligible, the student proceeds with the representation and prepares an engagement letter. On average, each student handles one (1) to four (4)

cases/clients. Any student without an active case is assigned to specific marketing

projects.

We field general questions from taxpayers. Over the past year we have handled

two Tax Court cases involving a taxpayer’s eligibility for head of household filing

status and the earned income credit. Both cases were settled in favor of the taxpayer by stipulation, without the need for a trial, thereby saving court time. We

have responded to IRS notices requesting further proof from taxpayers filing as

head of household, claiming exemptions for dependents and claiming the earned income credit. We have contacted a bank and corrected the amount of income reported

on a Form 1099 when it foreclosed on a low-income taxpayer’s residence, then prepared an amended tax return reducing the discharge of indebtedness income recognized when the bank sold his house. We have filed Offers-in-Compromise on behalf

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of taxpayers dealing with the Collection Division of the IRS. We have assisted lowincome taxpayers with formal and informal installment payment agreements with

the Collection Division. We have also handled innocent spouse claims, one of which

is still pending, and have reviewed the possibility of utilizing Due Process Hearings

in innocent spouse and other similar hardship cases with a longtime Pittsburgh Appeals Officer, recently trained for Due Process Hearings. We have responded to an

IRS Service Center Form 1099 matching audit conducted by mail on behalf of a taxpayer, who had a relative prepare her 1999 return. We correctly reported her gross

income, substantiated the claimed deductions and deducted additional expenses

originally overlooked. She still owes tax, but now it’s much less. In addition, we are

in the process of amending her 2000 Form 1040 to deduct additional expenses, similar to those overlooked in 1999. We have also assisted a number of taxpayers with

their filing status, their options for claiming withholding exemptions on Form W– 4 and their option of receiving their earned income credit in advance during the

year by increasing their ‘‘take-home pay.’’ We have placed flyers in the IRS Pittsburgh Appeals/District Counsel Office,

which handles appeals and Tax Court cases, and the Taxpayer Service Walk-in

Room, which handles general questions, provides tax forms and processes hand delivered payments. Additionally, students distributed flyers to elderly facilities, shelters, the Department of Welfare, churches and other social/government subsidized

nonprofit organizations. All students are involved in marketing and some have obtained radio and print exposure. We arranged publicity through the local media

with an interview on a local news and talk radio station and through an in-depth

article, including contact information, in the Pittsburgh Post-Gazette. We have also

advertised in a few neighborhood newspapers distributed free to the public in areas

likely to house eligible taxpayers. This marketing experience is invaluable for students, since not introduced through the academic component of law school.

The Internal Revenue Service has also been very helpful by including LITC Stuffer Notices with IRS Appeals Division notices, as well as displaying and distributing

our PITT LITC flyers in their offices. The Tax Court also includes LITC Stuffer Notices in ‘‘S’’ (i.e. small) cases to be held in Pittsburgh. While preparing this testimony, we received an inquiry from Malvern, Pennsylvania, clear across the state

from Pittsburgh, involving a taxpayer with a mental health disability and a 1996

tax liability accruing penalties and interest. With technology today, we can represent an out-of-town taxpayer or contact a closer LITC. Telephone calls like this

show the effectiveness of including LITC Stuffer Notices with IRS notices; eligible

taxpayers most needy of our free services can be directly informed.

Handling LITC cases also trains students in meeting and interviewing clients.

Students develop the skills of earning a client’s confidence, asking questions in a

patient and unobtrusive manner, framing the issues, designing a solution or alternate solutions, then eliciting pertinent information and obtaining substantiating

documentation. A few female students have also gained experience addressing and

earning the confidence of older male clients.

Many low-income taxpayers do not have cancelled checks, leases and other documentation normally submitted to the IRS. Students gain the experience of utilizing

alternate sources of substantiation such as affidavits. Low-income taxpayers do not

always have the luxury of living in traditional family units, (i.e. one or two parents

with children). Different generations of families and stepfamilies and other nontraditional living arrangements further complicate the ability to provide traditional

substantiation to the IRS. The availability of our LITC services enables low-income

taxpayers living in nontraditional arrangements to prove their filing status, eligibility for tax benefits and resolve controversies.

Since the time frame to completely resolve an issue with the Internal Revenue

Service usually exceeds one (1) semester, students gain the experience of picking up

a case midstream, that another student started. At the end of each semester when

pending cases are passed to the next LITC class, they also gain the experience of

preparing closing memos outlining each case’s history and law, its current procedural and administrative status and items to be completed.

Alleviating the stress associated with personally communicating with the IRS generally improves the quality of life of low-income taxpayers and their families. The

low-income taxpayers benefit and the students benefit by gaining practical, clinical

training. The IRS may benefit by prompt responses and more efficient communications, since students understand the IRS regulations and can accurately respond to

IRS inquiries, thereby reducing the need for follow-up requests.

In closing, the University of Pittsburgh School of Law would like to thank Congress, the Committee on Ways and Means and this Subcommittee for the opportunity to provide important legal services to low-income taxpayers that were not

available before the Low Income Taxpayer Clinic program was established. Our conVerDate 11-MAY-2000 01:34 Sep 08, 2001 Jkt 074412 PO 00000 Frm 00044 Fmt 6633 Sfmt 6621 E:\HR\OC\B412.XXX pfrm02 PsN: B412
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fidential and professional relationship with our LITC clients and our independence

from the Internal Revenue Service distinguish our services from the free services

provided by IRS employees. As you may be aware, before the LITC program, lowincome taxpayers were generally limited to seeking free tax assistance from the IRS.

The Internal Revenue Service and the Tax Court have been extremely helpful in

implementing this program and advising low-income taxpayers of our free services.

The IRS has also been very accommodating in corresponding with students representing taxpayers. The managers of the Pittsburgh Taxpayer Service, Appeals and

District Counsel Divisions have agreed to meet with our fall 2001 LITC class to explain how their respective divisions operate and make themselves available for questions.

We recommend including stuffer notices in IRS collection notices generated by the

Collections Division sent to low-income taxpayers to directly inform a large group

of eligible taxpayers that would benefit from our services, since other independent,

confidential representation rarely exists.

Chairman HOUGHTON. Thanks very much, Mr. Rich. Mr. Book.

f STATEMENT OF LESLIE BOOK, ASSISTANT PROFESSOR OF

LAW, AND DIRECTOR, FEDERAL TAX CLINIC, VILLANOVA

UNIVERSITY SCHOOL OF LAW, VILLANOVA, PENNSYLVANIA

Mr. BOOK. Good evening, Mr. Chairman and distinguished Members of the Subcommittee. Thanks very much for your continued interest in low-income taxpayer clinics.

In light of the time of day and prior testimony and written testimony, I am going to summarize a few important points and highlight some areas that I think are worth highlighting.

Villanova University where I am affiliated is one of the few organizations that, prior to the Restructuring Act, hosted tax clinics.

Since the 1998 Restructuring Act, the growth of tax clinics has

been remarkable, and I am pleased to be able to be part of this

growing and exciting community, and I would like to talk about

some of the issues and challenges raised by the growth and the operations of the program.

Today, LITCs across the country represent thousands of taxpayers involving all stages of the tax controversy process and all

sorts of issues, including varied issues like earned income tax credit, innocent spouse, injured spouse, offers in compromise, educational expense deductions, substantiation of business expenses

and others. Moreover, LITCs are helping nonfilers reenter the tax

system.

I wanted to highlight just a few attributes of our client base and

talk about how I think LITCs can really play an important role in

the system.

Many of the clients of LITCs such as Villanova’s are least able

to help themselves. A number of our clients, like other clients at

LITCs, are relative newcomers to the country who may speak

English as a second language. These ESL taxpayers, while diverse

in their backgrounds, often share significant language barriers and

fear of government and have little understanding of our Nation’s

voluntary system of tax self-assessment. Many other of our clients,

like those at other LITCs, are recently off the welfare rolls in welfare-to-work programs. Others are recently separated or divorced.

A significant number of our clients lack access to computers and

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to the Internet that many of us now take for granted in our lives

and have limited literacy skills and educational backgrounds.

What that means for the most part is a number of these taxpayers are ill-equipped to handle and work through the oftentimes

confusing and lengthy controversy process. The procedural and substantive provisions of the Internal Revenue Code, as we all know,

are quite complex, and LITCs play an very important role in ensuring that those taxpayers have a voice in the system.

What I would like to do is really acknowledge the strong administration of the program that the IRS has been able to provide

since day one. I think it has been a challenge to get up and running a grant administration program as well as an organization

that is reviewing the performance and operation of the LITCs.

What has happened is because of the great success of the LITCs

and the funding provisions there has been enormous growth in the

program.

In the 3 years in which LITC funding has been available, the

growth has been substantial. In the first year, the IRS received 43

grant applications and approved 34 grants totaling approximately

$1.46 million. In the second, year the IRS received 88 grant applications and approved 81 grants totaling approximately $5 million.

Last year, the IRS received 141 grant applications and approved

102 applications covering a full $6 million authorized under section

7526.

Largely because of the success and remarkable growth of the

LITC program the IRS has been placed in a very difficult situation

that I believe will only get worse. According to the IRS, of the 102

organizations which received funding for 2001, almost 50 percent

of those organizations would have received additional funding if the

$6 million authorization cap in section 7526(c)(1) were higher and

more appropriated funds were made available. Moreover, according

to the IRS in 2001 the $6 million funding limitation prevented

eight otherwise qualifying organizations from receiving any funding

at all.

The effect of this is that many otherwise needy taxpayers in

parts of the country are not able to receive representation. Many

organizations that receive only partial funding are not able to serve

fully their communities.

There are 12 States without any LITC at all; and many large cities, especially those with significant ESL communities and high

populations of those recently moved from the welfare rolls, could

support more LITCs. If things merely stayed the same, the IRS

would continue to be placed in the unenviable position of rejecting

in whole or in part worthy organizations’ grant applications and denying the possibility of extending the benefits of LITC activities to

deserving communities.

Accordingly, in my written testimony I recommended that Congress consider raising the authorization limitation from $6 million

to $15 million and likewise consider specifically appropriating

funds so the IRS does not have to make difficult decisions in terms

of allocating resources to LITCs apart from other areas in which

the IRS is intending to modernize.

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In sum, I believe the LITC program has been an unqualified success, and I look forward to continuing to work with the IRS and

with Congress in ensuring its future success.

Thank you.

[The prepared statement of Mr. Book follows:]

Statement of Leslie Book, Assistant Professor of Law, and Director, Federal

Tax Clinic, Villanova University School of Law, Villanova, Pennsylvania

Mr. Chairman and Distinguished Members of the Subcommittee:

Thank you for providing me the opportunity to testify on the important topic of

low-income taxpayer clinics (LITCs). LITCs have been one of the true success stories

of the Internal Revenue Service Restructuring & Reform Act of 1998 (RRA), and I

am pleased to be able to share with the Subcommittee my experiences serving as

a Director of a tax clinic hosted by an academic institution.

Let me introduce myself. Since August, 2000, I have been an Assistant Professor

of Law at Villanova University School of Law in Villanova, Pennsylvania, and Director of our school’s Federal Tax Clinic. Prior to joining Villanova, I was a professor

at Quinnipiac University School of Law in Hamden, Connecticut, and Director of its

Tax Clinic. Both of those academic institutions are unique in that they are among

the dozen or so organizations that sponsored tax clinics prior to RRA’s authorization

to the Treasury to allocate up to $ 6 million for matching grants up to $100,000

to qualified organizations. Villanova University School of Law has been a recipient

of LITC grants since the program’s inception, and has received $87,250 for the year

2000 and is scheduled to receive $100,000 this year.

I. The Importance of LITCs

Prior to RRA and the work of pioneers in the tax clinic community, including two

other distinguished witnesses here today, Professor Janet Spragens and the current

National Taxpayer Advocate, Nina Olson, many in the tax community were surprised to hear about low income individuals’ need for legal representation. Now,

however, I believe there is a growing awareness of the need for professional tax representation for the low income taxpayer community. Today, LITCs across the country represent thousands of taxpayers involving all stages of the tax controversy

process in issues involving the earned income tax credit, innocent spouse and injured spouse provisions, offers in compromise, educational expense deductions, substantiation of business expenses, and others. Moreover, LITCs are helping non-filers

reenter the tax system.

Many clients of LITCs are those often least able to help themselves, including relative newcomers to the country who may speak English as a second language (ESL).

These ESL taxpayers, while diverse in their backgrounds, often share significant

language barriers and a fear of government, and have little understanding of our

nation’s voluntary system of tax self-assessment. Other clients include those who

have re-entered or just entered the workforce from the welfare rolls, and recently

separated or divorced taxpayers. A significant number of LITC clients lack access

to computers and to the internet that many of us now take for granted in our lives,

and have limited literacy skills and educational backgrounds. A large percentage of

LITC clients have limited means of transportation, and are overextended, balancing

the demands of both work and family in single-parent households. These factors

hinder significantly their ability to work with the often complex substantive and

procedural provisions of the Internal Revenue Code, which apply even to low-income

persons. Merely answering IRS-generated correspondence, gathering facts through

contacting witnesses and collecting documentary evidence in support of a matter can

be difficult in the face of some of these factors.

While the amounts in controversy for these matters are often small (for a typical

matter in the Villanova Tax Clinic, the amount in controversy is about $4,000, although some matters can involve much more), for our clients the amounts are significant. A few thousand dollars for a single working mother just getting by can

mean the difference between being able to move to a better and safer neighborhood,

clothes for the family, or steady access to transportation or child-care.

In the last year, the Villanova Federal Tax Clinic was contacted by over 100 taxpayers seeking our services. We were able to represent 42 of those taxpayers, as

well as continuing to provide services to six taxpayers whose representation continued from the prior year. Six of those taxpayers were ESL taxpayers. These matters

included all stages of the tax controversy process. In the past year, working with

the IRS, the Tax Clinic was able to make a significant difference in our clients’ lives.

A few highlights included successfully restoring the earned income credit for a numVerDate 11-MAY-2000 01:34 Sep 08, 2001 Jkt 074412 PO 00000 Frm 00047 Fmt 6633 Sfmt 6621 E:\HR\OC\B412.XXX pfrm02 PsN: B412
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ber of clients; abating a crippling tax assessment to young man who sold assets in

a custody account upon turning 18 but who initially failed to file a tax return; successfully prevailing at Appeals on an equitable relief innocent spouse claim for a victim of domestic abuse who was unable to gather on her own the evidence needed

to demonstrate eligibility; and many offers in compromise and installment agreements that gave our clients the ability to overcome past mistakes and the opportunity to become responsible taxpayers.

A number of the taxpayers we did not represent were taxpayers who had no basis

in positions but who genuinely did not understand the often complex rules applicable to their situations, including issues involving filing status, earned income tax

credit and the financial disability rules applicable to refund claims.

In addition to LITCs helping resolve individual cases for otherwise unrepresented

taxpayers, they provide other benefits that are just as tangible, only somewhat indirect. Through their individual representation and outreach to communities such as

the growing English as a Second Language population, LITCs contribute to a general sense of confidence among taxpayers that the tax system is responsive to all

members of society. In the past year, the Villanova Tax Clinic sponsored informational outreach sessions to community service organizations working with victims of

domestic abuse and the ESL community. Prior to our sessions, these organizations

and their constituents were largely unaware of some of the more important tax

issues applicable to their communities. Moreover, through the presence of LITCs

working cases both in the court system and before the IRS, LITCs help ensure that

the tax system is aware of issues and needs of constituencies that often do not have

a voice in the system. LITCs help reduce the administrative burdens on the IRS and

the court system often associated with pro se taxpayers. Through LITCs at academic

institutions, enrolled students gain valuable educational experiences and practical

skills necessary for professional representation, and are often exposed to the value

of public service and the importance of pro bono activities.

II. The Growth of LITCs

The RRA LITC funding provision has contributed enormously to the growth of tax

clinics. In the three years in which LITC funding has been available, there has been

remarkable growth: in the first year of the program, FY 1999, the IRS received 43

grant applications and approved 34 grants totaling approximately $ 1.46 million; in

the second year, FY 2000, the IRS received 88 grant applications and approved 81

grants totaling approximately $5 million; in the third year, for the calendar year

2001, the IRS received 141 grant applications and approved 102 applications covering the full $6 million authorized under section 7526.

Treasury and IRS have done an admirable job of creating the grant review processes and putting in place personnel necessary to manage and administer the grant

program. Working with the American Bar Association Section of Taxation and the

American University School of Law, the IRS has co-hosted annual meetings allowing

the LITC community to come together to consider substantive, procedural and

grant-related issues in a collegial atmosphere. The IRS has put in place program

guidelines in grant application packages, and has generally been responsive informally to LITC-generated questions and concerns.

Nonetheless, largely because of the success and remarkable growth of the LITC

program and the annual $6 million authorization limitation of section 7526(c)(1), the

IRS has been placed in a very difficult situation that will only get worse. In FY

2001, 141 applicants sought grants totaling $9.8 million, almost 40 percent more

than the statute’s authorization amount. According to the IRS, of those 102 organizations awarded funding for 2001, almost 50 percent of those organizations would

have received additional funding if the $6 million cap were higher and appropriated

funds were available. Moreover, according to the IRS, in 2001, the $6 million funding limitation prevented eight otherwise qualifying organizations from receiving any

funding at all. The effect of this is that many otherwise needy taxpayers in parts

of the country are not able to receive representation, and many organizations that

received only partial funding are not able to serve fully their communities. There

still are 13 states without any LITC at all, and many large cities, especially those

with significant ESL communities and high populations of those recently removed

from the welfare rolls, could support more LITCs.

If things merely stay the same, the IRS will continue to be placed in the

unenviable position of rejecting in whole or part worthy organizations’ grant applications and denying the possibility of extending the benefits of LITC activities to deserving communities. It is likely that these problems will be exacerbated in the immediate future if the $6 million cap is not increased substantially. In response to

concerns previously raised by many in the LITC community regarding the need to

be in a position to hire more qualified personnel and to better plan resources, startVerDate 11-MAY-2000 01:34 Sep 08, 2001 Jkt 074412 PO 00000 Frm 00048 Fmt 6633 Sfmt 6621 E:\HR\OC\B412.XXX pfrm02 PsN: B412
45

ing in 2001, as permitted by section 7526(c)(3), the IRS has awarded to a number

of institutions multi-year grants up to a period of three years. Starting in 2001, the

IRS has also switched the grant program year from a fiscal year ending 9/30 to a

calendar year, which should also assist LITCs in their planning, especially those

hosted by academic institutions. Yet, it is likely that the number of qualified organizations seeking LITC funding will increase and the amount of funds sought by already funded organizations will increase, especially among potential and existing

LITCs at non-academic non-profit (NANP) organizations.

The growth in NANP LITCs has been truly astounding: in 1999, there were only

13 NANP’s awarded grants, and by 2001, the IRS awarded 67 grants to NANPs.

This development is one of the most significant aspects of the LITC program. Essentially, many of these organizations receiving grants (or organizations related to the

grant recipient), were involved in other aspects of support for the low-income taxpayer community. The availability of funding through the LITC program has increased awareness among those providing a panoply of other services to this community about the importance of the tax system toward achieving societal goals benefitting low-income people. This awareness is growing, and those who have not traditionally been associated with tax representation are now an important part of the

support system for low-income taxpayers, a development that will I believe create

lasting benefits for the tax system. As the tax system increasingly is used as a tool

for social policy benefitting low-income and the working poor, the intersection of tax

and other areas of the law, including family law and public-benefits law, will become increasingly important. The NANP LITC growth will help ensure that our nation’s working class citizens are afforded access to representation that considers

their overall well-being, including tax matters.

The upshot of the LITC success, however, is that barring an amendment to section 7526(c) authorizing additional funding, the IRS has been and will continue to

be placed in the difficult and unpopular position of turning away qualified organizations from funding. To ensure that there are adequate resources available for all organizations, the authorization limitation of section 7526(c) should be raised to allow

the Treasury to allocate $15 million a year to LITC grants, which will allow for full

funding for those qualifying organizations that were denied in whole or part in

2001, while providing a cushion for measured growth to permit the possibility of

funding LITCs existence in areas not yet served or underserved.

A. Possible Objection to Funding

While there has been general support for LITC funding, one possible objection to

increasing the amount authorized for appropriation under section 7526 would be

that Congress might not wish to indefinitely fund LITCs or fund LITCs beyond a

start-up period. The existence of federal funding has allowed organizations to leverage the federal dollars and successfully compete in the marketplace for matching

dollars to be used for qualified LITC activities associated with representing low income clients or providing outreach to the ESL community. Section 7526’s matching

requirement ensures that no organization can remain complacent and completely

dependent upon federal assistance. Nonetheless, in light of the great expenses associated with running a tax clinic and the scarce resources of many of these organizations, without Congressional funding it is likely that many of the LITCs would fold

or scale down their operations. Continued IRS administration of the grant program

will also ensure that organizations remain competitive, as the IRS will likely reward

those organizations that demonstrate strong quality and improvement. In sum, continued funding is a good long-term investment for the taxpayers and the tax system

overall.

III. Publicity for LITCs

One issue that has been important for LITCs is publicizing their existence among

the target client community. Publicity is vital for LITCs to reach their statutorilymandated audience and ensure that access to representation is readily available to

those in need. One avenue for publicity is through IRS-generated distribution and

posting of LITC-generated literature, including posters and so-called ‘‘stuffer’’ letters

similarly advising unrepresented taxpayers about the existence of clinics. The stuffers provide information to unrepresented low income taxpayers about the LITCs,

such as phone numbers, addresses, and hours of operation, while also generally

making clear that, while the IRS partially funds LITCs, the IRS and LITCs operate

independently and that a taxpayer’s decision to use or not use the services of an

LITC will not affect the taxpayer’s rights.

While many LITCs have been conducting targeted outreach programs to both better educate taxpayers about their rights and responsibilities and also increase the

community’s general awareness of LITCs, the possibility of including stuffers in cerVerDate 11-MAY-2000 01:34 Sep 08, 2001 Jkt 074412 PO 00000 Frm 00049 Fmt 6633 Sfmt 6621 E:\HR\OC\B412.XXX pfrm02 PsN: B412
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tain types of IRS-generated correspondence is an important means of accessing unrepresented low income taxpayers in need of representation. In the old Student Tax

Clinic program, the IRS Manual authorized the IRS, in certain correspondence, to

include stuffer letters advising taxpayers about the existence of Student Tax Clinics.

There is no such authorization regarding LITCs. Instead, many LITCs have negotiated on an ad hoc basis with local IRS functions the placement of stuffers in select

correspondence. (For some LITCs, the Tax Court includes a stuffer letter describing

the availability of tax clinics in its notices setting ‘‘S’’ cases for trial to unrepresented taxpayers).

I understand that the IRS has developed a policy encouraging the use of LITC

flyers at various walk-in offices and is in the process of studying ways to create and

implement fairly an LITC stuffer program. In some areas, such as in Connecticut

and Rhode Island, the LITCs and local IRS management have met to facilitate the

creation of combined LITC stuffer notices. These notices have been placed in correspondence covering all IRS controversy functions, including EITC correspondence

examination letters originating from the Andover Service Center, Appeals Office acknowledgment letters, certain collection due process correspondence, and pre-trial

Counsel correspondence to unrepresented taxpayers who have cases on the Tax

Court ‘‘S’ calendar. In Pennsylvania, the Villanova Tax Clinic has similarly been

successful in placing stuffers in certain correspondence, including Appeals acknowledgment letters, and is working with local IRS management on the possibility of expanding the placement of stuffers.

That notwithstanding, the lack of a public IRS National Office unified position

tends to hinder the ability of local LITCs to negotiate with local IRS management

on the placement of stuffers. I am encouraged by National Taxpayer Advocate

Olson’s commitment to this issue, and while I believe that there are certainly

logistical concerns regarding implementation on a nation-wide basis (especially as

the IRS is still implementing the many RRA-mandated changes to its organizational

structure and compliance activities), a strong statement of support from other senior

IRS management on the issue might facilitate the placement of LITC stuffers locally

pending a more comprehensive IRS implementation plan.

I have found that once local IRS employees work with LITCs, they generally favor

clinic involvement and encourage publicizing LITCs to taxpayers. LITC participation

helps the compliance process for IRS employees in a number of ways. LITCs are

often contacted by prospective clients who have no basis in certain positions or matters whatsoever. Taxpayers are more inclined to listen to LITCs than IRS employees

no matter how courteous or dedicated the IRS personnel may be. Sometimes, LITCs

are better able to dedicate resources to explain exactly why a taxpayer’s position has

no merit. This process helps ensure that IRS and possibly judicial resources are

spent more productively. When LITCs do take on matters, they are often able to

research the issues and develop the facts in a way that facilitates IRS or judicial

consideration of the merits. Moreover, LITC involvement helps shepherd taxpayers

through the incredibly complicated and often lengthy procedural maze of tax controversies. This shepherding helps ensure that taxpayers stay the course and understand the implications of actions and decisions. For the most part, I believe that

fully informed IRS employees would favor early LITC involvement in the process,

and the use of stuffers in appropriate correspondence.

I also believe that certain matters are particularly appropriate for LITC involvement and more active IRS publicity efforts, including pre-trial Counsel and Appeals

correspondence to taxpayers who have docketed ‘‘S’’ Tax Court cases, equitable relief

innocent spouse relief requests, EITC correspondence audits and doubt as to collectibility and so-called hardship offers in compromise. While LITCs should assist the

IRS in addressing some logistical concerns, such as possibly creating combined stuffer notices and identifying with particularity the types of matters where stuffers are

appropriate, without active and creative IRS facilitation, I fear that the stuffer matter will continue to be addressed on an ad hoc basis. I look forward to continued

cooperation with the IRS on these matters; for while LITCs and the IRS may be

adversaries on individual matters, we are partners in ensuring the continued health

of the tax system. Access to representation that publicity can provide helps ensure

that taxpayers entitled to important rights and substantive benefits are given an

opportunity to exercise those rights and receive benefits (like tax credits) to which

they may be entitled.

IV. The Possibility of Creating a Separately Funded LITC-type Program For Return

Preparation Activities for Low Income Taxpayers

The IRS currently funds voluntary return preparation services for taxpayers

through its VITA and TCE programs. In addition, through the LITC program, the

IRS has taken the position that the preparation of tax returns for ESL taxpayers

47

constitutes a permitted qualifying activity and is part of a program to inform ESL

individuals. Thus, there are effectively three permitted activities under the LITC

program: 1) the representation of low income taxpayers in controversies before the

IRS; 2) outreach, not including the preparation of current year tax returns to the

ESL community, including presentations on substantive and procedural issues to

taxpayers; 3) and the preparation of current year tax returns for ESL taxpayers.

There have been recent proposals by private organizations and proposed legislation,

the Low Income Taxpayer Protection Act of 2001, S. 802 (sponsored by Senator

Bingaman), to create a separate federally-funded program to assist organizations

that perform return preparation work for all low income individuals.

There is a substantial need in the low income community for improved access to

free and qualified return preparation services, including greater access to free e-filing. To the extent that Congress does in fact adopt additional legislation authorizing

direct funding for return preparation clinics on a basis similar to that provided to

LITCs, this new return preparation program, and not the LITC program, should be

the exclusive means to support current year return preparation activities for all low

income individuals, including ESL taxpayers. This would ensure that IRS management of the LITC program is simplified and targeted mainly to LITCs performing

representation and ancillary non-return preparation outreach work to ESL taxpayers. It would also allow current LITC’s that exclusively perform return preparation activities to avoid some of the administrative concerns associated with the possibility of commingling of resources dedicated to some activities that are not qualifying activities under the LITC program (e.g., the preparation of tax returns for

non-ESL low income taxpayers). If such an approach were adopted, I would anticipate a high level of synergy and cooperation among 1) LITCs doing representation

and non tax-return preparation outreach; and 2) organizations funded under this

new provision that would be dedicated to return preparation for all low income individuals. This approach reflects the strong need for both preparation and controversy

activities, while also recognizing that preparation and controversy are different

functions often performed by different organizations or individuals within organizations.

V. Delays Affecting Consideration of Offers in Compromise

While not exactly related to the administration of the LITC program, the IRS’s

implementation of some of RRA’s provisions has direct effect on LITC clients. Recent

GAO testimony before the Senate Finance Committee (Information on Selected IRS

Tax Enforcement and Collection Efforts, GAO–01–589T (Apr. 5, 2001)) highlighted

the delays taxpayers have experienced who have claimed innocent spouse relief or

submitted an offer in compromise (OIC) request. While the IRS is administering innocent spouse requests on a more timely basis, the delays associated with considering OIC requests seem to be getting worse.

It is not uncommon for clients of the Villanova Federal Tax Clinic to be told that

they will have to wait close to a year for the IRS to consider their OIC requests.

From the tax system’s perspective, the delay in OIC consideration has a particularly

pernicious effect among low income taxpayers. Many have significant credit problems as a result of an IRS filing of a notice of federal tax lien and genuinely wish

to resolve their delinquencies on a timely basis so they could put past mistakes behind them. The long response time contributes to an inability for our clients to manage their financial affairs and weakens confidence in the tax system. The delay also

often necessitates duplicative requests for information, as the financial information

on the OIC request is often stale when the IRS eventually gets around to considering the matter.

While there has no doubt been a surge in OIC requests since RRA, LITCs and

their constituents would greatly benefit from the IRS improving and expediting the

review process.

I wish to thank the Chair and distinguished members of the Subcommittee for

do this in the order of distance you have to travel. So, Mr.

inviting me today to testify and discuss these matters.

Chairman HOUGHTON. Well, thank you very much. I am going to

f Heavner, since you probably have to get back to Richmond, why

don’t you go next and then we will just go to the others.

48

STATEMENT OF TIMOTHY B. HEAVNER, EXECUTIVE DIRECTOR, COMMUNITY TAX LAW PROJECT, RICHMOND, VIRGINIA

Mr. HEAVNER. Thank you, Mr. Chairman and distinguished

Members of the Committee. Thank you for the opportunity to appear and testify before you today regarding the low-income taxpayer clinics.

I appear before you attempting to fill some very large shoes of

my predecessor Nina Olson as I am the Director of the Community

Tax Law Project, and I am also here today as the current director

of the Low-Income Taxpayer Clinic National Resource Center.

I have submitted a more comprehensive statement, but I would

like to highlight just a few points concerning the benefits that to

low-income taxpayers clinics provide, and I will call them LITCs for

the sake of this discussion.

Many of the benefits LITCs provide are direct and obvious. They

provide direct representation to low-income individuals regarding

their tax liabilities and obligations to which they would not otherwise have access. They also conduct outreach to these same taxpayers and those who work within that community to educate and

inform these taxpayers of their tax obligations.

The efforts of the LITCs have been an unmitigated success. Since

the adoption of IRC § 7526 as part of the IRS Restructuring and

Reform Act which provided funding for the LITCs, the clinics have

been able to assist thousands of low-income taxpayers through direct representation and outreach. These are the direct and tangible

benefits that flow from the outstanding work being done by these

clinics.

I wanted to share with you some less obvious benefits that are

derived from the work of the clinics based on my personal experience. Prior to taking my current position as director of CTLP, I

worked as an attorney in a field office for the Richmond, Virginia,

Office of Chief Counsel for the IRS. In that role, I was responsible

for numerous cases which involved low-income taxpayers who often

were attempting to represent themselves.

I experienced firsthand the frustration, fear and anxiety of these

taxpayers based on their participation in this process. I also quickly discovered how ill-equipped these taxpayers were to handle these

matters. Normally, I was able, with significant effort and expenditure of time, to help taxpayers understand at least the basic nature

of their claim and the process in which they were involved. They

were often unable to gather information necessary to support their

position and often did not trust what I was telling them was in

their best interest.

There were many instances in which, although I did not doubt

the veracity of the taxpayer, the complete inability to support their

position with anything other than their oral testimony was insufficient to satisfactorily resolve their issue and may have not gotten

to the right answer. This often led to the need to go before the Tax

Court for resolution of an issue that should have been able to be

resolved by the parties.

When working with the same types of issues with other low-income taxpayers that were represented by an LITC, there was a

much different result. By working with LITC attorney representing

the client, I was able in a much more efficient manner to narrow

49

the real issues in controversy; and then that attorney was able to

assist the client to fully develop their case, especially on factual

issues, and present it in a well-reasoned response to the issues

raised by the IRS. Most of the time the attorneys, the two attorneys, myself included, were able to resolve the matter without the

need for litigation. If litigation was required, it was based on a

well-developed case, both legally and factually.

The efficiencies created by the work of the LITCs were not limited to this prelitigation stage. I attended several Tax Court calendars where LITCs were present and ready to discuss potential

representation with pro se taxpayers. Some of these taxpayers may

never have had any contact previously with the Service other than

receiving the letter or with counsel in preparation of their case.

All of those involved in the process were beneficiaries of the presence of the LITC representatives. The Tax Court appreciated the

ability of taxpayers to confer with the representatives if they chose

to do so. They often led to the ability to resolve the matter, again

without the need of court intervention.

In cases that the LITC were involved in, had the LITC not been

involved the Tax Court would have probably had to dismiss the

case for either failure to prosecute or would have had terribly insufficient information on which to base its decision. The representative of chief counsel also very much appreciated the LITC presence because many times the LITC representative was able to confirm to the taxpayer, from an independent source, that what the

counsel attorney had been telling them was the correct result and

was in their best interest, and again was able to avoid litigation.

Finally, the biggest beneficiaries obviously were the taxpayers

served by the LITC. The ability to consult with an independent

counsel provided an incredible amount of legitimacy and confidence

to the process that would have otherwise been lacking. Too often

I heard pro se taxpayers that didn’t have the benefit of an LITC

representative say that they didn’t really get their day in court or

that ‘‘I was railroaded.’’

Avoiding this feeling by the taxpayer and making sure that they

feel they are fairly treated is vitally important in our system of tax

administration.

I also want to highlight the efficiency of the LITCs as a delivery

system for these much-needed services. The key to the success of

the LITC is the leverage they provide in maximizing the benefit of

the grants given. LITCs are able to use volunteer services. In the

academic clinics they are able to use the student representatives;

and for the nonacademic, not-for-profit organizations they use a

combination of in-house counsel and volunteers attorneys and accountants to provide pro bono representation.

The use of this donated time and effort allows LITCs to provide

services worth significantly more than the actual dollars received

in grants. Based on the requirements under IRC § 7526, these

funds are awarded on a matching basis and this further leverages

the use of the funds.

Before section 7526 was enacted, CTLP had significant difficulty

in obtaining grant funds. Although we received compliments on

what we were trying to do, our activities wouldn’t normally fit

within the mission of potential grantors. Now that we have funds

50

from § 7526 we have been able to exceed our matching grant and

actually receive funds in excess of the matching as we seek grants.

The limit on available funds under § 7526 has already caused the

IRS to limit the amount of awards given to some 50 percent of the

authorized grantees and caused eight otherwise eligible groups to

fail to receive funds. This lack of funds will also inhibit the expansion of the programs into States and cities that do not have the

services available. To ensure that adequate resources are available

to allow for necessary growth and expansion into these areas, the

authorization limit under 7526 should be increased to $15 million,

and this number should be indexed to account for inflation. This

increased authorization would be sufficient to meet these goals.

I thank you for the opportunity to speak with you concerning

Low-Income Taxpayer Clinics, and I also thank you and look forward to your continued support of the clinics.

[The prepared statement of Mr. Heavner follows:]

Statement of Timothy B. Heavener, Executive Director, Community Tax

Law Project, Richmond, Virginia

Mr. Chairman and Distinguished Members of the Committee:

Thank you for the opportunity to appear and testify before you today regarding

low-income taxpayer clinics (LITCs). I appear before you today in my capacity as

the Executive Director of The Community Tax Law Project (CTLP). CTLP is a

501(c)(3) corporation founded in 1992 for the purposes of: (1) providing pro bono representation to low-income Virginia taxpayers in federal, state, or local tax disputes;

(2) educating low-income individuals about their rights and responsibilities as U.S.

taxpayers; and (3) increasing public awareness of and encourage informed debate

about the tax policy and practice issues impacting low-income taxpayers.

I also appear before you today in my capacity as the current director of the LowIncome Taxpayer Clinic (LITC) National Resource Center. The Center was created

to provide technical assistance and training to start-up and ongoing LITCs, coordinate training and publicity materials for LITCs on a wide variety of issues, and

work with the IRS, Treasury, and Congress in the implementation of the LITC program and on low-income taxpayer issues in particular.

The common misconception is that low-income taxpayers do not pay taxes and

therefore cannot have any tax problems. The fact is that low-income taxpayers confront many of the same issues faced by any other taxpayer, and have a number of

special concerns as they interact with the tax system. Issues commonly encountered

by these taxpayers include improper worker classification, substantiation of deductions, hobby losses, disability income, pension income, unreported tip income, startup business expenditures, among others. Of special concern to low-income taxpayers

are the areas of the Earned Income Tax Credit (EITC), new entry into the tax system (especially English as a Second Language [ESL] taxpayers), and innocent

spouse relief. Although taxpayers may need assistance and representation in addressing these issues, and the implications of these tax liabilities are substantial,

they normally do not have the means to obtain paid advice or representation.

Prior to the Internal Revenue Service Restructuring and Reform Act of 1998

(RRA), there was limited awareness of the need for representation and outreach to

low-income taxpayers concerning their tax obligations. At that time, only 15 tax

clinics existed nationwide. Thanks to the tireless efforts of advocates like Professor

Janet Spragens and my predecessor, Nina Olson, Congress realized the importance

of increasing this awareness and the availability of representation to low-income

taxpayers and recognized this need with the enactment of I.R.C. § 7526 as part of

the RRA. Based on the $6 million of funding authorized under § 7526, there are now

102 LITCs which are funded for the purpose of providing representation and outreach to low-income taxpayers.

Thanks almost exclusively to these grants, LITCs have been able to address the

needs of low-income taxpayers in a variety of ways. Most directly, LITCs represent

taxpayers in disputes with the Internal Revenue Service at all levels of the administrative and judicial process. Our experience indicates that most of the taxpayers we

represent are, for a number of reasons, unable to develop and provide to the I.R.S.

sufficient information to adequately support their position. LITCs are adept at gathering and presenting this information for the represented taxpayer. They also assist

51

the taxpayer in understanding the process that they are involved in and educating

them regarding their tax obligations.

Another important role that LITCs serve is client counseling and negotiation. We

can explain to the client in a way they can understand the issues, and discuss with

them the alternatives available. Without this understanding, taxpayers cannot decide how to proceed or what is required of them. For example, many clinics have

bilingual staff to assist ESL clients. LITCs counseling often includes advice similar

to that given by the I.R.S., to which the taxpayer was not receptive based on fear

or distrust. Thus, through an independent review, LITCs often impact positively on

the tax administration system by confirming for the taxpayer that they have made

errors and do have a tax liability.

I can confirm this from my past personal experience as a attorney with Chief

Counsel for the I.R.S. During my three years with Chief Counsel, I regularly worked

with pro se, low-income taxpayers who were involved in Tax Court litigation. As a

public servant, I took very seriously not only my responsibility to represent the

I.R.S., but also to ‘‘get the right answer.’’ Pro se taxpayers were often overwhelmed

and fearful of the process. Normally I was able, with a significant effort and expenditure of time, to help taxpayers understand at least the basic nature of their claim

and the process in which they were involved. These taxpayers were often illequipped or unable to gather the information necessary to support their position

and often did not trust that what I was telling them was in their best interest.

There were many instances in which, although I did not doubt the veracity or sincerity of the taxpayer, the complete inability to support their position by anything

other than their own oral testimony was insufficient to resolve their tax issue in

a way that may have been the ‘‘right answer.’’ This often led to the need to go before

the Tax Court for resolution of issues that the parties should have been able to resolve without the need for court involvement.

When working with the same type of issues with other low-income taxpayers that

were represented by CTLP, the result was much different. By working with the attorney representing the client, I was able in a much more efficient manner to narrow the real issues in controversy and tell the attorney what type of information

I would need to see to support the taxpayer’s position. The attorney was then able

to assist the client to fully develop any factual issues and present a coherent, wellreasoned response to issues raised by the I.R.S. Most of the time when working with

CTLP, I and other Counsel attorneys were able to resolve the matter without the

need for litigation. If litigation was required, it was based on a well-developed case,

both legally and factually.

From this personal experience, I can unequivocally state that the tax administration is significantly enhanced by the direct representation of low-income taxpayers

provided by LITCs. Taxpayer’s level of confidence in their outcomes were increased.

On cases that I worked with CTLP, the savings of time to Counsel attorneys, other

I.R.S. personnel, and the Tax Court was immeasurable. LITCs are able to aid the

tax system in getting the right answer in a way that is impossible for the I.R.S.

to provide.

LITCs do more than just direct representation. They provide outreach to the lowincome taxpayers which focuses on helping this community better understand and

fulfill its tax obligations. The ESL community is a significant focus of these outreach

efforts. Many clinics translate their informational materials into at least two, and

sometimes as many as 5 different languages for distribution. I am aware, for example, that the Pine Tree Legal Assistance LITC in Maine has plans to produce its

internet web site in 4 languages. CTLP Staff Attorney Anita Soucy recently was featured on a nationally-syndicated radio program for Spanish speakers discussing tax

issues relevant to the Hispanic community, which reached approximately 40,000

people in at least six states. LITCs also do educational programs to the taxpayers

and those who work with taxpayers to educate them about various tax-related

issues common to ESL taxpayers.

Another area of specific outreach conducted by LITCs include training welfare-towork program participants. For example, the Brooklyn Legal Services LITC is developing educational materials for home based day care centers and other welfare-towork programs, to make them aware of their tax compliance obligations, including

self-employment tax and record keeping requirements. CTLP has met with case

workers involved in the welfare-to-work program in Virginia to educate them about

the issues that the program participants will face upon entering the workforce or

starting their own business.

Also, in carrying out its representational function, many clinics conduct trainings

and outreach to attorneys and accountants in their area. CTLP conducts an annual

CLE on tax issues that concern low-income taxpayers that serves the dual purpose

of training current and potential volunteer attorneys and accountants, as well as a

52

means of outreach to others in the legal and accounting community. CTLP also produces a newsletter, the Community Tax Law Report, which contains in-depth and

scholarly analysis of tax issues relevant to low-income taxpayers. This type of outreach is valuable in increasing awareness of the issues beyond the population we

serve. The impact to date of the LITCs has been very substantial. CTLP handles over

200 cases per year. Based in part on the grant funding received under § 7526, we

have been able to hire another full time staff attorney, which will allow us to increase the number of cases substantially. I recently spoke with an LITC that just

received grant funding and became operational in April, 2001, which had already

handled 25 cases. When you consider that the average case affects at least two (and

often more) individuals, these two clinics alone will handle over 300 cases that affect

over 600 individuals, with both of these numbers increasing over time. This does

not even factor in the outreach efforts that touch countless others, both directly and

indirectly.

The key to the success of LITCs is the leverage they use to provide the maximum

benefit to the low-income community. A significant number of clinics already have

links within their communities to network with other organizations that serve the

low-income population. This networking creates a synergy which enhances the return on the LITC efforts. LITCs also rely on the provision of services on a volunteer

basis. The clinics that are part of academic institutions benefit from student-provided services. Non-academic non-profit (NANP) organizations generally use a combination of in-house counsel and volunteer attorneys, accountants and enrolled

agents to provide pro bono representation to their clients. The use of the donated

time and efforts allows LITCs to provide services worth a significant multiple of the

actual dollars received in grants.

Based on the requirement under § 7526 that funds be awarded on a matching

basis, the LITCs further leverage the federal funds they receive. Prior to the RRA,

CTLP made approximately 30 grant requests, but was able to secure funding only

from (our guardian angel) the Virginia Law Foundation for $28,000. The receipt of

the maximum award of the federal grant under 1A7526 provided CTLP the opportunity to obtain not only matching funds, but grants in excess of the matching

funds, from several sources, including the Commonwealth of Virginia, The Community Foundation, National Association of Public Interest Law (NAPIL), and the continued support of the Virginia Law Foundation. Although the matching requirement

may be challenging for some new clinics, it is a constraint which has the positive

effect of making other organizations aware of the work that LITCs are doing and

allows us to maximize the benefits received from the federal grant funds available

under § 7526.

In an efficient and effective manner, LITCs have already made a tremendous impact in the communities they serve and will continue to increase this impact as they

become more established and reach broader and deeper into those communities.

Even with this tremendous impact, more needs to be done. According to the I.R.S.,

almost 50% of those programs awarded funds would have received additional funding, if more funds had been available. In addition, the I.R.S. has stated that the

overall $6 million limitation under § 7526 prevented 8 applicants who were otherwise qualifying organizations from receiving funds. Currently 12 states and several

major metropolitan areas do not have a federally funded LITC. This lack of funds

will be even more severe in FY 2002 due to multiple-year funding authorizations

to existing clinics. If all clinics received continued funding under these multiple-year

funding authorizations, approximately 2/3 of the available $6 million dollars would

be allocated to these existing clinics. Another possibility is that clinics that received

multiple-year commitments may see their awards reduced based solely on limitation

of funds, not based on lack of merit.

This limit on available funds most likely will mean that otherwise eligible LITCs

will not receive funds and/or will receive significantly less than they need. The lack

of funds will also inhibit the expansion of these programs into states and cities that

do not have this service available. To ensure that adequate resources are available

to allow for the necessary growth and expansion of LITCs into areas where there

are still needs, the authorization limitation under I.R.C. § 7526 should be increased

to $15 million, and this number should be indexed to account for inflation. This increased authorization would be sufficient to meet these goals.

Although the implementation of the grant program under I.R.C. § 7526 allows for

return preparation for ESL taxpayer under the auspices of outreach, there is a great

need within the low-income community for access to free and qualified return preparation services beyond that which is currently authorized. Many within the LITC

community feel that this is an area of need which should be addressed. Any authorization for increased return preparation for low-income taxpayers beyond that which

53

is currently allowed should, however, not be funded through the current § 7526 authorization, but should have access to a separate funding authorization designed to

specifically address this need.

We, as members of the LITC community, appreciate this opportunity to tell you

about the outstanding work being done in the area of low-income taxpayer representation. We also are grateful for the continued support available under I.R.C. § 7526.

We look forward to the continued growth and vitality of the clinics that will allow

us to ensure that all taxpayers have access to qualified representation concerning

their tax obligations.

Chairman HOUGHTON. Thank you, Mr. Heavner. Ms. Spragens.

f STATEMENT OF JANET SPRAGENS, PROFESSOR OF LAW, AND

DIRECTOR, FEDERAL TAX CLINIC, WASHINGTON COLLEGE

OF LAW, AMERICAN UNIVERSITY

Ms. SPRAGENS. Thank you, Mr. Chairman.

Mr. Chairman, I am the Director of the American University Tax

Clinic in Washington, D.C. ours is one of the older clinics in the

country. We started our program in 1990. We started it as an educational program for law students to teach them about representing

taxpayers and practical applications, and at the time we had no

idea how great the demand would be for our services. We were literally overrun by clients who came to us and sought out help from

us.

At the time, there were 14 tax clinics in the country; and if a person had a problem involving a landlord-tenant issue, a battered

spouse issue, a criminal defense issue that they needed help with,

there were legal services organizations all over the country who

could help them. If they had a tax issue, there was no one to help

them. We were one, as I said, of only 14 all over the country. Since

1998, there are now 102 tax clinics helping people all over the

country, and that is just a huge compliment to this Committee and

this Congress in creating this extremely valuable program.

Other Members of the Committee have talked about what the

clinics do and the importance of the clinics and the successes that

they have had and how valuable they are, and I am not going to

repeat that. I would only say that this Congress has enacted three

Taxpayer Bill of Rights provisions over the years, and I can tell you

that the most important taxpayer right that was created in any of

those provisions was to give people access to lawyers, to access

those rights. Because unless people know about them and unless

people can access those rights, those taxpayer rights lose a lot of

value.

The only problem today that exists in this extremely successful

program is that it is running out of money; and as other Members

of the panel have said, the statutory cap, which is now $6 million

in section 7526, badly needs to be adjusted upward; and we are

suggesting a cap of $15 million. As I said, there were 14 clinics

when we started, and a $6 million cap seemed enough because the

statutory limit for any one clinic was $100,000. If every clinic got

a full grant, that was a million four, which didn’t come close to the

$6 million. No one understood how quickly these clinics would grow

and develop, and we are now bumping up against the cap.

54

As Mr. Pomeroy said, there are still several States that do not

have clinics. There is not an overabundance of clinics. One hundred

and two clinics is two clinics per State. We could use one in every

city in the country, and in some of the major cities we could use

more per city. So we can certainly use more clinics, and we need

more money.

Clinic education for an academic institution is extremely expensive. At my law school, I can stand up in front of a hundred students and generate tuition dollars from a hundred students, and all

I need is a classroom and a blackboard. If I am teaching in a clinic,

first of all, I can only teach about eight or nine students at a time.

Because if you have each student having three or four cases, supervising all those cases by people who need a lot of supervision, who

are novices at that, limits the number of students that you can

help in any one time. In addition to that, you need computers, fax

machines, copiers, stationery, malpractice insurance. You need everything that you need to run a law firm.

It is much more expensive for a law school to offer that kind of

education, and you also need a huge amount of space within the

law school. So law schools are not going to offer this without some

kind of supplemental funding to help them defray these costs.

I think my time is almost up. I am going to stop there.

[The prepared statement of Ms. Spragens follows:]

Statement of Janet Spragens, Professor of Law, and Director, Federal Tax

Clinic, Washington College of Law, American University,

Mr. Chairman and Members of the Committee:

Thank you for inviting me to testify on the issue of low income taxpayer clinics,

their needs and performance record. I come before you today in my capacity as a

tax professor at the American University Washington College of Law and Director

of the American University Federal Tax Clinic. The American University Federal

Tax Clinic is an academic clinical program. The program is open to third year students at our law school who receive 6 hours of degree credit for their work. In the

program, student-attorneys, under the supervision of two faculty members, Nancy

Abramowitz and myself, represent low income taxpayers who have controversies

with the Internal Revenue Service. The clinic charges no fees for its services. Since

its inception in 1990, the American University Federal Tax Clinic has represented

over 700 such taxpayer-clients, and it has given advice and informal assistance to

hundreds more. The American University Federal Tax Clinic predates the Low Income Taxpayer Clinic funding program (Internal Revenue Code section 7526) created in the IRS Restructuring and Reform Act of 1998. Since the inception of that

program, the American University clinic has received three $100,000 matching

grants under it.

When the American University Federal Tax Clinic first began to represent clients

in 1990, there were only 14 other such clinics in the country. Since 1998, the year

Congress enacted Section 7526, that number has grown exponentially. This year 102

tax clinics around the country were awarded low income taxpayer clinic grants by

the IRS out of a field of 141 applicants. The enormous growth in the number of clinics spurred by the tax clinic funding legislation represents an important commitment by the Congress and the entire tax community to ensure that fair results are

reached in tax controversies involving taxpayers at all income levels, not only for

those in upper income brackets.

The tax clinic funding program has, in my judgment and in the judgment of

many, been a total and unqualified success. By any standard, the IRS has made a

serious commitment to it at the highest levels, and has devoted significant resources

to it to insure that it runs smoothly, provides timely information and funding to the

clinic community, and addresses their questions and needs in a straightforward and

complete way.

The program itself has resulted in the creation of dozens of new academic and

nonprofit legal resource centers all over the country, which thousands of low income

taxpayers have tapped into for professional help in the resolution of their tax matVerDate 11-MAY-2000 01:34 Sep 08, 2001 Jkt 074412 PO 00000 Frm 00058 Fmt 6633 Sfmt 6621 E:\HR\OC\B412.XXX pfrm02 PsN: B412
55

ters. On an individual taxpayer level, the program has helped to build taxpayer confidence in the integrity of the tax system, and has resulted in the fair resolution

of disputes all over the country. And finally, the program has helped to bring low

income taxpayer issues into more visible focus for policy makers, for tax professionals, for the media, and inside the IRS itself. This is a remarkable record of

achievement for a program after only three years of operation.

Owing in large part to its success, the tax clinic funding program is now in need

of some minor adjustments and fine tuning which require legislative intervention.

And that is what I would like to discuss with you today. In addition, I would like

to discuss this Committee’s role in insuring that the needs of the low income taxpayer population are properly served in the new era of the IRS under Modernization. As the legal representatives of this population, the tax clinics are a direct link

to these taxpayers, and should be an invaluable source of information on this topic.

Low Income Taxpayers in Profile

Before addressing any of these oversight issues, however, it may be useful to describe some of the economic and cultural characteristics that make up the population of taxpayers who are represented by the clinics, and the types of issues raised

in their audits and in the controversy process.

To begin with, many workers in entry level jobs in this country are immigrants

for whom English is not only not a first language—indeed, it would be a stretch to

describe it even as a second language. (These taxpayers are generally referred to

as ESL taxpayers). Many of our clients have no ability to speak English whatsoever,

and require translators to communicate with us (which we provide through volunteers from our International LLM program).

These newcomers to the US are frequently entrepreneurial, starting their own

small businesses as street vendors, merchants, or food service providers. They tend

to use cash and money orders for their expenses, rarely have credit cards or bank

accounts, and almost never have any records of their financial transactions—or even

copies of their tax returns. Many come from countries where there is no requirement

of annual self-assessment of taxes, and these taxpayers often become nonfilers in

the US. Language is an incredibly powerful barrier for these taxpayers in all aspects

of their life, but it is particularly difficult for them in their attempts to understand

and deal with a highly sophisticated and complex administrative and judicial tax

system.

Whether English speaking or not, taxpayers working near or at minimum wage

levels tend to have limited education and literacy skills, and minimal understanding

of financial matters. Often these taxpayers work unusual hours (such as less desirable shift work) and many work two or more jobs, which they get to by public transportation. Housing and food expense are often a reach, and these taxpayers commonly qualify for some form of public assistance. Many of our clients share living

space in apartments or houses among several generations and/or collateral relatives

and friends, and they often take in boarders to help defray their expensive rent, especially in major cities. Having a phone is often a luxury, and their phones are often

disconnected for lack of payment. Job tenure is often short, and many float from

job to job. These taxpayers do not own their own homes and do not have retirement

plans, brokerage accounts, or other accumulated assets. Most live paycheck to paycheck.

When such taxpayers receive a letter from the IRS that they are the subject of

an IRS examination and that they potentially might owe $1500 or $2500 or $4000

to the government in tax deficiencies, it is an intensely stressful event, and they

are understandably frightened. Sometimes they simply discard the letter out of fear.

For the same reason, they also regularly fail to attend IRS conferences or return

phone calls. Moreover, immigrant taxpayers, even though they may be legally living

in the US, often also harbor a paralyzing fear of some immigration-related penalty,

and are unlikely to communicate with the IRS in any way.

I would like to tell you that these instances of low income taxpayer audits are

rare, and/or that when audits do occur, the issues are simple and easily resolved.

However, exactly the opposite is true. Even seasoned tax professionals are often surprised to learn just how complicated low income tax returns and audits can be, as

well as how often these taxpayers are audited. Indeed the frequency of low income

taxpayer audits, compared to those of high income taxpayers, has been the subject

of several front page stories in the New York Times in recent months.

These taxpayers come to interviews at our clinic wearing construction work boots

or uniforms, often with young children in tow who draw on yellow pads, play with

toys, or simply run around the room while we are conducting the interview.

Before enactment of the LITC program there were very few places in the country

these taxpayers could turn to for legal help, or to whom IRS agents could refer

56

them. Most legal services offices did not have tax specialists on their staff of poverty

lawyers. And only a handful of tax clinics existed around the country. Without the

LITCs, these taxpayers would be lost in a complex administrative and judicial world

they had no hope of understanding. The LITCs have truly been a lifeline for these

taxpayers.

It is hard to describe the gratitute these taxpayers feel for the help they receive

from their student-attorneys at the AU clinic. At the conclusion of their cases, many

write us effusive letters, send us plants and other small gifts, bring us food they

have cooked, and offer us personal assistance should we have future plumbing or

carpentry needs at our homes. Some continue to send us greeting cards year after

year. If these taxpayers could, I am sure that they would also write to you personally and thank you for setting up the LITC program.

The Issues Of Low Income Taxpayers

The number of audit issues on low income taxpayer returns is surprisingly large

and even more surprisingly, often extraordinarily difficult to resolve. A major source

of complexity is the earned income tax credit, an income supplement program offering low income taxpayers with children a refundable credit of almost $4000 per

year. The statute, however, is a minefield of technical eligibility requirements, passive income limitations, and tiebreaker rules. The GAO reported in November, 2000,

that EITC claims ‘‘have historically been vulnerable to high rates of invalid claims’’

and the IRS has been ordered by Congress to devote a considerable amount of its

enforcement resources to monitoring the credit each year. Therefore the credit generates a large number of taxpayer audits, resolution of which is by no means simple.

Adding to the difficulty of the statutory complexity is the fact that a large number

of EITC audits are conducted long distance, through EITC centers. Long distance

audits are, by their very nature, difficult for the low income taxpayer community

to handle. In the case of a long distance EITC audit, for example, taxpayers seeking

our services often bring in IRS form requests for documents they have received,

such as for birth certificates, school records, and medical records of their children.

In many of these cases, the taxpayer has carefully collected the information and

sent off a timely response to the IRS to the best of his or her ability. But it is often

the case that ‘‘substantiation’’ of the existence of the child and/or his or her residence is only one of the issues in the audit that the IRS is concerned about, which

may also include double claiming of the credit, or the application of the tiebreaker

rule.

Thus, despite fully complying with the ‘‘substantiation’’ request, the taxpayer may

still receive a Notice of Deficiency stating that additional tax is due. Subsequent attempts to reach the agency and discuss why the matter is still unresolved will cost

the taxpayer long distance phone charges which can grow to large amounts if, as

commonly happens, the taxpayer is required to spend a lengthy period ‘‘on hold.’’

For low income taxpayers living on the financial edge, imposing this toll charge for

access to the system is a significant hardship and many taxpayers simply give up.

These taxpayers come to our clinic expressing frustration, surprise, and puzzlement

as to why the audit is still ongoing since the taxpayer has provided all the information requested.

Other seemingly straightforward tax issues, such as filing status, dependency exemptions, and child care credits can become rather complex issues in living situations that, as noted above, often differ markedly from traditional ‘‘Ozzie and Harriet’’-type, nuclear, wholly functional families. Discerning what constitutes a ‘‘household’’, or whether a married couple is effectively separated, for example, can be surprisingly difficult in these circumstances.

In addition, low income taxpayers are frequently audited in connection with issues

such as worker classification, tip income, social security income, automobile expense,

Schedule C income and expense, charitable contributions, uniforms, gambling income, and a host of others requiring supporting financial records or data. Again, in

a population where checks and credit cards are not used, and record keeping and

retaining receipts are not common, these tax disputes can become quite time consuming and complicated as both the IRS and the clinics struggle to find alternative

types of proof that will satisfy the statutory standard.

Divorced taxpayers interpreting the knowledge requirements of the new separate

liability/innocent spouse rules make up still another large group of low income audit

issues, as do collections issues including the availability of offers-in-compromise, installment payment arrangements, and collections-due-process relief. We are also occasionally seeing cases involving the Alternative Minimum Tax.

For immigrant taxpayers, there may be additional issues involving the lack of a

validly issued social security number, or problems arising from borrowed or shared

57

social security numbers, or the taxpayer’s complete failure to file a tax return and

the IRS’s attempt to reconstruct income.

Success of the LITC Program

Even in the short time low income taxpayer clinics (LITCs) have existed to help

individual clients, their contributions to the system have been nothing short of enormous. First, IRS statistics about the numbers of taxpayers assisted and of cases resolved surely confirm the success of the program. But numbers alone do not tell the

whole story. I believe that the existence and growth of the LITC program has had

a far more basic and important ripple effect throughout the entire system than the

numbers themselves show; and that clinic representation of the working poor serves

many functions above and beyond actual advocacy in individual cases.

First, clinic representation educates the working poor about their tax issues and

responsibilities, thereby promoting better future compliance. IRS employees can of

course talk to taxpayers about the importance of recordkeeping and future compliance, but the trust that is built between a lawyer and client lends itself far better

to the giving of this advice. Better education and understanding tend to enhance

our voluntary self-assessment system and to reduce the taxpayer/tax collection

agency tension that figured so prominently in the 1997 Senate Finance Committee

hearings leading up to enactment of the 1998 Restructuring Act.

Second, the availability of clinic representation of taxpayers who are frightened,

confused, and often non-English speakers, tends to promote quicker and fairer resolution of disputes. The working poor are subject to some of the most complex provisions of the tax code. When the law and the processes by which disputes are resolved are not well understood, there is difficulty communicating, exchanging necessary information, and coming to a reasonable result. The presence of a representative facilitates the process on both sides and allows for a speedier route to a resolution agreeable to the taxpayer and the government.

Moreover, we have found that many taxpayers, on a fundamental level have some

basic misunderstandings of just how the tax controversy process works. For example, any number of our clients whose cases have reached the U.S. Tax Court will,

in the initial interview, focus exclusively on their perception that they have been

abused by the IRS rather than talking to us about the merits of their case. These

taxpayers believe that if they just ‘‘explain’’ to the judge how badly they have been

treated, they will win in court. Therefore they haven’t tried to resolve their case

with District Counsel’s office prior to trial. This approach, however, does not sit well

with Tax Court judges who must reach a decision on the substantive issue.

Other taxpayers have trouble seeing the forest for the trees: they refuse favorable

settlement opportunities which concede major items under review because the Service failed to concede a small single item to which they firmly believe they were entitled. Proper tax counseling as to the burden they have to meet at trial, the risks

involved in going to court, as well as the time commitment in preparing for trial,

often times leads taxpayers to settle their cases on very favorable terms, where they

would not have done do without our guidance.

These resolutions not only reduce the government’s cost of enforcement, but they

also often increase the taxpayer’s level of satisfaction with the process. Satisfactory

dispute resolution also increases confidence in ‘‘the system’’ so necessary to taxpayers’ willingness to comply with the rules.

Third, the proliferation of clinics has had the effect of increasing the visibility of

low income taxpayers and their tax issues, as well as ‘‘democratizing’’ the case law

to include low income taxpayer fact patterns and issues. Since the arrival of the

LITCs, there seems to be a far broader base of understanding of these issues in recent years at the Internal Revenue Service as well as in the media, the tax community and the public at large. Increased visibility and publicity lay the foundation for

better public debate about administrative and even legislative issues impacting this

sizable population.

Fourth, the LITC program has fostered better communications among LITC clinics and between clinics and the government in bringing problem areas to the attention of the IRS. Clinics communicate among themselves and with the IRS via electronic mail channels (there is a very popular LITC listserv which is an important

source of distributing information), allowing quick identification of common problems and quick access to appropriate government officials to alert them to matters

of common concern. This communication has also resulted in the IRS being able to

address issues (such as the need for toll free phone numbers for taxpayers to resolve

appeals issues) that are of major concern to the low income taxpayer community.

58

IRS Modernization

The recent reorganization of the IRS into operating divisions based on taxpayer

classification has important ramifications for all taxpayers, but has some unique

and discrete issues for low income taxpayers in particular—making the role of tax

clinics all the more important. The reorganization, based on taxpayer segmented

groups, essentially incorporates the idea that in a world of electronic commerce,

high speed computers, fax machines, cell phones, and inexpensive telecommunications, that the IRS can better service its ‘‘customers’’ through end-to-end accountability based on segmented taxpayer groupings rather than geographical areas.

In respect of low income taxpayers, the Wage & Investment (W&I) Division will

have the primary responsibility for dealing with these taxpayers with the Small

Business/Self Employed (SB/SE) Division handing their controversy work. W&I

services by far the largest number of taxpayers of any of the four new Divisions,

and it is the historic IRS view of low income taxpayers, indeed, all individual taxpayers, that they are the most compliant group, a group that typically interacts with

the IRS only once a year, who pay most of their taxes through withholding, and who

typically receive a refund at the end of the year. Within the Service individual

issues are also generally thought more manageable and easier to resolve than those

in the other Divisions. This view will necessarily shape decisions regarding allocation of Division resources.

For many taxpayers, the 21st century administrative approach of Modernization

will no doubt work well. However, low income taxpayers do not, as a general rule,

have access to computers and fax machines, do not have budgets for long distance

phone calls, and do not have the resources to file electronic returns or retain professional representatives to assist them with tax compliance or audits. Language and

cultural issues, moreover, seem to magnify where there is no face to face contact.

In short, these taxpayers are not part of the sleek modern world of technology envisioned by the ‘‘new’’ IRS. Such taxpayers tend to fare less well in a world of geographically remote IRS offices dependent upon mail or long distance phone contact

for customer service. These taxpayers are better off with walk-in locations and faceto-face contacts to resolve their problems.

To its credit, the IRS is aware of these issues and is grappling with them as it

moves to reorganize the entire agency. Throughout its evolution the reorganization

has been an extremely open process, with the agency seeking input in literally thousands of interviews around the country, including return preparers, tax clinics, professional practitioner groups, taxpayer representatives, and many others. And the

agency has been receptive to outside suggestions. For example, when the issue of

long distance phone costs in resolving audits was brought by the tax clinic community to the Service’s attention, the agency created a number of toll-free lines to address the problem.

Nonetheless, given the increasingly complicated and constantly changing nature

of the tax law, and the compliance burdens it places on low income taxpayers, as

well as the sometimes difficulty of reaching and communicating with this group, the

effect of Modernization on low income taxpayers is an appropriate oversight issue.

In this regard, the LITCs have a vital role to play in providing data and information as well as suggestions for administrative improvement.

Current Needs OF the Tax Clinics

The contributions of the clinics to the system are not without cost. LITC programs

are exceedingly expensive to run (particularly for law schools for a variety of reasons); and law schools, bar associations, and others involved in the clinic movement

are directing large amounts of resources and personnel into the program. The American University Federal Tax Clinic regularly contributes far more than the required

‘‘match’’ to obtain its LITC grants.

Various legislative amendments to Section 7526 and other changes could significantly aid the task of the clinics in carrying on their work, and providing these important benefits to the system.

(1) Increase the Section 7526 Statutory Cap to $15 million

The most pressing need of the LITC program is for an amendment to Section

7526(c)(1), increasing the annual statutory funding cap from $6 million to $15 million. In 1998, when section 7526 was enacted, there were only 14 tax clinics in the

country. With a per clinic limit of $100,000 per year, the maximum grant amount

the IRS could award, even if every clinic applied for and received the maximum

amount, was $1.4 million. The $6 million cap therefore seemed to be an acceptable,

even generous amount of funding for the LITC program.

No one could have predicted, however, the meteoric response of the academic and

nonprofit communities to the LITC program. This year, however, with 102 recipients

59

of grant money (from over 140 applicants), and even more applicants expected next

year, the IRS is concerned that it will have to turn away qualified applicants, and/

or cut back amounts to some because of lack of funding. This should not be allowed

to happen.

The number of tax clinics in existence today is not excessive, and indeed, is still

too small. Having 102 clinics nationwide is approximately 2 per state. But given the

complexity of the rules and the numbers of taxpayers nationwide needing assistance, as well as the constantly changing substance of our tax laws, the system could

easily support one clinic in each city in the country, perhaps more in some of our

larger cities.

I hope that my testimony today has made clear why a significant increase in the

cap amount is appropriate and would be a good use of funds. The benefits these clinics offer to their individual clients in particular and to the system generally, far exceed their cost to the US Treasury.

(2) Create a Separate Pprogram for Tax Filing Assistance outside Section

7526

Since 1977, the IRS budget has funded two important volunteer tax filing assistance programs, the ‘‘Tax Counseling for the Elderly (TCE) Program’’, which provides

tax information and filing assistance for seniors; and the Volunteer Income Tax Assistance (VITA) program, which offers tax filing assistance on a walk-in basis in libraries and other public buildings around the country in the evenings and weekends

each year in the months before April 15.

Accurate filing assistance, as well as the post-filing controversy assistance offered

by the LITCs, are both critical needs of low income taxpayers; and the TCE and

VITA programs are both excellent programs. But like the LITC program, more aid

is needed.

Currently, the IRS has interpreted section 7526 to permit LITCs to assist ESL

taxpayers with their filing needs as an appropriate LITC activity, though not other

low income taxpayers. A better approach would be for Congress to create a separate

matching fund program, apart from section 7526, with a separate funding stream

parallel to the section 7526 controversy assistance monies, which would be available

to any nonprofit, accounting school, or other institution which offered filing assistance to any low income taxpayer. Such organizations could also help small businesses run by low income taxpayers set up their books and records and file quarterly employee and other IRS forms. The separate program could then also administer TCE and VITA.

This streamlining of functions would simplify administration of both programs, as

well as provide needed funds for tax filing assistance, currently an undermet need

of this population.

(3) Insure that IRS has Adequate Budget for Translators to serve the ESL

Population

The issues involving ESL taxpayers are a growing concern of the fair and proper

administration of the tax laws. It is critical that the IRS have the resources to communicate effectively with this population of taxpayers.

CONCLUSION

I appreciate the opportunity to express my views to the Committee today on the

subject of low income taxpayer clinics. The tax system is one of which we are all

a part, and we all have a stake in insuring that it operates efficiently and fairly

for all classes of taxpayers. Historically, providing pro bono attorneys to low income

people has been the best guarantee that their rights will be respected, that the system will deal with them fairly, and that they will receive just results when they

interact with the legal system. LITCs are working for those goals in the tax area,

and the support and encouragement of this Committee toward those ends is appreGold.

ciated by the entire LITC community.

Chairman HOUGHTON. Well, thank you very much. Now, Mr.

f

60

STATEMENT OF JEFFREY S. GOLD, CHAIRMAN, COMMUNITY

TAX AID, INC.

Mr. GOLD. Thank you, Mr. Chairman, and thank you for sticking

with us with this late hour. We appreciate the opportunity to offer

our views today on the functioning and funding of the Low-Income

Taxpayer Clinic program.

My perspective about providing pro bono services to low-income

individuals and families began about 30 years ago—more than 30

years ago when I started Community Tax Aid in New York City.

So we predate the LITC program by a few decades. This nonprofit

group is the oldest group in New York. The group is the oldest volunteer group of accountants and provides low-income taxpayers

with a complete tax service including representation at the IRS

State tax agencies and the Tax Court. There is no paid staff and

an annual budget of less than $4,000. And that is my roots.

When I moved to the District in the early eighties, we began a

similar group. This past year, 250 volunteers helped nearly 1,400

clients with a wide variety of tax problems ranging from return

preparation to offers in compromise and, as I said earlier, representation in various situations. We have our own training program

and stress quality control.

Our talented volunteers make this possible and deserve all the

credit. They include CPAs and a growing number of lawyers, economists and others. We regularly offer our services in Spanish, Mandarin, Cantonese, Amharic—which is Ethiopian—Arabic and Korean, and this year we are hoping to add another couple of languages. Either our volunteers speak these languages or we recruit

interpreters.

We have developed mutually beneficial relationships with community groups to help our outreach into the community. The LITC

program is well conceived, but it is a work in progress and should

be revisited regularly so revisions can be made. The people we

serve deserve no less.

The greatest need has already been mentioned by several of my

colleagues, to at least double or even triple the current budget. And

please keep in mind that most low-income taxpayers have not done

anything to complicate their tax lives. Yet our tax laws, forms and

instructions get more and more complex, while nearly half of our

adult population is either illiterate or functionally illiterate, and

this is the conclusion of the National Institute of Literacy, an independent Federal organization. This means about 90 million people

in this country, and this population includes far more than the ESL

population. Funds are needed to make sure that we can provide

more help with return preparation to low-income native English

speakers.

Amazingly, Congress expects the working poor to understand and

comply with the baffling array of tax laws when they cannot—and

most cannot—afford the professional tax help they need, nor can

the IRS VITA program offer the needed help. The taxpayers often

run into problems and are subject to severe penalties. Three are at

the top of my list, and I will leave my statement in the written testimony to speak for that.

Community Tax Aid, we, as an independent not-for-profit, can afford to spend the time with the clients they need to work out situaVerDate 11-MAY-2000 01:34 Sep 08, 2001 Jkt 074412 PO 00000 Frm 00064 Fmt 6633 Sfmt 6602 E:\HR\OC\B412.XXX pfrm02 PsN: B412
61

tions such as extended payment schedules for an installment agreement so they can get away from installment payments and pay on

estimated taxes which they rarely understand, and this will relieve

them from paying added unnecessary expenses and save a lot of

tax administration dollars.

Some in the LITC program would have separate funding vehicles

for groups that deal only with controversies and another for those

that prepare tax returns or ESL work. I suggest that we are speaking about one very large community and that all should be kept,

at least for the time, under a single funding tent. All types of programs should work together toward a common goal.

Effective outreach brings in people so they have access to quality

tax return preparation. What follows is that this should reduce or

prevent the need for costlier controversy work and save considerable costs to the IRS and Tax Court.

At CTA, our limits are far lower than LITC caps, and we generally do not lack for clients. We decided long ago that people with

the lowest incomes get the highest priority and have kept to this

principle even if a client with a higher income and a more interesting issue arrives. Our primary goal is to serve low-income clients, not give our volunteers a wider range of tax issues to develop

their skills.

Again, I urge that the funding for LITC programs be expanded

significantly to meet the needs. If our Nation can spend $117 million to administer the tax rebate program as well as the $500 million that is being talked about over 5 years to speed up the processing of immigration applications, growing the original $6 million

annual grant for LITCs by a multiple of two or three times should

be elementary. We need to be more than—substantially more than

a band-aid solution.

I close with an invitation to Members of Congress and staff to

visit CTA in the metro D.C. area next tax season and see the extent of problems that low-income taxpayers face.

Thank you.

[The prepared statement of Mr. Gold follows:]

Statement of Jeffrey S. Gold, Chairman, Community Tax Aid, Inc.

Mr. Chairman and members of the Subcommittee, thank you for the opportunity

to offer my views today on the functioning and funding of the low-income taxpayer

clinic (LITC) program.

My perspective about providing pro bono services to low-income individuals and

families began more than 30 years ago when the massive changes in the 1969 Tax

Reform Act inspired me to found Community Tax Aid (CTA) in New York City. This

nonprofit group is the oldest group of volunteer accountants and continues to provide low-income taxpayers a complete tax service. CTA/NY has no paid staff and an

annual budget of less than $4,000.

When I moved to the District of Columbia in the early 1980s we began a similar

group. It has grown from three sites in DC to 13 that extend to five surrounding

counties in Maryland and Virginia. This past year, 250 volunteers helped nearly

1,400 clients with a wide variety of tax problems from return preparation to offers

in compromise and representation before the IRS and state tax agencies. In the past

we also have represented clients at the Tax Court. We have our own training program and stress quality control.

Our talented volunteers make this possible and deserve all the credit. They include CPAs—from the big-five accounting firms as well as smaller ones, industry,

government and nonprofits—and a growing number of lawyers, economists and others. We regularly offer our service in Spanish, Mandarin, Cantonese, Amharic (EthiVerDate 11-MAY-2000 01:34 Sep 08, 2001 Jkt 074412 PO 00000 Frm 00065 Fmt 6633 Sfmt 6621 E:\HR\OC\B412.XXX pfrm02 PsN: B412
62

opian), Arabic and Korean. Either our volunteers speak these languages or we recruit interpreters.

This past year we were approved for a $42,000 LITC grant and are using this to

improve and expand our service to the ESL (English as a second language) community. We have developed mutually beneficial relationships with many groups, such

as churches, community groups and legal services programs, to help our outreach.

With this introduction, allow me some observations and suggestions.

The LITC program is well conceived. But it is a work in progress and should be

revisited regularly so revisions can be made. The people we serve deserve no less.

The greatest need is to at least double the $6 million appropriation. The need is

enormous and most low-income taxpayers have not done anything to complicate

their tax lives. Yet, our tax laws, forms and instructions get more and more complex

while nearly half of our adult population is either illiterate or functionally illiterate.

This is the conclusion of the National Institute for Literacy, an independent federal

organization. These adults, says the NIFL, lack a sufficient foundation of skills to

function successfully in our society. Since 90 million people are involved, the problem extends far beyond the ESL population. Funds also are needed to provide more

help with return preparation to low-income native English speakers.

Amazingly, Congress expects the working poor to understand and comply with a

baffling array of tax laws. When they cannot—and most cannot afford the professional tax help they need nor can IRS VITA programs offer the needed help—the

taxpayers often run into problems and are subject to severe penalties. Three are at

the top of my list:

First are the draconian ten-year and two-year prohibitions from claiming the

earned income credit when it is likely the taxpayer was following poor advice from

an equally unschooled friend or preparer. Second is the ‘‘user fee’’ imposed less than

a decade ago for paying a tax bill on installments—even though most of the underpayments are due either to improper treatment of employees as independent contractors and to innocent underwithholding by working parents with children. Third

is the use of the math error label by the IRS to speed resolution of problems.

These are aspects of our tax law that people with low income and minimal literacy

cannot understand. At CTA, for example, we can afford to spend the time to work

with the client to work out an extended payment schedule so they have the money

to pay quarterly estimated taxes. This relieves them from added unnecessary expenses and saves scarce tax administration dollars. If our client was improperly

treated as an independent contractor and no longer works for the employer we can,

with the client’s approval, treat the client as an employee and leave the employer

to the tender graces of the IRS.

Some in the LITC program would have separate funding vehicles for groups that

deal only with controversies and another for those that prepare tax returns or ESL

work. I suggest that we are speaking about one very large community and that all

should be kept, at least for the time, under a single funding tent. All types of programs should work together toward a common goal.

Effective outreach brings in people so they have access to quality tax return preparation. What follows is that this should reduce or prevent the need for costlier controversy work and save considerable costs at the IRS and Tax Court. This is far

preferable to shifting administrative costs to low-income taxpayers who can ill afford

the burden.

I leave it to others to speak about the LITC limits that require at least 90 percent

of cases to be within 250 percent of the poverty level and that the amount at issue

not exceed $50,000. At CTA, our limits are far lower—$18,000 for individuals and

$26,000 for families (with discretion to go higher for large families—and we generally do not lack for clients. We decided long ago that people with the lowest income get the highest priority and have kept to this principle even if a client with

a higher income and a more interesting issue arrives. Our primary goal is to serve

low-income clients, not give our volunteers a wider range of tax issues to develop

their skills; this will happen over time.

Again, I urge that funding for the LITC program be expanded significantly to

meet the needs. If our nation can spend $117 million to administer the ‘‘rebate’’ program under the new tax law, and the administration is requesting $500 million over

five years to speed up the processing of immigration applications, growing the original $6 million LITC appropriation by a multiple of at least two or three in the next

year should be elementary.

I close with an invitation to members of Congress and staff to visit CTA next tax

season and see the extent of the problems that low-income taxpayers face.

Thank you.

f63

Chairman HOUGHTON. Thanks very much. Mr. Coyne.

Mr. COYNE. Thank you, Mr. Chairman.

Mr. Rich, your testimony includes a recommendation that the

IRS collection notices sent to low-income taxpayers include a stuffer about the Clinic’s services. How does the appeal stuffer process

work and would it work the same for collection notices?

Mr. RICH. All the stuffer notices—it is a single piece of paper

that says that if you are within 250 percent of the poverty level you

can contact a low-income tax clinic, and it gives the University of

Pittsburgh and I also think in our area it also gives the University

of Duquesne number.

By putting those in the collection notices—right now, the Tax

Court issues—any Tax Court case calendared in Pittsburgh, a

small case, they get a stuffer notice. Over in the appeals division

that handles Tax Court cases with the IRS and also handles appeals of exams from taxpayers, they have our stuffer notices in the

front window there; and the receptionist there always informs people of our existence. And also down in the first floor where walkins come in and ask questions, pick up forms, we have our stuffer

notice there.

But where we don’t have our stuffer notices and the people that

aren’t getting them are the people that are getting the notices in

the mail. Those are the notices that kind of just sit, and a lot of

times we get envelopes that are never opened. Because people are

just afraid when they get a notice from the IRS and they know

they are not entitled to a refund, it is not usually good news.

Once they get us involved—and, believe me, as soon as they find

out all they have to do is sign a power of attorney and we will take

care of them, all they have to do is just give us the information,

it is a weight off of their shoulders. Right away they will jump over

backward trying to get the information to you and trying to get this

behind them.

So from that perspective, the stuffer notice, to me it is a direct

contact to the person that is going to have the problem; and it is

something that we are not wasting a lot of money marketing and

things like that. The tough part is— and from the IRS’ perspective,

Nina might know better than myself—but I know a lot of people

in collections, from the logistics, just to put another piece of paper

in a letter is a lot when you got a whole lot of letters to do.

You don’t want to give everybody a notice, yet at the same time

there has to be some way to distinguish between an eligible taxpayer or somebody in that 250 percent of the poverty level area

and somebody that wouldn’t be entitled to it. But if could you overcome that burden, you could inform taxpayers that have a real

need, they open their first notice—because normally a lot of times

they might open the first notice because they don’t know what it

looks like, but, believe me, the second notice they know what it

looks like. They look at that and say, oh, I can call these people

for help. You know, it just gets them into the system.

A couple of people we have had are non-filers where they, you

know, they got a notice and they are looking for a tax return and

they realize they can come to us. Now what we do is we send them

64

to the VITA program to get the returns done but then we coordinate with the IRS to make sure they are filed and all these sort

of things.

So it is actually also bringing people back into the system that

have been out. Just having a buffer of somebody that they can

come to and to inform them of that, I think is one of the biggest

hurdles; and by using stuffer notices we can directly target the people that need our help.

Mr. COYNE. Has the IRS been receptive to including stuffers in

appeals notices?

Mr. RICH. Yes, the appeals people are very helpful and the district council people have also been very helpful as well as the taxpayer service people. It is just collections, and I know in our area—

98 percent of the people I have ever met at the IRS are nice enough

to be your mom and dad. I know in our area collections has been

tough over the years.

For example, last year, there were seven seizures. I mean, seizures are very low, but in Monroeville, for Congressman Coyne, one

revenue officer had three out of the seven seizures going. So I

mean, we have a tough area to deal with; and by helping or informing those collection taxpayers that we are available, I think we

could help a lot of people directly and also help the IRS. Because

the quicker they can dispense of cases, we are helping them with

their backlog.

Mr. COYNE. Thank you very much. Ms. Olson.

Ms. OLSON. I just wanted to comment on that.

I serve on a team at the IRS that is addressing these types of

issues, and one of the things we have been wrestling with about

a stuffer is can we do it, first, on a national basis so we are not

having to sort by zip codes and just putting one special one for the

Pennsylvania clinics. Can we put one in that would list all of the

clinics that are eligible just on the back of the stuffer?

We are trying to see whether or not stuffers are the most effective medium to communicate with taxpayers. We are wondering

whether on a notice, in order to save costs, can we put just a little

box on the front that is highlighted that says, call this number; and

you will get a recording, you can key in your zip code and we can

pull up, you know, the clinic in the area. It would be an 800 number just dedicated to that.

We are also looking at and we are asking for a counsel opinion

about—just a sort of security that our collection folks or our customer service reps— when a taxpayer calls up and they are hearing that it is someone who is saying I don’t know what this is all

about, you know, I don’t have any money, that we can unsolicited

say there may be a clinic in your area. And then we have on their

screen the employee working there would be able to pull down by

zip code the clinics that are available and we can give then the contact number.

So we are looking at some ways that might be more effective to

communicate this information in addition to the walk-in and the

brochures that we are putting out.

The only other thing I would say is that down the road our printing capacities are being consolidated and that will allow us to do

many more of the sorts at a much more efficient manner than it

65

would be now with the sort of archaic printing technology that we

have. We do have a time line for that. It is not as fast as maybe

some of the people would hope. We are looking for some intermediate ways to approach that.

Mr. COYNE. Thank you very much. Thank you, Mr. Chairman.

Chairman HOUGHTON. Now we have got another time problem.

Mr. Portman has got to leave at 7:15. So, Mr. Portman, would you

like to inquire?

Mr. PORTMAN. Thank you, Mr. Chairman. I will probably see

some of you at the airport. We are trying to catch flights.

First of all, I appreciate your testimony and what you do every

day. And we have one of the pioneers in Ms. Olson. I am glad you

stayed around in this area. This, as you know, came up during the

Commission quite a bit—in fact, Ms. Olson, help us—and Ms.

Spragens testified—I recall, Janet, you were involved in the Commission deliberations on this. And probably some of you did as

well. I apologize if I don’t remember your testimony. But 7526—

and it is also something that this panel has taken the lead on, as

you know. Without Mr. Houghton, Mrs. Johnson, Mr. Coyne and

now our new Member of the Ways and Means Committee from

North Dakota or the Dakota——

Mr. POMEROY. North.

Mr. PORTMAN. There would be no program. We not only started

it, but every year—but we are the ones that write the letters to the

appropriators saying give us the money. And this year, as you

know, the Subcommittee has given another $6 million, it was reported out yesterday. So I think we are on our way to getting that

again. But it is very tight, as you all know who work with the IRS.

Ms. Olson, the IRS budget is going to be very tough this year.

We again got a good mark up out of the Subcommittee, but we

have to do it every year, and this group pushes that.

But I have to make the point, that when we put this together it

was about controversies with the IRS. It was not about tax preparation. You remember, Ms. Spragens, when we came up with this

idea it was a new idea building on an old system that has been out

there for years. Those of you—I don’t know, Mr. Gold, you said how

many years you have been at it in New York and then here. But

this is decades old.

But it was to focus not on the broader issue of how to prepare

your taxes but when people with low income got involved with the

controversy with the IRS where they could go. And some of the testimony, Mr. Book and others, have said, several of you have said

we should perhaps set up a separate program for tax preparation

or put more money in here for tax preparation. That is something

we need to think about and talk about as a Subcommittee. Because

that may be a different mission than what we at least had anticipated.

I look at the language—and Mr. Coyne was on the Commission

with me. It says to represent low-income taxpayers in controversy

with the IRS. And then it says, or to operate programs to inform

individuals for whom English is a second language about their

rights and responsibilities.

It is under the ESL part of the statute that the IRS has expanded into tax preparation which isn’t really—I don’t think was

66

the intent of the Congress. That is only by way of saying that we

would be supportive I think of expansion of the appropriation. It

is not going to happen this year, in my view, but maybe next year

we can provide some data about the need that would help us in

that regard. And the more applications the better, more stuffers

the better, which leads to more interest in places like Cincinnati,

Ohio, will get some of these clinics applying so we can get them

more and more involved.

But the point is, I guess, that if you all think we are not focused

enough on controversy and we are getting into these other areas

and it should be a new program, we need to hear from you because

it may be better to start a new program rather than try to expand

on this one.

When you looked at the funding over the years, we started off

with $1.5 million, as I recall, try to find it here, then it went to

$5 million, then to $6 million last year. We funded 72 percent,

those who applied, which is a pretty high percentage. I don’t know

what you got in terms of your criteria here. I assume there were

a lot of good quality candidates who were turned down, but 72 percent is pretty high. 59,000 was the average.

One way to do this, of course, is to reduce the amount you give

so you can cover more people. Another is to increase the match. It

is now 50/50. Maybe we should be trying a higher match for some.

Other ways, to say after 3 years maybe you should graduate, sort

of get on your feet and to find more private sources or other public

sources.

Anybody have any thoughts on those ideas?

Let’s assume for the next year we are going to live within the

$6 million budget. Mr. Rich.

Mr. RICH. I know, Congressman Portman, in Pittsburgh getting

private funds for this sort of thing would be next to impossible. We

have just been through two stadium deals in Pittsburgh, and private funds and that sort of thing are very, very tight. With the city

budget and the county in the Pittsburgh area, I think this is the

only place that we can look. Now I am sure the university has

other places to look, but I know personally that would be very, very

tough to all of a sudden cut somebody off in the third year.

Mr. PORTMAN. Other comments on those options?

Ms. SPRAGENS. I can only speak to academic institutions because

that is my frame of reference, but, as I indicated in my testimony,

I think that it is very expensive to provide these kinds of programs.

There are still many, many schools who have not opted into this

program because of the expense. So I think that this idea of seed

money to get things started in hopes that the program will be able

to be self-supporting is not realistic.

I think you are going to see a dropoff in clinics if they don’t—

at least academic clinics, if they don’t——

Mr. PORTMAN. I assume we are coming up on the third year for

some of the original applicants so we will be going through that reevaluation process. Are you concerned about that, Ms. Spragens,

that some of these entities might not get their funding?

Ms. SPRAGENS. Am I personally concerned?

Mr. PORTMAN. Yes, having been one of the originals.

67

Ms. SPRAGENS. Actually, my program was awarded a potential 3-

year grant last year. So I am not immediately concerned about this.

But let me just say that this program—and I don’t think I have

to convince members of the Subcommittee how important this program is, but I think that it is more than just the settlement and

resolution of individual cases. I think we are talking about building

confidence in the system. I think we are talking about bringing

low-income issues into more focus, more visibility before the IRS,

before the media, into public debate, democratizing the case law by

bringing these issues up.

It seems to me this is a program that ought to be funded to the

extent people are willing to leverage private resources and participate in it. I think these are dollars so well spent that I am reluctant to respond directly to your question about how we can get people out of this program by increasing a match or——

Mr. PORTMAN. I am talking about getting more programs involved. The point would be to get more bang for the buck by not

having—let’s say 70 some percent were able to get funded this

year. Let’s say next year, next fiscal year we can only get $6 million again, which I think is very likely, and we have more applicants because there are more stuffers and more interest and more

people applying. How would you spread the wealth? Would you

have smaller grants? Would you have just a lower percentage of

grants given out? Would you require a higher match? Would you

graduate some folks off who could do it on their own?

I mean, the easy answer is, you know, $15 million; and I understand that. I think this Subcommittee would be your first place to

support that, but that ain’t going to happen in my view this year

given the budget. Maybe you will have better luck in the Senate.

But that is what I am just wondering, if there is ways to restructure the program to respond to the need.

I don’t need to take up any more of your time. I also have to

catch my flight. But, again, thank you all very much for what you

do every day.

I will yield to Mr. Pomeroy and the Chairman.

Mr. RICH. Congressman Portman, one thing, if you did have to

cut programs I would recommend reducing the grants versus cutting sites. Because these things—cases are started in the pipeline,

and especially with offers in compromise and things it takes a long

time to deal with the IRS and to resolve a controversy. So to stop

something midstream with something that has really caught on

and really helps people would be I think detrimental. I think the

programs might be able to pick themselves up by the bootstraps if

you cut their allowance versus cutting it off. You know, just reduce

it. So if you are thinking of something like that, I would tend toward reducing it.

Mr. PORTMAN. The funding would stay level but there would be

a lot more interest and more applicants as there have been every

year.

Mr. RICH. These programs like North Dakota—I am sure there

are a lot of people out in North Dakota that could really use this—

farmers, people that are self-employed, that don’t have any place

to go that get in trouble with estimated tax payments. You don’t

pay this year and it just snowballs up on you.

68

Chairman HOUGHTON. Thanks very much. Mr. Pomeroy.

Mr. POMEROY. Have a safe flight, Congressman Portman.

I want you to know, panel, that this is an absolute first in my

legislative experience. This is a Subcommittee receiving testimony

after 7:00 at night after the last vote of the week. Only the compelling power of the Chairman and the dazzling presentations of the

panel would have created this kind of critical mass of legislative

participation; and it really has been very, very interesting.

Ms. Spragens, staff has been telling me of your involvement prior

to my time on the Committee in terms of taking this from an AU

program and advocating for some Federal support to get it more

broadly extended. Has it worked as you had hoped?

Ms. SPRAGENS. Mr. Pomeroy, I think it is a dazzling success. I

couldn’t be prouder of the number of clinics that—I mean, I take

no personal—I didn’t do it.

Mr. POMEROY. Modesty noted.

Ms. SPRAGENS. The answer is, yes, I am very happy with the program. As I said, it is now just a victim of its own success. It has

gotten so successful it just needs more money to keep going.

Mr. POMEROY. Have a safe flight, Professor Rich.

What are your matching sources?

Ms. SPRAGENS. My organization?

Mr. POMEROY. Generally, where do you get matching funds?

Ms. SPRAGENS. The academic clinics are supported by the law

school, and the law school does not draw a distinction between offering a clinic course and offering contracts or torts or securities

regulation or any other course. However, it is very expensive education because of the low faculty-student ratio and all the collateral

costs. We don’t have——

Mr. POMEROY. Thinking back to my law schooldays there wasn’t

a malpractice premium high enough to cover my exposure if I was

doing tax returns for other people or helping people resolve conflicts, so I do understand that one. And then the law school’s participation is in kind toward the Federal grant dollar then?

Ms. SPRAGENS. We overmatch. We contribute so much money. I

am very proud of my school, that we have made such a commitment to this program. Between salaries and secretarial help and

equipment, I mean we just overmatch. So we have never had a

problem with the match. I think nonprofit organizations which are

dependent on raising private funds are much more at risk for developing a match.

Mr. BOOK. My experience at Villanova is similar. Our institution

is well above the match amount in light of salary and equipment

for the clinic computers and space and secretarial assistance.

Ms. OLSON. Congressman Pomeroy, when I ran the Community

Tax Law Project, the first year that I ran it I sent out 30 grant

applications to both State, local and national foundations; and I got

30 very polite ‘‘your idea is wonderful but, you know, we don’t have

the funds for it.’’ Over the years we slowly built up something from

community foundations and from the bar association and the bar

foundation.

But I also went up to the general assembly of Virginia for 3

years in a row. The first 2 years we were turned down in our request roundly, and it wasn’t until the third year when I was actuVerDate 11-MAY-2000 01:34 Sep 08, 2001 Jkt 074412 PO 00000 Frm 00072 Fmt 6633 Sfmt 6602 E:\HR\OC\B412.XXX pfrm02 PsN: B412
69

ally able to wave a piece of paper in front of them. You see this?

For every dollar you give us, we bring in another dollar. We got

this IRS match. Then we got the appropriation. So now the Commonwealth of Virginia funds the Community Tax Law Project to

the tune of $50,000 a year.

Mr. POMEROY. As I pitch this back to North Dakota to the dean

of the law school, what can you tell me about what the students

have gained from their participation in the program?

Mr. BOOK. From a student’s perspective it is a great educational

experience. They are getting a lot of practical training in skills like

interviewing, counseling, negotiating. They are getting an opportunity to work with a difficult substantive area in the law. They

are getting the opportunity to get client contact at an early stage

in their young careers.

They are also getting a very important sense of the importance

of pro bono work and public interest work that hopefully can carryover in their professions. Many of my students will be going on to

doing work at corporate law firms or nonpublic interest work, but

a lot of them are still involved and interested in the sorts of work

that is done by our clinic and other organizations. So skills and

public interest exposure is very important.

Mr. POMEROY. Ms. Spragens, the same?

Ms. SPRAGENS. The kinds of experiences they get are turning out

better lawyers. They are lawyers who have had client contact. And

you would be surprised what students don’t know. I mean, the

smartest students who are going on to——

Mr. POMEROY. Having been a student, no, I wouldn’t be surprised.

Ms. SPRAGENS. To earn very large Wall Street salaries and so on.

One student—whenever a student sends out a letter, I have to

approve it even if it is a form letter. And a student brought in a

letter, and it was a very good letter. I said fine, send it out. And

I don’t even know why I said this, but I said be sure to put a copy

in the file, and the student said good idea. You know, I mean it

is just silly little things that people don’t know about how to keep

a file, how to write a memo to the file, what to wear to an interview. I mean, they are all the things that Les said about learning

about how to interview, how to negotiate a settlement agreement.

But just basic lawyering skills are developed there, the clinical

model, in ways that they just aren’t throughout the law school curriculum. So it is very good education for the students; and, of

course, the by-product is that it serves a need in the community

that is in large part unmet and, as I said, has these ripple effects

as well. It is a win-win program.

Mr. POMEROY. Thank you very much. Thank you, Mr. Chairman.

Chairman HOUGHTON. Thank you very much.

I have just got one question here because it is late. What do you

think about all of this, Ms. Olson?

Ms. OLSON. I am a little biased. I think, as Janet does that—Ms.

Spragens does, that the low-income taxpayer clinics are extraordinarily important. And the most important part of it is the trust

that taxpayers get back into the system, you know, that they are

getting a fair shake. It keeps people in the system.

70

I wish that we had enough money to fund all of the ones that

are applying. I know that the Service’s highest priority in the next

go-around is going to be with, you know, with the applicants coming in, if there is any money, if some groups are going out maybe

because they are not performing in the way we need or something

like that or if we make those hard choices about cutting the

amount that we give—and I don’t have any inside track on that at

this point—that we are going to the areas that are geographically

unrepresented, that we at least get them in every single State.

That is a very important criteria for us at this point.

I have always had ambivalence about the funding of the tax

preparation. As Congressman Portman pointed out, I don’t think

that was the original intent of the statute, to fund tax preparation.

I do know that that was a call that chief counsel made within the

IRS to interpret education and outreach as tax preparation. And I

think that a good fit would be to relook at the statute and create

a separate provision for tax preparation and that we think about

that as a different issue. But I don’t recommend defunding tax

preparation now. I think that these programs that are being funded have a great degree of value.

Chairman HOUGHTON. Thank you. Mr. Gold.

Mr. GOLD. One of the ways that programs preparation, which is

what we do primarily at Community Tax Aid, but we do representation as well and can work together with controversy clinics entirely—with Ms. Spragens’ clinic, their students are able—as with

any law school, are admitted to practice only before the IRS and

Federal and the Tax Court. They cannot practice before State

courts. They had an issue with an offer and compromise for both

Federal and State, and we are working cooperatively where one of

our lawyer volunteers is handling the State offer and compromise

so that the taxpayer is indeed getting a full, complete service with

friendly cooperation and it works out very, very neatly.

In terms of funding, by the way, our group has been very, very—

found it very, very difficult to get funds from the accounting world

where, with a growing number of large law firms in the metro D.C.

area, we are going to start seeking funds from some law firms. But

it has been very, very difficult.

One other last thought and brief one that I would like to leave

you with is, for the 90 million taxpayers who fit in the category of

illiterate or functionally illiterate, for them taxes are a foreign language; and we have to make sure that they speak that language.

A term like ‘‘head of household’’ or ‘‘dependent’’ has a highly technical meaning; and most of these people don’t have the slightest

clue and find it very, very difficult to understand how to comply.

Even the booklet explaining the earned income credit runs—I forget how many pages this year—54 pages, something like that. It

is close to 60 pages. That is a heck of a read for somebody who

doesn’t read and comprehend and understand very quickly.

Chairman HOUGHTON. Thank you.

Ms. Spragens or Mr. Heavner, have you got any final words?

Ms. SPRAGENS. No, Mr. Chairman, I don’t think so. Thank you

for the opportunity to——

Chairman HOUGHTON. We thank you very much for being here

and—all of you—really appreciate it, the late hour.

71

How about you, Mr. Heavner?

Mr. HEAVNER. Mr. Chairman, I would like to thank the Committee again for having us.

Just as a final thought that I didn’t get to highlight, that as we

increase—I think it was Ms. Spragens who mentioned the taxpayer

Bill of Rights, and we have been seeking to increase taxpayer

rights with each consecutive step, and opportunities for due process

for taxpayers. Without the likes of the clinics, all the clinics doing

the different things they are doing, how can we really have access

to due process without the continued efforts of the clinics?

So we thank you for your support and staying at this late hour

and hanging with us to hear our comments.

Chairman HOUGHTON. Thank you.

[Whereupon, at 7:30 p.m., the hearing was adjourned.]

[Submissions for the record follow:]

Statement of the Center for Law & Human Services, Chicago, Illinois

Why Federal Support is Needed to Expand Free Community-Based Income

Tax Assistance for Lower Income Taxpayers

Background

The growing complexity of federal tax law has created a significant burden for

millions of hard working, low-income taxpayers seeking to comply with the tax code.

For example, the Earned Income Tax Credit (EITC) arguably the most important

federal benefit program for millions of working poor families and individuals, is explained in a 56 page instruction booklet that includes up to six separate worksheets.

The Problem

Not surprisingly, taxpayers claiming the EITC rely on paid tax preparation services at a significantly higher rate than the general population. Paid tax preparers

typically charge $100 or more to prepare a tax return that includes the EITC, a significant financial burden for low-income taxpayers. Many also pay up to $200 extra

for a Refund Anticipation Loan (RAL), a short-term loan that is aggressively marketed to EITC recipients. In total, it is not unusual for low-income taxpayers to

spend up to 3% of their annual income on tax related services.

Although the IRS provides in-kind support and training for the Volunteer Income

Tax Assistance (VITA) program, community-based organizations must secure operating revenue from local sources. The IRS does not currently provide any direct financial support for the program. Local VITA programs are staffed almost entirely

by volunteers, many of whom contribute dozens of hours of their time during tax

season. Most VITA programs prepare simple returns and will not provide assistance

to millions of self-employed persons with 1099 income. VITA programs rarely prepare prior year returns or amended returns for low-income taxpayers who are due

a refund.

The Treasury Department recently issued a report indicating a relatively high

non-compliance or error rate among taxpayers filing EITC returns. Factors impacting the error rate include: the administrative complexity of the EITC, literacy barriers faced by many low-wage workers, the high cost of tax preparation services that

drives many people into preparing their own returns, and the lack of free tax assistance in many communities. Many low-income taxpayers also fail to file a return,

leading the IRS to announce that up to 1.6 million taxpayers had not claimed $2.4

billion in refunds from tax year 1997.

Under the capable leadership of IRS Commissioner Rossotti, the IRS has greatly

expanded its commitment to customer service. Hundreds of IRS employees provide

taxpayer assistance and education. During the 1999 tax filing season, IRS staff completed 850,000 federal income tax returns. As the IRS implements its ambitious reorganization plan with limited funding for the effort, there appear to be diminished

resources for taxpayer assistance.

The Solution

The many problems of low-income taxpayers present a clear and compelling rationale for the IRS to expand its support for free community-based income tax assistance. The current Low-Income Taxpayer Clinic (LITC) program funds tax preparation assistance only to English-as-a-Second-Language (ESL) taxpayers. A grant

72

program can and should be built on the experience and successes of the LITC program, while remaining administratively distinct from it. A new funding initiative

such as this could be administered by the IRS and support cost-effective programs

operated by local non-profit sponsors, allowing them to secure matching funds provided by private and public sources. An initial investment in the amount of $6 million, matched by an equal amount of local funds, will train and place sufficient volunteers to complete as many as 480,000 tax returns. A $6 million investment by the IRS could save the agency untold millions of dollars by leveraging the resources of non-profit organizations who are positioned to

recruit thousands of new volunteers. Grant supported tax preparation assistance

programs would be expected to provide professional supervision for volunteers, and

to further assure the taxpayers receive a full range of needed assistance. For example, grant supported programs would complete prior year returns for non-filers;

amend prior year returns for taxpayers who made errors or omissions; and complete

relatively complex returns for self-employed taxpayers.

Further, such a program could: 1) reduce the time IRS staff must spend to field

calls and deal with inquiries from low-income taxpayers; and, 2) encourage more

non-filers to join the more than 120 million law-abiding American taxpayers.

Access to capable free tax preparation assistance will improve overall compliance

rates, and also improve levels of participation in the EITC by eligible families. This

initiative will also increase opportunities for low-income taxpayers to file their returns electronically as community based tax preparation assistance programs will

have an incentive to expand their currently limited technological capacity. This, in

turn, will further drive down IRS return processing costs and further the agency’s

goal of expanding e-filing rates among all taxpayers.

Such a program would also be welcomed by many states that have modeled aspects of their state income tax on the federal tax code. Recently, Glen L Bower, Director of Revenue for the State of Illinois testified before the U.S. regarding tax complexity and the EITC. With Illinois having recently joined twelve other states with

state EITC’s, Director Bower called for the federal government to ‘‘provide additional resources to allow the IRS to assist taxpayers who cannot afford to get to a

(paid) preparer,—and assure Illinois and other states receive accurate returns.’’

Recently enacted tax legislation provides certain valuable new tax benefits for

lower income families, but unfortunately adds additional layers of complexity—and

new forms to be completed and filed. It is incumbent upon Congress to expand support for free community based tax preparation assistance for all lower income taxpayers. Such support can bring tens of thousands of low-income workers into the

taxpaying ′′mainstream′′ by successfully addressing the obstacles and barriers they

face.

For more information contact: David Marzahl, Center for Law & Human Services

dmarzahl@centerforlaw or (312) 252–0280 Michael O’Connor,

moconnor@centerforlaw.org or (773) 262

f–2199

UNIVERSITY OF MISSOURI-KANSAS CITY

SCHOOL OF LAW

KANSAS CITY, MISSOURI 64110

July 25, 2001

Allison Giles

Chief of Staff

Committee on Ways and Means

U.S. House of Representatives

Washington, D.C. 20515

Dear Ms. Giles:

We submit this letter in response to your invitation for comments from participating institutions in the Low Income Tax Clinic Program. The Graduate Tax Law

Foundation of the University of Missouri—Kansas City Law School established an

LITC two years ago. The clinic has been contacted by nearly 200 persons seeking

assistance with federal tax matters. It has entered into representation agreements

with approximately 75 persons. Almost all of the clients have serious financial difficulties. For example, during the period January 1, 2001 to June 30, 2001, twothirds of the single clients had yearly incomes less than $16,000. The clients with

two-member families often had even lower yearly incomes—more than one-half of

the families with two members had yearly income of $15,000 or less. Such individuals could not afford to obtain assistance through private lawyers or accountants.

73

Many of the clients are divorced mothers supporting children often without any

support from the child’s father. It makes a tremendous economic difference for these

persons to receive an earned income credit that was erroneously denied. We also

have divorced mothers seeking innocent spouse relief. The process by which the Internal Revenue Service reviews innocent spouse claims is lengthy and many such

claimants would simply have to give up if the clinic were not available. For example,

the clinic assisted one client in making a request to the Cincinnati Service Center.

The service center then requested additional information that was provided. Nearly

one year later the service center sent the request to a local Internal Revenue Service

office, which requested still more information. This taxpayer was unemployed when

the case was transferred to the local office and could not have paid a representative

to continue pursuing the claim. Low income tax clinics permit such individuals to

at least complete the process of seeking relief.

This clinic also serves an educational function within the law school by training

law students in the tasks of interviewing clients and making presentations before

a federal agency. This type of hands on experience is a valuable supplement to the

student’s academic training.

We hope that Congress will continue to fund low income tax clinics and that, if

possible, the amount appropriated for this purpose will increase.

Respectfully submitted,

EDWIN T. HOOD

Faculty Advisor

f Kansas City Tax Clinic

UNIVERSITY OF NORTH CAROLINA AT GREENSBORO

GREENSBORO, NORTH CAROLINA 27402–6165

July 10, 2001

Dear Representatives:

The Department of Accounting at the University of North Carolina at Greensboro

has established a Low-Income Taxpayer Clinic with grants received from the Internal Revenue Service. The Clinic has received grants from the IRS since 1998. We

are currently in the first year of a three-year grant. The Clinic is the only Low-Income Taxpayer Clinic in North Carolina and South Carolina. We are writing to provide to you information on the number of taxpayers assisted.

The focus of the Low-Income Taxpayer Clinic at UNC–Greensboro is on English

as a second language taxpayers. For ESL taxpayers we provide any type of tax assistance needed, including income tax return preparation, filing for a taxpayer identification number, and help in dealing with the IRS. In 1999, the Clinic assisted approximately 100 taxpayers. In 2000, that number rose to over 600. Since January

2001, we have assisted more than 1,100 ESL taxpayers (see attached spreadsheet).

The Clinic has also reached thousands more with informational brochures, presentations, and advertisements. During the 2001 tax season we began presenting information to non-resident students at area colleges and universities to assist them in

filing their income tax returns. We estimate that we have reached over 500 nonresident students. The Clinic also provides the Department of Accounting the opportunity for its students to receive hands-on experience in working with clients, as

well as the IRS.

Please feel free to contact us if you have any questions concerning the Low-Income Taxpayer Clinic.

Sincerely,

ANGEL THARRINGTON, CPA

Low-Income Taxpayer Clinic

Low-Income Taxpayer Clinic

UNC–Greensboro

Assistance Provided

January 1, 2001–June 30, 2001

74

Estimated ESL Taxpayers Assisted

Date Location

Income Tax Returns

W–7’s

(Federal

and

State)

Nonresident

Presentation

2/4/2001 St. Julia’s Catholic ...............................................

Siler City, NC .......................................................

85 42

2/10/2001 FaithAction ...........................................................

Greensboro, NC ....................................................

20 11

Clemson University ..............................................

Clemson, SC ..........................................................

130

2/11/2001 Christ the King Catholic Church ........................

High Point, NC .....................................................

26 25

2/13/2001 A&T State University ..........................................

Greensboro, NC ....................................................

24

2/17/2001 Blue Ridge Community Health Ser. ...................

Hendersonville, NC ..............................................

47 32

2/22/01 & 3/26/01 NC State University ............................................

Raleigh, NC ..........................................................

200

3/5/2001 Southeastern Baptist Seminary ..........................

Wake Forest, NC ..................................................

45

3/9/2001 Queens College .....................................................

Charlotte, NC .......................................................

15

3/10/2001 FaithAction ...........................................................

Asheboro, NC ........................................................

12 4

3/15/2001 Guilford College ....................................................

Greensboro, NC ....................................................

15

3/18/2001 Catholic Social Services .......................................

Asheville, NC ........................................................

33 4

3/18/2001 Christ the King Catholic Church ........................

High Point, NC .....................................................

9 29

3/20/01 & 3/21/01 UNC–Greensboro .................................................

Greensboro, NC ....................................................

120

3/31/2001 UNC-Wilmington ..................................................

Wilmington, NC ....................................................

40

4/1/2001 St. Julia’s Catholic Church ..................................

Siler City, NC .......................................................

26 62

2001 Applications & Tax Returns We .........................

Receive Through The Mail ..................................

19 43

Total ...................................................................... 277 276 565

Total ESL Taxpayers Assisted Jan-June, 2001 ............ ............ 1118

Total Low-Income Taxpayers Assisted with IRS

Issues.

............ ............ 10

Total Taxpayers Assisted Jan-June, 2001 ......... ............ ............ 1128

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