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[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

 
        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

                   U.S. GOVERNMENT PRINTING OFFICE
74-412                     WASHINGTON : 2001

                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa                     JOHN LEWIS, Georgia
SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington            MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia                 WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania           XAVIER BECERRA, California
WES WATKINS, Oklahoma                KAREN L. THURMAN, Florida
J.D. HAYWORTH, Arizona               LLOYD DOGGETT, Texas
JERRY WELLER, Illinois               EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin

                     Allison Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                       Subcommittee on Oversight

                    AMO HOUGHTON, New York, Chairman

ROB PORTMAN, Ohio                    WILLIAM J. COYNE, Pennsylvania
JERRY WELLER, Illinois               MICHAEL R. McNULTY, New York
KENNY C. HULSHOF, Missouri           JOHN LEWIS, Georgia
SCOTT McINNIS, Colorado              KAREN L. THURMAN, Florida
MARK FOLEY, Florida                  EARL POMEROY, North Dakota
SAM JOHNSON, Texas
JENNIFER DUNN, Washington

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.

                            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

                      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:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                       SUBCOMMITTEE ON OVERSIGHT

                                                CONTACT: (202) 225-7601
FOR IMMEDIATE RELEASE
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 program 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, 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/
ways__means/''.

    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

                                                CONTACT: (202) 225-7601
FOR IMMEDIATE RELEASE
July 9, 2001
No. OV-4-Revised

                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 No. OV-4 released on July 3, 2001.)

                                

    Chairman Houghton. Ladies and gentlemen, this is rather 
abrupt, but I think we would like to start the hearing on the 
Report 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.
    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.
    I am pleased to yield to our ranking Democrat, Mr. Coyne.

                                

    Mr. Coyne. Mr. Chairman, I just would like to submit a 
statement for the record so we can move along with the hearing.
    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 Subcommittee 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--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 enables 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. Taxpayer 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 (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 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.

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 all-TAS 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 have the delegated 
authority to effect a complete resolution of the taxpayer's problem. 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 intermittently 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.
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)       6. Audit Issues (Other than
 Correspondence                           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.
[GRAPHIC] [TIFF OMITTED] T4412A.001

                                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.

[GRAPHIC] [TIFF OMITTED] T4412A.002

                        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.
[GRAPHIC] [TIFF OMITTED] T4412A.003

                                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 
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, input from taxpayers, and discussions with other Operating and 
Functional Divisions. 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 Service 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 Toll-free 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. 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, cost-free 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 toll-free 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.
    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.
    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 decision-making 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; developing 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 challenging 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

------------------------------------------------------------------------
                                                          Operational
                                      Operational       Priorities and
        Major Strategies              Priorities          Improvement
                                                           Projects
------------------------------------------------------------------------
1. Advocate changes in tax law     Report to   Continue
 or procedures that reduce         Congress the most   to work with
 taxpayer burden and improve IRS   serious problems    Operating
 effectiveness                     facing taxpayers    Divisions and
                                   Develop     Members of
                                   and recommend       Congress to
                                   legislative         achieve a less
                                   proposals to        burdensome
                                   address tax law     process in key
                                   complexity,         areas of the tax
                                   equity, and         law; assist in
                                   taxpayer burden     simplifying forms
                                   Advise      and instructions.
                                   Congress' Joint     Partner
                                   Committee on        with Research and
                                   Taxation on the     W&I on a study of
                                   complexity of       the most
                                   legislation being   significant
                                   considered          errors on
                                                       individual income
                                                       tax returns.
                                                       Systemati
                                                       cally 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         Train       Review/
 identify and respond to           staff on the        revise case
 taxpayer concerns                 Taxpayer Advocate   criteria
                                   Management          guidelines to
                                   Information         ensure that TAS
                                   System (TAMIS)      workload is
                                   and Intelligent     focused on
                                   Query               taxpayers with
                                   Seek        hardships.
                                   resource support    Develop
                                   through Research    supporting
                                   to develop an       information for
                                   improved process    legislative
                                   for gathering and   recommendations
                                   analyzing data to   that address
                                   report to           underlying causes
                                   Congress on the     of workload.
                                   top 20 taxpayer     Conduct
                                   concerns            focus groups and
                                   Increase    surveys.
                                   public awareness    Conduct
                                   of TAS              focused outreach
                                   Ensure      to practitioners
                                   that TAS            and community
                                   employees have      liaisons.
                                   the authorities     Conduct a
                                   necessary to        quality
                                   resolve taxpayer    assessment of
                                   problems            center campus
                                                       casework to
                                                       determine why the
                                                       Casework Quality
                                                       Index scores of
                                                       the campuses are
                                                       so much lower
                                                       than other
                                                       offices.
                                                      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
                                                       toll-free
                                                       telephone access
                                                       to TAS
                                                       caseworkers.
------------------------------------------------------------------------
3. Identify significant sources    Plan/       Joint
 of TAS casework and work with     implement           educational
 Operating Divisions on            outreach efforts    outreach efforts
 strategies to reduce              to taxpayers        with Small
 inappropriate TAS workload.       Propose     Business/Self-
                                   content for         Employed to
                                   Operating           address rising
                                   Division            trend of
                                   procedures          unreported income
                                   manuals and         by sole
                                   training that       proprietors.
                                   leverages TAS       Conduct
                                   experience          ongoing TAS
                                   Examine     inventory Study
                                   the sources of      and consult
                                   TAS casework to     regularly with
                                   determine whether   the Operation
                                   work being          Divisions to
                                   performed is in     analyze
                                   accord with TAS'    underlying causes
                                   legislative         of taxpayer
                                   mandate             problems and
                                                       identify changes
                                                       to mitigate those
                                                       problems.
------------------------------------------------------------------------
4. Ensure that the human           Assure      Revisit
 resources component of the        that the human      the staffing
 Taxpayer Advocate Service is      resources           model study.
 adequate to meet its workload     component of the    Complete
 demands                           TAS organization    the hiring
                                   is adequately       process to ensure
                                   sized, trained      that TAS is able
                                   and supported       to adequately
                                                       address taxpayer
                                                       problems and
                                                       systemic issues.
                                                       Design
                                                       and implement a
                                                       comprehensive,
                                                       multi-year
                                                       training program
                                                       for TAS.
                                                       Coordinat
                                                       e 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            The average level of customer
                                            satisfaction                 satisfaction determined through the use
                                                                         of vendor conducted transactional
                                                                         surveys.
                                          ----------------------------------------------------------------------
                                           Internal customer            Being developed.
                                            satisfaction
----------------------------------------------------------------------------------------------------------------
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     A comparison of planned versus actual
                                            versus plan                  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.
                                          ----------------------------------------------------------------------
                                           Immediate advocacy           The number of actions taken
                                            interventions                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           The number of substantive initiatives
                                            proposals                    being worked by the Operating Division
                                                                         Taxpayer Advocate Staff to improve IRS
                                                                         processes and procedures.
----------------------------------------------------------------------------------------------------------------

                                                                         [GRAPHIC] [TIFF OMITTED] T4412A.004
                                                                         
                                

    Chairman Houghton. Mr. Coyne, would you like to ask 
questions?
    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?
    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, 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?
    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 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 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 Administration, 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     ESL
 Educational Services)555 Warren Road,
 Ithaca, NY 14850.
 Literacy Volunteers of          ESL
 Tompkins County Inc. 124 W. Buffalo
 Street, Ithaca, NY 14850.
 Ithaca Housing Authority798 S.  ESL
 Plain Street, Ithaca, NY 14850.
 Catholic Charities of the       ESL
 Southern Tier/Hispanic Community324 W.
 Buffalo Street, Ithaca, NY 14850.
 Cornell University UAW Union    ESLLow-Income
 Greater Ithaca Activities       Low-Income
 Center (GIAC)318 N. Albany Street,
 Ithaca, NY 14850.
 Southside Community Center,     Low-Income
 Inc.305 S. Plain Street, Ithaca, NY
 14850.
 TCE/RSVP121 W. Court Street,    Low-Income
 Ithaca, NY 14850
------------------------------------------------------------------------

    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 second-year 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)
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 promise 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 low-income 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 low-income 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 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 and discuss the impact LITCs are having on taxpayers.

                                

    Chairman Houghton. Thanks a lot, Mr. Cohen. I really 
appreciate you being here representing our part of the country. 
You are 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 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.
    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 Low-Income Taxpayer Clinic at the University of 
Pittsburgh. I would also like to extend 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 of taxpayers 
dealing with the Collection Division of the IRS. We have assisted low-
income 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 confidential 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, low-income 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.

   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 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.
    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 number 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, starting 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 statutorily-mandated 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 certain 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 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 inviting me today to testify and discuss these 
matters.

                                

    Chairman Houghton. Well, thank you very much. I am going to 
do this in the order of distance you have to travel. So, Mr. 
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.

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 Sec. 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 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 
Sec. 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 from Sec. 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 Sec. 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 Low-Income 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, 
start-up 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. Sec. 7526 as part of the RRA. Based on the $6 
million of funding authorized under Sec. 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 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 ill-equipped 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, 
well-reasoned 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 low-income 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-to-work program participants. For example, the 
Brooklyn Legal Services LITC is developing educational materials for 
home based day care centers and other welfare-to-work 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 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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. Sec. 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. 
Sec. 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 is currently allowed should, however, not 
be funded through the current Sec. 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. Sec. 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.

 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.
    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 matters. 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 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 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.

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 face-to-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 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 appreciated by the entire LITC 
community.

                                

    Chairman Houghton. Well, thank you very much. Now, Mr. 
Gold.

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 situations 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 (Ethiopian), 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.

                                

    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 walk-ins 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 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 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 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.
    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.
    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 
actually 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.
    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.
    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 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, 
[email protected] or (773) 262-2199

                                

             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, two-thirds 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.
    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
                                             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 
non-resident 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

                    Estimated ESL Taxpayers Assisted
------------------------------------------------------------------------
                                                Income Tax Returns
                                        --------------------------------
         Date              Location               (Federal
                                          W-7's      and     Nonresident
                                                   State)   Presentation
------------------------------------------------------------------------
2/4/2001               St. Julia's            85        42
                        Catholic.
                       Siler City, NC..
2/10/2001              FaithAction.....       20        11
                       Greensboro, NC..
                       Clemson                                     130
                        University.
                       Clemson, SC.....
2/11/2001              Christ the King        26        25
                        Catholic Church.
                       High Point, NC..
2/13/2001              A&T State                        24
                        University.
                       Greensboro, NC..
2/17/2001              Blue Ridge             47        32
                        Community
                        Health Ser..
                       Hendersonville,
                        NC.
2/22/01 & 3/26/01      NC State                                    200
                        University.
                       Raleigh, NC.....
3/5/2001               Southeastern                                 45
                        Baptist
                        Seminary.
                       Wake Forest, NC.
3/9/2001               Queens College..                             15
                       Charlotte, NC...
3/10/2001              FaithAction.....       12         4
                       Asheboro, NC....
3/15/2001              Guilford College                             15
                       Greensboro, NC..
3/18/2001              Catholic Social        33         4
                        Services.
                       Asheville, NC...
3/18/2001              Christ the King         9        29
                        Catholic Church.
                       High Point, NC..
3/20/01 & 3/21/01      UNC-Greensboro..                            120
                       Greensboro, NC..
3/31/2001              UNC-Wilmington..                             40
                       Wilmington, NC..
4/1/2001               St. Julia's            26        62
                        Catholic Church.
                       Siler City, NC..
2001                   Applications &         19        43
                        Tax Returns We.
                       Receive Through
                        The Mail.
                                        --------------------------------
                       Total...........      277       276         565
                                        --------------------------------
                       Total ESL         .......  ........        1118
                        Taxpayers
                        Assisted Jan-
                        June, 2001.
                                                           -------------
                       Total Low-Income  .......  ........          10
                        Taxpayers
                        Assisted with
                        IRS Issues.
                                                           -------------
                       Total Taxpayers   .......  ........        1128
                        Assisted Jan-
                        June, 2001.
------------------------------------------------------------------------

                                
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