The Internal Revenue Service’s Low Income Taxpayer Clinic (LITC) Program Office has issued its fourth annual program report. The new report describes how LITCs across the nation have assisted low income taxpayers and individuals who speak English as a second language (ESL) with free or low-cost representation in disputes with the IRS.
The mission of the LITC Program is to ensure the fairness and integrity of the tax system for taxpayers who are low income or speak English as a second language by:
1. Providing pro bono representation on their behalf in tax disputes with the IRS;
2. Educating low income and ESL individuals about their rights and responsibilities as taxpayers; and
3. Identifying and advocating for issues that impact low income and ESL taxpayers.
Economic vulnerability places a low income taxpayer at risk of falling into an economic hardship if the IRS imposes a collection action and the taxpayer is not able to communicate effectively with the IRS to negotiate a collection alternative.
The IRS awards matching grants of up to $100,000 per year to qualifying organizations to develop, expand, or maintain an LITC. The grant program is administered by the Office of the Taxpayer Advocate at the IRS. Although LITCs receive partial funding from the IRS, LITCs, and their employees and volunteers operate independently from the IRS.
During 2014, LITCs represented 19,882 taxpayers in disputes with the IRS and provided consultation or advice to an additional 18,810 taxpayers. LITCs helped taxpayers secure more than $4.3 million in tax refunds and eliminate over $62 million in tax liabilities, penalties and interest.
Through outreach and education activities, LITCs also ensured individuals understood their rights as U.S. taxpayers. LITCs conducted 3,046 educational activities attended by 75,706 persons. Overall, almost 1,800 volunteers contributed to the success of the LITCs.
The IRS examined an ESL taxpayer’s 2013 tax return after she claimed EITC, a child tax credit, head of household filing status, and dependency exemptions for her two young nieces who lived with her and for whom she provided care. In connection with the correspondence exam, the IRS froze the taxpayer’s refund. Before coming to the LITC for assistance, the taxpayer attempted to respond to the IRS on her own but had been unsuccessful. After reviewing the exam notice and the taxpayer’s documentation, the LITC explained the process to the taxpayer and helped her compile the additional supporting documents needed to prove her case. The LITC submitted the required documents and an advocacy letter to the IRS. A few months later, the taxpayer received a determination from the IRS stating that there would be no changes to her original return and she would receive her refund of more than $7,000.
LITC Assists Elderly Victim of Theft to Eliminate Tax and Obtain Refund of Stolen Assets
A taxpayer was referred to an LITC by the grantee’s Elder Law Unit after a family member stole her assets, including cashing in a life insurance policy. The thief intercepted the taxpayer’s mail and without her knowledge set up an installment payment agreement with the IRS to pay the taxes on the stolen life insurance proceeds.
The Elder Law Unit worked with local law enforcement authorities to bring criminal charges against the thief. The LITC, relying on the Tax Court’s holding in Roberts v. Commissioner, 141 T.C. 569 (2013), filed amended federal and state tax returns and argued that the proceeds were not income received by the taxpayer and that the installment payments made in the taxpayer’s name should be returned to her. The IRS agreed, abating the tax and refunding the payments. State tax authorities also conceded the tax issue.
The full report includes an overview and history of the LITC program, discusses the representation, education, and advocacy services that LITCs provide, and illustrates the results that LITCs achieve on behalf of their clients.