Tax Administration: IRS' Low-Income Taxpayer Clinic Program (Letter
Report, 03/24/2000, GAO/GGD-00-83).
Pursuant to a congressional request, GAO provided information on the
Internal Revenue Service's (IRS) implementation of the Low-Income
Taxpayer Clinic program, focusing on: (1) the steps IRS has taken to
implement the Low-Income Taxpayer Clinic program; (2) the key tax
problems facing low-income taxpayers served by the clinics and the
reasons for these problems; (3) the role that the program plays in
addressing these taxpayers' problems; and (4) other actions IRS or
Congress could consider to address the types of tax problems the clinics
are facing.
GAO noted that: (1) IRS has taken a number of actions to implement the
Low-Income Taxpayer Clinic Program; (2) after passage of the
Restructuring Act in July 1998, IRS (which had limited experience in
operating grant programs) sought input from tax practitioners and others
regarding the design and operation of the program; (3) it also developed
a grant application package and selection and reporting procedures, and
put a staff in place to administer the program; (4) between January and
June 1999, IRS published its proposed grant application, finalized and
made the application publicly available, and awarded the first
grants--totalling nearly $1.5 million--for fiscal year 1999; (5) 24
grants went to existing clinics and 10 to new clinics; (6) in the
opinion of the directors GAO contacted, the key tax problems facing
taxpayers served by their clinics involved the Earned Income Credit
(EIC), dependency exemptions, and filing status; (7) in the directors'
view, problems in these areas resulted primarily because low-income
taxpayers have great difficulty understanding and complying with the
complexity of the tax laws, particularly as they relate to EIC; (8)
other reasons mentioned by clinic directors included the taxpayers'
failure to respond to IRS notices, nontraditional living arrangements,
lack of education, and paid preparer fraud and error; (9) among
taxpayers for whom English was a second language, the directors said
that language difficulties also contributed to the taxpayers' tax
problems; (10) clinic directors believed that the Low-Income Taxpayer
Clinic Program played an important role by helping some taxpayers
resolve tax problems with IRS and promoting compliance through taxpayer
education and assistance; (11) in addition, the clinic directors that
were affiliated with law schools or graduate accounting and business
programs reported that participating students also benefited by gaining
valuable educational and practical experience dealing with clients and
preparing cases; (12) in considering the role clinics might play, it is
important to know that they are labor-intensive to operate and, as such,
can serve only a small number of low-income taxpayers who are involved
in controversies with IRS; and (13) the clinic directors suggested
actions that IRS and Congress could consider to address the types of
problems facing low-income taxpayers served by their clinics.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-00-83
TITLE: Tax Administration: IRS' Low-Income Taxpayer Clinic
Program
DATE: 03/24/2000
SUBJECT: Tax credit
Tax administration
Customer service
Tax law
Income taxes
Taxpayers
Voluntary compliance
Disadvantaged persons
IDENTIFIER: IRS Low-Income Taxpayer Clinic Program
Earned Income Tax Credit
EIC
IRS National Office Review Program
IRS Student Tax Clinic Program
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United States General Accounting Office
GAO
Report to the
Honorable Paul D. Coverdell,
U.S. Senate
March 2000
GAO/GGD-00-83
TAX ADMINISTRATION
IRS' Low-Income Taxpayer Clinic Program
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Contents
Page 181GAO/GGD-00-83 Low-Income Taxpayer Clinic Program
Letter 1
Appendix I 20
Low-Income Tax Clinic
Grant Recipients for
Fiscal Year 1999
Appendix II 21
Comments From the
Internal Revenue Service
Abbreviations
EIC Earned Income Credit
IRS Internal Revenue Service
OMB Office of Management and Budget
B-284677
Page 16GAO/GGD-00-83 Low-Income Taxpayer Clinic Pr
ogram
B-284677
March 24, 2000
The Honorable Paul D. Coverdell
United States Senate
Dear Senator Coverdell:
This report responds to your request for
information on the implementation of the Low-
Income Taxpayer Clinic Program authorized by
section 3601 of the Internal Revenue Service (IRS)
Restructuring and Reform Act of 1998
(Restructuring Act).1 Under this program, IRS is
authorized to award matching grants to
organizations that (1) provide legal assistance to
low-income taxpayers in controversies with IRS or
(2) inform individuals for whom English is a
second language of their tax rights and
responsibilities.
As agreed with your office, this report provides
information on (1) the steps IRS has taken to
implement the Low-Income Taxpayer Clinic Program;
(2) the key tax problems facing low-income
taxpayers served by the clinics and the reasons
for these problems; (3) the role that the program
plays in addressing these taxpayers' problems; and
(4) other actions IRS or Congress could consider
to address the types of tax problems the clinics
are currently facing. This report is based on
information provided by IRS officials and the
directors of the low-income taxpayer clinics that
served taxpayers during fiscal year 1999.
Results in Brief
IRS has taken a number of actions to implement the
Low-Income Taxpayer Clinic Program. After passage
of the Restructuring Act in July 1998, IRS (which
had limited experience in operating grant
programs) sought input from tax practitioners and
others regarding the design and operation of the
program. It also developed a grant application
package and selection and reporting procedures,
and put a staff in place to administer the
program. Between January and June 1999, IRS
published its proposed grant application,
finalized and made the application publicly
available, and awarded the first grants-totaling
nearly $1.5 million-for fiscal year 1999. Twenty-
four grants went to existing clinics; 10 to new
clinics.
In the opinion of the directors we contacted, the
key tax problems facing taxpayers served by their
clinics involved the Earned Income Credit (EIC),
dependency exemptions, and filing status.2 In
their view, problems in these areas resulted
primarily because low-income taxpayers have great
difficulty understanding and complying with the
complexity of the tax laws, particularly as they
relate to EIC. Other reasons mentioned by clinic
directors included the taxpayers' failure to
respond to IRS notices, nontraditional living
arrangements, lack of education, and paid preparer
fraud and error. Among taxpayers for whom English
was a second language, the directors said that
language difficulties also contributed to the
taxpayers' tax problems.
Clinic directors believed that the Low-Income
Taxpayer Clinic Program played an important role
by helping some taxpayers resolve tax problems
with IRS and promoting compliance through taxpayer
education and assistance. In addition, the
directors of the clinics that were affiliated with
law schools or graduate accounting and business
programs reported that participating students also
benefited by gaining valuable educational and
practical experience dealing with clients and
preparing cases. In considering the role clinics
might play, it is important to know that they are
labor-intensive to operate and, as such, can serve
only a small number of low-income taxpayers who
are involved in controversies with IRS.
The clinic directors suggested actions that IRS
and Congress could consider to address the types
of problems facing low-income taxpayers served by
their clinics. Suggestions for IRS included
providing more taxpayer assistance, conducting
more education and outreach activities,
simplifying notices and procedures, and developing
a more responsive problem-solving system.
Suggestions for Congress included simplifying the
tax laws, particularly EIC, and providing more
funding to IRS for taxpayer assistance.3
Background
Some professional organizations and legal
assistance clinics offer free or reduced-rate
assistance to taxpayers involved in controversies
with IRS. In addition, IRS sponsors tax clinics
staffed by law, business, and accounting school
students who have special permission to represent
taxpayers in administrative proceedings before
IRS. Many of these programs limit their assistance
to low-income taxpayers.
In its report of June 1997, the National
Commission on Restructuring the Internal Revenue
Service recommended that IRS provide seed money
for clinics representing low-income taxpayers.
During 1997 and 1998 hearings on taxpayer rights
and the restructuring of IRS, witnesses testified
about the need for funding to assist these clinics
and encourage the development of new clinics. To
increase the assistance available to low-income
taxpayers in controversies with IRS in order to
protect their rights and ensure fair results,
Congress included a provision in the Restructuring
Act to provide grants for low-income taxpayer
clinics.
Section 3601 of the act authorizes the Secretary
of the Treasury to provide up to $6 million a year
in matching grants for the development, expansion,
or continuation of qualified clinics serving low-
income taxpayers. Multiyear grants of up to 3
years may be awarded, but no clinic may receive
more than $100,000 a year. Clinics must provide
matching funds on a dollar-for-dollar basis for
all grant funds received. Matching funds may
include such items as the salary of individuals
performing clinic services and the cost of
equipment used in the clinic, but not indirect
expenses, including general overhead of the
organization sponsoring the clinic.
Clinics eligible for grants include those at
accredited law, business, or accounting schools
and other organizations exempt from tax under
section 501(c)(3) of the tax code.4 To qualify as
a low-income taxpayer clinic, a clinic may charge
no more than a nominal fee for its services.
Qualifying clinics must represent low-income
taxpayers in controversies with IRS or operate
programs to inform individuals for whom English is
a second language about their tax rights and
responsibilities. For clinics providing
representation, at least 90 percent of the
taxpayers represented must have incomes that do
not exceed 250 percent of the poverty level as
determined in accordance with Office of Management
and Budget (OMB) criteria,5 and the amount in
controversy for any taxable year may generally not
exceed the amount specified in section 7463 of the
tax code.6
Scope and Methodology
To determine the steps IRS has taken to implement
the Low-Income Taxpayer Clinic Program, we
interviewed IRS officials in the National Office
who are responsible for administering the program,
reviewed program documents, and obtained a list of
grant recipients for fiscal year 1999 and the
amount each recipient was awarded. (App. I lists
the recipients and the amount awarded.)
For the remaining objectives, we interviewed the
directors7 of all 22 clinics that conducted
qualifying activities8 during fiscal year 1999
because these directors would have had experience
in operating a tax clinic and dealing with low-
income taxpayers. To arrive at the 22 clinics from
the 34 organizations that received grants for
fiscal year 1999, we first excluded the 10 clinics
that IRS identified as start-up clinics because
they did not anticipate conducting qualifying
activities before the end of fiscal year 1999.
Next, we contacted the 24 clinics that IRS
identified as existing programs9 and determined
that 22 of the 24 programs had actually conducted
qualifying activities during the fiscal year 1999
grant period.10
We used a semistructured interview to obtain
descriptive information on clinic operations and
the directors' views on the tax problems faced by
low-income taxpayers served by their clinics, the
reasons for these problems, and ways for IRS or
Congress to address them. We conducted in-person
interviews of the directors of five clinics
located near our offices in Washington, D.C.;
Atlanta, GA; Kansas City, KS; and San Francisco,
CA. We interviewed the directors of the remaining
17 clinics by telephone. We did not verify the
accuracy of the information provided by the clinic
directors. Further, we did not evaluate the
effectiveness of the Low-Income Taxpayer Clinic
Program or programs operated by individual grant
recipients. Also, we did not evaluate the clinic
directors' suggestions for how to address the tax
problems of low-income taxpayers.
We did our work from October 1999 to January 2000
in accordance with generally accepted government
auditing standards. We requested comments on a
draft of this report from the Commissioner of
Internal Revenue. IRS provided written comments in
a March 21, 2000, letter, which is reprinted in
appendix II. The comments are discussed near the
end of this report.
Steps Taken by IRS to Implement the Low-Income
Taxpayer Clinic Program
IRS awarded the first grants under the Low-Income
Taxpayer Clinic Program in June 1999, providing
almost $1.5 million to 34 of the 43 organizations
that applied for matching grants in fiscal year
1999. Before making these grants, IRS had to fund
the program and set it up to meet federal grant
program requirements.
Congress did not provide direct funding for the
program; instead, IRS had to redirect fiscal year
1999 funds appropriated for existing programs to
the Low-Income Taxpayer Clinic Program. IRS
officials did not know how much money they could
make available under the program until late
October 1998, when Congress approved the omnibus
appropriations bill that included funding for IRS.
In that act, Congress authorized IRS to spend up
to $2 million in matching grants for fiscal year
1999, and IRS redirected that amount from existing
programs to the Low-Income Taxpayer Clinic
Program.
IRS officials told us that it took time to set up
the program, because they had limited experience
in managing grant programs.11 To ensure that the
program would meet the requirements that apply
generally to all federal grant programs, IRS
sought assistance from its Office of Chief Counsel
and officials in other federal agencies who were
knowledgeable about federal grant programs. IRS
officials met with tax practitioners who helped
draft the low-income taxpayer clinic provision;
sought input from the Taxation Section of the
American Bar Association; and participated in a
tax clinic workshop cosponsored by American
University's Washington College of Law and the
American Bar Association. With input from these
sources and assistance from its Office of Chief
Counsel, IRS developed the grant application
package, prepared the necessary OMB paperwork, and
developed grant selection and reporting processes.
A proposed grant application was published for
public comment in January 1999, and in April 1999,
IRS started accepting applications for grants that
would be made for fiscal year 1999.
IRS formed two panels, consisting of National
Office and field staff, to review the 43 grant
applications that were submitted. A prescreening
panel reviewed the applications to determine
whether the applicants met the qualifications for
participation in the program (see p. 3 for a
description of these criteria), then gave each
clinic a score. Existing and start-up clinics were
evaluated separately. Scores were based on such
factors as the quality of the clinic's services,12
the number of low-income taxpayers who would be
served, and the number of people in the clinic's
service area for whom English was a second
language. A selection panel reviewed and scored
the applications of clinics that met the criteria
as determined by the prescreening panel. Scores
were compared between panels, and a best-qualified
list was formed. For organizations that were not
accredited academic institutions, IRS officials
conducted site visits to ensure that grants went
to qualified groups.
In June 1999, IRS awarded almost $1.5 million in
matching grants for fiscal year 1999 to 34 of the
43 organizations that applied for funds under the
Low-Income Taxpayer Clinic Program.13 Twenty-four
grants went to existing clinics, and 10 grants
went to start-up clinics. Awards ranged in size
from $2,500 to $100,00014 and could be used for
expenses incurred from October 1, 1998, through
September 30, 1999 (see app. I).
IRS officials held an orientation conference for
grant recipients in San Antonio, TX, on July 30
and 31, 1999, and paid for two representatives of
each grant recipient to attend. The conference
covered such topics as statistical reporting,
student certification to practice before IRS, and
new tax law issues. Experienced tax clinic
directors conducted sessions for academic
institutions and other tax-exempt organizations on
how to set up a low-income taxpayer clinic.
By the end of fiscal year 1999, there were three
officials in IRS' National Office who administered
the Low-Income Taxpayer Clinic Program. For fiscal
year 2000, IRS designated, as additional support,
the equivalent of 11 full-time field employees, or
one-third of one employee's time per IRS district,
to serve as liaisons between the clinics and IRS.
Key Problems Facing Low-Income Taxpayers
According to the 22 clinic directors we
interviewed, the most common tax problems facing
low-income taxpayers served by their clinics
involved EIC, dependency exemptions, and filing
status. In the opinion of clinic directors, these
tax problems resulted primarily because low-income
taxpayers have great difficulty understanding and
complying with the complexity of the tax laws,
particularly as they relate to EIC. Other reasons
mentioned by clinic directors included the
taxpayers' failure to respond to IRS notices,
nontraditional living arrangements, lack of
education; and paid preparer fraud and error.
Among taxpayers for whom English was a second
language, the directors said that language
difficulties also contributed to the taxpayers'
tax problems.
Earned Income Credit
EIC is a refundable tax credit available to low-
income, working taxpayers. It was intended to (1)
offset the impact of Social Security taxes on low-
income families and (2) encourage low-income
families to seek employment rather than welfare.
Eligibility for EIC and the amount of the credit
are self-determined by the taxpayer in accordance
with rules regarding income, residency, qualifying
children, and filing status.
Clinic directors reported that problems occurred
when taxpayers claimed EIC when they were not
entitled to it. For example, divorced parents who
share custody of their child might both claim EIC
because they both believed the child lived with
them for over half the year. Clinic directors also
told us that some taxpayers had difficulty
providing sufficient proof of their eligibility
for EIC-such as Social Security Numbers for
children living in foreign countries.
Dependency Exemptions
A taxpayer is allowed one exemption for each
person who can be claimed as a dependent. An
exemption reduces a taxpayer's taxable income by a
specified amount.15 To be claimed as a dependent,
the person must meet five tests.16 If the taxpayer
is entitled to claim an exemption for a dependent,
that dependent cannot claim a personal exemption
on his or her own tax return.
Clinic directors told us that some problems
occurred when taxpayers claimed dependency
exemptions for people who did not meet these tests
or were claimed by another taxpayer, such as in
divorce situations where both parents took the
dependency exemption even though only one parent
was entitled to the exemption. In other cases,
taxpayers did not get a Social Security Number for
the dependent or did not report it, so the
dependency exemption was disallowed.
Filing Status
Filing status is a category that identifies the
taxpayer based on marital status and family
situation. Categories include "single," "married
filing jointly," "married filing separately,"
"head of household," and "qualifying widow(er)
with dependent child." Filing status is an
important factor in determining whether a person
is required to file a tax return, the amount of
the standard deduction, and the correct amount of
tax. It is also important in determining whether
the taxpayer is eligible to take other deductions
and credits, such as EIC. Clinic directors told us
that some problems occurred when taxpayers
incorrectly reported their filing status-for
example, as "married filing jointly" when their
filing status had changed during the tax year to
"head of household." In other cases, taxpayers who
are not legally separated might misreport their
filing status as "head of household" instead of
"married filing separately."
Reasons for Key Taxpayer Problems
In the opinion of clinic directors, low-income
taxpayers had problems with EIC, dependency
exemptions, and filing status primarily because of
their inability to understand and comply with the
complexity of the tax laws, particularly as they
relate to EIC.
The taxpayer self-determines eligibility for EIC
and the amount of the credit in accordance with
rules regarding income, residency, qualifying
children, and filing status. Clinic directors told
us that low-income taxpayers had difficulty
understanding these rules, particularly the
definitions of "qualifying child" and "household."
Clinic directors told us that understanding these
rules was more difficult, because many low-income
taxpayers live in extended, rather than
traditional families.17 Further, the support test
for a qualifying child for EIC purposes differed
from that of dependency exemptions, creating
confusion for some taxpayers.
Clinic directors attributed some EIC problems to
paid preparer fraud and error. In these cases,
preparers completed returns with incorrect or
fraudulent EIC claims, which resulted in large
refunds for the taxpayers and larger fees for the
preparers. In some cases, refunds were diverted to
the paid preparers, who had used their own
address, instead of the taxpayer's, for the
refund. In any case, the taxpayer is liable for
repaying the portion of any refund that results
from a fraudulent claim.
Clinic directors mentioned other factors
contributing to tax problems, including the
taxpayers' failure to respond to IRS notices,
nontraditional living arrangements, and lack of
education. Language difficulties contributed to
tax problems among taxpayers for whom English was
a second language. Clinic directors told us that
tax problems often turned into collection problems
when low-income taxpayers did not respond to IRS
notices.
Program's Role in Addressing the Problems of Low-
Income Taxpayers
Of the 22 clinics we contacted, 14 were affiliated
with academic institutions, and 8 were affiliated
with other tax-exempt organizations. These clinics
represented low-income taxpayers in tax-related
matters or referred them to qualified
representatives, and for those for whom English
was a second language, the clinics operated
programs that provided information about their tax
rights and responsibilities. While clinic
directors reported positive outcomes for the
taxpayers served, their clinics could serve only a
limited number of taxpayers because of the way
they operate.
Clinics Affiliated With Academic Institutions
Of the 14 clinics affiliated with academic
institutions, 12 were part of the curriculum of
accredited law schools, and 2 were part of
graduate accounting or business programs. Many of
the schools had participated in the IRS-sponsored
Student Tax Clinic Program, and over half had been
operating tax clinics more than 5 years. Clinic
directors told us that the purpose of these tax
clinics was primarily educational-that is, to
provide students with practical experience in
handling cases and in dealing with taxpayers. At
the same time, the clinics helped low-income
taxpayers who were unable to afford professional
representation or assistance.
Academic clinics were directed by faculty members
who, with help from other faculty members or
professionals, supervised and trained students to
represent and assist taxpayers in disputes before
IRS and in tax court. The students, who were
generally second- and third-year law students or
graduate accounting or business students, received
course credit for their tax clinic work. About two-
thirds of the academic clinics were open year
round. The remaining clinics were open to coincide
with the academic year. Directors of clinics
affiliated with academic institutions told us that
most matching funds were provided by the host
academic institution and included such items as
faculty salaries and equipment.
Clinics Affiliated With Other Tax-Exempt
Organizations
Of the eight clinics affiliated with other tax-
exempt organizations, seven were sponsored by
professional associations, community service
organizations, or legal aid organizations that
provided tax assistance to low-income persons as
one component of their program. The remaining
clinic was sponsored by an organization devoted
exclusively to providing tax assistance to low-
income taxpayers. The primary purpose of tax
clinics run by these other tax-exempt
organizations was public service, that is, to help
low-income taxpayers by providing legal
representation and informing them of their tax
rights and responsibilities.
Some clinics, such as legal aid clinics, had staff
qualified to handle tax matters. However, most
clinics referred cases to local tax professionals
who volunteered to do pro bono work. Generally,
the clinics affiliated with tax-exempt
organizations were open year round to coincide
with the hours of the parent organization. Two
clinics that only provided assistance in preparing
tax returns were only open during the tax filing
season (January through April). Directors of
clinics affiliated with other tax-exempt
organizations told us that matching funds
generally came from such entities as foundations,
individuals, and private corporations, rather than
the sponsoring organization, and included such
items as volunteer time, donated equipment, and
cash donations.
Representation and Referral Programs
Twenty of the 22 clinics provided representation
to low-income taxpayers in disputes with IRS or
referred taxpayers to qualified representatives,
including the 14 academic clinics and 6 of the
other tax-exempt clinics. Clinic directors said
that taxpayers who came to the clinics for legal
assistance had learned about their services from a
variety of sources, such as newspaper articles,
posters, and flyers. However, most taxpayers came
to the clinics, because they had received an IRS
notice, accompanied by an informational letter
publicizing the clinic's services.
Clinics screened all potential clients who sought
assistance to ensure that they met the program's
criteria and other criteria the clinic used to
determine eligibility for its services. Clinic
directors told us that taxpayers were most often
turned away because they did not meet the income
requirements of the program. Clinics also turned
away cases that lacked legal merit and cases where
the amount in controversy exceeded program or
clinic criteria, among other reasons. Cases that
met the clinic's criteria were handled by clinic
staff or referred to qualified professionals.
The 20 clinics representing low-income taxpayers
in tax disputes handled about 625 cases during
fiscal year 1999. The vast majority of these cases
involved collection and tax court matters, and the
remainder consisted of examination, appeals, and
other matters.18
Information Programs
Twelve of the 22 clinics, including 5 academic
clinics and 7 other tax-exempt clinics, operated
programs to inform taxpayers for whom English is a
second language of their tax rights and
responsibilities. Generally, according to the
directors, this assistance was provided in the
taxpayers' native language. Examples of qualifying
activities included programs that assisted
targeted taxpayers in the preparation of federal
tax returns and educational programs conducted by
a clinic and attended by targeted taxpayers. Among
the clinics operating information programs, six
reported that they provided taxpayer assistance,
such as tax return preparation; six provided
educational programs; and six provided other
services, such as community outreach.
Measuring the number of targeted persons reached
by these 12 clinics would be difficult because of
the nature of these information activities. One
clinic, for example, held an educational program
attended by 15 people, and another clinic assisted
almost 550 targeted taxpayers in preparing their
tax returns. A third clinic conducted community
outreach and media campaigns that targeted over
100,000 persons; however, the clinic had no way of
knowing for certain how many people were reached.
Clinic Directors Reported That Their Clinics
Helped Taxpayers and Promoted Compliance
In the opinion of the 22 clinic directors we
interviewed, the most important outcomes of their
programs were helping low-income persons resolve
tax problems and promoting compliance through
taxpayer education and assistance. These outcomes
are consistent with the activities that qualify
tax clinics for IRS matching grants-representing
or referring taxpayers in controversies with IRS
and operating programs to inform taxpayers for
whom English is a second language of their tax
rights and responsibilities. Another important
program outcome for the directors of clinics
affiliated with law schools or graduate accounting
programs was giving participating students
valuable educational and practical experience
dealing with clients and preparing cases.
Low-Income Clinics Can Serve Only a Limited Number
of Taxpayers
While the directors of the 22 clinics reported
positive outcomes for the low-income taxpayers
they served, the way these clinics operate limits
the number of taxpayers they can serve. In clinics
affiliated with academic institutions, students
assist taxpayers in controversies with IRS. The
number of students who can participate is limited
because students, who are not professionally
licensed to represent taxpayers, must work under
the close supervision of faculty members or other
qualified professionals. This low faculty-to-
student ratio limits the number of students who
can work in a clinic and the number of taxpayers
the clinic can represent. Altogether, about 220
students participated in the 14 clinics affiliated
with academic institutions during fiscal year 1999
and handled almost 600 cases.
Few clinics affiliated with other tax-exempt
organizations had staff qualified to do tax work,
according to the clinic directors we interviewed.
Instead, most referred cases to local tax
professionals who volunteered to do pro bono work.
However, there are limits to the number of
professionals willing to take on pro bono work,
the amount of time they can spend on such work,
and as a result, the number of pro bono tax cases
they can handle.
Clinic Directors Suggested Ways for IRS and
Congress to Help Low-Income Taxpayers
Clinic directors suggested various actions that
IRS and Congress could consider to address the
problems facing low-income taxpayers served by
their clinics. Suggested actions for IRS focused
on four areas-providing more taxpayer assistance,
conducting more taxpayer education and outreach
activities, simplifying notices and procedures,
and developing a more responsive problem-solving
system. Suggested actions for Congress included
simplifying the tax code, especially EIC, and
providing more funding for IRS' taxpayer
assistance programs.19
Our past work20 and that of others have made
similar observations. Most recently, in his 1999
annual report to Congress, the National Taxpayer
Advocate identified tax complexity as the most
serious problem facing taxpayers. The same report
identified EIC, dependency exemptions, and head-of-
household filing status as 3 of the 10 most
litigated issues for individual taxpayers. As a
result, many of the clinic directors' suggestions
are not new. For example, the suggestion to
simplify the tax code has also been made by the
National Taxpayer Advocate and many others.
As we have also reported,21 in considering these
observations, it is important to recognize that
the tax code did not come about by happenstance.
Rather, it reflects many decisions and compromises
made by Congress and administrations to accomplish
their policy goals.
Actions IRS Could Consider
Clinic directors offered many suggestions for
actions that IRS could consider to address the
problems of low-income taxpayers. Some suggestions
for IRS to provide more taxpayer assistance
included increasing the number of toll-free
taxpayer help lines, assigning more staff to the
toll-free line, providing better trained staff to
assist taxpayers, and making available some type
of bilingual assistance. Clinic directors told us,
for example, that it is difficult to get help
using the toll-free lines. It has been their
experience that the telephone line is often busy,
and the assistors who take the calls may not be
able to answer the taxpayers' questions or
communicate with taxpayers who do not speak
English fluently.22
As part of IRS' education and outreach activities,
clinic directors suggested that IRS
� work with the clinics to develop outreach
programs;
� conduct outreach efforts in areas frequented
by low-income taxpayers; and
� provide more bilingual representation at IRS'
educational programs.
Regarding notices and procedures, clinic directors
suggested that IRS
� improve the readability of its forms,
notices, and instructions;
� issue bilingual notices;
� simplify the power-of-attorney procedure so
that clinic caseworkers do not have to prove
constantly to IRS that they represent the
taxpayer;
� make the offer-in-compromise process more
flexible by allowing necessary living expenses
based on geographic variations; and
� be more reasonable about the proof of
eligibility for EIC.
To create a more responsive problem-solving
system, clinic directors suggested that IRS
� broaden the authority and discretion of the
taxpayer advocates to resolve cases,
� reduce the number of case review levels,
� expand the problem solving days program,
� develop an action plan to address a
taxpayer's problem and include it with the initial
IRS notice, and
� provide enough qualified staff to handle tax
court cases using small case procedures.
Another suggestion was that IRS provide one point
of contact for a taxpayer seeking help in solving
a problem. Having fewer people in contact with the
taxpayer could improve efficiency and could result
in a quicker resolution of a low-income taxpayer's
problem.
Actions Congress Could Consider
Clinic directors also offered suggestions for
actions that Congress could consider to address
the problems of low-income taxpayers. Most
frequently, clinic directors said that Congress
could simplify the tax code, especially the
provisions related to EIC. Other suggestions made
by clinic directors related to the funding of
taxpayer assistance programs, including the Low-
Income Taxpayer Clinic Program.
Clinic directors suggested that Congress could
address the problems of low-income taxpayers by
simplifying the tax code. General areas for
simplification included EIC, dependency
exemptions, and filing status. Other suggestions
included clarifying provisions for taxpayers in
nontraditional living arrangements, and setting
uniform income levels for qualifying or not
qualifying for programs or tax credits. As for
specific actions, one director suggested changing
the penalty provisions related to improperly
claiming EIC so that the taxpayer is not penalized
for failure to understand the eligibility
requirements or for the actions of a fraudulent or
uninformed preparer. Another director suggested
passing the EIC benefit to the taxpayer as a
direct subsidy with easily understood
requirements, rather than as a tax credit.23
Other suggestions for congressional action related
to the funding of taxpayer assistance programs.
Clinic directors suggested that Congress give IRS
more funding so that more staff are available to
assist taxpayers, particularly on the toll-free
help line. Directors also told us that Congress
should continue to fund programs, such as the Low-
Income Taxpayer Clinic Program, to educate and
assist low-income taxpayers. However, as noted by
one clinic director, even if there were a tax
clinic at every educational institution, there
would not be enough clinics to address all the
problems of low-income taxpayers.
Clinic directors offered suggestions regarding
funding and eligibility standards for program
participation. Some suggestions included making
the program a line item in IRS' budget to ensure
that IRS funds the program at its authorized level
and aligning the program's grant period with the
academic, rather than fiscal, year. One director
suggested that Congress could enable IRS to make a
funding commitment to a clinic for 3 years instead
of 1 year, so that clinics could hire better
qualified personnel and allocate their resources
better. The director explained that the
uncertainties created by year-to-year funding make
faculty members and other qualified tax
professionals reluctant to work in the tax
clinics.
Some directors said that Congress could make it
easier for tax clinics to operate by providing
more flexibility in program requirements. Specific
suggestions included expanding eligibility
requirements to include taxpayers with incomes
greater than 250 percent of the poverty level;
using a poverty level that adjusts for geographic
differences in the cost of living; and allowing
clinics affiliated with academic institutions to
take cases based on academic value, not income
standards. Expanding eligibility standards would
enable clinics to help more taxpayers who have
valid cases but cannot afford paid representation.
Concluding Observations
Low-income taxpayer clinics can benefit both IRS
and taxpayers who otherwise may not be able to
afford representation for their tax problems or
find dealing with IRS too daunting. IRS has
recognized the value of making tax help accessible
to low-income taxpayers and has taken a number of
positive actions to get the new grant program up
and running. Because of the nature of clinics and
how they operate, however, they generally can only
serve a small number of taxpayers. Accordingly,
the clinics cannot be viewed as a panacea for
addressing the problems of large numbers of low-
income taxpayers.
As some clinic directors noted and our work has
shown, there are other actions that could be taken
that would also help low-income taxpayers in their
dealings with IRS. Some, such as conducting more
outreach and education and simplifying notices,
could help prevent problems from occurring.
Others, such as providing more access to taxpayer
assistance, could make it easier for taxpayers to
resolve problems earlier in the process, when they
first occur. As IRS moves forward in its
modernization plans, it expects to improve
services to all taxpayers and diversify these
services to reflect the different needs of
particular groups of taxpayers. Presumably, in
doing so, IRS will continue to include the grant
program as part of its larger strategy to help
people understand and meet their tax
responsibilities.
Agency Comments and Our Evaluation
We requested comments on a draft of this report
from the Commissioner of Internal Revenue. IRS
provided written comments in a March 21, 2000,
letter, which is reprinted in appendix II.
IRS found that the draft report accurately
captures its progress in implementing the Low-
Income Taxpayer Clinic Program. In addition, IRS
mentioned several ways that it is already
addressing many of the concerns raised by clinic
directors. These include establishing an EIC
coordinator in each IRS district to plan and
implement EIC education and outreach activities,
revising IRS notices to make them easier to
understand, and making the offer-in-compromise
process more flexible.
As agreed, unless you announce the contents of
this report earlier, we plan no further
distribution of this report until 30 days from its
date of issue. At that time, we will send copies
of this report to the Commissioner of Internal
Revenue and make copies available to others upon
request.
If you have any questions regarding this letter,
please contact me or Joseph Jozefczyk at (202) 512-
9110. Key contributors to this assignment were
Susan Malone and Joseph Lenart, Jr.
Sincerely yours,
Margaret T. Wrightson
Associate Director, Tax Policy
and Administration Issues
_______________________________
1P.L. 105-206 was enacted on July 22, 1998.
2EIC is a refundable tax credit available to low-
income, working taxpayers. Both the number of
dependents claimed by the taxpayer and the
taxpayer's filing status are factors used, in
part, to determine the correct amount of tax.
3As noted in the Scope and Methodology section, we
did not evaluate the directors' suggestions.
4Under 26 U.S.C. 501(c)(3), an organization may
qualify for exemption from federal income tax if
it is organized and operated exclusively for one
or more specified purposes, including charitable
and educational purposes.
5In 1999, for example, 250 percent of the poverty
level was $20,600 for a family of one; $27,650 for
a family of two; $34,700 for a family of three;
and $41,750 for a family of four.
6This amount is currently $50,000.
7For four clinics, we interviewed a representative
designated by the clinic director.
8"Qualifying activities" mean representing or
referring low-income taxpayers in tax
controversies with IRS or operating programs to
inform individuals for whom English is a second
language about their tax rights and
responsibilities.
9IRS officials defined an "existing program" as a
clinic that was in operation but not necessarily
doing tax work.
10Two programs used their grant for start-up
operations and planned to begin conducting
qualifying activities during fiscal year 2000.
11IRS operates one other grant program, Tax
Counseling for the Elderly. Under this program,
IRS awards grants to nonprofit organizations to
reimburse the out-of-pocket expenses of volunteers
who provide tax counseling to people age 60 and
older.
12This factor included such items as qualifications
of administrators and qualified representatives;
system for monitoring student participation;
system for monitoring cases referred, case follow-
up, and resolution of cases; and record, if any,
in providing service to low-income taxpayers and
taxpayers for whom English is a second language.
13According to IRS officials, applicants who did
not receive funding generally did not provide all
the information requested in the grant application
or the necessary support.
14Only three grantees did not receive the full
amount requested.
15For tax year 1999, the amount of an exemption was
$2,750.
16The five tests are member of household or
relationship to the taxpayer, citizenship, joint
return, gross income, and support. These tests are
described in detail in IRS Publication 501,
Exemptions, Standard Deduction, and Filing
Information.
17These views are consistent with the Department of
the Treasury's analysis of an IRS study of tax
year 1994 EIC filers. According to Treasury's
analysis, the three most common causes of EIC
noncompliance were (1) taxpayers claiming
qualifying children who did not reside with them
for over half the year, (2) taxpayers claiming the
wrong filing status, and (3) complicated living
arrangements involving more than one custodial
caregiver.
18"Other matters" include, for example, those
involving notices from IRS service centers
regarding failure to file tax returns and math
errors on individual tax returns.
19As noted in the Scope and Methodology section of
this report, we did not evaluate these
suggestions.
20Earned Income Credit: IRS' Tax Year 1994 EIC
Compliance Study (GAO/GGD-98-150, July 28, 1998);
and Tax Administration: Earned Income Credit
Noncompliance (GAO/T-GGD-97-105, May 8, 1997).
21Small Business: Taxpayers Face Many Layers of
Requirements (GAO/T-GGD-99-76, Apr. 12, 1999).
22For a discussion of taxpayer difficulties in
accessing IRS' telephone service in 1999, see Tax
Administration: IRS' 1999 Filing Season (GAO/GGD-
00-37, Dec. 15, 1999).
23For recent GAO work related to EIC, see GAO/GGD-
98-150, July 28, 1998 and GAO/T-GGD-97-105, May 8,
1997.
Appendix I
Low-Income Tax Clinic Grant Recipients for Fiscal
Year 1999
Page 20GAO/GGD-00-83 Low-Income Taxpayer Clinic Pr
ogram
Organization Location Type Type of program Existi Amount
of ng or awarde
servic start- d
e up
Accounting Aid Society Detroit, ESLa Other tax-exemptb Existi $22,45
MI ng 0
American University Washington Repc Academic (Law Existi 100,00
, DC School) ng 0
Budget & Financial Kansas ESL/Re Other tax-exempt Existi 21,000
Management Assistance City, MO p ng
California State Hayward, Rep/ES Academic Existi 55,000
University, Hayward CA L (Business/Accountin ng
g)
Center for Law and Human Chicago, Rep Other tax-exempt Existi 62,674
Services IL ng
Central American Resource Washington ESL Other tax-exempt Start- 15,000
Center , DC up
Central California Legal Fresno, CA Rep/ES Other tax-exempt Existi 10,461
Services L ng
Chapman University School Orange, CA Rep Academic (Law Existi 65,100
of Law School) ng
Chicago Kent College of Chicago, Rep Academic (Law Existi 77,877
Law IL School) ng
Community Legal Services, Phoenix, Rep/ES Other tax-exempt Existi 24,318
Inc. AZ L ng
DNA-People's Legal Window Rep Other tax-exempt Start- 9,324
Services, Inc. Rock, AZ up
Duquesne University Pittsburgh Rep Academic (Law Start- 15,947
School of Law , PA School) up
Georgia State University Atlanta, Rep/ES Academic (Law Existi 99,656
College of Law GA L School) ng
Korean Resource Center Los ESL Other tax-exempt Existi 12,658
Angeles, ng
CA
Lincoln University Chester, ESL Academic Start- 19,379
PA (Business/Accountin up
g)
Loyola University Chicago Chicago, Rep Academic (Law Existi 12,000
School of Law IL School) ng
Maryland Volunteer Baltimore, Rep Other tax-exempt Start- 27,487
Lawyers Service MD up
Quinnipiac College School Hamden, CT Rep Academic (Law Existi 25,025
of Law School) ng
Rutgers, The State Piscataway Rep Academic (Law Existi 99,988
University of New Jersey , NJ School) ng
The Community Tax Law Richmond, Rep/ES Other tax-exempt Existi 100,00
Project VA L ng 0
The George A. Wiley Pawtucket, Rep Other tax-exempt Start- 27,905
Center RI up
The University Northridge Rep Academic Start- 18,644
Corporation-California , CA (Business/Accountin up
State University, g)
Northridge
University of Arkansas at Little Rep Academic (Law Start- 4,225
Little Rock School of Law Rock, AR School) up
University of Connecticut Hartford, Rep Academic (Law Start- 26,340
School of Law CT School) up
University of Denver Denver, CO Rep Academic (Law Existi 27,667
College of Law School) ng
University of Idaho Moscow, ID Rep/ES Academic (Law Existi 32,690
College of Law L School) ng
University of Miami Coral Rep Academic (Law Start- 40,000
School of Law Gables, FL School) up
University of Minnesota Minneapoli Rep Academic (Law Existi 40,060
School of Law s, MN School) ng
University of Missouri- Kansas Rep Academic (Law Existi 91,841
Kansas City Tax Law City, MO School) ng
Foundation
University of North Greensboro ESL/Re Academic Existi 100,00
Carolina at Greensboro , NC p (Business/Accountin ng 0
g)
University of Pittsburgh Pittsburgh Rep Academic (Law Existi 22,760
, PA School) ng
University of San Diego San Diego, Rep Academic (Law Existi 60,004
School of Law CA School) ng
Villanova University Villanova, Rep Academic (Law Existi 88,287
School of Law PA School) ng
Washington DC Center for Washington Rep Other tax-exempt Existi 2,500
Public Interest Tax Law , DC ng
Total $1,458
,267
a"ESL" means a program to inform individuals for
whom English is a second language of their tax
rights and responsibilities.
b"Other tax-exempt" means a program operated by an
organization, other than an academic institution,
described in section 501(c) of the tax code and
exempt from tax under section 501(1).
c"Rep" means a program to represent or refer low-
income taxpayers in controversies with IRS.
Source: IRS.
Appendix II
Comments From the Internal Revenue Service
Page 22GAO/GGD-00-83 Low-Income Taxpayer Clinic Pr
ogram
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