Low-income taxpayers dealing with hardships often get insufficient help from experienced tax professionals, but a recent gathering of specialists in this area represented a step toward providing more and better aid to those individuals.
A November 4 training session in Washington hosted by Morgan, Lewis & Bockius LLP on providing pro bono help to low-income taxpayers shed light on the problems faced by low-income taxpayers such as the self-employment tax consequences of worker classification issues, collection issues, offers in compromise, and innocent spouse relief. The instructors also indicated that low-income taxpayers with serious tax issues often have greater concerns such as groceries, immigration status, and potential foreclosure or eviction.
One example of an important collection issue discussed concerned the importance of the currently not collectible status for taxpayers who may be trying to run out the clock on the collection statute of limitations under section 6502. Even taxpayers who may be getting a refund on income taxes can be hit with the full 15 percent self-employment taxes on income when they are classified as independent contractors rather than employers and without the benefit of prior withholding to fund the taxes.
Nancy Abramowitz, director of the Janet R. Spragens Federal Tax Clinic at American University, told attendees that taxpayers suffering from economic stress caused by circumstances like job loss sometimes end up invading retirement accounts to pay for everyday living expenses such as food and housing before reaching age 59-1/2, thereby incurring not only normal income tax on the distribution but also the additional 10 percent tax on early withdrawals. She said people often assume those needs are exceptions to the early withdrawal tax for economic hardship only to find that the only similar exception is for disability.
The other instructors included Jacqueline Lainez, director of the Low Income Tax Clinic at the University of the District of Columbia David A. Clarke School of Law, Paul Kurth, director of the Low Income Taxpayer Clinic at Catholic University of America Columbus School of Law, Maria Dooner of Community Tax Aid, and Jennifer E. Breen and Sheri A. Dillon of Morgan Lewis and the Washington DC Center for Public Interest Tax Law.
Breen told Tax Analysts that 42 people registered for the training session. The attendees included a variety of practitioners, from both firms and solo practices, as well as government retirees and law students, she said.
Tax Court Chief Special Trial Judge Peter J. Panuthos, the session's luncheon speaker, when asked about changes he has observed for low-income taxpayers in recent years, said that because of the automation of IRS audits, more taxpayers have not had the chance to speak to anyone about their issues before appearing at the Tax Court calendar call. In prior decades, a taxpayer much more often had contact with an IRS revenue agent or some other IRS employee before meeting a volunteer or Tax Court judge at calendar call, he said.
Panuthos said the 2006 resolution by the American Bar Association calling for provision of "legal counsel as a matter of right at public expense to low-income persons in those categories of adversarial proceedings where basic human needs are at stake, such as those involving shelter, sustenance, safety, health or child custody" applies to taxes as well because tax collection can lead to the loss of a home or a job. He added that the benefits of the pro bono provision of services include not only increasing the efficiency of judicial review and a learning opportunity for junior lawyers but also improved career satisfaction for the volunteers.
According to Panuthos, the Tax Court has approximately 28,000 cases pending, and a similar number of cases are both filed and resolved during a typical year. He said that just over 70 percent of the 28,000 annual petitions are pro se petitions, many of which are handwritten and may be illegible.
With nearly three-quarters of Tax Court cases filed pro se, there are over 20,000 petitions filed each year without legal representation for the petitioner.
Panuthos praised both low-income taxpayer clinics and the volunteer calendar call programs, pointing out that the latter name is not "pro bono programs" to avoid confusing unsophisticated taxpayers. He said that when conducting a calendar call, he not only announces the presence of volunteers and clinics at the start of the session, but also mentions them to every pro se petitioner appearing at the call.
"We are all working towards the same end, which is to get equal justice under the law" for litigants in the Tax Court, he said.
Breen told Tax Analysts that the Washington DC Center for Public Interest Tax Law is trying to organize a pro bono day session for Tax Court calendar calls when petitioners are invited to meet with pro bono counsel several weeks before the trial session, rather than meeting for the first time at the calendar call. Such pro bono day sessions have helped to improve the efficiency with which pro se petitioners' tax issues are resolved in several other cities.
Breen and Dillon, along with Alexander L. Reid, also of Morgan Lewis, took over as directors of the center in January.