We are approaching the 50th anniversary of low income tax clinics (LITCs) which began in 1974 at Hofstra Law School. Read more about the history here. In addition, we are approaching the 25th anniversary of the jolt to the idea that propelled a ten-fold increase in the number of LITCs and brought them to communities across the country – IRC 7526 added to the Code as a part of the Restructuring and Reform Act of 1998 thanks to the testimony of Janet Spragens and Nina Olson. So, LITCs are not a new thing but many tax practitioners still may not know how vital LITCs are to the operation of our tax system. LITCs are vital, but because of current funding restraints are limited in what they can do. This post seeks to explain the importance of LITCs and encourage practitioners not only to refer clients as appropriate but also to volunteer.
LITCs represent individuals, not entities, who make less than 250% of the federal poverty guidelines and have a tax controversy with the IRS. In 2022 that amount is $33,975 for a single person living alone. If the household has more than one person, for each additional person in the house the dollar amount increases by $11,800 but the income of the additional household members must also be included in determining qualification. For example, a family of four in which the father makes $22,000 and the mother makes $25,000 would qualify because the total household income is $47,000 and the family size of four means that the 250% of poverty level for the family is $69,375. Each LITC questions incoming prospective clients to ascertain their income level, something not always straightforward, in making the decision on eligibility. The statute also permits LITCs to represent up to 10% of their clients making an amount in excess of 250% of poverty – more on that later.
The income guidelines exist to ensure that LITCs represent individuals who would otherwise go unrepresented but also that LITCs do not compete for clients with attorneys, CPAs and enrolled agents. For those tax professionals, understanding the limitations and practice areas of an LITC can provide a basis for making referrals to an LITC when an otherwise worthy client who lacks the means to pay for services can be served by an LITC at no cost, allowing the tax professional to triage someone with a problem and assist them by helping to place them in an LITC.
Scope of LITC Services
In addition to understanding the income qualifications of LITC clients, it is important to understand the type of work that LITCs do and don’t do. LITCs do not exist to prepare tax returns or ITIN applications. For free tax return preparation go to VITA. Many VITA sites also prepare ITIN applications as part of the tax return filing process.
LITCs exist to represent individuals in some type of tax controversy with the government, either in determining how much they owe or how much they can pay. LITCs assist clients in audits, appeals, and Tax Court and other judicial fora in trying to find the right dollar amount owed for a specific year.
Once a liability is determined, LITCs help people navigate the very complicated tangle of laws, regulations, and agency practices to obtain relief from the IRS through such measures as a currently not collectible determination, an installment agreement, or an offer in compromise. LITCs also assist clients in filing amended returns, audit reconsideration, and innocent spouse determinations when an assessed liability inappropriately puts the burden on a taxpayer. Most taxpayers are not even aware of the multiple avenues for them to correct their or the IRS’s errors regarding their taxes.
In general, the transition from VITA to LITC services will happen after a person has received a letter from the IRS about an issue. LITCs can consult with VITA preparers and their clients to figure out the best way to file a return, but LITCs generally cannot prepare the return or open a case for representation before the IRS has gotten involved. The intersection of LITC and VITA services is ripe for closer collaboration.
LITCs Play an Important Role in the Tax System
LITCs also help the IRS. They facilitate an orderly and reliable resolution of many taxpayers’ problems by enabling taxpayers to file the correct forms with the correct offices and provide the IRS with the correct information necessary to resolve a problem. By doing this LITCs reduce IRS workload and conserve IRS resources.
The reach of LITCs, however, is limited. Each year LITCs apply for a grant funded by Congress and administered by an office within the National Taxpayer Advocate function of the IRS. The total amount of grants that can be awarded is limited and the amount given to any one LITC has been capped at $100,000 since 1998. Some movement exists to increase the grant to reflect the passage of time and the need to increase services as the IRS engages more and more with low income individuals, generating more and more tax controversy work with this part of the population. The program office with the National Taxpayer Advocate that administers the grant takes the information it receives each year and produces a publication detailing the work of LITCs. Here is a link to the most recent publication.
LITCs come in a variety of flavors. The original LITCs formed as part of law school clinical programs and about 25% of LITCs still exist in that configuration. In some ways, academic LITCs have the most freedom because they do not generally have geographical restrictions on case acceptance and they have directors who generally have a fair amount of tax experience. These LITCs are best positioned to take on impact cases that push the law through litigation or comment on regulations and rulings impacting low income taxpayers. Some clinics exist in independent organizations and many of these LITCs rely on pro bono assistance from tax professionals in their community. A great example of this type of LITC is the Community Tax Law Project founded by Nina Olson in 1992 in Richmond, Virginia. Most LITCs exist in legal services organizations around the country. These organizations are natural hosts for LITCs because they already serve a variety of needs for civil legal services of community members, and the tax clinics round out the line-up of services to these clients. Usually, LITCs in legal services organizations have geographical restrictions on client acceptance, may have other income restrictions over-laying IRC 7526, and some have other restrictions imposed by Congress.
LITCs can use 10% of their cases to find and push issues for clients who may make more than 250% of poverty but who do not have the ability to fund litigation in Tax Court, in the circuit courts or on to the Supreme Court. LITCs can file amicus briefs in support of higher income individuals or entities moving forward with tax issues that impact the low income taxpayer community. LITCs regularly comment on IRS regulations, new Tax Court Rules or other matters offered for comment because otherwise, low income taxpayers would have no voice in the formation of administrative or court rules that could greatly impact them. The ABA Tax Section has been extremely supportive of LITCs and provides an excellent platform for making some of these comments.
Connecting with an LITC
The LITC Support Center is a new resource for both LITCs and tax professionals wishing to volunteer. A project of the Center for Taxpayer Rights, the Support Center hosts weekly litigation strategy calls for LITCs and provides technical support and training for LITCs and their volunteers. It also runs LITC Connect, a “dating app” for LITCs and tax professionals, whereby both LITCs and prospective volunteers create profiles. When an LITC needs to find a volunteer for a particular case, or for technical advice, or for training, it can submit an Assistance Request and the algorithm identifies potential volunteers. The Support Center reaches out to the volunteers and … voila! … with luck a match is made. (FYI: the Support Center also has a “Resources for Taxpayers” page which includes helpful information and PDFs for taxpayers who are trying to navigate this filing season.)
You can find the LITC nearest you in Publication 4134. In addition to finding their location, I encourage you to get to know the director of the LITC in order to find out how to best make referrals and, if desired, how to volunteer. Invite the director to come and speak to your professional organization or a community event to explore the ways an LITC could best serve the community. As we approach a couple of important anniversaries for LITCs, it’s time to get to know the one serving your community or to help bring one into your community if it is underserved. LITCs provide a great resource for individuals who would otherwise face the tax system unrepresented. Don’t overlook the ability of an LITC to assist you or you to assist it.