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:

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.

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.

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.

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.