Statement of Jeffrey S. Gold, Chairman, Community Tax Aid, Inc.

Testimony Before the Subcommittee on Oversight
of the House Committee on Ways and Means

Hearing on the Taxpayer Advocate Report and the Low-Income Taxpayer Clinic Program

July 12, 2001

Mr. Chairman and members of the Subcommittee, thank you for the opportunity to offer my views today on the functioning and funding of the low-income taxpayer clinic (LITC) program.

My perspective about providing pro bono services to low-income individuals and families began more than 30 years ago when the massive changes in the 1969 Tax Reform Act inspired me to found Community Tax Aid (CTA) in New York City. This nonprofit group is the oldest group of volunteer accountants and continues to provide low-income taxpayers a complete tax service. CTA/NY has no paid staff and an annual budget of less than $4,000.

When I moved to the District of Columbia in the early 1980s we began a similar group. It has grown from three sites in DC to 13 that extend to five surrounding counties in Maryland and Virginia. This past year, 250 volunteers helped nearly 1,400 clients with a wide variety of tax problems from return preparation to offers in compromise and representation before the IRS and state tax agencies. In the past we also have represented clients at the Tax Court. We have our own training program and stress quality control.

Our talented volunteers make this possible and deserve all the credit. They include CPAs—from the big-five accounting firms as well as smaller ones, industry, government and nonprofits—and a growing number of lawyers, economists and others. We regularly offer our service in Spanish, Mandarin, Cantonese, Amharic (Ethiopian), Arabic and Korean. Either our volunteers speak these languages or we recruit interpreters.

This past year we were approved for a $42,000 LITC grant and are using this to improve and expand our service to the ESL (English as a second language) community. We have developed mutually beneficial relationships with many groups, such as churches, community groups and legal services programs, to help our outreach.

With this introduction, allow me some observations and suggestions.

The LITC program is well conceived. But it is a work in progress and should be revisited regularly so revisions can be made. The people we serve deserve no less.

The greatest need is to at least double the $6 million appropriation. The need is enormous and most low-income taxpayers have not done anything to complicate their tax lives. Yet, our tax laws, forms and instructions get more and more complex while nearly half of our adult population is either illiterate or functionally illiterate. This is the conclusion of the National Institute for Literacy, an independent federal organization. These adults, says the NIFL, lack a sufficient foundation of skills to function successfully in our society. Since 90 million people are involved, the problem extends far beyond the ESL population. Funds also are needed to provide more help with return preparation to low-income native English speakers.

Amazingly, Congress expects the working poor to understand and comply with a baffling array of tax laws. When they cannot—and most cannot afford the professional tax help they need nor can IRS VITA programs offer the needed help—the taxpayers often run into problems and are subject to severe penalties. Three are at the top of my list:

First are the draconian ten-year and two-year prohibitions from claiming the earned income credit when it is likely the taxpayer was following poor advice from an equally unschooled friend or preparer. Second is the "user fee" imposed less than a decade ago for paying a tax bill on installments—even though most of the underpayments are due either to improper treatment of employees as independent contractors and to innocent underwithholding by working parents with children. Third is the use of the math error label by the IRS to speed resolution of problems.

These are aspects of our tax law that people with low income and minimal literacy cannot understand. At CTA, for example, we can afford to spend the time to work with the client to work out an extended payment schedule so they have the money to pay quarterly estimated taxes. This relieves them from added unnecessary expenses and saves scarce tax administration dollars. If our client was improperly treated as an independent contractor and no longer works for the employer we can, with the client’s approval, treat the client as an employee and leave the employer to the tender graces of the IRS.

Some in the LITC program would have separate funding vehicles for groups that deal only with controversies and another for those that prepare tax returns or ESL work. I suggest that we are speaking about one very large community and that all should be kept, at least for the time, under a single funding tent. All types of programs should work together toward a common goal.

Effective outreach brings in people so they have access to quality tax return preparation. What follows is that this should reduce or prevent the need for costlier controversy work and save considerable costs at the IRS and Tax Court. This is far preferable to shifting administrative costs to low-income taxpayers who can ill afford the burden.

I leave it to others to speak about the LITC limits that require at least 90 percent of cases to be within 250 percent of the poverty level and that the amount at issue not exceed $50,000. At CTA, our limits are far lower—$18,000 for individuals and $26,000 for families (with discretion to go higher for large families—and we generally do not lack for clients. We decided long ago that people with the lowest income get the highest priority and have kept to this principle even if a client with a higher income and a more interesting issue arrives. Our primary goal is to serve low-income clients, not give our volunteers a wider range of tax issues to develop their skills; this will happen over time.

Again, I urge that funding for the LITC program be expanded significantly to meet the needs. If our nation can spend $117 million to administer the "rebate" program under the new tax law, and the administration is requesting $500 million over five years to speed up the processing of immigration applications, growing the original $6 million LITC appropriation by a multiple of at least two or three in the next year should be elementary.

I close with an invitation to members of Congress and staff to visit CTA next tax season and see the extent of the problems that low-income taxpayers face.

Thank you.