Low Income Taxpayer Clinics Need Better Oversight

The IRS’s Taxpayer Advocate Service needs to take better care to make sure that the grant funds it provides to Low Income Taxpayer Clinics are used appropriately, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, acknowledged that the Taxpayer Advocate Service has put in place additional controls and procedures for the LITC grant program since the last time it was audited in 2005. However, the latest report released Wednesday found that the TAS could still take further actions to ensure the taxpayers funds are being used in the right way.

The report found that TAS personnel did not perform in-depth analyses during their site visits to the LITCs to independently validate that the clinics met the program requirements for the funds they received. As a result, according to the report, there is an increased risk that the clinics could be using taxpayer funds to assist taxpayers in ways not intended by Congress. The review was performed at the IRS national headquarters in the Taxpayer Advocate Office in Washington, D.C.

The clinics provide low-income taxpayers who are involved in controversies with the Internal Revenue Service with free or nominal cost legal assistance, and provide taxpayers for whom English is a second language with education on their taxpayer rights and responsibilities.

The clinics were ushered in by the IRS Restructuring and Reform Act of 1998, and the total funding of the award grants has grown from $1.5 million in 1999 to $9.5 million in 2009.

The use of low-income tax assistance has become a volatile area for Congress in recent years after a pair of undercover conservative activists visited the offices of the low-income community organizing group ACORN last year posing as a pimp and prostitute and asked for advice on how to report illegal activities on their tax forms. Congress subsequently stripped ACORN of its federal funding and participation in other federally supported programs, including the IRS’s Volunteer Income Tax Assistance program.

The TIGTA findings are not likely to provoke anywhere near the amount of outrage that the undercover videos generated, which received extensive airplay on Fox News and other media outlets. ACORN has effectively been defunded by the federal government, although several of its local chapters have since changed their names and remain involved in assisting low-income communities.

The TIGTA report mainly determined that TAS management has not implemented a process to prioritize its visits to the LITCs, and try to capture some information to verify the income of clients and the amounts that the taxpayers were disputing with the IRS.

“The Taxpayer Advocate Service must fully ensure that Low Income Taxpayer Clinics that are grant recipients are using taxpayer funds for their intended purpose,” said TIGTA Inspector General J. Russell George in a statement. “A documented process will assist TAS in focusing its resources on the clinics most in need of assistance and/or oversight.”

TIGTA recommended that the Taxpayer Advocate Service develop and implement revised procedures to require more comprehensive site visits, require that all clinics keep a minimum level of information to support their income and controversy determinations, and develop and document a process for identifying which clinics will be selected for site visits.

TAS management partially agreed with TIGTA’s recommendations. They stated that they have begun implementing significant changes to the site assistance visit process. However, they contended that it would be inappropriate to verify client incomes and the amounts in controversy without clear, specific statutory authority.

“In conducting its oversight activities, TAS must be mindful to respect and not undermine the confidential nature of the attorney-client relationship between the grantees and their low-income taxpayer clients, who are the primary beneficiaries of the LITC program,” wrote National Taxpayer Advocate Nina Olson in response to the report. “The LITC program recognizes that taxpayer-specific information contained in case records is protected by the attorney’s ethical obligations to maintain confidentiality under rules of professional responsibility. This is an especially sensitive issue for the LITC program because the Internal Revenue Service not only provides partial funding to support clinic operations and is entitled to assurance that these funds are being used as intended by Congress, but also because the IRS is the adversary in every dispute in which the clinic provides representation on behalf of individual low income taxpayers.”

However, without verification of client incomes and amounts in controversy, TIGTA said it remains concerned that TAS is not fully the ensuring clinics are using taxpayer funds for their intended purpose.