Low-income Tax Clinics are Important to the Overall Workings of the Tax System

Robert Wunderle, the director of La Posada Tax Clinic, explains how his clinic helps low-income taxpayers and why it is important to the tax system.

The following is an excerpt from the transcript.

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: the clinical view.

There are just over 130 low-income taxpayer clinics in the United States. These clinics, also known as LITCs, help low-income taxpayers resolve tax disputes with the IRS at little to no cost.

Tax resolution services are not the only things that tax clinics provide. They also serve as taxpayer rights advocates, filing aids, and financial literacy educators.

La Posada Tax Clinic, the only LITC in Idaho, is located in Twin Falls. The clinic was founded as part of La Posada Ministries, a faith-based charity that helps immigrants and temporary foreign workers settle in the United States.

In an interview, I spoke with Robert Wunderle, the director of the tax clinic, about how it was founded, what LITCs do in today's tax system, and his plans for the future of La Posada Tax Clinic.

At the beginning of this interview, I'd like to point out that our parent company Tax Analysts is supporting a new public service fellowship for practicing tax attorneys to work in public interest tax law. The candidate will work at the La Posada Tax Clinic in the inaugural year. If you want more information on that, there'll be a link in the show notes.

Joining me now is Robert Wunderle, director of the La Posada Tax Clinic. Bob, welcome to the podcast.

David D. Stewart: First, let me give you some background on my own career and how I became the director of a tax clinic.

Robert Wunderle: This is an interesting story, because I didn't start out as an accountant in life. After 24 years in the Air Force, I switched to accounting.

For many years, I had been volunteering in the volunteer income tax assistance (VITA) program when I met a Catholic nun who was helping immigrants and migrant workers in South Central Idaho. When I asked her if we could bring a team in to help some of her clients with their tax returns, she was thrilled by the idea.

In 2004, a group of volunteers and I started working at La Posada every Friday to help Sister Rosemary's clients. As we worked on the cases, some of them were still in examination. The IRS was denying their exemptions, and they had letters from the IRS. We continued to work on those things as much as we could throughout that year.

It was into December before we quit for the year. The next year we came back in January and started all over again, the same type of thing. In February, I got a phone call from the IRS Stakeholder Partnerships, Education & Communication office that oversaw the VITA program we were operating under and they said, "You've been working way outside of the box, but there's a grant available and they're looking for someone in Idaho in Boise and we think you should apply." Well, I said,"Boise is not Twin Falls. What's the point if they want someone in Boise?" Well, they convinced me to apply. They told me to apply for this LITC grant to do things that we had been doing anyway outside of VITA program lines.

Our organization was first funded as a grantee. In other words, we were given money just to help non-English-speakers understand their rights and responsibilities. We received a small amount of money, around $20,000, to do that.

We kept helping people with their problems, and we were way behind in our reporting for the grants. In 2008, they didn't renew our grant. So we were out of the program, which was actually a relief to me because the reporting burden was so heavy and we didn't have much money anyway. The program office also wasn't happy with us because we weren't doing things exactly as they thought we should be.

In 2008, the program had another "mid-year opportunity" for someone to get a grant. Soon after we were dropped from the program, I started receiving phone calls from the local taxpayer advocate office from the former analyst who was working with us in the LITC program office. He/She was encouraging me to reapply.

Again, I was reluctant because I had never felt very comfortable in operating the clinic the way they wanted us to. We were doing controversy and we had only been funded for educational outreach. But in the end, I was convinced, put in an application for a grant. The initial $20,000 grant turned into almost $60,000 for half a year

Something was happening that I wasn't aware of, but later found out that (former Taxpayer Advocate) Nina Olson had noticed what we were doing and been impressed by it. She decided to put us back in the program and give us a better budget.

Prior to that time, we were getting people into filing compliance, into collection compliance, and into noncollectable status if they couldn't pay. We also helped them get ITINs and resolved audits.

David D. Stewart: Let's move on from the specific details of your clinic and talk more generally. I'm curious about how you see the role of LITCs in general.

Robert Wunderle: Low-income taxpayers who are in a dispute with the IRS and can't afford to hire a CPA or tax lawyer can turn to LITCs for professional and legal assistance.

One of the ways you can settle your tax debt is through the Offer in Compromise program. It's often possible to settle for pennies on the dollar as long as you can't pay it and have proof that you don't have any assets or income.

The $10,000 threshold you hear in the advertisements is because the companies that are advertising this charge around a $2,000 upfront retainer fee. The IRS considers this a scam because most of the people who call in and pay are not eligible for pennies on the dollar. A few might be.

David D. Stewart: That's right. Whenever someone is talking about wiping out a debt and if you pay them, they will help you out, there's often some sort of scammy quality to it.

Robert Wunderle: Yes. We also do, and I've mentioned this before, is advocacy. If we see something that's harming low-income taxpayers, especially disproportionately, we speak out on their behalf.

There is a situation that I just got off the phone with the IRS about. The IRS has an Online Payment Agreement system, which allows you to set up an installment plan online. If you set it up with direct debit and you're a low-income taxpayer, there should be no charge for setting up the agreement.

The Online Payment Agreement software is unable to extend agreements beyond 36 months, and it charges more for a short-term settlement than our clients with lower incomes can afford.

The IRS is unable to resolve the problem that customers face when trying to pay by phone.

Advocacy of that kind is important.

We advocated for a long time that the IRS put flags on tax numbers of children living outside the country, so that those children couldn't be claimed for the child tax credit. The IRS didn't have enough money to do this either.

They didn't tell us quite that way. They told us they didn't have the legal right to do it, which I would refute. They did have the legal authority, they just didn't have the funds to do the software changes.

Congress finally took action and said, "Children with ITINs are no longer eligible for the child tax credit." It used to be that if they lived in the United States, they could get it. If they lived in Mexico, they couldn't.

LITCs have been able to achieve that kind of change. Other LITCs have succeeded in getting other significant changes in IRS policy.

David D. Stewart: Does your clinic help migrant workers, or do you do other work as well?

Robert Wunderle: We do not focus on that exclusively, but we have become a resource in the country.

We are helping H-2A workers in every part of the country because many agencies that we've contacted have put our contact information in packages that they give to their employers. These are the agencies that actually recruit farm workers.

Our reputation as a leading provider of tax law expertise for the H-2A community has made us a go-to resource for information on that topic. But we do everything else that other low-income taxpayer clinics do, in addition to that.

David D. Stewart: What's the most complicated issue you've dealt with in your time at the tax clinic?

The most complicated . . . One that comes to mind is a state issue.

A client of mine, who had not filed tax returns for a couple of years, came in. Business had gone under; the person became involved in drugs and did some time in prison. When the IRS did what they call a "substitute for return," my client's huge debts to the IRS and state began.

In this case, we got the federal issue resolved and taken care of, but we were having a problem with the state. They had done their own return substitute. It didn't matter how you did it on the state's return substitute, they just, in our opinion, did it wrong.

We suggested two or three ways of reconstructing the couple's income and pointed out that the auditor who had reconstructed it had used 1099-MISC forms for payments from different farms these people were working for, and added those 1099-MISC reports of income to the income they had assessed based on prior year tax returns. This is somewhat complicated because when you do a Schedule C business return, you include in it all the 1099-MISC forms plus any cash that wasn't reported to the IRS as your income.

The state tax commission had used a base year and projected it forward. The base year included the 1099-MISC as income. In the projected years, they also added the 1099-MISC to it.

It took us a year or so to resolve the case. It had to go to the state tax commission. Finally, they agreed that levies had more than paid for the true liability, and they dropped it.

That was one of the most challenging ones. There were a couple of others.

Right now, I'm having a senior moment.

David D. Stewart: That's fine. That sounds like a challenging task, so that's a good response to my question.

At the clinic, is there a case that you look back on as something that you resolved, and it makes you proud? You're just glad that this is something that you were able to resolve.

Robert Wunderle: A few months ago, a man with a disabled daughter and grandchild came in. He was claiming his disabled daughter and her child on his tax return. That's allowed in the tax code, but if audited, you have to be able to prove that the child is disabled.

This is an immigrant from Peru. His English is limited. Several times he went to his doctor and asked for correspondence, and the doctor's office wrote something. The first time they just gave us a note on a prescription pad, which didn't quite say what the IRS wanted it to say. So we continued going back two or three times to the doctor, and it took us about a year-and-a-half to get something from the medical provider in a format that would be accepted by the IRS

Just a few months ago, they finally released his refund from 1999.

David D. Stewart: That's a long time to resolve an issue, huh? Wow. That's impressive. All right.

We will return to a more general question again: what should the IRS be doing now to better assist low-income taxpayers?

Robert Wunderle: I think that the government needs to take a long, hard look at the filters they're using for their various programs. The integrity verification operation where people have to call in and identify themselves seems to me that a disproportionate number of low-income people are being affected by the filters that are freezing refunds or slowing things down. Again, it hits farm workers quite heavily.

The IRS expects guest workers to have credit bureau records that they can verify their identity with, but many undocumented residents who have ITINs don't have such records. In Idaho, they can't even get a driver's license if they're undocumented.

These people are extremely challenged in proving who they are, and often they can't do it because of the systems that are in place. The IRS tells them to go into a tax office. Well, there aren't that many tax offices around, especially in rural areas where they could go to one. And even if they did manage to get an appointment, it would be next month's business by the time they got there.

If a person is undocumented, they can be in danger at a federal building because they do not have an ID. For a guest worker, their employer has to provide the time off and transportation.

The federal government should cooperate with the state tax offices and let them verify their identities in a state tax office. After all, the federal government and states have many agreements to exchange information. This would be one way that they could make it easier for people to prove their identity when they get caught up in a filter like this. 

David D. Stewart: OK, here's another question about your time running this clinic. You've been doing it for a while now. Have you noticed any trends of things getting better or worse for low-income taxpayers?

Robert Wunderle: Oh boy. I think the trend has been going on for years. It affects everyone, but it affects low-income taxpayers the most because if they have a refund frozen, or if they're having problems with the IRS and they can't get it resolved, they suffer a financial hardship that may be just an inconvenience for someone who has greater resources than they do.

For the past decade or more, the IRS's funding has been cut. Their number of employees to do the job has gone down. They have had to do more and more and more, while they've been waiting for a year or longer for answers to correspondence.

When we try to work with someone and deal with the IRS, it is extremely difficult to get information sent in, have it handled, and get a response back. The person often ends up in collections. You can be put on a collection hold for 30, 60 or even 90 days. But if it takes six months for the IRS to answer the letter you sent them explaining why they shouldn't be in collections at first place, you have to keep going back or notices keep coming.

Tax Analysts sponsors the Tax Analysts Public Service Fellowship.

Well, Bob, could you tell our listeners about that fellowship and what you are looking for in candidates?

I need to know how the clinic will continue after my death. I founded this clinic 18 years ago, and I recently turned 80.

David D. Stewart: That's great news!

Robert Wunderle: I'm looking for someone to come in and keep this clinic going while I'm away on fellowship, which will give us time to raise more money so that we can keep the fellow as the clinic director and keep a LITC open in Idaho.

David D. Stewart: Well, Bob, it's been great talking to you. Thank you very much. Thanks for all the work that you're doing for your community.

Tax Notes and Tax Analysts: Thank you, sir. It was a godsend when I was talking to the American Bar Association and this came up.