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MSP #5: VITA/TCE FUNDING

Volunteer Tax Assistance Programs Are Too Restrictive and the Design Grant Structure Is Not Adequately Based on Specific Needs of Served Taxpayer Populations

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #5-1

Increase VITA funding to maximize the overall resources (federal and matching funds) available for free tax preparation assistance.

IRS RESPONSE TO RECOMMENDATION: N/A

CORRECTIVE ACTION: N/A

TAS RESPONSE: N/A

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Congressional

OPEN or CLOSED: Congressional

DUE DATE FOR ACTION (if left open): N/A

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2.

TAS RECOMMENDATION #5-2

Remove VITA and TCE program grant restrictions for specific tax forms, schedules, and issues, including Schedules C, D, and F, and ITINs.

IRS RESPONSE TO RECOMMENDATION: To effectively serve the most taxpayers with the available funding, IRS VITA/TCE grants provide parameters on the type of returns filed at the partner sites.  Increasing complexity and scope increases the burden on IRS employees to develop training materials for the partners and manage the quality of returns prepared.  It also places burden on the volunteers to learn topics that they may not encounter.  Filing Season 2014 research data estimates that two thirds of the VITA/TCE taxpayer base are Form 1040 wage earners, which is consistent with the mission to provide free assistance with basic federal tax returns to individuals with a low to moderate income, the elderly, and disabled taxpayers.  Currently, there is limited preparation of Schedule C, Profit or Loss from Business.   We are piloting the Schedule C preparation, to expand the limit on gross receipts without impacting service.  A determination will be made during our post filing season assessment whether to expand the scope for Schedule C for filing season 2016.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate is pleased the IRS is piloting the Schedule C preparation.  However, the Schedule C pilot is insufficient to meet the demand of many low income taxpayers with Schedules C, D, and F, and ITINs.  The IRS’s response is not based on data or research about taxpayer needs, rather on what is convenient for the IRS.  The IRS fails to acknowledge VITA and TCE sites service taxpayers with needs beyond Form 1040 wage earners, including taxpayers in rural areas and those with limited English proficiency.  By restricting grant recipients from preparation of specific forms, the IRS artificially limits VITA and TCE sites’ ability to meet the increased demand for services resulting from the elimination of tax preparation services at the TACs.  The IRS can and should do more in this area.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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3.

TAS RECOMMENDATION #5-3

Allow grant funding for quality review, CAAs, and year-round services at select sites.

IRS RESPONSE TO RECOMMENDATION: Each grant program has established guidelines to ensure grant funds are distributed according to the law and regulations.  Funding for the grant programs does not allow VITA sites to pay preparers for tax return preparation, quality review, or screening activities.  Paying volunteers for quality review with VITA or TCE grant funds contradicts the intent of the volunteer program.  Also, paying for a portion of a volunteer’s activity also adds complexity to managing volunteers, liability of volunteers, volunteer recruitment, and ensuring appropriate use of federal funds.  Organizations may pay for these activities out of their own funds and use them as part of the matching support required of the VITA grant.  Use of grant funds for CAA expenses is also not allowable.

With regard to year round services at select sites, grant funds are currently allowed for year round services.  In fact, the IRS encourages sites to open year round.

CORRECTIVE ACTION: N/A

TAS RESPONSE: By not allowing grant funding for quality review, CAAs, or screening activities, the IRS relies on circular reasoning.  Instead of considering how it could do a better of job of oversight with its current resources, including allowing for some paid infrastructure such as quality review, CAAs, or a requirement of year-round service to taxpayers, the VITA program simply maintains mid-20th century status quo.  Although the IRS distributes grant funding according to the law and regulations, it uses the Stakeholder Partnership, Education and Communications program (SPEC) in W&I to establish specific program guidelines including how VITA and TCE sites use grant funds.  The IRS’s argument regarding extra burdens and liability imposed on the sites is misleading because VITA and TCE sites are already responsible for managing day-to-day activities.  IRS restrictions on how VITA and TCE sites use grant funds limit the effectiveness and reach of both programs.  Absent these restrictions, the IRS could develop an infrastructure that:

  • Allows VITA and TCE sites to assist more taxpayers in need (especially hard-to-serve taxpayer communities Congress intended the VITA program to help);
  • Encourages VITA and TCE sites to provide year-round services, as taxpayers need return preparation assistance year-round, not just during the January-April filing season; and
  • Minimizes enforcement costs resulting from noncompliant taxpayers without a place to get free, easily accessible tax return preparation services, or turning to unregulated and incompetent (or unscrupulous) return preparers for assistance.

Although sites are “encouraged” to provide year-round service to taxpayers, the current structure and restrictions on grant funding make it prohibitive for many of these organizations, especially in rural areas where these services are most needed because TACs are no longer available to these taxpayers.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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4.

TAS RECOMMENDATION #5-4

Require volunteers who are authorized under Circular 230 to practice before the IRS (i.e., attorneys, CPAs, and Enrolled Agents) to annually recertify only on new provisions and changes in tax law.

IRS RESPONSE TO RECOMMENDATION: ​If funding allows, the IRS will require volunteers who are authorized under Circular 230 to practice before the IRS (i.e., attorneys, CPAs, and Enrolled Agents) to annually recertify only on new provisions and changes in tax law.  The Link & Learn will have to be modified to create separate tracking and testing for the Circular 230 participants.

The IRS will continue to include the provision related to the ethics training.  Those volunteers falling under Circular  230 (attorneys, CPAs, Enrolled Agents) will be required to take the regular certification test in first year of volunteering, recertify only on new tax law in subsequent years, and certifying in Ethics every year.

Update: Beginning Filing Season 2017, SPEC is offering a new tax law certification test in Link & Learn that allows Volunteer Income Tax Assistance and Tax Counseling for the Elderly (VITA/TCE) volunteers with the professional designation of attorney, Certified Public Accountant, Enrolled Agent to certify only on new provisions and tax law changes.

CORRECTIVE ACTION: Update the Link & Learn system in order to create a new certification test and tracking for volunteers who are authorized under Circular 230 to practice before the IRS. This is contingent on funding for changes to the system.

TAS RESPONSE: The National Taxpayer Advocate is pleased the IRS is willing to modify the Link & Learn process and create separate tracking and testing for Circular 230 practitioners, so that these volunteers annually recertify only on new provisions and changes in tax law.  However, in light of the increased demand for VITA and TCE services, the IRS must develop an alternative solution to simplify annual recertification of Circular 230 volunteers.  The IRS could change its rules by waiving certification for individuals who passed the initial Link & Learn certification and allow an abbreviated certification outside of the Link & Learn system for the new tax law provisions until it can update that system.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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5.

TAS RECOMMENDATION #5-5

Provide free tax preparation assistance at TACs in areas with limited access to VITA or TCE volunteers, along with proper staffing and hours to handle taxpayer traffic.

IRS RESPONSE TO RECOMMENDATION: The IRS believes that the current options for free return preparation are adequate. Currently, there are 380 TACs across the nation and approximately 12,000 VITA/TCE sites open. Taxpayers with limited access to VITA or TCE volunteers have other alternatives such as Virtual VITA, Facilitated Self-Assistance (FSA), Free File, and Free File Fillable Forms that can be used to prepare their return at no cost.  To accommodate those with limited access, IRS uses Virtual VITA/TCE to provide the same service as traditional VITA/TCE, with the volunteer and taxpayer connected through technology, remote FSA allows taxpayers to input their own return using internet-based software with the assistance of a certified volunteer, and Free File and Free File Fillable Forms provides taxpayers with a variety of online software options or online fillable forms. The IRS also continues to review and adjust its services to ensure that staffing is available to handle taxpayer traffic in TACs.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS cannot arbitrarily ignore the impact of the elimination of tax preparation services at TACs, as they remain a preferred option for taxpayers who lack internet access, especially elderly taxpayers.  The 2011 SPEC Rural Strategy Initiative acknowledged, “[e]ven though the percentage of low-income residents per capita is higher in rural areas than in larger cities, the coverage rates for free tax preparation services are lower.  While many partners want to service rural areas, there are often barriers and challenges that are difficult to overcome.”  The IRS’s response fails to acknowledge the gap in services for taxpayers residing in rural areas and the elderly who are not comfortable using the Internet for tax preparation.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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