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MSP #11: VITA/TCE PROGRAMS

IRS Restrictions on Volunteer Income Tax Assistance (VITA) and Taxpayer Counseling for the Elderly (TCE) Programs Increase Taxpayer Burden and Adversely Impact Access to Free Tax Preparation for Low Income, Disabled, Rural, and Elderly Taxpayers

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #11-1

Allow VITA and TCE Partners, at their discretion, to prepare returns with issues that are currently out-of-scope, including: Home office deduction (e.g., day care providers); Standard mileage vs actual costs (e.g., Uber/Lyft drivers); Casualty losses (e.g., disaster relief); Cancellation of debt due to bankruptcy or insolvency; and Farm income.

IRS RESPONSE TO RECOMMENDATION: The VITA and TCE programs are focused on serving taxpayers. The IRS already has a process in place for partners to request scope changes via Form 14793, VITA/TCE Program Scope Change. These procedures were developed to ensure continuity of processes across all our sites. Our established processes are necessary and have proven to increase the accuracy of returns prepared at VITA/TCE sites. We evaluate requests for changes to determine the viability of implementation. Allowing volunteers to prepare tax returns with more complex tax law topics could negatively impact the accuracy of volunteer prepared returns.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate agrees that more complex tax law topics are oftentimes better suited for professional tax preparers to handle. However, there are others that Stakeholder Partnerships, Education and Communications (SPEC) should allow volunteers to assist with if volunteers are certified at the appropriate level. For example, many Schedule C returns that are currently defined as out-of-scope are unreasonably defined as such. In early 2011, SPEC initiated a Schedule C pilot program to determine the effectiveness of allowing tax law issues or topics relating to small business owners into the VITA/TCE program. SPEC ultimately determined that pilot sites, although preparing Schedule C returns with about 99 percent accuracy, were not preparing many returns with the expanded parameters and the Schedule C Pilot was discontinued. The Pilot was not discontinued because the topics were considered too complex for volunteers; rather, it was discontinued because the IRS did not believe it was in high demand. That said, SPEC agreed to allow return preparation with business expenses up to $25,000, but inexplicably there is now stricter criteria for VITA-prepared Schedule C returns than existed under the Schedule C pilot. Because of the arbitrary income limit for VITA-prepared Schedule C returns, VITA and TCE volunteers cannot assist most entrepreneurs who qualify to take an office-in-home deduction, including, for example, day-care providers. This population could greatly benefit from VITA services. In addition, as the National Taxpayer Advocate pointed out in the 2017 Annual Report to Congress, taxpayers who have experienced disasters frequently have characteristics that qualify for VITA assistance. Yet, claiming any casualty loss is out of scope for VITA. The IRS should be commended for its efforts in assisting disaster-area taxpayers; however, disaster victims are still unable to seek tax preparation assistance at VITA and TCE sites. Additionally, for example, despite the approximately 2.06 million farms currently in operation, the IRS further burdens a vulnerable taxpayer population that should have access to free tax preparation by arbitrarily restricting low-income farmers from VITA and TCE Programs. Those taxpayers whose debts are canceled or forgiven are another group of vulnerable taxpayers who might be eligible for volunteer income tax assistance and least able to pay for professional representation. If this topic were considered in-scope, at the very least, VITA volunteers could access the worksheets in IRS publications to accurately complete tax returns. The National Taxpayer Advocate did not propose allowing volunteers to prepare any complex tax returns on an ad hoc basis. Instead, she recommended allowing VITA and TCE partners discretion in deciding whether to prepare returns with specific issues that are currently out-of-scope. Moreover, as the National Taxpayer Advocate recommended in her report, to support those higher more complex issues, the IRS can develop additional certification levels, such as a home office module, a disaster loss module, or a Schedule C or F module. Programs seeking expansion could be required to describe to the IRS their training, oversight and quality review plans on those issues.

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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2.

TAS RECOMMENDATION #11-2

Implement financial guidelines for the VITA/TCE Program which account for both family size and income, similar to that used by LITC Programs.

IRS RESPONSE TO RECOMMENDATION: ​The IRS VITA/TCE program guidelines are determined by tax law complexity. Implementing financial guidelines would result in fewer taxpayers served overall due to additional screening time, and may also exclude some taxpayers who are eligible for service under the current guidelines.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate fully acknowledges that the definition of in-scope refers to permissible tax law topics in a tax return and does not refer to income levels. However, these programs are based on the Earned Income Tax eligibility level. The EITC is one of the most complex provisions in the Internal Revenue Code, and VITA programs prepare many returns including the EITC. Therefore, complexity is not the overriding factor in setting income levels.

Moreover, current income limitations exclude many taxpayers who are low income under Low Income Taxpayer Clinic (LITC) guidelines, yet are excluded from VITA income guidelines. To qualify for assistance from an LITC, generally a taxpayer’s income must be below 250 percent of the current year’s federal poverty guidelines, based on family size and with income adjustments for Hawaii and Alaska. VITA income guidelines, using the EITC threshold as the income floor, could include some flexibility for extenuating circumstances. As the chart below shows, an expansion of income guidelines would not exclude taxpayers who are eligible for service under the current guidelines, but to the contrary.

For example, under a 250 percent standard, a family of five would be eligible for VITA services up to an annual income of nearly $72,000. Under the current standard, a family of five would be eligible for VITA services up to an annual income of $54,000. For one person with no children, the income under the 250 percent of the federal poverty guidelines is twice the amount of income under EITC guidelines. For two persons filing married filing jointly, the income is greater than the EITC level by $20,171.

We disagree with the IRS’s speculation that the additional screening time would result in fewer taxpayers served. The VITA Program already requires volunteers to screen taxpayers. Volunteers who screen taxpayers could easily refer to a figure that is prominently posted of the incomes meeting the 250 percent of Federal Poverty Guidelines. LITCs do this all the time.

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 #11-3

Create a tracking system for volunteers and their certifications so that taxpayers can be referred to a specific VITA or TCE site handling a specific tax law issue.

IRS RESPONSE TO RECOMMENDATION: ​The IRS currently has a tracking system in place for volunteers and their certification levels, via Link and Learn Taxes. This e-learning application identifies the specific certifications volunteers have completed. Classifying and tracking this information at the site level would be resource intensive as there is no guarantee that a volunteer trained in a more complex tax issue would be available on any specific day.

CORRECTIVE ACTION: N/A

TAS RESPONSE: We are aware of the Link and Learn Taxes functionality to track volunteer certification levels. However, this application does not track where particular volunteers are working. It appears from the IRS’s response, that the e-learning application is fully capable of tracking this information. The National Taxpayer Advocate is concerned that the IRS rejects this recommendation without quantifying the amount of resources needed to allow this capability. Furthermore, it is irrelevant whether a volunteer trained in a more complex tax issue would be available on any specific day, because any scheduling issues can be resolved between the taxpayer and the volunteer after a referral.

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 #11-4

Ensure that more volunteer tax sites are open until October 15 each year.

IRS RESPONSE TO RECOMMENDATION: While the IRS encourages partners to be open year-round, the majority of volunteer sites are open from January through April. Partners determine site operations based on demand for the services and availability of resources, which can vary across the country and among partners.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS could easily encourage its partners to provide services after the tax return filing date. As the National Taxpayer Advocate pointed out in the report, in tax year 2016, over 36,000 low income taxpayers filed returns with extensions after the regular filing due date. Importantly, the ability to request an extension to file suggests that the taxpayer should have access to assistance to meet their statutory requirement at least until October 15th. Even though partners may choose not to keep their VITA sites open, the IRS itself can do more to encourage service to these taxpayers outside of the filing season. For instance, as mentioned in the report, the VITA Hotline is staffed only from mid-January to mid-April each year. In addition, taxpayers cannot conveniently obtain information about all VITA sites open year-around at one web page. To obtain a list of such sites, taxpayers must access the VITA Locator on irs.gov and then plug in their zip code and the number of miles they are willing to travel, or call the IRS. Another vulnerable group of taxpayers who may legitimately need to file extensions include those impacted by presidentially declared disasters who may need assistance in filing amended returns declaring casualty losses after April 15th. The IRS can and should encourage partners to provide service at least through the extended due date and should continue to provide support and assistance to the open sites throughout the year. At the very least, the IRS could require the VITA and TCE programs who receive grant funds to be open through October 15th since it is the IRS who controls the funds.

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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5.

TAS RECOMMENDATION #11-5

Allow grant funds to be used for quality review and QTEs, CAAs, and year-round services at select sites.

IRS RESPONSE TO RECOMMENDATION: ​​The VITA/TCE Grant Program supplements the work already being done at the sites. Grant funds can be used to support sites that are open year-round. Funds spent to support such sites should be necessary, reasonable, and allowable per the guidance outlined in the Code of Federal Regulations, Part 200. VITA and TCE grant funds are not allowed to be used to compensate tax return preparers, quality reviewers, or certifying acceptance agents for services provided. The VITA and TCE Grant Program does, however, allow grant funds to be used to reimburse volunteers for out of pocket expenses, such as transportation, meals, or other expenses incurred in the volunteer preparation of tax returns. Yet, expenses solely related to serving as a CAA are not included. The VITA/TCE Grant Program does not allow grant funds to reimburse these costs so that the VITA/TCE Grant Program can leverage limited grant funds to serve the greatest number of people.

CORRECTIVE ACTION: N/A

TAS RESPONSE: Part 200 of the Code of Federal Regulations (CFR), permits funds to be used for the payment of reasonable, necessary, allocable and otherwise allowable costs incurred and not prohibited by any other provisions. Specifically, Section 200.404 defines reasonable costs. The regulation clearly authorizes clinics to manage day-to-day activities, as they are already doing. Moreover, the regulation does not specifically prohibit paying for expert quality reviews. We appreciate the IRS’s concern about the potential for volunteer liability under the Volunteer Protection Act of 1997. However, the National Taxpayer Advocate strongly urges the IRS to examine CFR guidance to determine how quality reviewers may be paid to assist VITA volunteers, as we believe this type of review is essential to a successful VITA program. Either way, the quality reviewer does not have to change the actual return; instead, the quality reviewer could easily note the error and the volunteer could change it. By designing definitions and rules that would allow this, the IRS would resolve how quality reviewers may be paid to assist VITA volunteers.

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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