Tax season is an annual American ritual. For many Americans, it brings the biggest influx of money all year, giving a much-needed boost to millions of families. Yet for Americans of all backgrounds, tax filing can be a stressful and confusing experience.
Nearly 80 million taxpayers turn to paid tax preparers for help each year, but as The New York Times recently reported, regulation of tax preparers is lax. Sixty percent of paid tax preparers are completely unregulated, leaving low-income Americans exposed to excessive charges, incompetent service, and -- too often -- outright fraud.
Fortunately, civil legal aid groups, their lawyers and volunteers play an important role in protecting low-income taxpayers against abuse and minimizing the drain from their pocketbooks. The IRS Low Income Taxpayer Clinic program (LITC) funds legal aid organizations and law school clinics nationwide to represent low-income people in disputes with the IRS and state tax agencies. Their advocacy helps ensure fairness and integrity in the tax system for all taxpayers by identifying and working with the IRS to correct systemic tax problems.
But civil legal aid lawyers have their work cut out for them. Tax preparation incompetence and abuse are widespread. "The victimization is huge," said Elizabeth Segovis, director of the taxpayer assistance program at Rhode Island Legal Services. First, the taxpayer pays an excessive fee for preparation of an inaccurate return. Then, years later, when the IRS seeks repayment, the taxpayer is left holding the bag.
Legal aid lawyers do their best to "clean up the mess," as Maceo Kirkland, director of the program at Legal Services Alabama, put it. If they suspect a client has been victimized by the preparer, they report it to the IRS. As a result, wrongdoers can face criminal prosecution or civil enforcement actions. For their clients, legal aid lawyers negotiate reasonable repayment plans and waiver of penalties, although accrued interest is statutory and cannot be waived.
The partnership between civil legal aid organizations and the IRS has proven critical to reining in fraud and protecting taxpayers. It's a good example of what the U.S. Department of Justice Access to Justice Initiative is trying to accomplish with its new Legal Aid Interagency Roundtable (LAIR) toolkit -- fostering collaborations in which civil legal aid can help support important government objectives. The Treasury Department is one of 17 federal agencies participating in LAIR, in this case ensuring that taxpayers can get the expert assistance they need to avoid the traps deceitful preparers are setting.
While legal aid lawyers and law school student clinics are doing all they can, we also need policy reform. As the National Consumer Law Center and Consumer Federation of America recommend in their aptly titled report, "It's a Wild World: Consumers at Risk from Tax-Time Financial Products and Unregulated Preparers," states and Congress can take immediate steps to protect taxpayers. For example, they can enact minimum educational, competency and training standards for paid tax preparers. And a Senate hearing last week echoed the need for legislation that ensures taxpayers never risk falling prey to tax preparers' ineptitude or misconduct.
"All 50 states regulate hairdressers," notes NCLC's Chi Chi Wu, an author of the report, "but only four regulate tax preparers. It's up to Congress or the states to step up to the plate."
When they do, civil legal aid lawyers across the country will have an additional tool to keep tax refunds from being stripped from the wallets of hardworking Americans who earned them. That won't make taxes any less certain -- but it will make future tax seasons a little less stressful.