Tax Compliance for Refugees: Free Training Aims to Fill Gap in Tax Assistance

The ABA Tax Section is co-sponsoring a free training on June 15 to prepare volunteers to provide tax preparation for first-year refugees. Volunteers with e-filing capabilities are particularly needed to help refugees file their first U.S. tax return correctly. “First year” tax returns are outside the scope of what FreeFile, VITA, and TCE sites can handle, due to their complexity. The unmet need for competent, free assistance with first-year returns has been clear for many years. Hopefully this training will lead to permanent tax preparation assistance projects for refugees nationwide.

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The training will cover tax residency, elections, foreign account disclosure, economic impact payments, child tax credits, and other issues relating to tax compliance for people who arrived in the U.S. during 2021. Many kudos to Frank Agostino for coordinating the training and providing for 3 free IRS continuing education credits.

To RSVP: https://t.co/d0zkNtVrU4

When: Wednesday, June 15, 2022, 1:30-4:30 PM ET

Where: Virtual

A flyer advertising the Tax Compliance for Refugees Training

Join the Center for Taxpayer Rights for a Celebration of Keith Fogg’s Career on the Occasion of his Retirement

Readers of Procedurally Taxing know how vital Keith Fogg’s analyses and commentary is to improving the state of tax procedure and administration in the United States.  One only has to read his most recent series of posts about the Boechler case here and here and here and here and here to realize that Keith is a tireless advocate who does not rest on his laurels.  He is always thinking about how to build on victories and how to work around losses.  And those readers who know Keith personally know how generous and unstinting he is with support, friendship, and humor. 

So it may come as a surprise for readers to learn that Keith is retiring from the Harvard Federal Tax Clinic on June 30th of this year.  We didn’t want this occasion to pass unnoticed.  The Center for Taxpayer Rights, of which Keith serves as President, is hosting a virtual celebration of Keith’s career.  Now you can share your appreciation by raising a toast to Keith and sharing some reflections about what his support and friendship mean to you.

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The celebration will be held on Tuesday, May 10th, 2022, from 5 pm to 7pm EDT via zoom.  You can register for celebration and receive the Zoom invite here.

If you can’t attend, you can still share your reflections by registering.  We will then send you a link to a drop box location where you can upload a short (2 to 3 minute) video of your comments which we will share with Keith during our celebration.

I can personally attest to the impact Keith has had on my life, starting with a conversation I had with him in January 1993, shortly after I incorporated The Community Tax Law Project (CTLP), the first independent low income taxpayer clinic in the country.  CTLP was just a vision in my mind; I was working on my LLM at Georgetown, and one of the deans there mentioned that I should speak with Keith Fogg, who taught the bankruptcy and insolvency class in the LLM program and who was the district counsel for the Virginia-West Virginia district.  So I cold-called Keith.  He didn’t know me at all, but he took my call, listened to me talk about my ideas for the clinic, and agreed completely about the need for representation of low income taxpayers before the IRS and in the courts.  The only doubt he raised was, where would the funding come from?  (Note, as the Center’s president, he still asks that question; we did address that concern, somewhat – see IRC § 7526.)

Fast forward a week or two, and Keith had finagled an invitation for me to meet with the VA-WVA IRS district leadership – the District Director, the Deputy District Director, the chief of exam, the chief of collection, the district chief of appeals, the customer service director and education director, even the chief of criminal investigation.  The District Director committed to putting posters up about CTLP in the walk-in office (when it was truly open for walk-ins) as well as including stuffer letters in appeals initial letters.  All that from one phone call!

I can truly say that had Keith hung up on me that first day, or been too busy to take a call from an unknown person, or just failed to see the need, a lot of things would have happened differently in my life.  Or at least at a more slow pace, and we all know that timing is everything.  Lucky for all of us, Keith not only did listen, but he actively supported CTLP and the concept of clinics writ large.  The tax system is much improved because of that one simple act in early 1993 and all the other acts of generosity and integrity Keith has done over the years.  On top of all that, I’m fortunate to have had Keith’s friendship over the years.

So, if you’d like to share your “Keith stories,” join us in our celebration of Keith Fogg on May 10th.

Keith has asked that folks wanting to recognize his career make a contribution to the Center for Taxpayer Rights.   You can donate to the Center here. Hope to see you on May 10th to raise a glass to Keith!

GAO Assesses IRS 2021 Filing Season Progress

It is a busy couple of weeks for blogging crew. For those wanting a fix of tax administrative news pending our next substantive post, we recommend taking a look at the GAO report 2021 Performance Underscores Need  for IRS to Address Persistent Challenges. Released yesterday, the report evaluates IRS’s performance on (1) processing tax returns during the 2021 filing season and (2) providing customer service to taxpayers. The report has lots to offer and plenty of data around challenges IRS faced. For example:

The report also includes GAO recommendations:

1) IRS should assess underlying causes for tax return errors and address them, as appropriate and feasible, with input from internal and external stakeholders.

2) IRS should assess reasons for refund interest payments and report on the reasons for increased interest payments;

3) IRS should take steps to reduce the amount of refund interest paid for those cases within IRS’s control;

4) IRS modernize its “Where’s My Refund” application;

5) IRS address its backlog of correspondence; and

6) IRS assess its in-person service model.

IRS agreed with most of the recommendations but pushed back on two, saying that its process for analyzing errors is robust and that the amount of interest paid is not a meaningful business measure.

We will be returning to this report and discuss it in detail.

Biden Administration Floats Refundable Pet Tax Credit Idea to Boost Child Tax Credit

Readers know that last year’s comprehensive tax legislation did not make it through Congress. In the Administration’s FY 23 proposed budget the Biden Administration has brought back one of last year’s more innovative tax policy proposals. In today’s post we revisit that proposal. Les

Last week, Assistant Secretary for Tax Policy nominee Lily Batchelder floated the latest in the Biden Administration’s efforts to provide tax relief to the nation’s millions of people suffering due to the pandemic: a $250 refundable tax credit for families with children under the age of 18 who have pets in their household.

President Biden with his dog, Major
Photo by Stephanie Gomez/Delaware Humane Association, via NY Times/Associated Press
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In speaking at the Tax Policy Center webinar entitled “Thinking Outside the Box Tax Policy Ideas”, Batchelder cited the overwhelming research showing that the presence of certain family pets has a strong correlation with positive outcomes in children, including health, education and lifetime earnings. (See, for example this recent research study by Robert Matchock, Pet Ownership and Physical Health)

Insisting that the Biden Administration will continue its evidence based approach to good governance, current Assistant Secretary Mark Mazur noted that evidence has tied positive outcomes to only certain pets-namely dogs and cats. As such, the Treasury officials expected that the legislative language they would support would not extend to other household friends. Mazur acknowledged that the research to date has not studied other animals nearly as much as dogs and cats although there is preliminary research showing that larger rodents (such as chinchillas) have had a positive impact on mental health across age ranges.

Facing questions about whether this might be expanded to older Americans, as the data strongly correlates pet ownership with positive health outcomes among seniors, Mazur was noncommittal, though he emphasized that the Administration’s focus in the near term was on improving conditions for families with children.

“It might be the camel’s nose in the tent,” said Mazur, “but for now we are tying this to our proposals to make permanent the expanded child tax credit that Congress enacted last month.”

Needless to say the proposal generated quite a stir in the webinar. Former NTA and current Executive Director of the Center for Taxpayer Rights Nina Olson asked if Treasury expected IRS to expand its nonfiler portal to allow nonfiling taxpayers to enter pet information alongside their children. Commissioner Rettig, also on the panel, in noting that he is the first Commissioner in IRS history to own not one but two adopted retired Greyhound racers, suggested that Congress should allocate an additional $100 million to its proposed upgrade of technology in order to allow it to build the pet database. 

Panelist and Tax Notes’ tax historian Joseph Thorndike noted that many of these pets may be the direct descendants of pets removed from being claimed as dependents in 1986 when Congress began requiring taxpayers to list the social security number of dependents which caused almost seven million dependents to disappear in one year.  He noted that the ancestors of today’s household pets would no doubt be smiling down as pets once again returned to the 1040.

While not on the panel, former Treasury Secretary Larry Summers, who was slated to speak on a separate panel with former Commissioner Rossotti about the Rossotti/Sarin/Summers tax gap proposal, interrupted Batchelder, stating that the “last thing poor people need is more money in their pockets. I worry about the inflationary impact in the important pet sector.”

As with any proposed credit expansion, there are lots of ancillary issues. PT’s own Keith Fogg notes that “in the 1860s in the predecessor to Section 6334 Congress allowed as part of the property exempt from levy one cow, three pigs, five sheep and the wool thereon. Although that was changed to livestock in 1954 it’s good to see animals formally entering the code again.”

Click here for a link to a video of the webinar.

Loretta Collins Argrett Fellowship

The ABA Tax Section has created a new fellowship that brings recipients to its meetings and provides other significant benefits described below.  Check it out if you are interested or know someone who might be interested.  Keith

The Loretta Collins Argrett Fellowship seeks to identify, engage, and infuse historically underrepresented individuals into the Tax Section, create a more accessible, equitable, and inclusive pathway into Tax Section leadership, support the expansion, diversification, and inclusiveness of the tax profession, and create a sense of belonging for members looking to become involved with the Section.

Applications Due April 3, 2022!

The Loretta Collins Argrett Fellowship is a three-year program open to any individual with a diverse background and/or a demonstrated commitment to promoting diversity, equity, and inclusion in the tax bar. The Tax Section aspires to award up to five (5) three-year Fellowships each fiscal year. The Fellowships provide the following benefits:

  • Waiver of annual membership dues for the American Bar Association and the Tax Section.
  • Waiver of all registration fees (including tickets for receptions and lunches) for the Tax Section’s Fall, Midyear, and May meetings.
  • Reimbursement of reasonable travel and accommodation expenses associated with attending the Section’s Fall, Midyear, and May meetings.
  • Waiver or reimbursement of expenses associated with special gatherings at each Section meeting for Loretta Collins Argrett Fellows.
  • A mentoring program that includes assigned mentors for each fellow who will serve as guides for Section activities, networking, and professional and career advice and opportunities.
  • Invitation to monthly virtual meetings with Section leaders and special guests with discussions and introduction to a wide range of topics.
  • Periodic special events.

Applications for the inaugural class of Fellows are due by Sunday, April 3, 2022.

Please help us by sharing information about the Fellowship with your networks and colleagues through the following links: LinkedIn, Twitter, and Facebook.

Finally, the Section welcomes donations to the support the Loretta Collins Argrett Fellowship Program, through the Justice, Diversity, Equity, & Inclusion Fund. All donations will be used to directly support the Fellowship activities. If you would like to donate to this wonderful program, please click HERE.

Please let us know if you have any questions. Thank you for your support!

Julie A. Divola                                 Caroline D. Ciraolo

Chair                                                 Vice Chair, Diversity, Membership & Inclusion

Section of Taxation                          Section of Taxation

American Bar Association             American Bar Association

julie.divola@pillsburylaw.com        cciraolo@kflaw.com

Genevieve Borello, CAE

Director, Membership, Marketing, and Diversity

Section of Taxation

American Bar Association

Genevieve.Borello@americanbar.org

Congress Should Make 2022 Donations to Ukraine Relief Deductible in 2021

We welcome back commenter in chief Bob Kamman with a suggestion to Congress regarding how it could help further to provide relief for the individuals impacted by the crisis in Ukraine.  Keith

Ukraine President Volodymyr Zelensky addressed the United States Senate on March 5, 2022, by video connection.  President Zelensky is a law-school graduate, although he chose to follow what some consider the more respectable profession of acting until called to politics.  But he is probably not familiar with American tax law and specifically the enactment 17 years ago of the Indian Ocean Tsunami Relief Act.

That law allowed Americans to deduct on their 2004 federal income tax return, any contributions made in January 2005 for relief of tsunami victims.   The tsunami occurred on December 26, 2004, with an epicenter near Sumatra, Indonesia.

Generally, retroactive legislation early in the following year has been more of a disaster than the one it is trying to ameliorate.  But come on, guys, as our President might say.  This is a war on a European country of more than 40 million people.  The refugee count is already in the millions. 

So, announce it now.  Donations made to qualified organizations by April 18 may be claimed on either a 2021 or 2022 return.  Yes, many people have already filed, but those with deeper pockets are more likely to file closer to the deadline or to request an extension.

The legislation doesn’t have to be passed tomorrow.  Just introduce it with enough bipartisan sponsors that the effective date is certain. 

And maybe this would be more symbolic than productive in net donations for the year.  But when was a better time for symbolism?

There are many charities that qualify for a tax deduction under Sec. 501(c)(3) The Philadelphia Inquirer put together a list of some organizations last week.  I am sure there are others, and publicity about a new option on year of deduction will spur efforts to put out the word on them.

The Passing of Michael Mulroney

Michael Mulroney, a dear former colleague of Keith and mine at Villanova Law School, has passed away at the age of 90.  Michael had a zest for life, dry sense of humor and deep commitment to his family, colleagues and students.

Remembrances by Les

His passion for cars was legendary at Villanova: as head of the (one manned) Phlexed Sphincter Racing Team he competed in his 1962 British Morgan in about 150 races over almost 20 years. Michael was a very hard worker-you would find his old funky cars, including a cool Karmann Ghia that I envied, in the Villanova parking lot no matter when you came to the law school. Before he joined Villanova he had a successful career in DC, first as an attorney advisor for the Tax Court, then at the Appellate Section of the DOJ and then ultimately as a partner at a boutique tax firm. At Villanova he wrote about and taught a variety of subjects. He had keen interest in legal ethics, and I was fortunate to co-teach a seminar with him for a couple of years.

Michael displayed immense kindness and concern for his junior colleagues. Indulge me a couple of anecdotes. Along with the late Jim Fee Sr, Michael was directing the Villanova Clinic before I arrived in 2000. Jim and Michael stayed on as advisors; Jim more formally and Michael informally. In my first year as Clinic Director at Villanova, we had a mix up with the grant application for federal funding (a long and sad story). This was the sort of thing that could torpedo a first-year professor. Michael came to my office and said that “he was taking the grenade” and he took full responsibility for a gaffe that was mostly mine (we wound up getting the funding anyway). Fast forward a few years, and when a client at the Clinic submitted doctored documents that we inadvertently passed on to Counsel (another long and sad story), Michael was the trusted senior counsel with grey hair and good judgment who I turned to in crisis.

Remembrances by Keith

When Michael took emeritus status, Les followed him as the director of the graduate tax program and moved from the clinic to the podium.  That left an opening in the tax clinic which I was fortunate to fill.  Michael welcomed me to Villanova with open arms and was always available to assist with any problem in the clinic.  We regularly debated which of us was the oldest person ever to obtain tenure at Villanova since we both left our prior careers at the age of 55 to join the faculty.  He generously prepared the tax returns each year of just about every international student on the Villanova campus.  In doing so he used his deep knowledge of international taxes and treaties to benefit the students in ways I doubt students anywhere else in the United States received. 

Each year Villanova held an auction for public interest so that law students could spend their summers providing assistance in jobs for which they would otherwise receive no compensation.  Michael would often donate rides in his collection of antique vehicles as a way to raise funds.  One year I won the bid for such a ride, and he decided to bring out the “chicken” Morgan so that we could bring our wives on the ride.  While Michael drove and I sat in the very low front seat, our wives sat in the space Michael said the manufacturer designed so that his wife could bring chickens to market.  They wore scarves to keep their hair from blowing in the wind and we toured the Pennsylvania countryside before stopping at an Irish pub for lunch.  A memorable day with an unforgettable colleague.

Farewell

We are fortunate that about fifteen years ago Paul Caron ran a series where tax profs wrote about their lives. You can get a sense of Michael’s sense of humor and joy for life in his brilliant write up here.

Rest in peace Michael.

How Did We Get Here? 2-D Barcoding and the Paper Return Backlog – A Missed Opportunity

In her February 17, 2022 testimony before the Senate Finance Committee, the National Taxpayer Advocate reported that as of February 5, 2022, the IRS had 23.5 million returns and correspondence in its inventory requiring manual processing.  This number includes 17.6 million original and amended individual and business returns, down from the 35.5 million tax returns frozen for manual review at the end of the 2021 filing season on May 17, 2021, but up from the 10.3 million returns unprocessed at the end of December 2021.

Needless to say, this is a big mess.  While not all of the return filing backlog could have been avoided, given the months the IRS mail processing was either fully shut down or impeded because of pandemic conditions, there was a solution that would have sped up the processing of returns significantly.  That solution is 2-D Barcoding or some variation thereof.

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This is not a new idea.  In fact, in the “most serious problem” discussion about e-filing in the 2004 National Taxpayer Advocate Annual Report to Congress (pages 89-109), I noted that 31% of individual returns were prepared on a computer and subsequently printed out and mailed.  The IRS calls these tax returns “V-coders” because they are coded with a “V” when the IRS processes them.  At the time, the IRS was struggling to achieve the e-filing mandate of 80% of all returns by 2007, established in the IRS Restructuring and Reform Act of 1998 and codified in IRC § 6011(f)(1) and (2).  By the 2004 filing season, only 61 million of the 128 million individual returns were e-filed, or 48%.

We proposed the IRS implement 2-D barcoding, by which computer-prepared returns would generate a horizontal and vertical code containing all information on the return upon printing.  Upon receiving the paper return, the IRS could scan the code, which would convert the information into digital form and allow the return to be treated the same as an e-filed return.  Although it would not eliminate the need for human beings to open returns, this approach eliminates the need for manual keystroking of data from the paper return and quality review of that keystroking; it also allows all data to be captured, rather than select fields, improving audit selection and other downstream compliance operations.

In a September 2004 memorandum responding to our inquiry about such implementation, the Director of Customer Account Services, Wage & Investment Operating Division responded that the IRS was not pursuing 2-D bar coding for individual returns because “promoting this method of paper filing would slow the growth of e-filing.”  (See footnote 72 on page 102 of the 2004 NTA Annual Report to Congress.)   Note that at the time IRS did have this technology and was using it to scan paper Form 1065 and Form 1120S Schedule K1s, as well as paper Form 941s.  And note that in 2004, at least 17 states were using 2-D barcoding for paper return filings.

In its formal response to the report’s preliminary recommendation that the IRS initiate processing of 2-D barcodes on paper returns, the IRS stated “… the IRS believes that offering taxpayers a paper alternative to e-file is counterproductive to Congressional e-file goals and sends taxpayers a mixed message as to what Service policy is with respect to e-file.”

In response to this myopic position, TAS responded:

While 2-D bar coded returns may not produce as many benefits as e-filed returns, the IRS must acknowledge that a certain population of taxpayers will always refuse to e-file for one reason or another. Even when the IRS meets the 80 percent goal, it will still need to make paper returns available to the 20 percent of taxpayers who continue to file in such manner. We disagree with the IRS’s point that offering this technology to individual taxpayers would send mixed signals. If taxpayers are properly informed about the benefits exclusive to e-file, it is doubtful that 2-D bar coding technology will attract current or prospective e-filers. However, such technology will still benefit those unpersuaded paper filers and the IRS by avoiding transcription errors and reducing processing costs.

2004 NTA Annual Report to Congress, P. 108, citations omitted.

I reiterated this recommendation in 2006 and 2008 testimony before the Senate Finance Committee and the House Ways and Means Oversight Subcommittee, respectively, and other hearings over the years, as well as in many subsequent Annual Reports, including the 2019 Purple Book, which compiles the NTA’s legislative recommendations.  The 2020, 2021, and 2022 Purple Books continue to reiterate this recommendation.

The idea gained traction despite the IRS opposition:  section 2104 of a bipartisan early version of the Taxpayer First Act actually included a mandate for 2-D bar coding.  The proposed mandate would have been effective for returns filed after December 31, 2019.  Ummm … let’s see: the pandemic arose after December 31, 2019.  So if that mandate had passed or been included in the Taxpayer First Act ultimately enacted, IRS would have the capability of scanning those millions of returns backlogged during the pandemic and get them into the e-filing system.

It now looks like the IRS may finally be coming around to this idea.  The 2022 Purple Book reports “[t]he IRS has indicated an interest in adding 2-D barcodes on all IRS forms and outgoing correspondence due to the industry-proven efficiencies associated with extracting machine-readable data from paper returns and correspondence.  It is exploring both 2-D barcode and OCR [optical character recognition] technology with the software industry as part of a pilot program.”

Now we come full circle.  On December 17, 2021, IRS Chief Counsel issued Program Manager Technical Advice (PMTA) 2022-02 regarding the IRS’s authority to mandate that tax-software developers embed a 2-D barcode in all tax returns.  The memo notes that the current IRS process of manually entering paper return information is “resource intensive and error prone.”   In a very cursory (one-paragraph!) analysis, Chief Counsel concluded the IRS cannot require tax software developers to embed barcodes on returns prepared on their software, because “Section 6011(e)(1), which provides the Treasury Department and the IRS authority to prescribe regulations to determine ‘which returns must be filed on magnetic media or in other machine-readable form,’ does not apply here, because the proposed mandate is not directed to taxpayers or other filers.”

One has to wonder what would have happened if, in 2004, IRS has embraced the idea of 2-D barcoding and sought Chief Counsel advice at that time.  Having the legal opinion that a mandate required legislation, would Congress have enacted such a mandate, given the significant taxpayer benefits and resource benefits of such a mandate and the minimal burden on software developers?  At the very least, would the mandate of the earlier version of the Taxpayer First Act have made it into the final version?

We’ll never know for sure, but one thing we do know is that had the IRS responded to our 2004 recommendation about 2-D barcoding in a positive fashion rather than one-size-fits-all approach it adopts so often, we would not be in the mess we are in now.  This sad history lesson demonstrates that resources is not always the reason for lack of progress.