She made between $10,000 and $15,000 in 2010. In 2011, the Internal Revenue Service (IRS) said she owed $27,000 in taxes.
The students and faculty at the Cal Poly Low Income Taxpayer Clinic looked at her returns and saw she had approximately $80,000 in mortgage interest on a $10,000 to $15,000 income. The woman, who could not be not identified for privacy reasons, had been a victim of predatory lending. The clinic brought the case to the U.S. Tax Court and prepared to sue the commissioner of the IRS. After months in tax court, the case made it to the appeals division, where a settlement officer agreed to settle the case.
“The swing went from ‘Ms. taxpayer, you owe us $27,000’ to ‘Ms. Taxpayer, you have a $750 refund’,” adjunct professor and program coordinator Rusty Roy said of the solution.
The clinic helped the woman because her income fell within 250 percent of the poverty threshold, Roy said, and the clinic helps low-income taxpayers settle disputes with the IRS.
Low-income taxpayers represent an untapped market of people who need assistance dealing with IRS, Roy said. Cal Poly opened its clinic in 2010 to bring its high knowledge of taxes to a disenfranchised low-income community. Roy, a certified public accountant, usually handles taxes for much wealthier clients.
“In our other lives, these guys couldn’t afford us,” Roy said.
Most commercial tax lawyers, similar to the ones seen on TV, won’t help taxpayers with low incomes, Roy said. Tax resolution consultants usually take out a percentage of a client’s refund, Roy said. The practice, in turn, only becomes lucrative when dealing with large sums of money, property or business sales.
“Our clients don’t have that,” Roy said.
Unscrupulous tax lawyers prey on low-income taxpayers, Roy said. The clinic faces the obstacle of gaining trust from low-income communities, especially low-income communities that speak English as a second language, Roy said. That is, however, a key to Cal Poly’s clinic, which operates under a grant from the IRS to provide Spanish-language assistance. Roy said he actively recruits bilingual business students for the program. Business administration seniors, for example, can work at the clinic for their senior projects in the fall and spring.
Business administration senior Mara Harry did her senior project at the clinic fall quarter and now works as a paid employee of the clinic. Harry said the clinic is necessary because clients who can’t pay their rent or bills are getting tax help worth hundreds of dollars per hour, Harry said.
“Once they get in contact with us, they know that we can help them to better their situation,” Harry said.
Harry assesses potential clients and helps build qualified clients’ cases to present to the IRS. Once a candidate has been accepted into the program, the clinic fights the case so the client won’t have to pay the money, can pay the money back in installments or follows another compromise, Harry said.
The Cal Poly clinic handles approximately 30 cases during winter quarter, Harry said. Most are simple disputes, and the IRS agrees with the client. However, the Cal Poly clinic is preparing to sue the IRS for a second time, Harry said.
“In 2010, low-income taxpayer clinics across the country worked over 24,000 cases,” Central Coast IRS media relations representative Jesse Weller said. “Some 5.8 percent of cases made it to federal courts, and all but .2 percent settled before trial.”
And each person who receives help from Cal Poly’s clinic has a reason. Roy said most people with tax disputes have usually experienced recent trauma or hardship; they may have lost a spouse, parent, home, job or have a mental illness, Roy said.
“Typically, what happens to people who come in with tax controversies is something awful happened in their life, and they just didn’t get around to filing their taxes,” he said.
The real benefit goes to the people the clinic helps, Roy said. The clinic has settled disputes resulting in returns from $4 to $1,000.
“It sounds like a giveaway, but these guys need it,” Roy said. “In many cases, that’s been a bootstrap to help them move up the economic food chain.”
Because the people who seek the help of clinic are typically in need, Harry said she likes that the IRS funds the clinic.
“Everyone thinks of them as a terrorist organization, where here they’re actually helping people,” Harry said.
Since the Cal Poly Low Income Taxpayer Clinic opened in 2010, the caseload has grown and the clinic has been closing cases faster each time, Roy said.
Eddie Quijano, a lecturer and tax lawyer who founded Cal Poly’s Low Income Taxpayer Clinic, said he sees the clinic handling 100 to 200 cases per year in the future. It will continue to serve as a service-based learning opportunity for students and a pro-bono opportunity for professionals, Quijano said.
However, not all clients are eligible. Roy said approximately 5 to 15 percent of people who come to the clinic are scammers, or people who claim to have a tax controversy but are really just trying to get out of paying taxes. If that’s the case, the clinic fires them, Roy said.
“We get dirty,” Roy said. “This is not academic; this is the real world. You get to hear the director use bad language sometimes.”
The Low Income Taxpayer Clinic offers free help to people whose incomes are within 250 percent of the poverty level, Roy said.