The Low Income Taxpayer Clinic (LITC) Program is a critical part of a fair and effective tax administration system, and brings justice to underserved populations. The Taxpayer Advocate Service awards matching grants to qualified organizations that represent low-income taxpayers before the IRS in tax controversies and educates taxpayers who speak English as a second language (ESL taxpayers) about their taxpayer rights and responsibilities.

Good news: Congress passed the Consolidated Appropriations Act, 2023 awarding the LITC Program $26 million – double the 2022 appropriated amount – and increased the amount each qualified organization can receive for 2023, from $100,000 to $200,000. This means more grant money will be awarded to new or existing eligible organizations and enable them to offer more services to low-income and ESL taxpayers. This is a lifeline for many low-income taxpayers who likely don’t otherwise have the funds to obtain representation, and may be experiencing financial harm as a result of a tax dispute with the IRS (e.g., a delay in refund, reduction in refund amount, or collection action such as a levy on wages). In addition, many low-income taxpayers are also ESL taxpayers, so LITCs provide access to services in other languages so that taxpayers can obtain needed representation and education and can understand and exercise their rights under the Internal Revenue Code.

Background

Congress created the LITC Program in 1998 to provide free or nominal-cost representation to low-income taxpayers involved in controversies with the IRS and also to provide education about taxpayer rights and responsibilities to ESL taxpayers. Additionally, the law imposed an annual aggregate $6 million limitation for LITC grants “[u]nless otherwise provided by specific appropriation.” (Over the years, through the appropriations process, the LITC Program has regularly received funding beyond the $6 million limitation set forth in IRC § 7526(c)(1).) The law also capped the grant that could be awarded to any clinic at $100,000 per year.

2023 LITC Program Supplemental Grant Application Package

To get the increased 2023 funding in the hands of qualified organizations that are best suited to assist low-income and ESL taxpayers and to expand the overall geographic coverage of LITCs, the LITC Program Office has announced a supplemental grant opportunity. This opportunity is for qualified organizations that have not been awarded an LITC grant for 2023 but are interested in participating in the LITC Program. The application period for these grants runs from March 7 to April 18, 2023. Any grant amount received through this supplemental grant application process must be used between July 1 and December 31, 2023. For more details, see the notice in the Federal Register at 88 Fed. Reg. 13864-13866 (March 6, 2023). Existing LITC grant recipients are eligible for an increase in funding up to $200,000 (including funds already awarded for 2023), but these organizations don’t have to apply through the supplemental application process set out in the notice; rather the LITC Program Office will contact them directly.

Expanded Types of Qualified Services That a Qualified Organization Can Provide

Historically, the LITC Program Office has required clinics to represent low-income taxpayers before the IRS in tax controversies, in addition to providing education to ESL taxpayers regarding their taxpayer rights and responsibilities. However, to achieve maximum access to justice for low-income and ESL taxpayers, the LITC Program Office is expanding the eligibility criteria for a grant by removing the requirement that eligible organizations provide direct controversy representation. Part of the decision to remove this requirement arose out of the pandemic, as it became clear that there are multiple ways to expand access to LITC services (e.g., connecting taxpayers with LITCs outside of their geographic area and leveraging technology so that a taxpayer and an LITC representative could meet remotely to discuss the taxpayer’s tax issues). Specifically, under this expansion, a qualified organization may receive a grant for the following qualified services:

1. referring low-income taxpayers in a controversy with the IRS to a qualified representative, instead of providing controversy representation directly to those taxpayers; or
2. operating a pilot program educating ESL taxpayers about their taxpayer rights and responsibilities without also providing controversy representation.

The ability for a qualified organization to receive a grant solely to function as a referral service instead of providing direct controversy representation to taxpayers will be permanently incorporated into the LITC Program. However, allowing a qualified organization to provide only educational services to ESL taxpayers is currently part of a pilot program that will run through the end of 2023. The success of this pilot program will determine whether it will continue in subsequent years.

For more details about these expansions and what is considered a “qualified service” and a “qualified organization”, refer to the Federal Register notice.

To Provide Enhanced Flexibility to the LITC Program, Congress Should Adopt Several Legislative Recommendations 

I’m pleased that Congress saw the importance of the LITC Program by providing it with a significant increase in funding and doubling the amount of the grant that can be awarded to qualified organizations for 2023. However, as I set forth in the 2023 Purple Book Legislative Recommendation #63, Expand the Protection of Taxpayer Rights by Strengthening the Low Income Taxpayer Clinic Program, Congress must amend IRC § 7526 to allow for greater flexibility in awarding grants to qualified organizations and provide consistent funding year to year. Specifically, Congress should amend IRC § 7526 to:

• Eliminate the $100,000 annual funding cap per qualified organization;
• Reduce the 100 percent matching rule in certain circumstances, where awarding a grant to a qualified organization would result in greater geographic coverage; and
• Raise the authorized LITC Program funding limitation from $6 million to $25 million, and require it to be indexed annually for inflation.

These changes would better allow the LITC Program Office to increase access to justice for low-income taxpayers by providing more funding to qualified organizations, while removing certain barriers that may prevent the awarding of a grant to an otherwise qualified organization. This would result in low-income taxpayers having greater access to representation in their controversies with the IRS.

Conclusion

 I encourage all organizations interested in bringing access to justice for low-income and ESL taxpayers to apply for this supplemental grant opportunity. The LITC Program is a critical component of ensuring that our tax administration system is fair and equitable, and it is essential that all eligible taxpayers have access to LITC services. Additionally, I want to reiterate my legislative recommendations that will result in bringing more access to LITC services to underserved taxpayers.