Paying to file a tax return can drain money from a worker’s tax refund. Many people feel confused or intimidated when faced with filing a tax return. They often seek commercial tax preparation for help which can cost $55 to $260. Tax preparers may persuade tax filers to get a “refund anticipation loan” or “refund anticipation check” to get their refund quicker. These options are additional fees and do not expedite refund delivery.
The most recent IRS data indicate that about 57 percent of EITC recipients pay someone to prepare their tax returns. The National Consumer Law Center estimates that EITC recipients spent about $2.3 billion per year on commercial preparation and quick refund products in 2013! Lower-wage workers are giving up a substantial portion of the tax benefits they have earned. They need every penny of their tax refunds and may not realize that they do not have to pay fees that drain money away from their refunds.
FREE TAX FILING
Volunteer Income Tax Assistance (VITA) is a free alternative to paid tax preparation. The IRS sponsors the VITA program which community based organizations organize locally. VITA volunteers are trained according to IRS guidelines to fill out basic tax forms, including the ones needed to claim the EITC and the CTC. Volunteers must pass an annual exam to prepare tax returns. All tax returns undergo a quality review before VITA sites submit them to the IRS.
VITA sites are located in community action agencies, churches, libraries, public assistance offices, shopping malls, community colleges, and other public places. VITA sites are generally open from late January through April 15, although hours may be limited. Some sites also operate year-round. Many VITA sites file tax forms electronically, or can arrange for this to be done later at a central location. Filing electronically — having a return completed by computer — helps filers get a faster turn-around on a refund and makes it less likely that incomplete forms will be filed. This helps avoid refund delays and provides an alternative to expensive commercial fees.
The Tax Counseling for the Elderly (TCE) program is sponsored by the IRS, often in conjunction with the AARP Tax-Aide Program. Although its main purpose is to assist seniors, TCE also can help lower-income workers of all ages file tax returns. Identify AARP Tax-Aide site locations.
ONLINE TAX PREPARATION
Allows people with income less than $60,000 to file both federal and state tax returns for free. The website uses H&R Block software and provides free guidance through a helpline, email, or online chat.
Marketing tools including video and radio public service announcements are available online. For questions or more information, contact email@example.com.
Free File Alliance
In 2003, the IRS began a partnership with the Free File Alliance, a consortium of companies that provide free online tax preparation and electronic filing. Workers earning less than about $60,000 can use the online tax filing system at no charge to file federal returns. (Some companies may charge to file state tax returns.) These programs are available on the IRS website starting in January.
Note: Tax Credit Outreach Campaigns should use caution in promoting this service since some companies charge extra fees for answering tax questions or offer financial products that aren’t needed to file a tax return.
Facilitated Self Assistance
Facilitated Self Assistance (FSA) combines the convenience of online tax preparation with the reassurance of in-person assistance from trained volunteers. This option helps VITA sites expand their services by allowing people with simple tax situations who are comfortable using computers to file their own returns and get help as needed. Many VITA programs make their computers available to lower-income workers and deliver FSA through MyFreeTaxes or the Free File Alliance. Tax returns submitted through FSA are counted as VITA returns
COMMERCIAL TAX PREPARATION
While there are many honest commercial tax preparers, some workers who need tax filing help may be vulnerable to the practices of tax preparation businesses run by untrained or dishonest individuals. In some communities, such operations may attract more customers — and charge higher fees — if they are known to generate large tax refunds. They may prepare tax returns that make invalid claims for tax credit refunds in the belief the IRS is unlikely to catch them. Tax filers may then be held responsible for fraud or negligence associated with these claims. Workers who do not speak or read English well are particularly vulnerable to preparers who speak their native language, but who have no tax training or deliberately prepare false claims.
The Volunteer Income Tax Assistance (VITA) program, run by the IRS, provides free tax filing assistance to lower-income taxpayers. Some workers may not qualify for help at these sites or may choose to use a commercial tax preparer.
Outreach Campaign partners can help protect them by suggesting these steps to identify a trustworthy preparer:
- Choose a tax preparer who can be contacted later. If the IRS has questions about the tax return, make sure there is someone to contact for follow-up. Check out the preparer’s reputation with others in the community and get the preparer’s address and telephone number.
- Insist that the commercial tax preparer sign the tax return in pen. This is required by federal law. The preparer’s address and Preparer Tax Identification Number (PTIN) are also required on the tax return. A PTIN is required for tax preparers who charge for their services and indicates that the preparer has registered with the IRS.
- Request a complete copy of the tax return and do not sign a blank return or sign in pencil. Check to make sure names, addresses, Social Security numbers and wage information are entered correctly.
- Review the return with the preparer to understand the reason for any refund or reduction in the amount of taxes owed. Even though a preparer does the return and signs it, the taxpayer is responsible for the accuracy of all items on the tax return.
LOW INCOME TAXPAYER CLINIC
Low Income Taxpayer Clinics (LITCs) are programs at law schools, accounting schools or legal services offices, which can provide assistance and legal representation to lower-income taxpayers who are in disputes with the IRS. Some LITCs are nonprofit organizations which provide community tax education programs in communities where the primary language is one other than English and may provide free tax preparation services as part of their program. Most LITCs do not offer free tax help. For 2015, the IRS awarded 131 LITC grants in all 50 states, plus D.C. Outreach Campaigns can refer workers to LITCs if they need special help resolving tax problems.
LITCs can provide legal assistance.
Many LITCs can provide legal representation to lower-income taxpayers involved in disputes with the IRS. LITCs can often assist workers who:
- have been denied an EITC or CTC claim and wish to appeal the IRS decision;
- have received a notice from the IRS stating their EITC or CTC claim was in error and demanding repayment;
- owe back taxes and need assistance negotiating a payment plan with the IRS for paying the taxes owed; and
- have not received proper wage documentation from their employer.
LITCs can help taxpayers understand IRS notices and avoid severe penalties.
The notices lower-income taxpayers receive from the IRS are often complex and intimidating. LITCs can provide a valuable service to taxpayers by helping them understand the request and assemble information required by the IRS. Taxpayers must respond to notices within a prescribed period of time or the IRS may act to collect additional taxes, including repayment of previously issued refunds and penalties.
In some cases, IRS denial of the EITC can restrict the family’s ability to claim the credit in future years. IRS notices often do not deny a taxpayer’s refund claim outright, but may ask for further documentation. IRS denials of claims are not always accurate and are often reversed after the taxpayer submits additional information. Identify an LITC near you.
Become an LITC
The IRS will issue a notice in the spring of 2016 soliciting applications for 2017. Applications typically are due mid-summer. If your organization is interested in becoming an LITC, more information is available from the LITC Program Office at (202) 317-4700 or LITCProgramOffice@irs.gov. You can also download IRS Publication 3319, “Low Income Taxpayer Clinics 2015 Grant Application Package and Guidelines.”
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