The federal government extended this year’s tax filing deadline to July 15, but that hasn’t been a solution to every type of tax woe arising from the COVID-19 pandemic. The Low Income Taxpayer Clinic at the University of Denver Sturm College of Law has seen how the recession has trickled down to clients’ needs for legal help with taxation as their economic circumstances have worsened and has raised new questions about how the government will work with people and businesses struggling to afford their taxes owed.
Low Income Taxpayer Clinics represent people in tax “controversies” with the IRS, such as appeals of tax bills and negotiations for payment arrangements or settlements. In addition to law students, DU’s clinic allows students earning master’s degrees and master of law degrees in taxation to participate.
Clinic director and professor Samantha Galvin said subsequent deadlines tied to the filing deadline have been automatically pushed back, such as payment dates and windows to request appeals.
“What we will be dealing with is helping people navigate what they should do as a result of all those deadlines being pushed,” she said, adding that when the July 15 deadline rolled around, she expected to start getting a better idea of “how much the floodgates are opening” for tax troubles people need assistance for.
DU’s clinic serves individual people — not businesses — and households with income up to 250% of the federal poverty line. Galvin said the clinic has seen an increase in people whose income has fallen below that ceiling, but there has also been an uptick in people seeking help from the clinic whose income doesn’t meet its guidelines “I think we’ll have a lot of people looking for assistance during this time,” Galvin said.
Courtney Justice, an alum of DU’s clinic who works for Tax Guard, now assists mostly businesses in tax controversies. She said in situations where the ability of people and businesses to pay their taxes has changed because of the recession, it’s unclear how the IRS will consider any help they have gotten from federal stimulus packages as part of their financial resources.
“If I [submit] a profit and loss statement with the PPP funds that they got, they look super flush, like they can be paying $10,000 a month,” Justice said, even though businesses have been using the funds to cover basic payroll expenses. “I’ve seen those be miracle workers for clients, but without those funds … they’re operating at a loss. Under normal circumstances, if the revenue officer sees that you’re operating at a loss, they’re going to try to tell you you’re not viable anymore.
She added she expects to see the number of people and businesses who owe taxes for the year to spike, because they have been holding onto money to cover basic expenses that they typically should use to pay taxes throughout the year.
Taxpayers have 30 days to request a collection due process hearing when they receive notice that the IRS plans to take action on unpaid taxes such as levying the taxpayer’s bank account or garnishing income, and the IRS mailed notices for people who owed taxes that stated their original request deadline. Although extra notices with an updated deadline were also included, Galvin said the original notices have still sowed confusion.
“A lot of people are going to get those notices and think that they’ve already missed the deadline because of those incorrect dates,” Galvin said. “There’s a slip of paper that they’re putting in the envelope with the correct date, but most people don’t look at the other material that’s included with the letter; they would initially just look at the letter.”
She added the changed filing deadline’s influence on some subsequent deadlines could linger for a few years. For example, the IRS can assess taxes within three years after a return is filed.
Justice said she has spoken to revenue officers who have said the IRS will likely be lenient with putting taxpayers into default whose ability to pay their tax liabilities has suddenly changed with the recession, but she said there is still uncertainty about how the process will play out. She said it’s a possibility the IRS may need to put a taxpayer’s current agreement into default and then start over with a new agreement.
“Which is scary because while it’s defaulting, they’re at risk for collection, like levies or liens,” she said.