The Internal Revenue Service doesn’t have the authority to independently verify that recipients of Low Income Taxpayer Clinic grants are eligible to receive them, according to a new report.
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The LITC Program is a federal grant program administered through the Taxpayer Advocate Service that provides matching grants up to $100,000 per year to qualifying organizations. The goal of the program is to provide low-income taxpayers who are involved in tax controversies with the IRS with free or nominal cost legal assistance to ensure that they have access to representation and to provide Limited English Proficiency taxpayers with education on their taxpayer rights and responsibilities. For an organization to qualify for an LITC grant, it needs to meet the requirements specified in Section 7526 of the Tax Code. The LITC Program had the authority to grant up to $26 million and $28 million to qualified LITCs in calendar years 2023 and 2024, respectively.
Nevertheless, for the 2023 grant year, over 75% of the LITCs were subject to an independent audit. The auditor has to determine whether the entity has complied with federal statutes, regulations, and the terms and conditions of federal awards, which includes grants. The Treasury Department could subject the LITC Program to more focused oversight by including it in a supplementary audit guide prepared annually. This guide directs the external auditor’s testing to the compliance requirements most likely to cause improper payments, fraud, waste, or abuse, or generate audit findings for which the IRS would impose sanctions. Lastly, we determined that the Program Office’s workflow lacks a consolidated centralized system; therefore, reviews of LITC data are a manual and labor-intensive process, making the process vulnerable to human error.
TIGTA recommended the National Taxpayer Advocate should add an attestation on forms where data about taxpayers whose income exceeds the 250% of the poverty level limitation is reported, affirming accuracy, and acknowledging the penalty for making a false statement. The report also suggested the Taxpayer Advocate Service should work with the Treasury Department to request that LITC grant requirements be included within the Treasury Department’s Compliance Supplement to ensure that grant recipients are abiding by the rules. The Taxpayer Advocate should also develop a centralized system to administer the LITC grant program. The Taxpayer Advocate Service management agreed with all of TITA’s recommendations and stated that they have started to take or plan to take corrective actions.
National Taxpayer Advocate Erin Collin said in response to the report that the Taxpayer Advocate Service has entered into an agreement with the Treasury’s Chief Information Officer to develop a new grants management system for the LITC program office that will “streamline processes by centralizing operations, reducing manual tasks and minimizing reliance on other systems.”
She also noted that the LITC review process for current grantees includes evaluating their history of performance derived from report, site visits and interactions. Application evaluations are not solely based upon applicant-provided information but also includes observations of grantees by staff.
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