Prof. Michelle Drumbl of Washington & Lee has recently made available on SSRN her forthcoming article Those Who Know, Those Who Don’t, and Those Who Know Better: Balancing Complexity, Sophistication, and Accuracy on Tax Returns, 11 Pitt. Tax Rev. ___ (2014). Here is the abstract:
Refundable credits, particularly the earned income tax credit (EITC) and the child tax credit, serve an important anti-poverty measure for low-income taxpayers. Annually, millions of taxpayers who do not owe any federal income tax must file a tax return in order to claim these credits that are in the nature of social benefits. The eligibility requirements for refundable credits are complex, and these returns are particularly prone to audit: EITC audits comprise one-third of all individual income tax audits. Because of the large dollar amounts at stake, a taxpayer’s mistaken understanding of the eligibility requirements for these refundable credits can often result in a deficiency of several thousand dollars. Though studies indicate that taxpayer error is more commonly inadvertent than intentional, the section 6662 20% accuracy-related penalty applies once the deficiency reaches a statutory “understatement” threshold; it is imposed computationally and without regard to the taxpayer’s intent.
By statute, taxpayers have the right to contest the accuracy-related penalty by demonstrating that there was reasonable cause for the underlying error and the taxpayer acted in good faith. Treasury regulations provide that such a circumstance might include “an honest misunderstanding of fact or law that is reasonable in light of all the facts and circumstances, including the experience, knowledge, and education of the taxpayer”. Yet for all of these reasons – lack of experience, lack of knowledge, and relative lack of education – the taxpayer is unlikely to have the knowledge or resources to raise the very defense that is meant to protect an unsophisticated taxpayer.
Drawing comparisons between refundable tax credits and social programs administered by other agencies, this article calls upon the IRS to better differentiate between inadvertent error (“those who don’t know”) and intentional or fraudulent error (“those who know better”). The article argues that the current accuracy-related penalty approach is unduly punitive. It concludes by proposing solutions that the IRS might consider in light of Congress’s desire for the Service to administer these social benefits through the Internal Revenue Code.
On Oct. 4, Washington and Lee law professor and Tax Clinic director Michelle Drumbl presented her research into low-income/unsophisticated taxpayers and the return preparer industry at a symposium at the University of Washington. The title of her presentation was “When Helpers Hurt: Protecting Taxpayers from their Return Preparers.“
She addressed a similar topic in an article that is forthcoming in a symposium volume of the Pittsburgh Tax Review. The article is titled “Those Who Know, Those Who Don’t, and Those Who Won’t: Balancing Complexity, Sophistication, and Accuracy on Tax Returns” and focuses on unsophisticated taxpayers and refundable tax credits.
In addition, Prof. Drumbl participated in the Villanova Law Review symposium on Sept. 27. Her panel discussed concerns with the return preparer industry, the IRS’s efforts to regulate tax return preparers, and the legal challenge brought in the Loving v. Commissioner case, now on appeal in the DC circuit.
Washington and Lee School of Law Dean Nora Demleitner has announced the recipients of a number of annual faculty fellowships that recognize excellence in teaching and scholarship.
Prof. Michelle Drumbl directs the Tax Clinic and also teaches courses in Federal Income Tax. She received the Jessine Monaghan Faculty Fellowship for Teaching awarded to “recognize stellar teaching in the third year.”
Prof. Jill Fraley has taught Environmental Law, a new Environmental Practicum, a seminar on Law and Geography, and a small section of Property. She is the recipient of the John W. Elrod Law Alumni Fellowship in Teaching Excellence.
Prof. Brant Hellwig teaches a number of introductory and upper-level specialized tax courses. He is the recipient of a Law Alumni Faculty Fellowship for Teaching.
Christopher Bruner’s book Corporate Governance in the Common-Law World: The Political Foundations of Shareholder Power, published this spring by Cambridge University Press, examines shareholder influence and power that challenges popular wisdom and provides fascinating insights into the uniqueness of U.S. corporate governance. He is the recipient of the Ethan Allen Faculty Fellowship for Scholarship.
Jim Moliterno published his book A Profession in Crisis (Oxford) to great acclaim and also put out a new Civil Procedure book with West, designed to provide a new approach to the teaching of civil procedure in law school. He is the recipient of a Law Alumni Faculty Fellowship for Scholarship.
Ben Spencer continues to be a prolific scholar despite his new duties as director of the Lewis Law Center and Associate Dean for Research. His scholarly work on civil procedure has received increasing acclaim, and his latest article “Class Actions, Heightened Commonality, and Declining Access to Justice” appeared in the Boston University Law Review. He also authored an insightful commentary on the state of legal education in his magnum opus on The Law School Critique in Historical Perspective. He is the recipient of the Law Alumni Faculty Fellowship for Scholarship.
Tax Clinic: Making Peace with the IRS
Many Virginians are heaving a sigh of relief after getting tax returns done and in the mail, but for some the challenge of paying taxes as just begun.
They’re the ones who get notices from the IRS. At the very least, that’s an annoyance, and for some it’s a nightmare, but free help could be a phone call away.
Every state has at least one federally-funded office to help people having trouble with the Internal Revenue Service. In Virginia there are two: the Community Tax Law Project in Richmond and the Tax Clinic at Washington and Lee’s School of Law.
The clinic provides services at no charge to anyone who qualifies.
To hear WVTF’s report on the clinic, click here.
Every year, the faculty at W&L Law convene to share current scholarship and provide feedback to one another. Last week, seven faculty presented their papers and invited discussions, criticism, and suggestions for improvement. The presenters were as follows:
- Josh Fairfield: “Virtual Currency: How to Print Money for Fun and Profit”
- Aaron Haas: “The Marginalization of Religious Persecution in U.S. Asylum Law”
- James Moliterno: “Lawyer Regulation and Innovation”
- Robin Wilson: “Calculus of Accomodation”
- Doug Rendleman: “The Last Tour of Calabresi and Melamed’s Cathedral You Need to Take”
- Michelle Drumbl: “Decoupling Marriage and Taxes: Beyond Innocence and Income Splitting”
- Tim Jost: “The Affordable Care Act Litigation”
The worst has happened. That awful dreaded moment has come when you realize there is no escape. Nobody has died—but you are being audited by the Internal Revenue Service. What happens next? Michelle Drumbl knows.
Professor Drumbl is the head of the W&L Tax Clinic. In the last four years, the clinic has helped nearly 150 clients navigate the treacherous paths of audits and other tax problems. On a wide range of issues that sometimes involves litigating in the U.S. Tax Court, Professor Drumbl and her students have brought relief and resolution to these taxpayers, some of whom were previously so overwhelmed with their tax woes that they burned rather than opened the letters they received from the IRS.
Professor Drumbl began her life in the law as a student at George Washington University Law School. She found herself drawn to the tax law classes, because of their “statutory nature and the way the puzzle all fits together.” After law school she practiced tax and estate planning law for two years prior to earning her LL.M. in Taxation at New York University. Following graduation in 2002, she accepted a job with the Office of Chief Counsel at the IRS, where she was an attorney in the International division of the National Office in Washington DC. While working there, she provided advisory opinions on the interpretation of bilateral income tax treaties and was the principal author of several private letter rulings and public guidance items issued on international tax matters.
While still with the IRS she began to moonlight as an adjunct professor at W&L. In 2007, when she was offered the opportunity to set up the Tax Clinic, she gladly accepted the challenge.
The Tax Clinic, part of a nationwide grant program overseen by the IRS Taxpayer Advocate Service, offers eligible taxpayers free legal representation before the IRS on matters such as: audits, non-filing, innocent spouse claims and other similar issues. Any Virginian with a household income under 250% of the federal poverty line is eligible for assistance. Prof. Drumbl oversees a roster of eight students per semester, who manage approximately 45 to 50 cases per year.
Clients most commonly arrive at the clinic because of a notice of audit or non-payment or underpayment of previous taxes. Often, they face large liabilities, including penalties and interest, with scant resources. Under Professor Drumbl’s guidance, students are often able to vastly reduce this financial burden through negotiations with the IRS.
Drumbl finds the daily work of running the clinic to be intellectually stimulating in ways beyond the client work. It has inspired ideas for her scholarship, including a current project titled Decoupling Taxes & Marriage: Beyond Innocence and Income Splitting. In this article, Professor Drumbl tackles the issue of joint and several liability for married couples filing joint returns, examining how the law creates an unfair conundrum for low-income taxpayers in particular. In 2010, Professor Drumbl co-authored Skills and Values: Federal Income Tax, a Lexis-Nexis book designed to help law students bridge the gap between the basic federal income tax class and the practice of tax law.
Helping clients faced with the might of the IRS, is “always a fantastic feeling” according to Drumbl; but her greatest satisfaction comes from watching third-year law students grow in confidence and ability as they prepare for the profession. “What I enjoy most is watching the students evolve into thoughtful counselors who take ownership of their clients’ legal cases. My hope is that the Tax Clinic experience will help our students transition effectively as they enter practice following graduation, whether that practice involves tax, corporate law, or public interest work.” Also, working with clients who are struggling engenders a greater sense of perspective on life and the law for professor and students alike. “It is humbling…and that’s a good thing,” Drumbl says.
Professor Michelle L. Drumbl, Associate Clinical Professor of Law and Director of the Tax Clinic, recently published her book, Skills and Values: Federal Income Tax. It is part of a series of books published by LexisNexis that focus on practical, exercise-based legal education.
The book follows the growing trend in legal education of practical-based learning rather than the traditional casebook. In this spirit, Prof. Drumbl’s book takes an integrated approach, seeking to help students capture the “big picture” of the tax system through exercises in each chapter that present hypothetical client situations. Students can actively participate in the learning process through the use of an online interactive companion with exercises.
Congratulations to Professor Drumbl on her publication.