Helping Low-Income Individuals Fight the IRS

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From LawHub, this is I Am The Law, a podcast where we talk with lawyers about their jobs to shed light on how they fit into the larger legal ecosystem. In this episode, Derek Tokaz interviews a lawyer who helps individuals fight the IRS at a low income taxpayer clinic in Mississippi.

Derek Tokaz:

We're joined today by Alexis Farmer, a 2011 graduate of the University of Mississippi School of Law. Alexis is the managing attorney and director of the Mississippi Taxpayer Assistance Project. Alexis, that's quite a complicated title and a bit of a mouthful. Can you explain what exactly that means?

Alexis Farmer:

It actually is the third part of a three part title. We are a low income taxpayer clinic. There's at least one low income taxpayer clinic in every state in the country. We are the only one in Mississippi. Each LITC, low income taxpayer clinic, has its own name that it was given and ours is the Mississippi Taxpayer Assistance Project. Under the LITC grant, you receive partial funding from the IRS to basically fight cases or provide free legal assistance to people who are having controversies with the IRS.

Derek Tokaz:

As managing attorney and director, does that mean your job is more administrative or are you actually doing the day-to-day lawyering work?

Alexis Farmer:

I'm actually doing both. We have a very small staff at the MTAP, so I do all the administrative work for the grant and actually do all the day-to-day lawyering for the grant as well.

Derek Tokaz:

This is almost like a solo operation.

Alexis Farmer:

Almost. We're a sub-grant under North Mississippi Rural Legal Services. We work out of the North Mississippi Rural Legal Services office. They provide us administrative assistance, but as far as the grant itself is concerned, I do that.

Derek Tokaz:

So when it comes to actually handling individual cases, are you seeing them from beginning to end on your own or is the parent organization... Is there an equivalent to a senior partner who is reviewing your work?

Alexis Farmer:

Well, I actually do have directors. We have a litigation director with legal services. You're right, the parent organization, and then we have an executive director who handles the administrative work with legal services and I report directly to both of them. The day to day lawyering, handling the cases from beginning to end, I do that, but I do have regular case reviews with the litigation director. I have other attorneys if I have questions about certain issues. There are other attorneys that work there that I can speak to.

Derek Tokaz:

You're running the lawyering, but you're not entirely on your own as opposed to somebody who just opens up a solo practice and might not have that same support network. So when you say that you work with low income individuals, I know anybody who has listened to American politics may be wondering what sort of tax problems low income individuals have. Tax issues are associated with wealthier individuals. So can you talk about what type of tax controversies come up for people that would have trouble paying for legal assistance?

Alexis Farmer:

It's really funny. Normally if I'm talking to a law student or an undergrad, the first thing that I tell them is people tend to think if it's a tax problem, you have to have money first to have a problem with tax. But there are actually a lot of problems that we see mainly with low income taxpayers. The main one and most emerging right now is identity theft. A lot of the times, you'll see it with elderly people, people who only receive social security income, for instance. Those people aren't required to file tax returns, so if you have people who have access to their information, they look like good targets because you can go file a phony tax return and the person may or may not find out about it for years potentially. And people have come in, taken just a social and you can use that to file a phony tax return sometimes.

And I have clients who there's been tax returns filed in their names for three, four years in a row and they may not find out about it until four or five years later because they're not filing taxes. They're not required to. We also see a lot of issues with people not fully understanding how to prepare tax returns. I think something like 60% of Americans use professional tax return preparers, but, for instance, the city I'm from is strictly delineated by socioeconomic status in some places and during tax season or right at the end of December, the beginning of January, you see all these signs pop up in those areas that say, "Get your taxes done now. All you need is a W2. Get your refund today." They offer refund anticipation loans with ridiculous interest rates, and those people, believe it or not, are not always people who know how to file a tax return and sometimes those people prey on poor people.

Derek Tokaz:

I want to ask a little bit more about the false returns that you mentioned. What would be the purpose of somebody filing a false return? I know when I think about things that I want to do in my day, filing extra tax returns is generally pretty low at the list. Is it to get refunds or is there some other purpose to that?

Alexis Farmer:

The purpose is to get a refund, generally. You have people who will use fake information that they bought and they'll go out and work every day. They'll have taxes taken from their checks under this fake identification and they'll try to file a tax return to get a refund that they may be entitled to at the end of the year. But most commonly, you can file a tax return and basically inflate a refund on credits that you're not entitled to, and then the IRS in a lot of occasions will send that refund check or send that refund direct deposit. And when the auditing process happens, the money's already been sent to a P.O. Box that doesn't exist anymore or just some random address that you can't really trace down.

Derek Tokaz:

So then what are the consequences for somebody who's had their identity stolen in this way?

Alexis Farmer:

Depends on if we can figure out who the person is who stole their identity, if we can figure out the year, figure out just the most basic information. The IRS does have an identity protection specialty unit. A lot of times, they can reverse a tax return entirely, just take it off their records. We've had clients where the person who we figured out stole their identity turned out to be a family member and the person didn't want to prosecute the family member. It had happened about four years prior to that, but they didn't see the point in trying to prosecute the family member, so the person basically had to pay the tax debt.

Derek Tokaz:

It sounds like when you're describing these cases that it's not necessarily an adversarial process where the IRS is trying to come after your clients for money. It sounds more like you're working with the IRS.

Alexis Farmer:

I'm making it sound really nice. In 99% of my cases, the IRS is coming after my clients for money. That's honestly how we figure out identity theft most times. And when I say, "People may go years and not know that their identity was stolen," usually they'll figure out because the IRS will send them a letter saying, "You filed a tax return during this year. We don't think you're entitled to this credit you received. You owe us that money back." And that'll be the first notice that they get is just a bill from the IRS.

Derek Tokaz:

So then what happens in the process after that?

Alexis Farmer:

Well, if they call us, hopefully they will, we can get access to their IRS transcripts, basically the records of what has been filed under their names for specific years. We can go and see what address was used, and that's normally how I can figure out what happened or where the identity was stolen is just talking to the client and interviewing them and comparing what they're telling me to what I find on the IRS records. A lot of times we have the assistance, it's called the Taxpayer Advocate Service, and they're actually an entity within the IRS. So they are a part of the IRS, but their goal is to provide help to taxpayers. So we work pretty closely with them. We can provide proof that identity theft existed. Usually, they can just get it reversed where, "You don't owe us any money. We'll leave you alone." They go away. Especially with the elderly taxpayers, that's all they want is I've had so many tell me, "I just want to live in peace and not have to look over my shoulders."

Derek Tokaz:

When you're working with the IRS or against the IRS, as the case may be, are you often working with the same people in the same way that a defense attorney might encounter the same prosecutor across the aisle a lot of times when they're going back to court over and over, or since we're dealing with a large national government organization, is it more a lot of different attorneys?

Alexis Farmer:

The answer is yes and no. Most cases we can get resolved by giving the IRS a call, waiting three hours and then talking to an IRS agent. And if you called the IRS 800 number, it's like any other call center. It's rare that you get one person more than once. When I'm dealing with more specialized units, I may see the same name repeat a couple of times, but it's rare. Earlier in the year, we have tax court. Tax court's federal and the tax court judges fly from D.C. to every state to hold tax court in those states. Now, the smaller states like Mississippi, they only come to Mississippi once a year. So unlike all the other attorneys, I only go to court once a year, but all my cases have court on the same day. So it's the same attorneys pretty much every year.

Derek Tokaz:

I took a tax class at law school, which ended up being really interesting, but a lot of times, young people starting off in their legal education don't really picture themselves doing tax work.

Alexis Farmer:

I was one of those law students. I thought I wanted to do divorces and family law and that is what my focus was, and like you, I did take one tax class. Unlike you, I hated that one tax class. I felt like I knew less about tax after the class than I knew before. After I graduated, which was in 2011, and it was just a bad time to try to find jobs, I was just looking for work everywhere. And one of the jobs I found was actually through TurboTax, the ask a tax expert program. You had to be a CPA or an enrolled agent or you could have a law degree.

And this was, I think, before the bar scores had even come out, so that's pretty much all I had at that moment was a law degree. So they offered me the job and then talked to me about taxes in a really fun way though. So once I started understanding tax and I realized if you have a good memory and you understand basic math, and it's just really easy for me to understand once, I guess, the right teacher taught me. And I even did a divorce after I started doing taxes and I didn't even want to do divorce anymore. It wasn't fun. Tax has all the drama and flare of any other good sexy legal field.

Derek Tokaz:

With TurboTax, you have tax seasons. So I imagine, for a lot of the rest of the year, there's not nearly as much work as there is when people are actually working on their taxes. Do you have that with your current position?

Alexis Farmer:

No, not at all. Because we deal with controversies with the IRS and people owing the IRS money, that's a year round thing. People always owe the IRS money and they're always being audited. But we can't... As a low income taxpayer clinic, part of the grant states that we're not allowed to prepare current year tax returns. Essentially, when my clients come in, if it's about the current year tax return, there's really nothing I can do until it's prepared and turned in.

Derek Tokaz:

But if they're talking about past years, if they haven't filed in past years, then that would be something that you can help them with, but just not the regular tax process. So we heard about some of your clients who may owe the IRS money or at least the IRS thinks that they owe them money through something that's no fault of their own like the identity theft cases. Do you also deal with instances where people legitimately do owe the IRS money just because they haven't paid what they owe?

Alexis Farmer:

Yes.

Derek Tokaz:

So what happens in those cases?

Alexis Farmer:

In those cases, the majority of cases that we handle, similar to the ID theft and really any case we take as far as taxes are concerned, we'll go, we'll pull their IRS records, look over everything. But generally once we look at their IRS records, we can tell why the debt is owed or why the IRS believes the debt is due. My IRS transcripts can tell me a lot and sometimes a lot more than my client has told me. They forget a lot. That's the issue. But we can pretty much figure out what exactly happened just from pulling their IRS transcripts, IRS records. Talk to the client, let them know what we've found. If they agree, then we go straight into the collections process. We can talk to the IRS about maybe offering compromise where I'm sure you've heard the commercials, "Settle your IRS debt for pennies on the dollar."

Derek Tokaz:

Yep.

Alexis Farmer:

Yeah, it's not quite that simple or that common to settle your IRS debt for pennies on the dollar. We do things like that. We do offers and compromise. We can set up payment plans and for our clientele, what's really important that most people don't know the IRS has available is called a currently non-collectible status. Some people call it a financial hardship status, but if you can essentially prove that your monthly income is less than your monthly expenses and it's several asterisks I need to place in my sentences that I can't do. If you can do that, then you won't be required to make a payment to the IRS, which is great for people who have no money or can't afford rent or can't afford to feed kids, but the IRS is constantly threatening them. And after 10 years, if you still haven't been able to afford that debt after 10 years from when the debt was assessed, it goes away if you haven't paid it.

Derek Tokaz:

And so obviously for the people that can't pay, it sounds like the only resolution is they eventually get this debt forgiven after a 10-year period. And you had mentioned the commercials that are promising that you just pay pennies on the dollar. But realistically, what is the type of resolution you're looking for for people that are in this situation where they're going to be paying something?

Alexis Farmer:

Well, I can tell you under the LITC grant, unless it's a really good exception, we can't take a case where the debt owed is more than $50,000 for one tax year. U.S. Tax Court would consider that to be a small tax case. So say if we had-

Derek Tokaz:

Obviously, a good outcome is going to depend a lot on the size of the debt relative to what the person actually can pay, but is there a target that you usually aim for for how much to get their debt reduced or what type of payment plan you try to get them on?

Alexis Farmer:

Well, the first thing I do is call the client and talk to the client and let them know that, "You're going to have to pay something at this point." That's the point we're at. I normally first ask them, "What do you think you can afford to pay?" And this is after you've asked them every single possible question about their personal finances. Sometimes, I feel so bad for my clients because I know if I was just trying to get help and someone asked me all the personal information about my finances down to the last penny you spent at Krystal's two months ago, you feel a little bit embarrassed sometimes, and I try to be sensitive to that. So I ask them what they think they can afford and then tell them what the IRS will determine that they can afford. We try to use non-streamlined payment plan where there's not an exact amount they have to pay in a certain amount of time.

They get more time to pay their debt off. And that's actually part of the Fresh Start initiative that you also have heard about in those commercials is amending the payment plan so people who don't really have as much money can still set up a payment plan and be in a position where they can actually make a good dent into the debt. There's not ever a number that I try to shoot for or aim for. The light bill needs to be paid. They need to have a place to live. They need to be able to eat. So that's always the number I'm looking at is based on their finances, based on what they think they can afford. I have some clients who they want to pay $500 a month and I tell them, "If you can't afford this, you shouldn't try to," and they're willing to not have gas, not have hot water, just so the IRS won't come and arrest them, and it's kind of shocking.

Derek Tokaz:

Right. I was wondering about that because you've got people who are obviously going to be in a pretty dire financial situation if you're owing money to the IRS. So not only do you have this large debt, but the reason you have it is probably because you didn't have enough money to be paying in the first place, at least for the clients that you're dealing with, not the Wall Street people who are racking up debts for other reasons. Then you have this large, probably very scary government organization saying, "Hey, you owe us money." Do you have to deal a lot with the emotional pressure that your clients are under and counseling them in those regards as opposed to just working through the numbers?

Alexis Farmer:

Oh my, yes. Again, when I'm talking to law students or undergrads, people who are thinking about going into the nonprofit legal field or going into the legal services field, that's something that you really have to understand, I would say, long before you actually start working there on your first day. And when I'm telling people about what I do who want to do this job, that's the first thing I always bring up is that you have to be able to talk to a client who may not be able to read or they don't know that the IRS is not going to show up at their door and arrest them tomorrow.

I've had too many clients cry just from getting the financial hardship status because they really, really believe that a SWAT team is going to come into their house and arrest them for this $5,000 tax liability. You're in Mississippi. You're dealing with a rural population more often than not. $100 to one of my clients is winning the lottery, and when I talk to the IRS sometimes as the middle man, it becomes sad, really, because I've talked to IRS agents. I've talked to some state agents who will say, "Well, they only owe $800." And it's like, you can't really put, "Only," in front of $800. And that's not even just for poor people. Personally, that's a lot of money for me.

Derek Tokaz:

That was three months rent when I was in undergrad in Tuscaloosa.

Alexis Farmer:

Right. It's a lot of money, and while it may not be... I understand why they say, "Only," because it's not large when you consider people who have tax debt. The average tax debt is a lot larger than $800. But you can't just go back to your client and say, "Okay, well, it's only $800." They would have a panic attack and run out the building. So it's important to know, regardless of which legal field you're dealing with low income clients in, it's important to know how to talk to a person who may not have been to a school since fifth grade or who has never used the internet.

Derek Tokaz:

So what helps you to make that connection? Because I would imagine that for a lot of people who are going to be intimidated by the IRS and their tax attorneys, they would potentially also be maybe just as intimidated by a tax lawyer, even though you're working on their side.

Alexis Farmer:

I come from where they come from. I've been there. I know how it feels to be them. I know what it's like to be afraid of someone you think may be smarter than you or may talk down to you, so I know to avoid having a person feel like that. And whenever I talk to any of my clients, if they act kind of shy or they kind of don't want to answer my questions, you just have to explain to them sometimes, "The only thing I'm doing here is trying to help you and I am not going to do anything to hurt you," and then you're dealing with clients who they owe the money because they did do something wrong. They intentionally messed up their tax returns and inflated their refund, and they're ashamed that they got caught.

Derek Tokaz:

Right. It seems like this would be even more complicated by the fact that people do get pretty emotional when it comes to financial matters, especially something embarrassing like owing money. That's not something that a lot of people are going to necessarily want to open up about.

Alexis Farmer:

Sometimes it's just more or less proving to clients that you really know what you're doing and you are really here to help them, which that's just a trust factor, which is another thing that you're always dealing with people who are impoverished.

Derek Tokaz:

So I'm wondering what you see in your client's emotional state at the end, because even a good outcome for them is still paying money, which is something that is pretty scarce for them. So are you seeing people who are begrudgingly accepting that they have to pay? Or is it relief that they know that the IRS is not going to come knock down their door? Or what's the reaction that you get from your clients when you've reached a settlement?

Alexis Farmer:

It varies. Obviously, the clients who have to pay, they aren't always the most excited. You may have a client who they talk to the IRS on their own and they've been paying $200 a month. I can go in, look at their finances, call the IRS, ask, "Is $50 a month possible?" and just get it reduced to something that's more affordable. Those clients are usually super excited with the offers and compromise. Those are often my happiest clients. We've gotten the IRS to erase liabilities for a dollar, for $10, for $25. And if you can get rid of $10,000 in tax debt for a dollar, you're going to be really happy. I get a lot of Christmas cards now.

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