Paul L. Caron

Friday, April 27, 2018

Weekly SSRN Tax Article Review And Roundup: Scharff Reviews Cauble's Accessible Reliable Tax Advice

This week, Erin Scharff (Arizona State) reviews a new article by Emily Cauble (DePaul), Accessible Reliable Tax Advice, 51 U. Mich. J. L. Ref. 589 (2018):

Scharff (2017)The U.S. legal system requires all parties, both sophisticated and unsophisticated, to navigate its shoals.  Sometimes the results are tragic, as preschoolers must represent themselves in immigration court. (John Oliver was quick to find some humor in this absurdity.)  But even in less extreme examples, non-experts can find themselves thwarted, confused, and frustrated in their attempts to comply with the law or assert their legal rights.  For example, victims of sexual harassment and discrimination in the workforce report difficulties navigating complex reporting processes.    Lawyers and other specialists provide guidance to a small subset of this population, but those without access to experts are quite obviously disadvantaged.

Tax law, of course, is a quintessential example of a complicated system of legal rules enforced against both sophisticated and unsophisticated parties.  Emily Cauble’s latest article, Accessible Reliable Tax Advice, explores the challenges confronting unsophisticated taxpayers as they prepare their returns and seek tax advice and offers some suggestions to improve the situation.

Many of these unsophisticated taxpayers are likely attempting good faith compliance. In my own experience as a VITA volunteer, I encountered several taxpayers who had scrupulously documented expenses only to discover that their expenses weren’t deductible in the first place. Shu-Yi Oei and Diane Ring’s study of Uber driver discussion forums suggests many drivers are eager for accurate information about what kinds of expenses are deductible.  

And yet, lower-income taxpayers find it difficult to access this information. Not only are such taxpayers frequently less able to pay for assistance in their tax returns, but the assistance they do get, from paid preparers, volunteer preparers, and even the IRS itself, may not be accurate. And limitations on IRS funding further jeopardize the quality and availability of the limited assistance it currently offers.  

Especially in the EITC context, there is an extensive scholarship on the ways Congress could improve both accuracy and accessibility of the program. Cauble’s proposal, however, sweeps more broadly. She considers the range of unsophisticated taxpayers seeking assistance, and she suggests three broad reforms. First, she wants taxpayers to be able to rely on tax return software the same way sophisticated taxpayers can rely on private letter rulings. To the extent taxpayers answer questions honestly, they should be exempt from penalties. Cauble argues that the IRS should review tax preparation software not simply for its ability to accurately calculate tax liability, but also to ensure that it accurately solicits the information upon which such calculations are based.  

Second, Cauble suggests state regulators require accountants to provide pro bono hours or a donation in lieu of hours as a condition of licensing. The increased hours would not fill the access to justice gap, but it would make a dent in the ability of low-income taxpayers to get qualified help. Finally, Cauble suggests that paid preparers themselves, and not the taxpayers, should be responsible for penalties and interest when a taxpayer provides accurate information, so long as the taxpayer did not knowingly waive this right. To prevent pro forma waivers from becoming standard, Cauble would also prevent tax preparers from providing audit insurance to clients who had waived their statutory penalty protection.  

There are certainly some practical challenges to these suggestions, some of which Cauble directly addresses.   Others, like the political resistance likely to be countered by a mandatory pro bono requirement, are simply assumed.  Certainly, the legal community is engaged in its own, ongoing debate about the wisdom of mandatory pro bono hours.  Recently proposed legislation in California would require lawyers to meet a similar pro bono requirement.

Despite these challenges, Cauble’s solutions show that taxpayers need access to more and better assistance, and her proposals seek to make improvements along both dimensions. This impulse seems right to me, and perhaps solving this gap in the tax context might offer insight into the broader access to justice challenges facing our legal system.     

Here’s the rest of this week’s SSRN Tax Roundup:

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