Where do You Go When the Taxman Calls? with Lisa Sperow

Episode Notes

Transcript

Lisa Sperow:

We had one family. The parents were Spanish speakers and their five-year-old daughter had been trying to negotiate with the IRS on their behalf because she spoke some English. The daughter actually called us and left us a message and it just about broke your heart to hear this five-year-old, would you please help my parents? She said very carefully their name and spelled it and gave the phone number. I was able to get one of my bilingual students to call back and we were able to resolve their case right away because they had actually been assessed with income that they hadn’t earned. It was just a mistake on their tax return.

Announcer:

That’s today’s guest on SideBar. Lisa Sperow, executive director at the Cal Poly Low Income Taxpayer Clinic. SideBar is brought to you by Monterey College of Law, San Luis Obispo College of Law, Kern County College of Law, empire College of Law, located in Santa Rosa and the colleges of Law with campuses in Santa Barbara and Ventura. Welcome to SideBar featuring conversations about optimism in action with lawyers and leaders inspiring change. And now your co-hosts Jackie Gardina and Mitch Winick.

Mitch Winick:

Lisa, welcome to SideBar.

One of the things we’re doing in this third season is featuring what we call optimism in action individuals using their professional expertise to address issues both locally, regionally, nationally, and in some cases internationally. And we’re thrilled to have you today to talk about not only your role in the low low-income taxpayer clinic in San Luis Obispo, but also many of the other nonprofit activities you serve in as a lawyer, as a board member, to get an idea of both your pathway into those activities and what you see going forward as the needs. If you would tell us a little bit about your pathway as a lawyer and how that took you into community activism.

Lisa Sperow:

Thank you both for inviting me here. I’m very happy to be here and share my experiences with all of you. I was one of those people who went to law school with that very kind of cliched, I think naivete that I wanted to make the world a better place. I started out thinking I was going to do journalism and then when I was at a lot of public meetings, I was covering city council meetings and things like that for my college newspaper. It seemed to me that the lawyers were the ones that everybody turned to for the answers and turn to for advice, and I thought, well, maybe I want to be the person who’s helping and making the decisions and giving the advice. I went to law school. I was putting myself through and was trying out all kinds of different places and I thought maybe I would do immigration law and I thought maybe I would do child abuse and neglect and spent a year in a program doing that.

I always knew my heart was serving and helping people. When I graduated, I had a clerkship, so that gave me another year to try to decide what I wanted to do. I had offers from large private law firms, but that’s not where I wanted to go, so I found a job with the Department of Justice in their summer internship program and I did that my summer between graduating and doing my clerkship and I arrived at DOJ in Washington DC and just loved it. I felt like I’d found my people. Nobody was worried about billable hours, nobody was worried about bringing in clients, they were worried about doing justice, and I just loved that and I loved the camaraderie. Then I applied and I was lucky enough to be accepted in their honors program, so I went there and I did that as a trial lawyer, had some very interesting cases while I was there and then had my daughter wanted to move back to the central coast of California and thought that academia would be a great place to go and teach and inspire students.

So I came to Cal Poly then and started teaching, but I was always looking to do more and to help more, and so I’ve always kind of put myself out there where is a need and I’ve been lucky enough to have some wonderful mentors who will reach out to me. Community Action Partnership was one of the first boards that I joined and I had a wonderful mentor who was their current legal advisor and she was stepping down and came to me and said, would you be willing to take this on? And I looked into what they do. A lot of it is education related. They run Head Start programs and migrant Head start programs and working with veterans and the unhoused, and so that was a great fit for me, so I joined that board. I had also been very involved in my local Women Lawyers Association county bar, and when I see a need and someone asks, I think I have a little bit of a problem, I say yes too often and then I get involved.

That’s kind of been my path is just looking for things that I think I could add some value and some expertise from my legal background. I do know sometimes when I’m on these boards of directors, I am kind of a naysayer unfortunately because everybody has good hearts and wants to do good work, and then I have to be the one that says, well, what about liability issues? What about these other concerns? So that’s where often I think I add value with my legal background and I’m reviewing these contracts very closely and saying, yes, I know we want to provide these services, but what is it going to mean for us and do we really have the bandwidth to do this? And that’s kind of been my path I guess you would say. I tend to look and I’ve had many wonderful people reach out to me and been able to help them.

Jackie Gardina:

Lisa, before we move to the work that you’re doing at the Low-Income Taxpayer Clinic, I wanted to circle back to the start of your career. You were being very humble when you were talking about being able to be in the DOJ honors program because that’s an incredibly competitive program and the fact that you both interned and then went through the honors program just speaks to obviously your talent and intellect. I wanted to focus just for a moment on that idea of public service that was a really deliberate that you made. You could have pivoted to big law made a ton of money. I know when I came out of law school, it was frightening to me the amount of money that big law was willing to pay me when I knew absolutely nothing. I’m curious, what was it about public service versus the siren cry of paying off your student loans more quickly that drew you into the federal government work?

Lisa Sperow:

I think that that’s always been my passion. I was raised in a family who was very committed to social justice issues, very politically involved, and that’s what felt right to me, and you’re right, I did. I had a law firm that I think still might be angry with me, that kept trying to offer me more and more money to come, and I was trying to say, no, no, I’m not playing hardball. That’s not where I want to work. I also recruited for DOJ when I was working there and I had to talk about the psychological benefits because it is true you’re not going to get the financial rewards you would get in the private sector, but I loved feeling like my client was the United States of America, and that’s really how I saw it, the people and doing what was right. I was there under Janet Reno, which was a very exciting time too because she was very, very dedicated to a lot of causes that I believed in.

It also was a wonderful way to start my legal career because as an honors program lawyer, they gave you a lot of training. We had mock trial, we had all sorts of wonderful opportunities to really learn and that’s what appealed to me. The other big advantage for me was I wanted to have my own cases and day one, I had my own cases, which was very exciting. Rather than being fifth or sixth chair at a big law firm and feeling like I was going to be drowning in discovery or making coffee, I was actually as a 26-year-old fresh out of law school able to handle cases, which was very exciting and feel like I was on the side of justice. I represented the people and I also represented the government agencies, but if we had a situation where an agency had not done something correct, we were not going to defend them, we would then figure out, okay, how do we make this right? And we did have some situations where that came up very disconcerting at some points where I thought, oh, this wasn’t done the right way. I learned some lessons in my early career, but I always felt like I was on the side of doing what was right, which was a good feeling to have.

Mitch Winick:

Thanks for that, Lisa. That’s very helpful and very encouraging. I think that’s a message that Jackie and I share with our current students and one that we hope will always be an aspect of legal education as people are trying to decide how to direct their career as we head into tax season. I would like to go now into your current work with the Low Income Taxpayer Clinic. It’s not something I knew existed, but the minute I started thinking about it, it made a lot of sense. Tell us a little about what it does and how it helps and the future of the changes in the IRS that might impact what you need to do to help people.

Lisa Sperow:

I’ll be honest with you, I didn’t know much about low income taxpayer clinics until I found myself running one. To be honest, they are throughout the country, it usually varies between 110 and 150 years, so there are traditionally at law schools, some legal aid clinics also or even bar associations have them. Mine is very unique because we’re actually at a college of business, which is when I first took it on, there was only one other in the country. I think now there’s about four of us that do this, so it’s a very unique situation, but we are what’s called a controversy clinic, and that’s something that I think confuses a lot of people because as you know, I’m a lawyer. I’m not a CPA, so we do not prepare tax returns and it’s a lot of confusion, especially now we get calls, people need their tax returns prepared, which is important, but that’s not what we do.

We have people who come to us and they have a controversy with the IRS. It can be anything from lately. This year we’ve seen a spike in identity theft victims, and so we have people who they file their tax returns and then they get a notice from the IRS saying, you did not report this extra 80, $90,000 worth of income. Now you owe us penalties and interest and extra tax, and the clients are saying, no, no, we didn’t earn that income, and then we figure out what happens. We also have clients who are innocent spouses and these often arise in domestic violence situations where maybe one spouse was handling all of the finances, lied under reported, and did something wrong on the tax return, and now they’re coming after the other spouse as well. Those can be very interesting cases. We also have situations where people actually do owe the money.

For instance, during covid, a lot of people lost their jobs or their income went down, maybe they faced medical issues, and so some clients did things such as take money out of their retirement accounts early not realizing that was a taxable event. Now they still don’t have a job. They owe taxes, penalties and interest on an amount they’ve taken out, and so that’s a case where they do owe the money but they can’t pay it, and then we work out what are called offering compromises, where we get them deal with the IRS where they can pay a much smaller amount. We do all sorts of those and we handle them at all levels. We also go to tax court and handle cases there too. It’s basically if you have a controversy, we will help you with it. All of our services are free. We don’t charge anything. It’s all pro bono and that’s because we’re funded through a federal grant and I think that’s maybe what you were alluding to currently. There is some question about what might be happening with that funding. We don’t know. We are lots of rumors. We are hoping that it’s going to be business as usual and past administrations funding of the low-income taxpayer clinics has always been bipartisan. It has never been a Republican versus Democrat issue, so we’re hopeful that that will remain the case, but hard to say right now we don’t know for sure

Jackie Gardina:

Like so many of the guests on this show, I went to law school because I wanted the tools to create change. If you have that same passion and you want to develop the necessary skills and knowledge in a nurturing environment built for working adults, join us at Colleges of Law with both in-person and online learning options. Take the first step to building a better future for you and your community@collegesoflaw.edu.

Mitch Winick:

I was recently talking with one of our tax law professors and I was informed about something that honestly had never come across my awareness that the origin of the United States income tax was really focused on the highest earners and that when it was initially enacted, it only focused on I think the top three or 4% of wage earners and it specifically stated that it was excluding those at the lowest level of earning. Then you flip it around and look at the recent changes in both policy and tax law where we’re now cutting taxes to the highest earners and there’s evidently a disproportionate focus on the low income filers for investigations and penalties and interest. How does that play out in your thinking about what you see happening to individuals related to how the tax policy work?

Lisa Sperow:

All of that is very true. I think a reason why clinics such as these low income taxpayer clinics are so important because there is a lot of inequity in how these taxes are done. Another thing that we see, it’s much easier to audit low income people than it is to audit higher income. It can be done with called a machine audit. Basically a computer audit where they plug in things such as the earned income tax credit, which is actually a social justice measure to provide money to low income people who have earned income, and those audits are very frequent. They’ve done lots of studies and the more you earn the less likely you are to be audited with our current tax system. It is fairly complicated and if you are low income and don’t have the means to hire an attorney or hire a CPA to help you, it can be very problematic because the IRS will be looking into you.

Jackie Gardina:

I know the Taxpayer Clinic offers services in both English and Spanish. There’s 220 different languages spoken in California and I’m assuming people who don’t have English as their primary language struggle the most with just following what is a very complicated tax system and then understanding and not being overly intimidated by the contact by IRS. What’s the range of people the tax clinic sees?

Lisa Sperow:

We see all different ranges. We have everything from college students and we actually have a student who was trying to get her financial aid and they said she had this large tax liability she didn’t know anything about, and it turned out she was a victim of identity theft. We have a lot of farm workers who unfortunately seemed to fall victim to identity theft fairly frequently. We had one family, the parents were Spanish speakers and their five-year-old daughter had been trying to negotiate with the IRS on their behalf because she spoke some English. The daughter actually called us and left us a message and it just about broke your heart to hear this. Could you please help my parents? She said very carefully their name and spelled it and gave the phone number. I was able to get one of my bilingual students to call back and we were able to resolve their case right away because they had actually been assessed with income that they hadn’t earned.

It was just a mistake on their tax return, but they’d been trying to deal with the IRS through their five-year-old, which was not okay. We do also try to help people if there are other languages that are involved. We have campus resources and other resources we can use, but typically Spanish is the other language we see. We also have a lot of senior citizens who are clients, and we’ve had a lot of veterans as well. The language definitely is a problem, and even one of my current clients who speaks Spanish only and only reads Spanish, we were able to negotiate a settlement in their tax court case and the IRS was unwilling to send us the documents in Spanish for them to sign the final settlement documents and we’re able to interpret them for them, but I just said, this is a Spanish speaker, why can’t you translate it? And he just said, I don’t have the resources, I can’t do that. If you want to settle the case, she’s going to have to sign it in English and we want to settle the case because it’s favorable for her. It wipes out her liability and gets her a $7,000 refund, but I just worry about the people who don’t have resources like us helping them.

Jackie Gardina:

We throw around the term low income a lot, but we don’t necessarily define it for people, and I think everyone has a different idea about what low income means, so you have a specific requirement. Your household income does not exceed 250% of the federal poverty guidelines. What does that translate to in terms of actual income?

Lisa Sperow:

If you are an individual, I think it’s around 38,000 right now, so if you are a single person living alone, and then it typically goes up about six to 7,000 per additional household member, and that is rough because we have a lot of people reaching out to us who are over our income limits. If they are over under our grant, we can provide them with what’s called a consultation instead where we try to give them advice and say, here’s what we think you should do, here are the forms you should fill out. Here’s the number to call type of information, and 250% is a lot higher than some legal aid programs. I know because I’ll refer some of my clients to other legal assistant foundations for their problems and they can’t take them, but it is an issue, and particularly in California, we have tried to argue that we should have a higher level because when you’re comparing California to a lot of other parts of the country, the income requirements aren’t the same. They’re not.

Jackie Gardina:

38,000 would go much farther in Indiana or Ohio than in California. Using a standard across the country doesn’t necessarily respond to the standards of living that are different. How is it that someone with $38,000 in income ends up with a tax bill that isn’t related to identity theft or something like that, or is that normally the kind of thing it was something out of their control? I just think about the money being taken out, what happens that they end up triggering an IRS audit?

Lisa Sperow:

Well, it can be all kinds of things. We also see a lot of cases dealing with dependence if it’s a divorce situation or both parents claim the same child that triggers an audit and then that has other repercussions because now they don’t have a dependent child. Maybe they’re not required to get the head of household, they can’t to get the earned income tax credit, so all of a sudden they went from getting a seven or $8,000 refund to owing $12,000 because now they have to pay the money back plus penalties and interest. That is a situation we see and we also see people who are self-employed and so maybe they’re not having them withholdings. We see a lot of people who, they’re not business people, they came up with a great idea and they’re doing a job, but they’re not maybe properly reporting all of their business expenses and then the IRS sees whatever, 10 90 nines or income they’ve gotten as complete income and taxes them on that and puts penalties and interest and then we go back and look at it.

We have one client who’s a musician. He was traveling around playing his music, was not making a lot of money. He mostly was selling merchandise to make money and he wasn’t keeping great records of everywhere he traveled and everything he spent and the IRS audited him and they thought he owed a lot of money and we’ve had the students go back and recreate all the mileage, all the places. He stayed all of his expenses to show no, this wasn’t income. You can’t tax him on his total amount of income. You have to account for all of his business expenses as well. And then we’ve seen several cases. This one was a recent one. A woman had made 40 $504,500 and they put a 0.00 on her W2. Well, there was a mistake. They took out the 0.00 and thought she had made 450,000 and she got a tax bill for $90,000. They missed the period. We see all kinds of situations, but another where someone did a corrected W2, but they didn’t check the corrected, and so now the IRS thought they had twice as much income because they had received two separate W twos for this employee. Now they think they made 80,000 instead of 40,000. We never know when someone calls or walks in the door what situation it is, but we will figure it out and figure out how to deal with it.

Mitch Winick:

Jackie, I want to take a moment to reflect that as we’re talking about optimism and action. Many of our guests say that they first started thinking about a career in public service while they were still in law school and schools like yours in mine, Monterey College of Law provide an affordable, convenient way for working adults to attend law school and pursue these interests. Classes are taught by practicing lawyers and judges who prepare our students to serve their community in many of the same areas that we are discussing here on SideBar. For more information, go to Monterey law.edu. Lisa, in your stories, you remind us that the issues related to taxes and tax law really are fundamental to so many people’s lives and when they go sideways they can be very disruptive.

Lisa Sperow:

My passion for tax law was seeing social justice. My tax law class in law school did not teach the social justice aspects and it was very dry, and then I started research. I thought, oh wait a minute. A lot of the gender discrimination, a lot of all of these other issues were addressed through tax cases. I think tax law’s a little sexier than people think it is.

Mitch Winick:

Lemme follow up on the student question for a moment. Talk a little about the role that students play and why it works to have a program like this embedded in a university. You’ve been doing this 14 years, I think. Has there been the turnaround where you’ve heard back from graduates who said, Lisa, thank you so much because of the work I did in this clinic. My career is now X and I wouldn’t have taken that path had I not worked with you in the clinic?

Lisa Sperow:

Yes. It’s funny, I just received an email a couple weeks ago from a former student who it was so sweet. He had just become an IRS appeals officer and he told me, he said, you took a scared 21-year-old boy and gave him the courage to make a phone call to stand up to the IRS. He said, and now he’d been working at a private tax room. He said, now I’m going back to the IRS. And he said, I remember how you always said how important those appeals officers are. He said, I’m going to be one of those. He said, and I promise you I’m going to listen fairly with an open mind, and that just really made my day when he sent that. So I do, a lot of the students do tell me that this is the most impactful work of their college career.

I make them write a paper, a reflection paper at the end of each term where I ask them to tell me what they’ve learned and done. And a lot of them say that. I think it’s very important since I have accounting students, a lot of them are going to be out. They’re not going to be doing the legal representation, but they need to know why it is so important that they listen to the clients. They do a good job with the clients and also most of the students are going on to big four firms. They’re going to be dealing with more higher wealth individuals, but a lot of them tell me they’re going to volunteer and they now know what it’s like for people who are not as high income to have struggles and that’s going to help inform decisions they make. I think it’s very important the students also get a lot of the soft skills in the clinic, which I think is something missing and other parts of education, for example, when they have their first shift that first week in the clinic each term and the phone rings, I can just feel this dread.

Nobody wants to pick up the phone and say hello, and I even had students tell me, my mind goes completely blank. So we have a big script posted on the wall that says, hello, my name is, thank you for calling. How may I help you? Because they don’t have a lot of those skills and letter writing. Again, I don’t know if that’s still a dying art, but just how to write a professional letter and mail it. So in addition to the people skills, professional skills and then just that level of compassion, I do have a lot of students just tell me, wow, I didn’t know people were struggling with these issues. I had one student say, I don’t understand. Why don’t they have a cell phone? And I say, well, do you know how much it costs to have a cell phone? And they’re living on their $600 a month social security check. Oh yeah. Now I understand. I think it’s eye opening on a lot of levels.

Mitch Winick:

I’d like to focus on the call to action part of what we talk about on SideBar. You’ve done all of this work with the low income Taxpayer Clinic. What I also hear is a discontinuation of support of the IRS’s free taxpayer software program or website that clearly would impact the type of people you’re seeing the apparent effort to slash the number of individuals who work for the IRS, the people facing side of the IRS was going to make it that much harder for the people you serve to even get the answers they want when they attempt to contact the IRS. And then finally, as you brought up, just the cutting of the funding that supports programs like yours, not necessarily all of that can be answered by your organization, but you see all of this in a broader perspective. What is it the rest of us should be doing in a call to action to help this situation?

Lisa Sperow:

I think that a lot of people don’t. The IRS, what it really does and what it’s about, I think everybody has this image. Oh, the IRS. It’s very scary entity. There is a taxpayer bill of rights that I don’t know if people know about and you have rights before the IRS and if they are short-staffed, underfunded, inexperienced, it is harmful for everyone because that means it’s going to be that much longer for justice to be done. I think people need to understand, the IRS understand that the more staffing it has, the more quickly our answers, we will get answers from them. Also, return processing. If returns aren’t processed correctly and quickly, that’s a lot of refunds and money people aren’t going to get, and a lot of our government programs, they rely on the funding that the IRS brings in. So I’m very concerned. I know wait times are already up.

It was something that had been a huge problem and it was starting to get better just a few months ago. You could actually call the IRS and get through to someone. I have been trying all this week to get through for a client. I sat on hold for an hour and a half on Tuesday and then I was disconnected, called back yesterday, was told it would be a 60 minute wait, waited 60 minutes was disconnected. So I’m very concerned that we’re going to be in a situation where we can’t get through, we can’t get help, returns aren’t being processed. That’s not really good for anyone as a call to action. I think the idea is to reach out to your congress members and let them know that the IRS budget cuts are not a smart thing. The staffing cuts are not a smart thing. And then if we’re losing these workers, it’s very problematic.

I know a lot of law professors that I am on the A BA Pro Bono and tax Clinic committee with are very concerned that a lot of their top law students were going to work for the IRS Chief Counsel’s office and turned down much more higher paying jobs and then have had their offers rescinded. And that’s problematic going forward too, because we’re losing a lot of great people. I am very concerned. I’m hoping that funding for programs like the low-income taxpayer clinics will be continued and not lose their funding. I am not sure about where that is. I think the other thing is that if that funding is removed, we’ll need community partners and other organizations who hopefully will be willing to step in, provide some funding to fill some of these gaps. I think it’s really going to be relying on community partners, people who care about services to step in and lobby their congress members or contribute money themselves to help fund them.

Mitch Winick:

So let me guess. You’re not suggesting that we not pay our taxes and not submit our returns?

Lisa Sperow:

No. Nobody likes filing their taxes. Nobody likes paying their taxes, but it is never a good idea to not file or not pay. I would definitely say file your taxes, file them on time, pay your taxes, but make sure you have somebody credible doing your taxes because we do see tax preparers committing fraud as well. That’s another thing we have seen. So find a good preparer, but do it on time.

Jackie Gardina:

Mitch and I both work with students as you do, and the last six to eight weeks has been very tumultuous, especially when it comes to the legal system and the rule of law and all the things that we are trying to talk with students about and get them ready and prepared to enter into a profession in which that is a founding principle. So I’m wondering, how is it that you talk with students about what’s happening right now and how do you keep optimistic or a forward motion type of approach with students?

Lisa Sperow:

I try to educate them about here’s what the law says, here’s what our constitution says. Here are the checks and balances within our system, and it may take time, but hopefully that things will work that way within the clinic itself. We are just business as usual at this point because we have our funding, we have authorization. We’re just fine. We are doing the work. Let’s focus on the work and helping people and just keeping informed about any potential changes that might be coming.

Mitch Winick:

Well, Lisa, thank you very much. You’ve done exactly what we hope to do, which is really open our eyes to another area in which our local communities need assistance. I hadn’t thought about all the layers of assistance that could be needed and how impactful in a negative way. If this isn’t provided, it can be on individuals and families. We didn’t even talk about the emotional toil of just being worried about this hanging over your head and I’m sure you have to deal with that with your clients. Thank you for what you do. Thank you for what the low income Taxpayer Clinic does. We appreciate hearing about it.

Lisa Sperow:

Well, thank you very much. I’m very happy to be here today, so thank you both.

Mitch Winick:

Jackie. I found it really helpful to learn about another aspect of community need that’s being met by another type of a nonprofit. Lisa Sperow talked about the low-income taxpayer clinic and frankly, we have many clinics affiliated with the law School tax clinic is not one of them. I really never thought about this and how deeply it could affect a broad range of the community. She talked about ag workers, which is a huge part of our two communities. The elderly, those who are not native English speakers. You could just see where these issues related to paying your taxes, getting a proper filing, knowing whether you got the proper return could be just a frightening circumstance to these individuals, and it was really rewarding to hear that there was a program that helped these people.

Jackie Gardina:

It made me think back in my twenties, I got laid off from a job because they lost the grant that was funding my position. So I ended up getting unemployment for several months while I was looking for a job. I had idea that I would be taxed on my unemployment, so I ended up having quite a large tax bill for my age and my income, and it was intimidating. Even though I spoke the language, I had resources available to me. I could reach out to people and get some help. I can’t imagine what it’s like to be non-English speaking and to have your five-year-old child be the one trying to negotiate and navigate the tax system within the United States. That’s just such a frightening thought.

Mitch Winick:

And I thought Lisa’s end statement was one that was helpful as well. Because despite all of these challenges, despite the fear of changes that may be coming down from the federal government under the current administration, the real message is there’s still work to be done on a local level. Keep your eye on the goal. Work with the local community. Identify the challenges that are needed and don’t let these other issues derail your effort to be someone who meets the qualifications of what we talk about. Optimism and action

Jackie Gardina:

One. Once again, I want to thank everyone who joined us today on SideBar and as always, Mitch and I would love to know what’s on your mind. You can reach us at SideBar media.org.

Mitch Winick:

SideBar would not be possible without our producer David Eakin, who composes and plays all of the music you hear on SideBar. Thank you also to Dina Dowsett who creates and coordinates sidebar’s. Social media marketing.

Jackie Gardina:

Colleges of law and Monterey College of Law are part of a larger organization called California Accredited Law Schools. All of our schools are dedicated to providing access and opportunity to a legal education to marginalized communities.

Mitch Winick:

For more information about the California Accredited Law schools, go to ca law schools.org. That’s ca law schools.org.