The Catholic University of America

Summary of Federal Laws

Tax

Miscellaneous Tax Issues

Low Income Taxpayer Clinics

26 USC § 7526; 26 USC § 7701(a)(36); 26 CFR § 301.7701-15

The Internal Revenue Service Restructuring and Reform Act of 1998 added section 7526 to the tax code, which provides matching funds for the development, expansion, or continuation of qualified low-income taxpayer clinics. Under the law, a low income taxypayer clinic (LTIC) is defined as a clinic that:

(i) does not charge more than a nominal fee for its services (except for reimbursement of actual costs incurred); and
(ii)(I) represents low-income taxpayers in controversies with the Internal Revenue Service; or
(II) operates programs to inform individuals for whom English is a second language about their rights and responsibilities under this title.

Educational institutions operate clinicial programs through either a law or business school that may qualify as a low income taxpayer clinic. On December 18, 2002, the Internal Revene Service issued regulations at 67 Fed. Reg. 77418, which confirm that tax return preparers, and the tax-exempt institutions who host LITCs, will not be regarded as "tax return preparers" under IRC 7701(a)(36) provided certain conditions are met.

To qualify for "non-return preparer" status (and thereby avoid regulation and potential penalties for acts/omissions under IRC 7701(a)), the institution/preparer must meet two requirements: (1) any return preparation assistance must be directly related to a controversy with the IRS for which the LITC is providing assistance and (2) the LITC may not charge more than a "nominal fee" for providing assistance on tax return preparation/refund claims, nor can the LITC vary fees based upon services. The term "nominal fee" is expressly NOT defined further in the final regs. The regulations are effective Dec. 18, 2002.
 

 

New Page 12/30/02

Text on regulation courtesy of Sean P. Scally, University Counsel and Tax Attorney, Vanderbilt University.
links updated 6/25/08 rab
CFR updated 11/18/08 rab