October 20, 2008
The Economic Crisis and Legal Clinics: Stories from the Field, Part I
In what is likely to become a regular series on this Blog, I am beginning to collect the experiences of legal service providers as they struggle to deal with the overflow of demand as a result of the recent economic downturn. I will post stories from academic and non-academic legal clinics - after all, we are inseparably one writ large.
University of New Mexico Law Professor Antoinette Sedillo Lopez reports the law school's clinics "always have more demand for our services than we can meet, so it is hard to tell if the need is greater. The interesting thing we are seeing is the number of people facing foreclosure. One of our community legal service partners has two attorneys working on nothing but foreclosure cases."
Syracuse Law Professor Robert Nassau confirms the wave of foreclosures has increased one aspect of his tax practice, his low income taxpayer clinic has seen a "significant increase in the number of cancellation-of-indebtedness cases -- mostly home foreclosures, but also some credit card write-offs and even a student loan write-off." As many taxpayers know, or will soon find out, Sec. 61(a)(12) of the Internal Revenue Code provides that cancellation of indebtedness income (also referred to as discharge of indebtedness income) must be included in gross income, subject to certain exceptions.
University of Connecticut Law Professor Diana Leyden also notes that while her academic tax clinic does not deal directly with bankruptcy or foreclosure cases, "What we have seen lately, and I am not sure if it is directly related to the economic downturn but suspect it is, is that the IRS is getting to delinquent accounts faster and Appeals is much tougher." Professor Leyden provides the following example:
In the past as part of a Collection Due Process hearing request, even though we might not be legally entitled to raise liability issues or penalty waivers, our local office would listen and try to help our clients get to yes. Now, they inform us in no uncertain terms that any such discussion is foreclosed. We then end up doing an audit reconsideration, often times having the case transferred to a local exam function after waiting 3-4 months with no action, all the while ruining our client's lives, stressing our limited resources, and increasing the burdens on the IRS.
It is not surprising that certain legal clinics, such as those handling bankruptcies and foreclosures, will be the hardest hit for the foreseeable future. Slightly less obvious is the effect the current economic crisis will have on the general public, specifically, taxpayers. Professor Leyden makes an important observation: "The reason I said I thought this was related to the economic downturn is that I sense that Treasury/IRS is now trying hard to collect everything it can to help with the "bailout" and deficit and once again we see a resurgence in going after the low lying fruit - low income taxpayers." -jl
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