POLICY BRIEF. Volunteer Income Tax Assistance A Proven Path Toward Financial Security

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1 POLICY BRIEF Volunteer Income Tax Assistance A Proven Path Toward Financial Security October 2011

2 The National Community Tax Coalition would like to acknowledge the Rockefeller Foundation for their generous support of our tax credit policy work. Additional support is provided by the Annie E. Casey Foundation,w and the W.K. Kellogg Foundation. NCTC would also like to acknowledge the support of our Government Relations Team in the development of the messages and principles encompassed in this brief, in particular, Serena Lowe, NCTC Government Relations Consultant and our NCTC Advocacy Working Group Co-Chairs Robin McKinney, Director, Maryland CASH Campaign, and David Rothstein, Researcher, Policy Matters Ohio. NCTC Policy Team Jackie Lynn Coleman, Senior Director Sean Noble, Director of Public Policy and Research Holden Weisman, Policy Analyst (primary author) Gail Parson, Manager, Civic Engagement Jennifer Thall, Coordinator, Civic Engagement Dan Fair, Manager, Member Relations and Communications For comments or questions, please contact Holden Weisman at (312) , extension 292 or

3 Table of Contents Introduction VITA as the Most Effective Route to Refundable Tax Credits for Families in Need Figure 1. Number and Value of Federal Tax Returns Filed by VITA Programs with EITC Claims Figure 2. Number and Value of Federal Tax Returns Filed by VITA Programs with CTC Claims Figure 3. Number and Value of Federal Tax Returns Filed by VITA Programs with Higher Education Credit Claims VITA Program Profile: Community Action Project of Tulsa County, Tulsa, Oklahoma The Core Work of VITA Programs: Tax Services Figure 4. Number of Volunteers Serving VITA Programs VITA Program Profile: Atlanta Community Food Bank, Atlanta, Georgia VITA s Building Blocks to Poverty Alleviation: Asset Building and Supplemental Services VITA Program Profile: KC CASH Coalition, Inc., Kansas City, Missouri A Commitment to Quality and Accurate Tax Preparation through VITA Amplifying the Voice of Low-Income Taxpaying Workers and Families A Modest and Efficient Investment in Families Financial Security: The VITA Act of 2011 VITA Program Profile: Just Harvest, Pittsburgh, Pennsylvania Highlights of the VITA Act of

4 About the National Community Tax Coalition A project of the Center for Economic Progress, the National Community Tax Coalition (NCTC) works to create a more accessible and equitable tax system for American workers. NCTC is a national network dedicated to strengthening economies, building communities and improving lives through tax assistance and asset building activities that produce financial security, protect families and promote economic justice. Our network of organizations provides critical, on the ground financial services for working families. NCTC represents the 12,000 community Volunteer Income Tax Assistance (VITA) sites nationwide that collectively prepare an estimated 3 million tax returns for low and moderate income workers. Community tax preparers offer a high quality choice one that s free, accessible, and equipped to help families claim their full refund and all the credits to which they are entitled. We actively seek to broaden the reach and impact of community tax preparers and are a leading voice in Washington, DC for low wage workers and against unfair financial practices. We believe that together, we can strengthen economies, build communities and improve life for all American families. National Community Tax Coalition 29 E. Madison Street, Suite 900 Chicago, IL (312) coalition.org

5 1 Introduction Since 1969, Volunteer Income Tax Assistance (VITA) programs have created educational opportunities for accounting students seeking practical knowledge of the tax code while providing valuable and free tax preparation services to low- and moderate-income taxpayers. For nearly as long, the Earned Income Tax Credit (EITC) has existed as an incentive to increase the quantity of work of lowincome taxpayers in an effort to support the well-being of families in greatest need of basic income supports. As the benefits of the tax code for low-income working families increased through expansions of the EITC in the 1980s and the introduction of new credits such as the Child Tax Credit (CTC), so too did the complexity of the tax code increase. This made it ever more difficult for the families seeking these benefits to maximize their duly earned refunds without tax preparation assistance. VITA programs found their niche by meeting the demands posed by this complexity and establishing themselves as the best route through which a working family could access the full slate of deductions and refundable tax credit supports without losing a single cent to return preparation fees. By building and strengthening this access to free services, VITA programs help the neediest of families reclaim as much of their hard-earned incomes as possible through refunds that ultimately filter back into their communities, boosting local economies throughout the nation. Now expanding well beyond its original core of accounting students to include people from all walks of life, VITA programs are staffed by volunteers who undergo detailed training and annual certification by the Internal Revenue Service (IRS). As the VITA field has solidified its role as a major provider of tax preparation services, groups overseeing these programs have made serious strides to improve the quality of returns prepared with the least amount of administrative cost for the IRS. Tax preparation is only one piece of the larger picture that is VITA, and programs support fulfills further needs within their communities. Receiving a substantial tax refund without a means for saving or growing this resource could only provide a short-term spending boost to taxpayers and on its own do little to create long-term financial security for the neediest of working families. This problem is aggravated by the fact that nearly 20 percent of households earning less than $30,000 per year reportedly did not even have a single bank account in 2009, a figure accounting for over 70 percent of unbanked households. 1 To provide a means to economic stability, VITA programs offer clients an ever-growing array of asset building services and products, ranging from basic, low-cost checking and savings accounts to U.S. savings bonds to financial coaching and other financial education opportunities. Nearly 20 percent of households earning less than $30,000 per year did not even have a single bank account in 2009, accounting for over 70 percent of unbanked households. 1 Federal Deposit Insurance Corporation (FDIC). December FDIC National Survey of Unbanked and Underbanked Households.

6 2 The missions and goals of VITA programs are ambitious, necessary, and only limited by the resources available to support their services. Since 2008, Congress and the IRS have recognized the need to support the work of these organizations by making funding available through the Community VITA Matching Grant program (VITA grant program), allowing recipient programs to greatly expand their capacities to provide tax services to their communities. Though the VITA grant receives ongoing support from the Administration and Congressional Leadership and was increased modestly in 2010, the program remains limited in its ability to meet the full demands for support requested by the VITA field. Moreover, the VITA grant program thus far restricts the use of funding only to uncompensated tax services despite years of proven success with asset building and financial education services that VITA programs consistently demonstrate provide unique, value-added opportunities for their clients. However, perhaps the most concerning issue facing VITA programs and the VITA grant is that this incredibly beneficial program remains largely at the whim of annual federal budget requests and the appropriations process, without any guarantee of future support. As Congress prepares to make bold and long-lasting decisions about how the federal government chooses to support its neediest taxpayers, our leaders must recognize the real community impact of VITA and officially authorize the VITA grant program. With support from organizations and business leaders across the nation, the VITA Act of 2011 has been introduced in both the United States Senate (S. 816) and House of Representatives (H.R. 2151). NCTC now calls on our nation s leaders to show support for the entire VITA program by approving this important legislation.

7 Volunteer Income Tax Assistance: A Free and Vital Path from Poverty 3 VITA as the Most Effective Route to Refundable Tax Credits for Families in Need The growth in VITA programs closely mirrors growth in EITC claims. VITA programs assist in the filing of approximately two percent of all EITC claims made annually, reflecting their similar share of the total number of returns filed in Tax Year By maintaining a market share equivalent that makes the combined filings of all VITA programs the third-largest tax-filing entity in the U.S., VITA programs create substantial impacts for the local economies they serve through the multiplying effects of the refunds returned to low-income filers. The EITC alone is estimated to contribute $1.58 to local economies for every additional EITC dollar received by claimants. 2 With an approximate total of $1.01 billion in EITC refunds claimed by VITA clients in 2010 (shown in Figure 1 below), VITA programs could generate upwards of nearly $1.6 billion in additional economic activity at current filing rates. 3 Figure 1. Number and Value of Federal Tax Returns Filed by VITA Programs with EITC Claims. Source data obtained from IRS SPEC, Likewise, VITA programs substantially contributed to Child Tax Credit claims since its introduction in the late 1990s. As shown in Figure 2, over the last five tax filing seasons alone, VITA programs increased CTC filings by approximately 50 percent (from nearly 300,000 claims filed during the 2007 tax filing season to nearly 450,000 in 2011). This represented as much as $610 million annually to low- and moderate-income families. These are dollars that directly offset parents costs of raising children and are particularly helpful to low-income filers. The support of the CTC on average, a benefit of nearly $1,300 for VITA claimants allows low-income families the means to care for their children while pursuing productive employment to contribute both to the well-being of their individual families and to the larger economy. 2 Berube, Alan. November Using the Earned Income Tax Credit to Stimulate Local Economies. The Brookings Institute, Washington, DC. 3 Calculated by the author using data obtained from the IRS Stakeholder Partnerships, Education, and Communications (SPEC) Function.

8 4 Figure 2. Number and Value of Federal Tax Returns Filed by VITA Programs with CTC Claims. 4 Source data obtained from IRS SPEC, VITA programs also play an intrinsic role in supporting the educational and professional growth of low- and moderate-income taxpayers seeking advancement through higher education. This, in turn, provides a further means for improving the long-term health of households, communities, and the broad labor base of our national economy. In Tax Year 2010, VITA programs returned over $110 million to taxpayers pursuing higher educational advancement (highlighted in Figure 3 below). This help took the form of higher education tax credits that offset the ever-increasing costs of higher education and create a valuable incentive to completing a postsecondary degree. Figure 3. Number and Value of Federal Tax Returns Filed by VITA Programs with Higher Education Credit Claims Source data obtained from IRS SPEC, Note: data represents both the CTC and the refundable Additional CTC.

9 Volunteer Income Tax Assistance: A Free and Vital Path from Poverty 5 VITA Program Profile: Community Action Project (CAP) of Tulsa County, Tulsa, Oklahoma Providing VITA Services Since: 1995 Why they chose to provide VITA Services: The organization s goal is to lift low-income families out of poverty through the EITC and CTC. The free services of CAP of Tulsa County are ideally suited for helping families claim the credits and achieve this goal of poverty alleviation. Without these services, these families might not have received necessary support due to the complexity of the filing process for these valuable credits. Received a VITA grant in: 2009, 2010, and 2011 How the VITA grant helped: Receiving these grants allowed for continued growth over this period. The VITA grant helped CAP of Tulsa County better support tax sites with new personnel and supplies while deemphasizing the need to gather funds from other foundations. Plans for the 2012 VITA grant, if received: A greater emphasis would be put on reaching rural communities around Tulsa that may not be as aware or knowledgeable of the services offered by CAP of Tulsa County as inner-city clients. Supplemental services offered: CAP of Tulsa County offers a wide variety of asset building services during the tax season, ranging from opening free bank accounts to assistance with purchasing U.S. Savings Bonds. Sites also offer matched savings accounts, assistance with applying for free college tuition at an Oklahoma state supported college through the Oklahoma s Promise program, and screening for eligibility for additional public benefits programs. Snapshot of services provided in 2011: Total Federal Returns Filed 16,713 Total Value of Federal Refunds Claimed $32,102,245 Number of EITC Returns Filed 6,327 Number of CTC Returns Filed 4,521 Average AGI of Taxpayers Receiving Services $19,430 Number of Volunteers 123 Number of Sites Opened 8 The benefits of tax credits described here represent the basic foundation of the services offered by VITA programs. Dollar figures and numbers of returns reflect only a small portion of the work performed for lowand moderate-income families by VITA volunteers. The following sections describe the additional efforts VITA programs undertake to support the refunds owed to low-income taxpayers, to grow the benefits of tax refunds through supplemental services, and to advocate for ever-stronger methods through which these benefits could be accessed by those needing them the most as efficiently as possible for the larger economy and revenue system.

10 6 The Core Work of VITA Programs: Tax Services The central work of VITA programs is the community-based tax preparation services provided by volunteers who ensure low- and moderate-income taxpayers know about and access the full amount of the refunds due to them through the credits described above, as well as any that simply relate to their overpayment of income taxes. VITA volunteers are trained and certified annually by the IRS to serve low- and moderate-income taxpayers with varying complexities of returns. These range from basic returns with few credits claimed to advanced returns that may require additional form filings or specialized expertise on rarer or more complex deductions and credits. Tax preparation services are exceptionally provided by an ever-increasing number of IRS-certified volunteers. Over the ten-year period from Tax Years 2001 to 2010, the number of volunteers nearly doubled, reaching a high of approximately 88,000 trained volunteers, as shown in Figure 4 below. These volunteers now serve clients at over 12,200 sites opened across the country in all kinds of communities, ranging from urban neighborhoods to rural communities. Figure 4. Number of Volunteers Serving VITA Programs. Source data obtained from IRS SPEC, VITA volunteers are building their expertise in more than simply claiming refunds accurately. Tax services have expanded to assist low-income taxpayers with a growing number of specialized needs, including tax filings for self-employed sole-proprietorships, returns that require additional IRS trainings, and certification developed jointly by the IRS and VITA programs affiliated with NCTC. The offering of self-employment Schedule C filings at select VITA sites, a pilot program initiated by NCTC for the 2011 tax filing season, reflects the improving ability of VITA programs in partnership with national coalitions to create new innovations in tax services to better serve low- and moderate-income taxpayers.

11 Volunteer Income Tax Assistance: A Free and Vital Path from Poverty 7 This drive for innovation allows VITA programs to meet the increasing demand for free tax preparation services while furthering trends in efficiency and growth. VITA programs consistently remain among the most costeffective tax preparing options not only for clients but for the IRS as well. By concentrating on electronic return filing (e-file), VITA programs are essential to helping the IRS meet its annual goals for increasing the number of e-filed returns, a cost-saving measure credited with saving $3.10 per return over paper versions. 5 VITA programs filed 92 percent of its Tax Year 2009 returns electronically, saving the IRS and taxpayers over $8.6 million in processing costs in Fiscal Year 2010 alone. 6 VITA Program Profile: Atlanta Community Food Bank, Atlanta, Georgia Providing VITA Services Since: 2007 Why they chose to provide VITA Services: In its fight against hunger and poverty, the Atlanta Community Food Bank views the EITC and SNAP as the most powerful tools to pull families out of poverty. VITA is the logical vehicle through which the Food Bank promotes access to these benefits, ensuring all eligible households are receiving them. Received a VITA grant in: 2010, 2011 How the VITA grant helped: The VITA grant allowed the Food Bank to purchase necessary laptops and printers, which in turn allowed this organization s sites to expand their capacity to serve their community. VITA grant funds also allows the Food Bank to maintain a full-time VITA program manager, who helps streamline site operations and improve quality without losing key institution knowledge to seasonal turnover. Supplemental Services Offered: The Atlanta Community Food Bank offers a variety of supplemental services throughout the year including public benefit screening and application assistance year-round and seasonal assistance with credit report education and FAFSA completion. Through their VITA sites, the Food Bank also offers services provided by partnering organizations like homeownership programs, credit counseling, and financial education. Snapshot of services provided in 2011: Total Federal Returns Filed 13,327 Total Value of Federal Refunds Claimed $19,188,000 Number of EITC Returns Filed 3,447 Number of CTC Returns Filed 2,445 Average AGI of Taxpayers Receiving Services $21,500 Number of Volunteers 500 Number of Sites Opened 45 5 U.S. Government Accountability Office. March Electronic Tax Filing: Improvements Can Be Made before Mandate Becomes Fully Implemented. Report to the Subcommittee on Financial Services and General Government Appropriations, U.S. Senate. 6 Calculated by the author using data obtained from SPEC.

12 8 VITA s Building Blocks to Poverty Alleviation: Asset Building and Supplemental Services As described above, the effectiveness of benefits derived through VITA programs in promoting financial security and alleviating poverty can only be produced if mechanisms are available through which families can grow their hard-earned refunds. Asset building and other supplemental services provided at VITA sites are the best means to meet the savings goals of those served through VITA. Such services are invaluable tools that help low- and moderate-income taxpayers save at least a portion of the often substantial refunds earned through their tax filings and avoid having such benefits chiseled-away by high-cost lending schemes designed to take advantage of this highly unbanked population. It is for this purpose that VITA programs often offer a variety of low-cost asset building options through partnering providers. Asset building options provided by VITA programs often address the full spectrum of savings needs for building a more financially stable household. These range from account offerings of partnering financial institutions to savings bonds purchased through tax forms to retirement savings options for those seeking to plan a long-term future that does not primarily rely on Social Security. Offered typically at no cost and in tandem with free tax preparation, asset building services lay the real foundation for lifting families out of poverty by helping to break the paycheck-to-paycheck routine or endless cycles of increasing debt. This relief is achieved through more traditional accounts as well as more flexible prepaid debit cards that are prescreened to have minimal fees. These services are invaluable tools that help low- and moderateincome taxpayers save at least a portion of their often substantial refunds - and avoid have such benefits chiseled-away by high-cost lending schemes. Moreover, asset building services are often supplemented by an increasing number of options designed to further educate families about how to grow their savings, plan for their future, or better manage their growing assets. Taxpayers at more and more VITA sites across the country can take advantage of an array of supplemental services supported through locally-partnering organizations and, nationally, through NCTC and its Community Building Team. NCTC provides training and technical assistance to its member VITA programs to build capacity to offer these supplemental services. This assistance includes the certification of specialized volunteers who provide financial coaching to taxpayers, as well as credit report education through the Skills Based Volunteerism Initiative funded by Bank of America and E*TRADE Bank. It also includes services with broader goals such as Financial Aid U, a project funded by the Citi Foundation that helps students and their families file their Free Applications for Federal Student Aid (FAFSA) while completing corresponding tax forms. NCTC and its member VITA programs develop options for savings and investment while improving the financial knowledge and educational opportunities of taxpayers served by VITA. In so doing, NCTC and its members introduce low- and moderate-income families to a path toward greater financial well-being and employment security. Asset building and other supplemental services open an additional avenue toward transforming tax refunds into futures for taxpayers and their families.

13 Volunteer Income Tax Assistance: A Free and Vital Path from Poverty 9 VITA Program Profile: KC Cash Coalition, Inc., Kansas City, Missouri Providing VITA Services Since: 2004 Why they chose to provide VITA Services: KC CASH (Creating Assets, Savings & Hope) began providing VITA services after recognizing a huge need in the Kansas City Area for quality free tax preparation services and EITC outreach. This coalition is a broad-based collaboration of government- and community-based organizations, financial and educational institutions, and the business community that provides outreach on tax incentives available to low- and moderate-income taxpayers and sponsors VITA sites throughout Kansas City. Received a VITA grant in: 2009, 2010 How the VITA grant helped: The VITA grant allowed KC CASH to hire its first paid employee to coordinate their VITA program and better fulfill their mission to support low- and moderate-income working families in building an economic foundation and increasing financial stability. How a 2012 VITA grant would help, if received: Receiving a 2012 VITA grant would allow this organization s VITA program to build its service capacity and grow its workforce of committed and qualified site coordinators. KC CASH hopes in that in future years, with changes to the VITA grant program, the funds they receive could be used to compensate their individuals performing quality reviews, individuals who are often their best trained and most experienced in the tax field. Snapshot of services provided in 2011: Total Federal Returns Filed 5,514 Total Value of Federal Refunds Claimed $6,714,192 Number of EITC Returns Filed 1,477 Number of CTC Returns Filed 499 Average AGI of Taxpayers Receiving Services $18,801 Number of Volunteers 323 Number of Sites Opened 15 A Commitment to High-Quality and Accurate Tax Preparation through VITA While the missions of VITA programs are often driven by efforts to help families find the greatest amount of support possible through their tax filings, this cannot and should not be pursued without a strict focus on the accuracy and quality of the returns filed by all volunteers and IRS-required quality reviewers. VITA programs are committed to maximizing the benefits for low-income taxpayers only through high-quality service delivery, verified and audited through multiple means. Through these regular audits and corresponding efforts by NCTC, the VITA field demonstrates its commitment to accurate service delivery that easily adapts to new methods for ensuring quality and responds promptly to any behaviors found to conflict with this commitment.

14 10 Quality measures of VITA programs extend well beyond the rigorous annual trainings and certification exams that all volunteer tax preparers and quality reviewers must pass. In an effort to support quality assurance and improvement, VITA programs respond annually to recommendations from audits and quality reviews. These reports are produced independently by the U.S. Treasury Inspector General for Tax Administration (TIGTA) and by the overseer of the VITA program, the IRS Stakeholder Partnerships, Education and Communications (SPEC) function of its Wage and Investment Division. Audits show accuracy ratings reaching 87 percent in the most recent SPEC Quality Statistical Sample report for the 2011 tax filing season to a high of a 90 percent rating from TIGTA s audit of the 2010 tax filing season. Programs work year-round and tirelessly to build their reputations and show current and potential clients the most effective path to high-quality tax preparation is VITA - maintaining this reputation is the best marketing tool available to VITA programs. To handle recommendations and to respond to any identified problems, NCTC regularly brings together VITA leaders through its Quality Assurance Working Group. This group produces annual recommendations of its own for improving the quality of preparers and programs through its Formula Five publications for the field and the IRS in advance of the tax season. Programs work year-round and tirelessly to build their reputations and show current and potential clients that the most effective path to high-quality free tax preparation and tax-time asset building services is through VITA. Maintaining and improving this reputation is the best possible marketing tool VITA programs could ever use. 7 IRS SPEC. August Quality Statistical Sample Report. 8 Treasury Inspector General for Tax Administration (TIGTA). September Improvements to the Volunteer Program Are Producing Positive Results, but Further Improvements Are Needed to the Quality Assurance Process. 9 The most recent versions of NCTC s Formula Five Publications can be found on the NCTC website at 10 NCTC s most recent policy agenda is available online at

15 Volunteer Income Tax Assistance: A Free and Vital Path from Poverty 11 Amplifying the Voice of Low-Income, Taxpaying Workers and Families By representing low- and moderate-income taxpayers and underserved populations including rural taxpayers, persons with limited English proficiency, Native Americans, and persons with disabilities VITA programs provide a natural voice for them to help improve their paths to financial security while shoring-up safeguards against predatory lending practices and other pitfalls. To assist with this effort, NCTC constructs its annual policy agenda around four key areas for advocacy and civic engagement that, together, strengthen the collective voice of low- and moderate-income individuals and families those specifically served by VITA and others: 1) Invest in Communities: Support the scale and sustainability of innovative programs that foster the upward mobility of our nation s workers. 2) Create Opportunity: Develop a simpler tax code that includes expanded and targeted credits that enhance incentives for work and educational advancement. 3) Protect Consumers: Strengthen the regulation of the financial industry and eliminate high-risk financial products and services. 4) Promote Savings: Provide low- and moderate-income families with a much-needed safety net through short- and long-term savings opportunities. These four building blocks form the advocacy foundation on which NCTC and its 2,100 members strengthen the VITA field and enhance benefits for low-income workers and families. On this foundation, NCTC leads and continues to drive the field through campaigns that protect and enhance refundable tax credits; restrict the influence of predatory, tax-time lending products such as refund anticipation loans and refund anticipation checks; promote the purchase of savings bonds through tax forms; and, perhaps most importantly, reinforce the need and reach of the VITA program to better meet all of the goals, priorities, and commitments laid-out above. A Modest and Efficient Investment in Families Financial Security: The VITA Act of 2011 Achieving the goals and living up to the missions of VITA programs is only limited by the resources available to these dedicated organizations. In many cases, this limitation is a heavy burden to bear, forcing staff to restrict the services available to taxpayers or reducing the number of communities in which sites are opened to only the highest-traffic areas, excluding individuals in areas where they are underserved by the presently-available slate of tax preparation options. Recognizing these limitations, Congress created the Community VITA Matching Grant program in 2008 to promote VITA programs through SPEC and increase its capacity to provide free tax services in as many underserved communities as possible.

16 12 Providing VITA Services Since: 2003 VITA Program Profile: Just Harvest, Pittsburgh, Pennsylvania Why they chose to provide VITA Services: While doing EITC outreach in their community, Just Harvest recognized that there were simply not enough VITA sites for working families that could help in their efforts to fight for economic justice and advocate on a wide variety of hunger and poverty issues. Received a VITA grant in: 2009, 2010, 2011 How the VITA grant helped: Through their VITA grant funding, Just Harvest expanded services to serve more low-income workers, particularly those with Limited English Proficiency. This organization added 3 new sites and improved overall quality while also using funds to help meet the increased management and administrative costs that come with this expansion into new parts of Allegheny County. Underserved Populations Served: Just Harvest partners with a Family Support Center serving refugees to provide a VITA site at their location. English is not the first language of most of those served at this site and the center helps the VITA program to locate translators as needed in order to better serve the often times large families with hard-working parents there, 70 percent of whom typically qualify for the EITC. Just Harvest is also participating in a pilot project to help self-employed individuals complete their Schedule C filings. Many of the individuals receiving this service were not necessarily aware of their self-employed status as providers of in-home child care. This organization allows these taxpayers with 1099-MISC forms to bring in their documents and accurately file their self-employment taxes. Snapshot of services provided in 2011: Total Federal Returns Filed 3,295 Total Value of Federal Refunds Claimed $6,170,231 Number of EITC Returns Filed 1,553 Average AGI of Taxpayers Receiving Services $12,996 Number of Volunteers 90 Number of Sites Opened 7 Programs that apply for VITA grants do so with ambitious plans for how they might use this extra support to best benefit the families and communities they serve. For some organizations, these grants afford the hiring of dedicated staff to oversee their VITA program, helping to insure against the loss of valuable tax preparation and institutional knowledge that would be risked if these organizations are forced to maintain seasonal hiring cycles. For other organizations, the receipt of a VITA grant means the purchase of new laptops used to increase capacities for electronic filing. This is an enhancement with budgetary implications not only for the programs that could provide more efficient tax services, but for the IRS through reduced return-processing costs from higher e-file rates as described above. Profiles found throughout this brief, and repeated stories of NCTC members across the nation, help illustrate the extent to which VITA grants strengthen programs and the impact the grants could have on those who hope to benefit from such resources.

17 Volunteer Income Tax Assistance: A Free and Vital Path from Poverty 13 Unfortunately, not all programs with ambitious and well-laid plans for growth have had the opportunity to demonstrate the impacts the VITA grant program could produce. This program has perhaps become a victim of its own success and faces new limitations; chief among them is the amount of available funds for grants. While VITA grant appropriations increased from the program s $8 million inception to $12 million in Fiscal Year 2011, this amount meets less than half of the demand for the entire program. For the 2011 tax season, 374 organizations made requests for VITA grants, requesting more than $33 million in funds. Yet only 177 programs were lucky enough to receive a share of the available funds. The limitations of the current VITA grant program are not strictly confined to concerns for funding. As the program exists now, funds received through a VITA grant are restricted in their use to providing uncompensated tax services only. This restriction prevents programs from maximizing the poverty alleviating potential of asset building and other financial services. In addition, it places a counterintuitive block on compensating individuals performing quality reviews, individuals who are often hired as paid staff for their specific expertise in the tax field. While VITA grant appropriations increased from the program s $8 million inception to $12 million in Fiscal Year 2011, this amount meets less than half of the demand for the entire program. Perhaps most troubling of any issue currently limiting the potential of the VITA grant program is the fact that, despite its effectiveness, the program officially remains a demonstration project subject to the prevailing winds of the annual appropriations process. This lack of formal codification jeopardizes the availability of VITA grants and, with them, the ability of VITA programs to serve their clients and encourage tax filings in areas otherwise ignored. To address the limitations and concerns outlined above, U.S. Senator Sherrod Brown introduced the VITA Act of 2011 in the Senate (S. 816) and U.S. Representative Michael Honda of California did likewise in the House (H.R. 2151). 11 The VITA Act would officially authorize the VITA grant program and provide $30 million annually for grants, an amount that begins to more closely reflect the true demand for VITA grant requests. Furthermore, past restrictions on the services performed with grant dollars would generally be removed, allowing funds to be spent on program operations, outreach and educational activities, and asset building services associated with tax return preparation strengthening services for families in many important ways. 11 Full text versions of the Senate and House bills of the VITA Act of 2011 are available online at or

18 14 Highlights of the VITA Act of 2011 The Volunteer Income Tax Assistance (VITA) Act of 2011 was introduced into the U.S. Senate as S. 816 by U.S. Senator Sherrod Brown of Ohio on April 14, A companion bill, H.R. 2151, was introduced into the House of Representatives by U.S. Representative Michael Honda of California after NCTC staff connected local constituent organization Catholic Charities of Santa Clara County to the Congressman s office. Since that time NCTC and its members have continued to advocate for the bill and hope to see its passage before the end of the current Congress. The following are highlights of the VITA Act of 2011: Funding for the Community VITA Matching Grant Program The Act authorizes appropriations of $30 million for each fiscal year from 2012 through Priority Consideration of Grant Applications Applicants would be given priority for consideration by demonstrating: Assistance to low-income families emphasizing outreach and service for persons with adjusted gross income at or below 250 percent of the federal poverty level; Outreach and education around income supports and refundable credits; and Specific outreach to underserved populations, including persons with disabilities, persons with limited English proficiency, Native Americans, individuals living in rural areas, and the elderly. Expanded Use of Funding Previous permitted uses of grants would be expanded to allow funds to be directed toward program operations; outreach and education on income supports; and services related to financial literacy, asset development, and the establishment of savings accounts through tax preparation. Establishes a National Center to Promote Quality, Excellence, and Evaluation in Volunteer Income Tax Assistance The development of the Center would promote volunteer training standards and best practices while providing capacity-building technical assistance and supporting outreach efforts. The Center would also be tasked with evaluations of programs and activities funded under the VITA Act.

19 Volunteer Income Tax Assistance: A Free and Vital Path from Poverty 15 In addition, the VITA Act would create a much-needed National Center to Promote Quality, Excellence, and Evaluation in Volunteer Income Tax Assistance. This Center would be tasked with volunteer training development programs, providing technical assistance for program capacity-building, identifying best practices, and evaluating the programs covered under the VITA grant program. The Center would serve to further reinforce the VITA field s already strong commitment to quality tax return preparation while ensuring benefits are truly reaching the communities needing them most. Approving the VITA Act would be a small investment in families and communities, with economically beneficial returns that could last for generations to come. This investment would allow the greatest number of individuals yet to access the paths to financial security created by high-quality VITA programs. Especially during these times of fiscal crisis, we must recognize the benefits of programs such as VITA that promote lasting economic benefits and strengthen incentives to work. The VITA Act enhances and promotes truly viable means for achieving this end.

20 National Community Tax Coalition 29 E. Madison Street, Suite 900 Chicago, IL

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