Thursday, December 10, 2009

More information on Rachel Porcaro in Seattle

ABC has now picked up the story and provides additional information.

Porcaro, who said she receives no child support payments and owns neither a home nor a car, says there's a good reason she can afford to support her two sons -- she lives with her parents and pays just $400 in rent for a basement apartment in their Seattle home.

"Without my parents' help, my kids wouldn't be in such a healthy environment," she told "I can afford to put decent clothes on their backs and food on the table."

But that explanation didn't help Porcaro's case, which was first reported by The Seattle Times. The IRS, Driver and Porcaro said, argued that Porcaro shouldn't qualify for the earned income tax credit (EITC), a tax credit for the country's working poor.

The credit has been often criticized as being a frequent target for fraud. In a recent Government Accontability Office report, the government described EITC fraud as an "evolving challenge." In the 2009 fiscal year, the IRS collected $3.2 billion through audits related to the earned income tax credit, according to the GAO.

Porcaro said she doesn't object to the IRS's efforts to hold such audits. But what she doesn't understand is why hers had to take so long.

During that time, Porcaro said, an IRS auditor demanded to see more than just bank records and receipts -- she wanted her children's birth certificates, social security cards, custody records and proof that they lived with her.

Porcaro prevailed in August, when the two sides agreed that she would pay just $1,600 to the IRS instead of $16,000.

Driver said that Porcaro could have fought that $1,600 debt too -- a charge the agency levied because it alleged Porcaro wrongly filed as head of household on her taxes and should not have claimed tax deductions for supporting her sons. But the time and money it would have cost to keep the battle going, Driver said, wasn't worth it.

Based on the facts provided in the Seattle Times and ABC News articles, it sounds to me as though $1,600 is higher than any amount she might conceivably have owed if the only issue was incorrectly claiming Head of Household filing status in 2006 and 2007, but I can certainly understand why she might have chosen to give up and concede, given the cost of fighting it any further. (In fact, when I used 2006 and 2007 professional tax software to estimate her tax bills for those year, based on the information given in the articles, two children and $18,992 in earned income, it turned out that Head of Household vs. Single filing status made no difference for that particular level of income in those years. Just the filing status from Head of Household to Single would not have changed the bottom line of her tax returns at all in those years, unless there are other issues not discussed in the press coverage. )

Dante Driver, the tax pro Rachel engaged to help with her audit sounds very highly qualified based on this website, as he is both a CPA and a tax attorney, with many years of experience. However, few taxpayers in Rachel's situation are able to afford such expensive representation. Also, most high-powered CPA/tax attorneys do not specialize in the kind of tax law issues that apply to low-income single parents.

A couple of important notes: taxpayers like Rachel Porcaro are entitled to the free legal representation services of the Low Income Taxpayer Clinics located all over the country. There is one in Seattle at the University of Washington. Most are staffed by law students supervised by law professors who specialize in tax law applicable to low-income taxpayers.

I'm sure that the Office of National Taxpayer Advocate Nina Olson would also like to hear from Rachel as well. Nina Olson is a tax attorney who once ran a low-income tax clinic herself. In fact, thanks to Nina's leadership efforts, the number of low income clinics in the country have grown tenfold.

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