Ronald L. Mankoff Tax Clinic Scores Win for Low-Income Taxpayers in U.S. Tax Court

July 1, 2019

The Ronald L. Mankoff Tax Clinic scored a precedential victory in a recent U.S. Tax Court ruling that may benefit many low-income taxpayers nationwide.

The issue in the case, Feigh v. Commissioner, 152 T.C. No. 15 (2019), revolved around whether the Internal Revenue Service can use an administrative notice to deny earned-income tax credits (i.e., refundable tax credits for low- to moderate-income working individuals and couples) to recipients of Medicaid waiver payments.

Representing petitioners Edward and Mary Feigh, the Tax Clinic argued that the IRS cannot unilaterally through administrative action remove a statutory benefit that was provided by Congress.

The U.S. Tax Court agreed, concluding: “The IRS is not free to circumscribe the credits that the legislature has chosen to authorize through statute; that is a power only Congress has.”

Precedential decisions in the U.S. Tax Court on low-income tax issues are rare, notes Professor Caleb Smith, supervising attorney and director of the clinic. But Smith, who argued the case, says that he saw the potential for precedent from the start: It involved a single, novel legal issue and no issues of fact.

“Usually, cases involve a lot of tricky facts and fact-finding to determine what’s going on,” he says. “In this case, both parties—the IRS and our clients—agreed 100 percent what the facts were; they just disagreed on the law.”

In fact, he says, U.S. Tax Court Senior Judge Joseph Robert Goeke had apparently also recognized that the case presented a novel issue of law and encouraged the Feighs (who were proceeding pro se) to seek clinic assistance.

“Since there was no disagreement on the facts,” Smith says, “all the judge wanted to know was: What’s the application of the law here?”

“We were trying to find if there was any language out there that could hurt our theory of the case, and there wasn’t. I found nothing, and that was a good thing for our case.” --Matthew Barron ’19, who assisted with the research

The Feighs, who live in Maple Grove, Minnesota, receive Medicaid waiver payments of about $7,000 per year to care for an adult disabled child. In 2014, the IRS issued a notice and guidance stating that Medicaid waiver payments don’t qualify as earned income for purposes of determining eligibility for the tax credits. While that sometimes means a lower tax obligation, Smith points out that the loss of the credits—at least in the Feighs’ case—can be greater than the tax savings.

In 2015, the tax credits that the Feighs were now ineligible for were nearly $4,000. After they visited a tax preparer, they nevertheless decided to seek the credits on their return. The IRS issued a notice of deficiency in 2017 and the Feighs initiated their own pro se legal challenge, filing a petition to the U.S. Tax Court that year.

Smith recalls that when the Feighs contacted the clinic last year at the judge’s encouragement, only a week remained before the U.S. Tax Court calendar. But after he talked with the client, Smith felt it was important to take on the case despite the short deadline.

The case had been filed as an “S case”—in effect, the U.S. Tax Court’s version of a small-claims case. And because S cases are not precedential and cannot be appealed, removing it from that status was the clinic’s first item of business.

“We saw this as a potential issue that was going to affect thousands of taxpayers, a precedential statutory interpretation issue, and we also wanted the ability to appeal if we lost,” Smith says. “So we talked to the client, and the first order was to move it from a small case to a regular case. And the court and the IRS were OK with that.”

The second order of business was simply to write the brief. For that task, Smith called upon clinic student Matthew Barron ’19 for research help. Barron, who spent about two weeks last summer doing research, says, “We were trying to find if there was any language out there that could hurt our theory of the case, and there wasn’t. I found nothing, and that was a good thing for our case.”

The U.S. Tax Court heard the case last September, and the decision was handed down on May 15, nine months later. Its gist, Smith says, is that it provides an answer to a constitutional question: “Does the IRS have the right to just do this? And the answer is no.”

Medicaid waiver payments are very prevalent, existing in every state, Smith says. Many low-income people rely on them, and if they can’t then also receive earned income tax credits, the impact can be harsh.

“If low-income taxpayers are receiving this one specific kind of payment and not getting that credit, that’s a huge problem,” Smith says. “To me, this is a big win protecting the people who need it the most.”

—By Richard Dahl, a St. Paul-based freelance writer

Professor Caleb Smith, director of the Ronald L.  Mankoff Tax Clinic
Professor Caleb Smith, director of the Ronald L. Mankoff Tax Clinic

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