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Sunday, March 30, 2003


Okay, this case from the city of my birth is just sad, and the law needs to be changed. Elnora F. Hodnett lives with her daughter and two granddaughters. They pay $89 per month toward the rent, and the rest is paid though government assistance programs. Her wages, which were her entire income, were reported on a timely filed return. �That return was prepared by a paid income tax return Preparer.� Tax Court does not tell us, but I am willing to bet $100 that the return preparer got her good, charging not only for her return, but also for electronic filing and a usury refund anticipation loan. IRS denied Hodnett exemption deductions for her two granddaughters, child tax credit, head of household filing status and earned income credit. Hodnett has three problems.

First, she did not keep records to substantiate amounts spent to support the children. Who keeps receipts from every piece of food or clothing they buy? Second, she is appearing pro se, which I am assuming made the first problem worse. A representative could have helped her gather together appropriate documentation, testimony, and estimates. I know there is a great LITC in Richmond, but Roanoke is in the middle of nowhere. Third, the amounts paid by public assistance count against her for support of the children. So she was denied the exemptions, the child tax credit, and the head of household filing status. It was a good thing she took this to Tax Court, however, because the IRS conceded the earned income credit before it got to trial.

This is bad. Specifically, the law should be changed so that public assistance does not count as �support�, thus denying exemptions from tax to the very people who need them the most. You could argue that the EITC makes up for this, and I am glad that got keep the EITC. (Although the fact that she had to fight for it pro se is very annoying.) But there does not seem to be a coherent theory at work here. We make up increased taxes resulting from public assistance by increasing public assistance (EITC) rather than correcting the tax increase? Of course, I would do both, because I am happy with using wealth redistribution to empower the poor and encouraging them to work through both tax reductions and the EITC. I am just suggesting that this policy makes no sense even from a hard-hearted, conservative point of view.

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