Students in Fordham’s Tax Clinic help reform a troublesome New York debt collection practice.
In purely financial terms, the New York State law that suspended driver’s licenses of residents who owed tax debts exceeding $10,000 has produced a windfall in its first two years. The state has collected more than $125 million from 14,000 tax delinquents since 2013, according to state officials. However, the state’s unconventional revenue-generating scheme has come with a hidden human cost—namely, civil rights violations of residents without means to pay their outstanding debts, according to tax law advocates. For low-income New Yorkers adversely affected by the law, too often there is too little legal recourse for these problems. Fortunately, for one client, Fordham Law students improved the outcome and in so doing helped countless other New York residents who are facing similar situations.
During the 2014–15 school year, four students in Fordham’s Tax Clinic, under the supervision of Professor Elizabeth Maresca, represented a client whose case exemplified the law’s shortcomings. The state had suspended the client’s license because he owed back taxes. The man, however, couldn’t pay his tax debt; he was unemployed. As a result of the suspension, the man was unable to drive and visit his ailing parents. New York State ultimately dismissed his case on June 10, but by that time the man’s father had passed away.
“There’s no legitimate government interest in taking away the driver’s license of someone who can’t pay his tax debt,” Maresca says. In fact, all involved agreed the man could not pay the $16,000 debt, but the State maintained that his lack of resources did not matter. “The law was created to generate revenue, not to punish the impoverished,” Maresca continues.
In the fight to have their client’s license reinstated, Maresca and her students—Adil Ahmed ’16, Ivy Chiu ’15, Robert Lyons ’15, and Brandon Younesi ’15—received a guarantee from the state that it would create a provision to protect people unable to pay their debts from having their license stripped.
While the client represented by the Fordham clinic presented his own unique situation, the problem he faced was shared by thousands of New York residents. The state has suspended 10,000 driver’s licenses as part of its tax debt collection program. The program’s reach is broad and indiscriminate; it affects people of means who willingly skipped paying their taxes and others who incurred tax debts after 9/11 or the recession and remain unable to pay off their taxes.
In the rush to generate revenue, the state failed to include a provision for people unable to pay their debts. “The state knew it had this problem and simply failed to deal with it,” Maresca says. “Then, when it found out we were going to advocate fiercely for our clients, it sped up its internal decision making to find a solution.”
As the students in the Fordham clinic represented their client and advocated for reform through regulatory change, they were also learning of the constitutional challenge being mounted by lawyers at the Legal Aid Society. While other states, as well as federal authorities, have rules permitting license reinstatement when the debtor cannot reasonably be expected to pay, New York State’s income exemption list is restricted; it includes the disabled, elderly, and Social Security recipients. People who lack the money to pay their tax debts should also be included on that list, says Shervon Small, a supervising attorney with Legal Aid Society.
During the 2015 legislative session, New York State attempted to expand the license suspension program by reducing the tax debt to $5,000 and suspending various licenses besides driver’s licenses. The state estimated the lowered threshold would generate $9 million during the 2015–16 fiscal year and $3 million each year after, according to the state executive budget’s support memorandum. “This program has been very successful since its implementation,” the budget report stated.
The measure ultimately failed. Still, the number of people impacted by license suspension laws could grow exponentially if other states jump on the bandwagon. “They think the program is wildly successful and are shopping it around to other states,” Maresca says, of State Department of Taxation and Finance officials. This type of law, she explains, is “a collection tool that is very in vogue right now.”
The law’s rollout in New York should have come in phases, says Daniel Hsiung, who directs the Legal Aid Society’s Low-Income Taxpayer Clinic. Instead it happened as quickly as possible to grab the most cash possible. “It’s just the whole mean-spirited way the legislative policy has become,” Hsiung says. “We can get some money up front. Let’s get it.” The irony, Hsiung notes, is many of the people who begin making payments on a payment plan default on the payment plan.
The government has the capacity to separate those who have the income to pay their debt from those who do not, Hsiung says. There needs to be a financial hardship test, he and Small argue.
“At the end of the day, some of these folks need a car in order to go to work, earn a living, and pay the state,” Small says. “A financial analysis would be extremely important.”
Fordham Students: Taking the Wheel
In the case of the client represented by the Fordham Tax Clinic, a financial analysis would have almost certainly prevented the suspension of his license.
The man, in his 50s, lost much of his business in the economic downturn. He then ran out of unemployment benefits in 2010, according to court documents. The shrinking job market for his services combined with his age made it unlikely that he would be able to repay his debt. Such a scenario creates “a snowball effect,” Maresca says.
“We see it all the time,” she continues. “When people lose their jobs, taxes are one of the first things they stop paying.”
In the wake of having his license suspended, the man could have purchased a restricted license for $75, allowing him to drive to work and to the doctor’s office. That, however, did not allow him to see his ailing parents, who lived in another state.
Two sets of Fordham Law students worked the man’s case: Lyons and Younesi did initial development and then Ahmed and Chiu lobbied on its behalf. “Professor Maresca really trusted us to do it,” Ahmed says. “She told us, ‘All right, you know the law, and you know what people are going through.’ She let us run with it.”
In the process, Ahmed and Chiu met with their client and discussed options. Did he want to fight the case, for instance, or develop a payment arrangement that would allow him to pay money back over 20 or 30 years? In the middle of the semester the client’s father died, underlining for Ahmed why a law like this could be so detrimental. “That’s exactly why he needed his license,” Ahmed says. “If his license was suspended, he wouldn’t be able to help his mom or his brothers and sisters.”
A Long Way to Go
While Maresca and her students were pushing for a change in the law in New York, a Department of Justice report had found that local authorities in Ferguson, Missouri, were treating law enforcement as a revenue-generating operation, and one that was disproportionately harming African Americans.
“A lot of the language we were using was related to citations and the efforts and problems being highlighted in Ferguson at the time,” Ahmed says. “We were trying to make parallel language arguments to make the most of a national policy concern and show how there was a local policy concern.”
Ahmed and Chiu used this argument when writing letters and speaking directly to state senators, assembly members, cabinet-level leaders, and others. When they spoke with a state government executive about the law’s negative effects, the official’s reaction of genuine surprise reassured the students of the importance of their work.
“He frankly had no idea what was happening on the ground,” Ahmed recalls. “He had been looking at just the numbers.”
The focus of these conversations was not to make a sweeping qualitative judgment about the law, or as Ahmed says, lobby that “the law was bad or the law shouldn’t exist. There are a lot of people who owe taxes and should be paying them,” he says. Instead, the students were calling attention to a blanket approach that did not consider individual circumstances. “The law groups everyone together,” Ahmed says. “We were trying to figure out how we should be doing things differently.”
For a traditionally blue state such as New York, Hsiung considers these tax debt policies far from progressive. Massachusetts, for instance, has a form people can fill out to prevent suspension of a driver’s license if they are unable to pay their tax debts. California, meanwhile, only strips a license if the debt is over $100,000. “New York has become very, very conservative in this area,” Hsiung says.
Tax advocates argue that New York law is clouded in opaque language and unhelpful instructions, making it more difficult for people without legal access to know their options when the Department of Taxation and Finance sends them a letter about suspension of a license. Debtors have 60 days to respond to the DTF’s inquest. Many people, however, only respond to DMV letters about their license, Maresca notes.
While the state has mechanisms to address the problem of tax debtors who lack resources, such as the state’s Offer in Compromise program, most people do not know this option exists, according to Hsiung, and if they do it’s hard for them to navigate without legal help. The program is not listed on tax forms and is only mentioned if people call the tax department.
Hsiung didn’t mince words when criticizing the state’s failure to advertise Offer in Compromise. “They’re clearly trying to circumvent their constitutional obligations,” he says.
“Clearly, this is disingenuous if you look at the form and how they talk to taxpayers,” Maresca adds.
“The DTF doesn’t want anyone to know what it’s doing,” Maresca says. “The IRS can be impenetrable in many ways, but at least there’s information on its website.”
The state’s lack of transparency about this complex subject puts everyone, from taxpayers to advocates, at a disadvantage, Hsiung says. This is why the Fordham Tax Clinic’s service is so vital.
“This is a huge problem with New York State,” Hsiung says. “They do not publish guidance. If you look on the website it is very dense. They don’t publish regulations. This is a constant problem we’ve had for years, decades.”
The Road Ahead
As of June 29, if a person has a valid reason for being unable to pay his tax debt, his account will be marked “do not suspend,” just as is the account of the clinic’s client. Maresca and her students are fighting for four other clients facing this problem.
“It’s a wonderful step,” Maresca says of the new resolution. “As soon as the training is solidified with the staff, people will have a better time dealing with the DTF.” It is important, she adds, that the person who answers the phone for the DTF performs
the necessary check on the caller’s payment capabilities rather than leave that burden to the caller.
Maresca and Hsiung differ on whether a form for taxpayers to report their earnings and income would be helpful for the DTF to best judge taxpaying capabilities. Maresca argues the DTF already has that information at its disposal. Hsiung believes such a form would limit the risk of people with limited financial resources having their driver’s licenses suspended.
“It’s something the IRS does. It’s something other states do. New York has the computer capacity to do it,” Hsiung says of the form.
Phone calls to the Fordham Tax Clinic for help with debt-related driver’s license suspensions have stopped in recent months, Maresca notes. The need for vigilance remains.
“My experience with New York State has shown me that you need to constantly remind them that people with different circumstances need to be treated differently, and that includes taxes,” she says.