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What happens when a nonprofit that provides legal advice to the city’s vulnerable is itself in need of legal assistance? Bread for the City is a nonprofit organization that provides free services to more than 10,000 vulnerable D.C. residents each month. The organization’s legal clinic ensures access to justice for low-income individuals in the District, providing legal advice and representation in matters of landlord or tenant, family, and disability law. Ironically, four years ago, we at Bread for the City discovered that we needed legal assistance in connection with a large federal payroll tax assessment. Thanks to hundreds of hours of pro bono work by Dickstein Shapiro attorneys, Bread for the City recently achieved justice from the Internal Revenue Service and now has $50,000 in additional funds to devote to our programs to serve the poor. The saga began in May 2003, when Bread for the City discovered that FirstPay Inc., a company we hired to prepare our payroll tax returns and process our payroll deposits, had embezzled about $137,000 from our payroll tax bank account. According to media reports, FirstPay embezzled $11 million from more than 250 organizations, including many tax-exempt organizations. FirstPay’s CEO, after spending all of the money, abruptly died. FirstPay declared bankruptcy, and the IRS demanded that FirstPay’s customers pay (or, more accurately, repay) millions in “overdue” payroll taxes. This theft threatened to undermine Bread for the City’s ability to feed the hungry, clothe the poor, care for the uninsured, and advocate for needy residents in Washington, D.C. Previous counsel advised Bread for the City that, regardless of the equities, it would have to repay all the taxes � including interest. Over several years, Bread for the City followed this advice and repaid more than $90,000 to the IRS. With the interest, however, we continued to owe $50,000, and funds were getting tighter. At a Bread for the City board of directors meeting, I was forced to report that our programs might have to be scaled down to meet this tax obligation. Paul Taskier, a Dickstein Shapiro partner who serves on our board, immediately called Lawrence Garr, a Dickstein tax partner. Taskier was told that Garr was already representing another charity on a pro bono basis in the FirstPay case, and had advised the client not to pay a cent to the IRS. In a matter of seconds, Dickstein Shapiro added Bread for the City to its client roster. In both cases, Dickstein Shapiro attorneys filed offers in compromise (Form 656) under the effective tax administration provisions of the Internal Revenue Code. These are relatively new provisions that allow the IRS to accept substantially reduced tax payments, even when taxpayers have the ability to pay in full, so long as equity warrants and the compromise does not reward undeserving taxpayers. WHO’S TO BLAME? At first, the IRS rejected Bread for the City’s offer, along with offers filed by other FirstPay victims. The IRS stated that hardships imposed on D.C. families who depend on our programs were irrelevant, since hardship is only considered when it is evaluating offers filed by individuals. The IRS also blamed us for failing to take out fraud insurance or more quickly realize that FirstPay was diverting funds. In short, the IRS said it was not an insurance company. In spite of this setback, our attorneys stayed the course and appealed the rejection. In response to appeals by Bread for the City and the other FirstPay victim represented by Dickstein Shapiro, the IRS decided to reconsider its criteria for evaluating effective tax administration offers. Ultimately, the IRS rewrote its Internal Revenue Manual to allow for compassion in settling extraordinary, compelling situations. Applying the new guidelines, the IRS finally recognized the fact that Bread for the City was a blameless victim of a fraud, and that we provide critical services to the community. The new guidelines also direct the IRS to consider a taxpayer’s compliance history. Before hiring FirstPay, we had always paid our taxes in full and on time. After carefully considering all of the relevant facts, the IRS was convinced that our underpayment was an aberration caused by FirstPay’s criminal acts, and that demanding payment in full would substantially harm the community we serve. SETTLING UP And last week, the IRS reached an agreement with us � settling the $50,000 tax bill run up by the criminal acts of FirstPay for $50 and allowing desperately needed funds to flow to local residents in need. We applaud the IRS’s decision, and we are grateful for the strong support we received from Dickstein Shapiro, thanks to Larry Garr, associate Matthew Ricciardi, and summer associate Jennifer Na. In addition, national taxpayer advocate Nina Olson and her staff at the Taxpayer Advocate Service, and Rep. Jim Ramstad (R-Minn.), a member of the Ways and Means Committee, provided crucial support and guidance. In fact, this victory is only one of the many successes that Bread for the City and Dickstein Shapiro have enjoyed throughout a 10-year relationship. In addition to legal work, Dickstein attorneys and staff also volunteer time in connection with our many programs, including helping to provide holiday meals to thousands of needy District residents. Bread for the City has been strengthened by our partnerships with Dickstein Shapiro and other local law firms. This pro bono victory is the most recent example of the outstanding work Dickstein has done to make a difference in our community.
George Jones is executive director of Bread for the City. He can be contacted at [email protected].

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