Friday, February 13, 2009

Offers in Compromise

The IRS has issued a memorandum (Control Number SBSE-05-0209-006 which can be found at: as interim guidance for an additional review which will be conducted on offer in compromise cases that meet specific criteria. The purpose of the additional review is to confirm the value of the real property and ensure that the reasonable collection potential has been properly determined. The IRS advises that these procedures are meant to supplement; not replace, the financial analysis and review provisions of the Internal Revenue Manual. The memo advises that all IRS employees should be sensitive to the current economic conditions that may be affecting taxpayers while investigating the acceptability of an offer.

Wednesday, February 11, 2009

Tax Court Review of Equitable Innocent Spouse Relief is De Novo

In Commissioner v. Neal, ___ F.3d ___ (11th Cir. 2009), decided yesterday, the Court held that Tax Court review of the Commissioner's determinations under Section 6015(f) is de novo rather than limited to the administrative record. The Tax Court itself had previously so held, but the IRS appealed to try to reverse the holding.

The majority and dissenting opinions ably discuss the competing arguments and, in doing so, provides good discussions of the innocent spouse provisions generally. The Court also summarizes the Tax Court's history since inception (see fn. 7 on p. 14 of the slip opinion which is linked above).

The key holding (de novo review) is a major relief for persons who have failed to perfect the administrative record, as is often the case for spouses on limited budgets who try to avoid expense at the administrative level by pursuing relief pro se without benefit of counsel. If the IRS grants relief, that strategy works. If the IRS denies relief, however, so that relief must be sought in the Tax Court, at least counsel engaged at that stage will not be limited by the incomplete administrative record. The dissent was troubled that permitting de novo review in the Tax Court will encourage spouses claiming innocent spouse relief to be less than complete in the administrative proceedings where most of these cases should get resolved. Still, given the dynamics of how many of these cases are pursued, the right thing to do is to forego limiting the Tax Court review to the administrative records.

Tuesday, February 10, 2009

Voluntary Tax System

We thought the statement that our system is a voluntary tax system was a euphemism. The voluntariness of the system is mitigated substantially by the threat of civil and criminal penalties should you not "volunteer" (aka pay) your tax to the IRS. Still, some of our elected politicians have difficulty with the concept as this video shows.

Monday, February 9, 2009

Preparer Penalties in Employment Tax Exams

The IRS has issued a memorandum on procedures for employment tax examiners for opening preparer penalty cases and assessing preparer penalties under IRC §§ 6694 and 6695. See full memorandum at:

Prior to May 25, 2007, preparer penalties under IRC §§ 6694 and 6695 were not applicable to employment tax returns. IRC §§ 6694 and 6695 were applicable only to preparers of income tax returns. The Small Business and Work Opportunity Tax Act (SBWOTA) of 2007 amended IRC §§ 6694 and 6695 to include any tax return preparer. Preparer penalties became applicable to employment tax returns filed on or after May 25, 2007.

The memorandum provides in part as follows:

During all field and office examinations, a determination will be made as to whether the facts and circumstances of the examination give rise to the development of a penalty issue. This determination will be made based on oral testimony and/or written evidence obtained during the examination process. Examiners are required to comment on preparer penalties on all cases examined.