With the agreement of the parties, the Tax Court directed the experts to testify concurrently. To implement the concurrent testimony, the Court sat at a large table in the middle of the courtroom with all three experts, each of whom was under oath. The parties' counsel sat a few feet away. The Court then engaged the experts in a three-way conversation about ultimate issues of fact. Counsel could, but did not, object to any of the experts' testimony. When necessary, the Court directed the discussion and focused on matters that the Court considered important to resolve. By engaging in this conversational testimony, the experts were able and allowed to speak to each other, to ask questions, and to probe weaknesses in any other expert's testimony. The discussion that followed was highly focused, highly structured, and directed by the Court. See Rovakat LLC et al. v. Commissioner; T.C. Memo. 2011-225 (Judge Laro). See the opinion here.
Wednesday, September 21, 2011
Monday, July 25, 2011
Watch the Statute of Limitations
In tax controversy matters is it important to be aware of the statute of limitations. Set forth below are some basic rules for dealing with the statute of limitations (SOL). The references are to the applicable sections of the Internal Revenue Code.
A. General Rules
1. SOL - The IRS has 3 years from the time the tax return is filed to assess. Section 6501.
2. Notice and Demand- Upon an assessment being made, the IRS has 60 days to notify the taxpayer of the assessment and demand the amount assessed. Section 6303(a).
B. Determination of the SOL
1. Due Date - The due date of an individual return is April 15th (or the following Monday if April 15th falls on a Saturday or Sunday). Section 6072(a).
2. When a Return is Deemed Filed - Sections 6501(b) and 7502(a) (2).
a. A return filed on or before the due date is deemed filed as of the due date.
b. A return filed after the due date is deemed filed as of the postmark date.
c. Quarterly returns are deemed filed on April 15th of the following year.
3. Returns Mailed to the Wrong IRS Service Center - A return must be filed at the service center where the taxpayer has been instructed to file the return, or otherwise probably will not be considered filed, thus causing the SOL to be indefinite. Section 6091.
4. Unsigned Returns - Unsigned returns are considered not filed with an indefinite SOL, and the IRS has no duty to alert the taxpayer of an unfiled return. Section 6061.
5. Fraudulent and Unfiled Returns - With intentionally false and fraudulent and unfiled tax returns, the SOL is indefinite. Section 6501.
6. Partners - Late partnership returns do not affect the filing date of partners' individual tax returns. Section 6229.
C. Suspension of SOL with 90-Day Letters and Tax Court Cases
1. 90-day Letters - The SOL is suspended from the date of issuance of a 90-day letter, and during that period the IRS cannot assess the deficiency. Section 6503(a)(1).
2. Pending Tax Court Case - No assessment can be made during the time a Tax Court case is pending. The SOL is suspended during this period. Section 6213(a) and 6503(a)(1).
3. Final Tax Court Decision
a. Tax Court decisions are not final until the appeal period has expired. The time to make an assessment is suspended during this period. Section 7481.
b. The appeal period runs 90 days after the Tax Court decision is entered. Section 7483.
c. The SOL is suspended an additional 60 days after the appeal period ends. Section 6503(a)(1).
D. Collection SOL - The SOL on collection of an assessment runs 10 years from the assessment date. Section 6502(a).
E. Criminal Cases - The SOL for prosecution of criminal cases is 6 years.
Friday, July 22, 2011
Make Sure Your Clients Have Substantiation to Prove Their Deductions
In the recent case of Stroff v. Commissioner, T.C. Memo. 2011-80, the taxpayer was granted a partial deduction for expenses. Section 162(a) of the Internal Revenue Code allows a deduction for all the ordinary and necessary expenses paid or incurred by the taxpayer during the taxable year in carrying on any trade or business. The taxpayer has the burden to maintain records sufficient to substantiate the amounts and purposes of deductions claimed.
The Court allowed the partial deduction based on the Cohan rule. The Court stated: "Under the Cohan rule, in the event that a taxpayer establishes that he or she has incurred a deductible expense but is unable to substantiate the precise amount, the Court may approximate the amount of the expense. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). The Court must have sufficient evidence upon which to make a reasonable estimate to apply the Cohan rule."
We are seeing more and more cases where deductions are being disallowed because the taxpayer does not have the substantiation required by Section 274(d) of the Internal Revenue Code.
Thursday, June 9, 2011
AUDIT RECONSIDERATION
Generally, once the IRS makes an assessment the taxpayer must pay the assessment and file suit in order to challenge the assessment. The taxpayer, however, does have other options rather than paying the tax. One option is to request audit reconsideration. Audit reconsideration is available when there has been a communication problem between the taxpayer and the IRS, or the taxpayer has chosen to ignore a statutory notice of deficiency. In some cases, the IRS has permitted audit reconsideration of returns after collection has begun. It is important to gather as much information as possible about the year in question to show a need for audit reconsideration. A taxpayer should always ask for audit reconsideration. The worst that can happen is the IRS denies audit reconsideration. If this happens, the taxpayer should ask for an appeals conference.
The following three requirements must be met to receive audit reconsideration after collection has begun:
1. The taxpayer has changed addresses since the original tax return was filed; therefore, the deficiency notice was not sent to the taxpayer's new address.
2. The taxpayer has not received any notification from the IRS of the assessment or as to how the assessment was determined prior to receipt of the bill.
3. The taxpayer has not had an opportunity to submit any required substantiation to tell his side of the story.
Reasons for Audit Reconsideration Request (IRM 4.13.1.3):
1. The taxpayer did not appear for the audit.
2. The taxpayer moved and did not receive the correspondence from the IRS.
3. The taxpayer has new documentation to present.
4. The taxpayer disagrees with an assessment from an audit of the taxpayer's return and has additional information to be considered.
5. The taxpayer disagrees with an assessment created under the authority of Section 6020(b).
6. The taxpayer has been denied tax credits such as EITC claimed during prior examination.
Thursday, May 19, 2011
Old Letterhead and Excessive Postage
Below is the letterhead from a recent IRS letter. I did not know we still had District Directors. Also, is a postage mark on a large envelope from an agency, not the IRS this time, that contained a two page letter. The postage was $1.28 for the two page letter.
Friday, April 29, 2011
IRS Request Withdrawal of Collection Due Process Hearing - Before the Hearing
Recently in letters from IRS Appeals advising the taxpayer that a hearing has been scheduled, the IRS is enclosing Form 12256, WIthdrawal of Request for Collection Due Process or Equivalent Hearing. We do not understand the purpose of enclosing this form. It is confusing to the taxpayer. The cover letter from Appeals states:
"If you no longer want to pursue the CDP Hearing, I have enclosed Form 12256 for you to sign and withdraw your request. You can fax or mail this back to me prior to the deadline date".
We see no reason for the IRS to include this form. Appeals can certainly discuss a withdrawal with the taxpayer during the hearing. It seems that Appeals should be trying to help the taxpayer, rather than seeking a withdrawal of the hearing request before the hearing takes place. While it is only page, we doubt that many taxpayers sign it. Therefore, it is just a waste of taxpayers’ money.
Will the IRS Listen?
Here is an article titled "How to talk so the IRS will listen". This article give guidance on how to deal with the IRS.
Wednesday, April 13, 2011
How Long Should Records Be Kept?
In IRS Tax Tip 2011-71 the IRS has given advise on how long to keep records for tax purposes. The IRS says the following:
1. Normally, tax records should be kept for three years.
2. Some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.
3. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return.
4. Records you should keep include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.
5. For more information on what kinds of records to keep, see IRS Publication 552, Recordkeeping for Individuals, which is available on the IRS website at http://www.irs.gov/.
It is getting more difficult to obtain deductions in an audit, at IRS Appeals, or in court, if records are not available to prove the deduction. Everyone should keep detailed records and this is especially true for automobile and travel expenses.
1. Normally, tax records should be kept for three years.
2. Some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.
3. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return.
4. Records you should keep include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.
5. For more information on what kinds of records to keep, see IRS Publication 552, Recordkeeping for Individuals, which is available on the IRS website at http://www.irs.gov/.
It is getting more difficult to obtain deductions in an audit, at IRS Appeals, or in court, if records are not available to prove the deduction. Everyone should keep detailed records and this is especially true for automobile and travel expenses.
Friday, April 8, 2011
How the IRS Will Operate If There Is A Shutdown
Here is what the IRS Operations Will Be During A Government Shutdown
If the federal government shuts down, IRS operations will be severely limited. However, the underlying tax law remains in effect, and all taxpayers should continue to meet their tax obligations as normal.
Individuals should keep filing their tax returns with the IRS and are required to do so by April 18 unless they obtain a six-month extension. The IRS will be accepting all tax returns. Once they’ve been accepted, the IRS will generally process and issue refunds for electronically filed individual returns.
Individuals are urged to file electronically, because most of these returns are processed automatically and should not be delayed. Because of limited IRS staffing, paper returns will be accepted, but will not be processed in the event of a government shutdown and taxpayers who file paper returns will experience a delay in receiving their refunds. Limited telephone customer service functions will remain available, but IRS walk-in taxpayer assistance centers will be closed.
While the government is closed, people with appointments related to examinations (audits), collection, Appeals or Taxpayer Advocate cases should assume their meetings are cancelled. IRS personnel will reschedule those meetings at a later date.
Here are some basic steps for taxpayers to follow in case of a governnment shutdown:
How Does This Affect Me? What Do I Do?
• You should continue to file and pay taxes as normal.
• The April 18, 2011, tax deadline for filing the 1040 series of tax returns remains in effect.
• Individuals filing the 1040 series of returns can still request a six-month filing extension to Oct. 17 by filing Form 4868. Taxpayers who request a filing extension must still make their tax payments by April 18, 2011.
• The quarterly estimated tax payment due April 18 is unchanged.
• All other tax deadlines remain in effect, including those covering individuals, corporations, partnerships and employers. The regular payroll tax deadlines remain in effect as well.
• You can file your tax return electronically or on paper –– although the processing of paper returns will be delayed until full government operations resume. Payments accompanying paper tax returns will still be accepted as the IRS receives them.
• Tax refunds for most electronically filed returns will continue to be issued. Because of limited IRS staffing, taxpayers who file paper returns will experience a delay in receiving their refunds.
• Tax software companies, tax practitioners and Free File remain available to assist with taxes.
• State tax deadlines are not impacted by the federal government shutdown.
What Will Happen At The IRS If The Government Shuts Down?
Only the most basic functions will remain operating in light of the critical April 18 filing deadline.
Operations Available
During the Government Shutdown
Tax processing operations are continuing at this time for electronically filed 1040 series tax returns.
Tax refunds will be issued as returns are processed, so most tax refunds for electronically filed returns will be issued. Taxpayers should expect longer than normal delays for paper filed tax refunds. IRS e-file and Free File remain the best way of getting tax refunds quickly and are unaffected by the government shutdown.
Tax deposits and payments are being processed, both for electronic and paper tax returns. Taxpayers should continue to make these payments as normal.
The IRS will continue accepting all tax returns during this period. In addition to individual e-file, business e-file will remain open as well and refunds for business e-filers will continue.
For individual taxpayers seeking assistance, the regular 800-829-1040 telephone line remains open. However, this line will not accept calls unrelated to individual tax issues, and taxpayers should anticipate much longer wait times. As an alternative, taxpayers are strongly encouraged to use www.IRS.gov.
The IRS website, www.IRS.gov, will remain available, although some interactive features may not be available. ”Where’s My Refund” will remain available on the IRS website for people to check on the status of their tax refunds.
If people have already filed their return and the IRS has started processing their tax return, they generally will see no delays in their refunds being issued. The best source for information will be checking "Where's My Refund" at www.IRS.gov.
The IRS Free File partners will continue to accept and file tax returns.
Tax software companies will continue to accept and file tax returns.
The IRS Volunteer Income Tax Assistance Program (VITA) and the Tax Counseling for the Elderly (TCE) Programs will remain open in many locations to offer free tax help for taxpayers who qualify. Many Low-Income Taxpayer Clinics will remain open.
Many automated IRS notices will continue to be mailed.
Operations Closed
Or Unavailable During a Government Shutdown
(Partial Listing)
Taxpayer Assistance Centers (TACs) where taxpayers walk-in for service will be closed. People with scheduled appointments during the government shutdown will have to reschedule.
While the government is closed, people with appointments related to examinations (audits), collection, Appeals or Taxpayer Advocate cases should assume their meetings are cancelled. IRS personnel will reschedule those meetings at a later date.
No live telephone assistance will be available for non-1040 series business taxpayers on the 800-829-4933 number.
No live telephone assistance will be available for exempt organizations, retirement plans administrators or governmental entities that use the 877-829-5500 number.
The phone number for victims of identity theft (800-908-4490) will not be available.
The IRS will not be working any paper correspondence during this period.
Most IRS legal counsel services will stop.
Information for Tax Practitioners
• The e-Help Desk will be available for e-file error reject code assistance only -- Monday through Friday from 6:30 a.m. to 5:00 p.m. Central Time.
• The Practitioner Priority Service line will not be available.
• Quick Alerts will be issued as necessary via the normal e-mail process.
If the federal government shuts down, IRS operations will be severely limited. However, the underlying tax law remains in effect, and all taxpayers should continue to meet their tax obligations as normal.
Individuals should keep filing their tax returns with the IRS and are required to do so by April 18 unless they obtain a six-month extension. The IRS will be accepting all tax returns. Once they’ve been accepted, the IRS will generally process and issue refunds for electronically filed individual returns.
Individuals are urged to file electronically, because most of these returns are processed automatically and should not be delayed. Because of limited IRS staffing, paper returns will be accepted, but will not be processed in the event of a government shutdown and taxpayers who file paper returns will experience a delay in receiving their refunds. Limited telephone customer service functions will remain available, but IRS walk-in taxpayer assistance centers will be closed.
While the government is closed, people with appointments related to examinations (audits), collection, Appeals or Taxpayer Advocate cases should assume their meetings are cancelled. IRS personnel will reschedule those meetings at a later date.
Here are some basic steps for taxpayers to follow in case of a governnment shutdown:
How Does This Affect Me? What Do I Do?
• You should continue to file and pay taxes as normal.
• The April 18, 2011, tax deadline for filing the 1040 series of tax returns remains in effect.
• Individuals filing the 1040 series of returns can still request a six-month filing extension to Oct. 17 by filing Form 4868. Taxpayers who request a filing extension must still make their tax payments by April 18, 2011.
• The quarterly estimated tax payment due April 18 is unchanged.
• All other tax deadlines remain in effect, including those covering individuals, corporations, partnerships and employers. The regular payroll tax deadlines remain in effect as well.
• You can file your tax return electronically or on paper –– although the processing of paper returns will be delayed until full government operations resume. Payments accompanying paper tax returns will still be accepted as the IRS receives them.
• Tax refunds for most electronically filed returns will continue to be issued. Because of limited IRS staffing, taxpayers who file paper returns will experience a delay in receiving their refunds.
• Tax software companies, tax practitioners and Free File remain available to assist with taxes.
• State tax deadlines are not impacted by the federal government shutdown.
What Will Happen At The IRS If The Government Shuts Down?
Only the most basic functions will remain operating in light of the critical April 18 filing deadline.
Operations Available
During the Government Shutdown
Tax processing operations are continuing at this time for electronically filed 1040 series tax returns.
Tax refunds will be issued as returns are processed, so most tax refunds for electronically filed returns will be issued. Taxpayers should expect longer than normal delays for paper filed tax refunds. IRS e-file and Free File remain the best way of getting tax refunds quickly and are unaffected by the government shutdown.
Tax deposits and payments are being processed, both for electronic and paper tax returns. Taxpayers should continue to make these payments as normal.
The IRS will continue accepting all tax returns during this period. In addition to individual e-file, business e-file will remain open as well and refunds for business e-filers will continue.
For individual taxpayers seeking assistance, the regular 800-829-1040 telephone line remains open. However, this line will not accept calls unrelated to individual tax issues, and taxpayers should anticipate much longer wait times. As an alternative, taxpayers are strongly encouraged to use www.IRS.gov.
The IRS website, www.IRS.gov, will remain available, although some interactive features may not be available. ”Where’s My Refund” will remain available on the IRS website for people to check on the status of their tax refunds.
If people have already filed their return and the IRS has started processing their tax return, they generally will see no delays in their refunds being issued. The best source for information will be checking "Where's My Refund" at www.IRS.gov.
The IRS Free File partners will continue to accept and file tax returns.
Tax software companies will continue to accept and file tax returns.
The IRS Volunteer Income Tax Assistance Program (VITA) and the Tax Counseling for the Elderly (TCE) Programs will remain open in many locations to offer free tax help for taxpayers who qualify. Many Low-Income Taxpayer Clinics will remain open.
Many automated IRS notices will continue to be mailed.
Operations Closed
Or Unavailable During a Government Shutdown
(Partial Listing)
Taxpayer Assistance Centers (TACs) where taxpayers walk-in for service will be closed. People with scheduled appointments during the government shutdown will have to reschedule.
While the government is closed, people with appointments related to examinations (audits), collection, Appeals or Taxpayer Advocate cases should assume their meetings are cancelled. IRS personnel will reschedule those meetings at a later date.
No live telephone assistance will be available for non-1040 series business taxpayers on the 800-829-4933 number.
No live telephone assistance will be available for exempt organizations, retirement plans administrators or governmental entities that use the 877-829-5500 number.
The phone number for victims of identity theft (800-908-4490) will not be available.
The IRS will not be working any paper correspondence during this period.
Most IRS legal counsel services will stop.
Information for Tax Practitioners
• The e-Help Desk will be available for e-file error reject code assistance only -- Monday through Friday from 6:30 a.m. to 5:00 p.m. Central Time.
• The Practitioner Priority Service line will not be available.
• Quick Alerts will be issued as necessary via the normal e-mail process.
Texas Clients of JK Harris & Co. to Get Refunds
The Texas Attorney General has settled a lawsuit with JK Harris & Co. See article here.
IRS Releases New Offer in Compromise Form
Wednesday, March 23, 2011
Change of Mailing Address for FOIA Requests
The Internal Revenue Service has almost completed modernizing Freedom of Information Act (FOIA) and Privacy Act case processing with the implementation of AFOIA, Automated Freedom of Information Act.
Due to the volume of correspondence and payments the IRS receives, they have changed the FOIA mailing address. Effective April 1, 2011, the new address for all FOIA correspondence and payments is:
Internal Revenue Service
Disclosure Scanning Operation – Stop 93A
Post Office Box 621506
Atlanta, GA 30362-3006
AFOIA allows the IRS to centralize receipt of requests and electronically process and distribute them throughout the country.
Tuesday, March 15, 2011
Can the IRS Save on Postage?
We recently received three envelopes from the IRS that measured 10 inches by 15 inches. Each envelope contained a one page letter. The postage on the envelopes was $00.88, $1.05, and $2.41. Is it really necessary to place a one page letter in such a large envelope and expend more than $00.44 for the postage? Regular postage would have saved $3.02.
Thursday, February 24, 2011
IRS Announces New Effort to Help Struggling Taxpayers Get a Fresh Start; Major Changes Made to Lien Process
WASHINGTON — In its latest effort to help struggling taxpayers, the Internal Revenue Service today announced a series of new steps to help people get a fresh start with their tax liabilities. See IR-2011-20
The goal is to help individuals and small businesses meet their tax obligations, without adding unnecessary burden to taxpayers. Specifically, the IRS is announcing new policies and programs to help taxpayers pay back taxes and avoid tax liens.
“We are making fundamental changes to our lien system and other collection tools that will help taxpayers and give them a fresh start,” IRS Commissioner Doug Shulman said. “These steps are good for people facing tough times, and they reflect a responsible approach for the tax system.”
Today’s announcement centers on the IRS making important changes to its lien filing practices that will lessen the negative impact on taxpayers. The changes include:
• Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens.
• Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill.
• Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement.
• Creating easier access to Installment Agreements for more struggling small businesses.
• Expanding a streamlined Offer in Compromise program to cover more taxpayers.
“These steps are in the best interest of both taxpayers and the tax system,” Shulman said. “People will have a better chance to stay current on their taxes and keep their financial house in order. We all benefit if that happens.”
This is another in a series of steps to help struggling taxpayers. In 2008, the IRS announced lien relief for people trying to refinance or sell a home. In 2009, the IRS added new flexibility for taxpayers facing payment or collection problems. And last year, the IRS held about 1,000 special open houses to help small businesses and individuals resolve tax issues with the Agency.
Today’s announcement comes after a review of collection operations which Shulman launched last year, as well as input from the Internal Revenue Service Advisory Council and the National Taxpayer Advocate.
Tax Lien Thresholds
The IRS will significantly increase the dollar thresholds when liens are generally filed. The new dollar amount is in keeping with inflationary changes since the number was last revised. Currently, liens are automatically filed at certain dollar levels for people with past-due balances.
The IRS plans to review the results and impact of the lien threshold change in about a year.
A federal tax lien gives the IRS a legal claim to a taxpayer’s property for the amount of an unpaid tax debt. Filing a Notice of Federal Tax Lien is necessary to establish priority rights against certain other creditors. Usually the government is not the only creditor to whom the taxpayer owes money.
A lien informs the public that the U.S. government has a claim against all property, and any rights to property, of the taxpayer. This includes property owned at the time the notice of lien is filed and any acquired thereafter. A lien can affect a taxpayer's credit rating, so it is critical to arrange the payment of taxes as quickly as possible.
“Raising the lien threshold keeps pace with inflation and makes sense for the tax system,” Shulman said. “These changes mean tens of thousands of people won’t be burdened by liens, and this step will take place without significantly increasing the financial risk to the government.”
Tax Lien Withdrawals
The IRS will also modify procedures that will make it easier for taxpayers to obtain lien withdrawals.
Liens will now be withdrawn once full payment of taxes is made if the taxpayer requests it. The IRS has determined that this approach is in the best interest of the government.
In order to speed the withdrawal process, the IRS will also streamline its internal procedures to allow collection personnel to withdraw the liens.
Direct Debit Installment Agreements and Liens
The IRS is making other fundamental changes to liens in cases where taxpayers enter into a Direct Debit Installment Agreement (DDIA). For taxpayers with unpaid assessments of $25,000 or less, the IRS will now allow lien withdrawals under several scenarios:
• Lien withdrawals for taxpayers entering into a Direct Debit Installment Agreement.
• The IRS will withdraw a lien if a taxpayer on a regular Installment Agreement converts to a Direct Debit Installment Agreement.
• The IRS will also withdraw liens on existing Direct Debit Installment greements upon taxpayer request.
Liens will be withdrawn after a probationary period demonstrating that direct debit payments will be honored.
In addition, this lowers user fees and saves the government money from mailing monthly payment notices. Taxpayers can use the Online Payment Agreement application on IRS.gov to set-up with Direct Debit Installment Agreements.
“We are trying to minimize burden on taxpayers while collecting the proper amount of tax,” Shulman said. “We believe taking away taxpayer burden makes sense when a taxpayer has taken the proactive step of entering a direct debit agreement.”
Installment Agreements and Small Businesses
The IRS will also make streamlined Installment Agreements available to more small businesses. The payment program will raise the dollar limit to allow additional small businesses to participate.
Small businesses with $25,000 or less in unpaid tax can participate. Currently, only small businesses with under $10,000 in liabilities can participate. Small businesses will have 24 months to pay.
The streamlined Installment Agreements will be available for small businesses that file either as an individual or as a business. Small businesses with an unpaid assessment balance greater than $25,000 would qualify for the streamlined Installment Agreement if they pay down the balance to $25,000 or less.
Small businesses will need to enroll in a Direct Debit Installment Agreement to participate.
“Small businesses are an important part of the nation’s economy, and the IRS should help them when we can,” Shulman said, “By expanding payment options, we can help small businesses pay their tax bill while freeing up cash flow to keep funding their operations.”
Offers in Compromise
The IRS is also expanding a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers.
This streamlined OIC is being expanded to allow taxpayers with annual incomes up to $100,000 to participate. In addition, participants must have tax liability of less than $50,000, doubling the current limit of $25,000 or less.
OICs are subject to acceptance based on legal requirements. An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.
Related Items:
• IRS Begins Tax Season 2009 with Steps to Help Financially Distressed Taxpayers; Promotes Credits, e-File Options (IR-2009-2)
• IRS Speeds Lien Relief for Homeowners Trying to Refinance, Sell (IR-2008-141)
The goal is to help individuals and small businesses meet their tax obligations, without adding unnecessary burden to taxpayers. Specifically, the IRS is announcing new policies and programs to help taxpayers pay back taxes and avoid tax liens.
“We are making fundamental changes to our lien system and other collection tools that will help taxpayers and give them a fresh start,” IRS Commissioner Doug Shulman said. “These steps are good for people facing tough times, and they reflect a responsible approach for the tax system.”
Today’s announcement centers on the IRS making important changes to its lien filing practices that will lessen the negative impact on taxpayers. The changes include:
• Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens.
• Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill.
• Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement.
• Creating easier access to Installment Agreements for more struggling small businesses.
• Expanding a streamlined Offer in Compromise program to cover more taxpayers.
“These steps are in the best interest of both taxpayers and the tax system,” Shulman said. “People will have a better chance to stay current on their taxes and keep their financial house in order. We all benefit if that happens.”
This is another in a series of steps to help struggling taxpayers. In 2008, the IRS announced lien relief for people trying to refinance or sell a home. In 2009, the IRS added new flexibility for taxpayers facing payment or collection problems. And last year, the IRS held about 1,000 special open houses to help small businesses and individuals resolve tax issues with the Agency.
Today’s announcement comes after a review of collection operations which Shulman launched last year, as well as input from the Internal Revenue Service Advisory Council and the National Taxpayer Advocate.
Tax Lien Thresholds
The IRS will significantly increase the dollar thresholds when liens are generally filed. The new dollar amount is in keeping with inflationary changes since the number was last revised. Currently, liens are automatically filed at certain dollar levels for people with past-due balances.
The IRS plans to review the results and impact of the lien threshold change in about a year.
A federal tax lien gives the IRS a legal claim to a taxpayer’s property for the amount of an unpaid tax debt. Filing a Notice of Federal Tax Lien is necessary to establish priority rights against certain other creditors. Usually the government is not the only creditor to whom the taxpayer owes money.
A lien informs the public that the U.S. government has a claim against all property, and any rights to property, of the taxpayer. This includes property owned at the time the notice of lien is filed and any acquired thereafter. A lien can affect a taxpayer's credit rating, so it is critical to arrange the payment of taxes as quickly as possible.
“Raising the lien threshold keeps pace with inflation and makes sense for the tax system,” Shulman said. “These changes mean tens of thousands of people won’t be burdened by liens, and this step will take place without significantly increasing the financial risk to the government.”
Tax Lien Withdrawals
The IRS will also modify procedures that will make it easier for taxpayers to obtain lien withdrawals.
Liens will now be withdrawn once full payment of taxes is made if the taxpayer requests it. The IRS has determined that this approach is in the best interest of the government.
In order to speed the withdrawal process, the IRS will also streamline its internal procedures to allow collection personnel to withdraw the liens.
Direct Debit Installment Agreements and Liens
The IRS is making other fundamental changes to liens in cases where taxpayers enter into a Direct Debit Installment Agreement (DDIA). For taxpayers with unpaid assessments of $25,000 or less, the IRS will now allow lien withdrawals under several scenarios:
• Lien withdrawals for taxpayers entering into a Direct Debit Installment Agreement.
• The IRS will withdraw a lien if a taxpayer on a regular Installment Agreement converts to a Direct Debit Installment Agreement.
• The IRS will also withdraw liens on existing Direct Debit Installment greements upon taxpayer request.
Liens will be withdrawn after a probationary period demonstrating that direct debit payments will be honored.
In addition, this lowers user fees and saves the government money from mailing monthly payment notices. Taxpayers can use the Online Payment Agreement application on IRS.gov to set-up with Direct Debit Installment Agreements.
“We are trying to minimize burden on taxpayers while collecting the proper amount of tax,” Shulman said. “We believe taking away taxpayer burden makes sense when a taxpayer has taken the proactive step of entering a direct debit agreement.”
Installment Agreements and Small Businesses
The IRS will also make streamlined Installment Agreements available to more small businesses. The payment program will raise the dollar limit to allow additional small businesses to participate.
Small businesses with $25,000 or less in unpaid tax can participate. Currently, only small businesses with under $10,000 in liabilities can participate. Small businesses will have 24 months to pay.
The streamlined Installment Agreements will be available for small businesses that file either as an individual or as a business. Small businesses with an unpaid assessment balance greater than $25,000 would qualify for the streamlined Installment Agreement if they pay down the balance to $25,000 or less.
Small businesses will need to enroll in a Direct Debit Installment Agreement to participate.
“Small businesses are an important part of the nation’s economy, and the IRS should help them when we can,” Shulman said, “By expanding payment options, we can help small businesses pay their tax bill while freeing up cash flow to keep funding their operations.”
Offers in Compromise
The IRS is also expanding a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers.
This streamlined OIC is being expanded to allow taxpayers with annual incomes up to $100,000 to participate. In addition, participants must have tax liability of less than $50,000, doubling the current limit of $25,000 or less.
OICs are subject to acceptance based on legal requirements. An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.
Related Items:
• IRS Begins Tax Season 2009 with Steps to Help Financially Distressed Taxpayers; Promotes Credits, e-File Options (IR-2009-2)
• IRS Speeds Lien Relief for Homeowners Trying to Refinance, Sell (IR-2008-141)
Tuesday, January 11, 2011
Currently Non Collectible
Many times a taxpayer cannot pay taxes that are owed. These taxpayers are in a hardship situation. Not only can they not pay the IRS, but they cannot pay their ordinary expenses. In addition, these taxpayers may have delinquent tax returns. In the past when a taxpayer was seeking currently non collectible status, the IRS required these taxpayers to file all delinquent tax returns. That has now changed. A taxpayer who has delinquent tax returns and is entitlted to currently non collectible status, ill not have to file their delinquent tax returns. See IRM 8.22.2.4.2
Monday, January 10, 2011
Taxpayer Advocate Annual Report to Congress
Monday, January 3, 2011
Why?
Over the past few weeks I have kept notes on some of my contacts with the IRS, and I have questions. There are probably no answers to some of these questions. I would be interested in knowing what some of our readers have experienced.
Why Does Voice Mail Give You Only Eight Seconds to Leave a Message? In a recent call to an IRS number, the message was simple: “You have eight seconds to leave a message.” Obviously there was not enough time to even give my name and number, much less leave a message. I called back several times believing this was an error, but got the same message each time.
Why Do IRS Employees Not Provide an Alternate Number on Voice Mail? The voice mail recording provided by IRS employees on the majority of calls do not provide an alternate number or person to call.
Why When the IRS Calls Me Do I Have to Verify My Information? I do not understand why when the IRS calls a representative we have to go through a question and answer session about our CAF number, name, address, etc. It seems that this is a waste of everyone’s time.
Why When Talking to ACS and You Ask a Question Are You Placed on Hold? Many times when dealing with ACS on the phone we are placed on hold after asking a question. It seems like the IRS has to get approval before the question can be answered.
Why Do Representatives Receive So Many Forms and Notices? As a representative, when I receive notices from the IRS there are generally forms included. This seems like a waste of money. It would seem more efficient if the IRS would just refer to their website advising that the forms are available there. If the IRS is ceasing to send Form 1040, they should consider not including forms in letters to representatives.
Why Do Some Units of the IRS Not Understand Notices That Are Sent? Many times I have called the number on a notice or letter only to be told by the IRS person with whom I am speaking that they do not know what the letter means.
Why Does the IRS Not Give the Correct Number to Call on Its Notices? Recently I called the number on an IRS notice which reflected a large amount owed by the client. I was told by the first person I spoke with that their unit only handled cases up to $25,000. I was transferred to someone else who advised they also could not handle the case, and was again transferred to someone else.
Why Does the IRS Call at 9:00 p.m. and Leave a Message? Recently someone from the IRS left a message at my office at 9:00 p.m. and asked that the call be returned. Of course the call was not returned until the next day, at which time there was no one to speak with since I only got a voice mail recording.
Why are Calls to the IRS Not Returned? Many messages are left more than once before a call is returned. This is a good reason for all IRS voice mail recordings to have an alternate number to call.
Why Do We Not Get a Confirmation on CNC? Many collection cases are resolved over the phone with the IRS agreeing to classify the case as currently not collectible. However, the IRS is inconsistent as to whether they will send correspondence confirming a case has been classified as CNC.
Why Does ACS Refuse to Let Us Speak With a Manager? ACS refuses to let representatives speak with a manager. The response is they will have the manager call. The manager rarely or never calls. Mostly never.
Why Does the IRS Fail to Respond to Correspondence? Just like failure to respond to some phone calls, many letters written to the IRS do not receive a response. This requires additional time for the representative to resend the correspondence.
Why Can We Not Speak to IRS Employees Who Work From Home? I do not have a problem with IRS employees working from home. But if the IRS is going to allow this, there should be a phone number where the employee can actually be reached, rather than one at the IRS office.
Why Does the IRS Not Include the Enclosure it Refers to in Letters? We receive letters from the IRS that say a document is enclosed. However, in a number of cases nothing is enclosed. This causes phone calls to the IRS to determine what was supposed to be enclosed.
Why Do We Have to Wait So Long On the Phone? Calling the IRS can be frustrating in that in most cases we are on hold for a long period of time. The IRS should look at how American Express handles its incoming calls. There is rarely a wait.
Why Are Letters Dated After the Date We Receive Them? Often we receive a letter that is dated several days after it is received. Is there some reason the IRS cannot date a letter the date it is actually sent?
Why Do IRS Employees Not Read Letters Before They Are Sent? We have received letters from the IRS that make no sense. These are mostly form letters.
Why Does Appeals Not Have the Revenue Officer’s Files in a Collection Due Process Case? We are experiencing cases where the Revenue Officer’s files do not get to Appeals when a CDP request is made. This means that in most cases the financial information has to be recreated for Appeals.
Why When You Make a Call to the IRS and Are On Hold For a Long Time a Message Advises You to Call Back Later? It would be more efficient when calling the IRS if you were initially told to call later. We have experienced cases where after a long hold, we are finally told to call back later.
Why When Contacting the IRS Does it Feel Like Traveling the World - Philidelphia, Detroit, and New York? You may not get to take a real trip, but you do sometimes feel like you do when talking with the IRS. After being transferred to several different cities, there will finally be someone to talk with.
Why Does the IRS Not Use E-mail? I understand the concern of the IRS about security. However, I do not believe that e-mail is any less secure than a fax. Many times faxes are sent to a central fax machine where anyone can get the information. In this case, e-mail would be more secure.
The above is not intended to be critical of IRS personnel, but of the system. There are nice people in the IRS. Recently, after two hours of trying to speak with someone about a tax matter, I spoke to one of the nicest women I have ever talked to. She was very helpful.
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