House Values

When a taxpayer makes an offer in compromise and there is a question about the value of the taxpayer's home, the value of the home will be reviewed by the IRS to determine the correct value. A website that may help in this regard is Home Almanic.

IRS SAYS IT CAN FREEZE A REFUND

The IRS has advised that it can legally freeze a refund when the IRS has proposed (but not assessed) a trust fund recovery penalty against a taxpayer. See CCA 200908045. The IRS contends it is not required to immediately issue a refund. It is the position of the IRS that it can freeze the refund so it can offset the taxpayer's refund against any subsequent trust fund recovery penalty assessment. We are seeing this in other cases besides the trust fund recovery penalty. A taxpayer can adjust the taxpayer's withholding so there cannot be a freeze. From a practical point of view, a taxpayer should not allow the IRS to keep the taxpayer's money during the year.

Allowable Living Expense Standards Update

The Internal Revenue Service has released the 2009 update to the Allowable Living Expense Standards. These standards are used to what a taxpayer may claims as necessary expenses to avoid undue hardship when the taxpayer must delay full payment of a delinquent tax. The standard allowances provide consistency and fairness in collection determinations by incorporating average expenditures for citizens in similar geographic areas.

More information on the ALE standards is available at the Collection Financial Standards Web page.

The Homeowner Affordability and Stability Plan

The Homeowner Affordability and Stability Plan is part of the President's broad, comprehensive strategy to get the economy back on track. The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. Read the Executive Summary for a quick review.

Also: Homeowner Affordability and Stability Plan Fact Sheet, Consumer Q&A.

New Collection Due Process Handbook

A taxpayer has the right to a Collection Due Process hearing by the IRS Appeals Office for collection actions involving the first time a Notice of Federal Tax Lien is filed on a tax period and before the IRS sends the first levy on a taxpayer’s property for a tax period. If the taxpayer files a timely request for a CDP heaing and is unsuccessful at the IRS Appeals Office the taxpayer may contest the decision of the Appeals Office in court. The IRS has issued a new Collection Due Process Handbook. The handbook gives guidance on handling collection due process cases.

Tax Return Preparers and Section 7216

Internal Revenue Code Section 7216 provides for criminal prosecution in certain situations. It was enacted by the U.S. Congress in 1971 and prohibits preparers of tax returns from knowingly or recklessly disclosing or using tax return information. Treas. Reg. §301.7216 had been substantially unchanged for over 30 years and did not address the modern return preparation marketplace, particularly electronic filing and the cross-marketing of financial and commercial products and services during the return preparation experience. After a long process that included many public suggestions and comments, updated regulations were published and apply to uses and disclosures beginning on January 1, 2009.

In general, Section 7216(a) imposes criminal penalties on tax return preparers who knowingly or recklessly make unauthorized disclosures or uses of information furnished in connection with the preparation of an income tax return. A violation of Section 7216 is a misdemeanor, with a maximum penalty of up to one year imprisonment or a fine of not more than $1,000, or both, together with the costs of prosecution.

Recently revised Treasury Regulations, Treas. Reg. §301.7216, and recently enacted Revenue Procedure 2008-35 provide guidance for tax return preparers. Revenue Procedure 2008-35 supplements the regulations, in particular Treas. Reg. Section 301.7216-3, and provides specific form and content guidance to tax return preparers for obtaining consents to disclose and consents to use taxpayer data in both the paper and electronic environments. Generally, tax preparers must obtain the signed consent of the taxpayer on paper or electronically before they can disclose taxpayer return information to anyone or use it for any purpose other than in the context of preparing and filing the return. Separate consents are required for disclosure and use of tax return information. Consents must contain certain items.

Prior to use of any tax return information, tax return preparers should carefully review the requirements for use of such information.

Offers in Compromise

The IRS has issued a memorandum (Control Number SBSE-05-0209-006 which can be found at: http://www.irs.gov/pub/foia/ig/sbse/sbse-05-0209-006.pdf) 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.

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.

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.

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:
http://www.irs.ustreas.gov/pub/foia/ig/sbse/sbse-04-0209-008.pdf

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.