Tips on IRS Procedures for 2006
© by Robert G. Nath, Esq.
December 11, 2006 - IRS Enforcement High in 2006
The IRS has indicated the highest collections yet, a record 48.7 billion dollars in TY 2006. The IRS is focusing more attention in many different tax areas, especially high income returns and businesses. Liens and levies also increased, reaching 3.7 million (levies) and over 600,000 liens filed.
December 4, 2006 - Corporate Secretary Not Liable for Taxes
When a corporation fails to pay payroll taxes, the IRS can seek to collect from the officers - and usually does. But in a recent case, a secretary avoided liability, partly on the basis that she had no authority, as a mere corporate secretary. Other factors also helped her case as well. The case is important because the IRS often focuses on "corporate office" no matter how little power that officer may have. (Benitez, federal court - Puerto Rico).
November 27, 2006 - IRS is Getting Tougher
IRS enforcement is increasing, according to recently released numbers. For fiscal year 2006, audits are up, including audits of charities. Partnership and S Corporation audits increased 20%. Enforcement through liens and levies were the highest in 10 years, with actual levies and seizures at 3.7 million.
November 20, 2006 - Offer in Compromise-History of Noncompliance
Score one for the taxpayer: a court has ruled the IRS can't reject an offer in compromise just because the taxpayer has an "egregious history" of noncompliance (not filing returns on time, not paying, etc.) So if that was the only reason for rejection, the court said, that could be wrong and sent the case back for more study. Oman v. Commissioner, US Tax Court Memo. 2006-231
November 13, 2006 - New IRS User Fees
The IRS has just raised its prices for installment agreements. (These are agreements to pay your back taxes over time.) New "direct debit" (i.e., from your bank account) agreements go to $52 from $43; others go to $105, and from $24 to $45 to revise an existing agreement. The new fees also apply to on-line installment agreements.
August 14, 2006 - Lien Non-Attachment
Sometimes, the IRS files a notice of federal tax lien against a person, but the notice shows up on another person's credit report because of a closeness of names. Example: The lien is against John Smith but Jane Smith's credit report shows the lien. (Jane does not owe taxes.) In that case, you can get a "certificate of non-attachment of federal tax lien." The IRS website shows how to obtain such a certificate.
August 7, 2006 - On-line Payment Agreements
The IRS is launching the Online Payment Agreement (OPA) system. This is intended to enable many taxpayers, who qualify to pay their back taxes in installments, to apply for a payment agreement without having to call the agency. So far, only national partnerships are using the system, but at some point, the IRS will enable the system for the general public. Check this out at irs.gov.
July 31, 2006 - The "Tax Gap" - $345 billion
The Tax Gap is the difference between what the IRS is paid and what people actually owe in federal taxes. Congress is always concerned about it because it continues to grow - $345 billion in 2005 alone, and an estimated $2 trillion since 2001, according to news reports. Most of this, the agency estimates, comes from unreported and underreported income - income people receive, "under the table" and fail to report on returns.
July 24, 2006 - Offers in Compromise-More Requirements
For offers the IRS receives July 16, 2006 and later, a new requirement is to pay a non-refundable 20% of the offer amount. If the offer is to pay in installments, you must pay the first installment AND pay monthly as the offer is being worked. The $150 filing fee is still in place except for "hardship" cases and certain other types of offers. These new requirements will almost certainly result in a big decrease in filed offers. The IRS' offer acceptance criteria remain the same - difficult.
July 17, 2006 - IRS Lien Foreclosure
In a recent court case, the Department of Justice won a court order to foreclosure the federal tax lien on property held by a husband and wife - as "joint tenants" - where only the husband owed federal taxes. That much is not new. But this case and others like it set the stage for the next government push - to compel sales of property that husband and wife own as "tenants by the entirety," the traditional form of home ownership.
July 10, 2006 - Offers in Compromise-Asset Transfers
When you make an offer in compromise, the IRS looks at everything you own, even property you once owned but have transferred. Many taxpayers believe they can transfer property to their spouse, friends, family, etc. and have this "off the table" for offer purposes. This not correct. It's best to get some advice before you contemplate such transfers.
July 3, 2006 - Beware the Ides of July
Offers in Compromise have a new hurdle starting July 15, 2006 - You must now pay 20% of the offer fee as a deposit, plus the $150 filing fee, to make your offer "processible". This is on top of all the other requirements. Still, don't lose hope. This new rule will surely decrease the number of offers, but that means the survivors will be worked more quickly. BUT beware: If your offer is rejected, you cannot get your money back.
June 26, 2006 - Here come the "Feds."
The IRS has announced it is now moving aggressively to target small businesses and self-employed individuals who don't file and pay their taxes. The resultant "tax gap" - estimated at $345 billion in total - is about half attributable to this group. The IRS' three-part campaign is to identify the gap and offenders, conduct and education campaign, and then to collect. So put away your old notions about a "kinder, gentler" IRS.
June 19, 2006 - Bankruptcy-stay of collection actions
When you file for bankruptcy, the law requires creditors to stop collecting immediately. The IRS is not generally excepted from this rule, but the agency can take some collection actions. Among these, the United States Tax Court has recently ruled, is the assessment of more taxes for the tax year in which the bankruptcy is filed. That's because your tax liability for that year is not determined until after the end of the year. Parker v. Commissioner.
June 12, 2006 - Burden of Proof
Who bears the burden in tax matters? You do, in almost every case. The IRS' assessment of taxes is presumed by law to be accurate in every respect (taxes, penalties, interest), subject to your proof to the contrary. Many taxpayers believe to the contrary, that the IRS has the burden, but that is incorrect. Only in a very narrow class of cases (dealing with the allegation of unreported income) can that burden be reversed. The burden can also be "reversed" if you prove your entitlement to certain deductions or exemptions, but again, that is a narrow window. And, if you bear the burden to prove these items anyway, the "reversal" of the burden of proof won't make much difference.
June 5, 2006 - The Taxpayer Advocate
The IRS Office of the Taxpayer Advocate exists to help taxpayers who have run into too much IRS "red tape" or are experiencing a "hardship". The Advocate's mission is to help you, the taxpayer, not necessarily help the agents who are auditing or collecting your taxes. If you run into such a red tape problem, or are suffering "undue hardship" in the collection process, consider appealing to the Taxpayer Advocate. You can find the resources at irs.gov (search for "taxpayer advocate").
May 29, 2006 - Employee or independent contractor?
The IRS and employers frequently battle over whether workers are "employees" or "independent contractors." If the former, the employer is liable to pay withholding and FICA. Often the IRS will investigate an employer, determine the workers were "employee," and propose employment taxes going back several years - a big hit if you were not expecting it. Employers have a number of defenses available to contest "employee" status for their workers; however, as with many tax matters, the best defense is prevention - ensure your workers are in fact independent contractors in the first place. This defense requires pre-planning and careful documentation.
May 22, 2006 - Offers in Compromise in Bankruptcy
Don't try it. The time to make an offer to compromise your back taxes is during the IRS collection process. If you file for bankrutpcy, the IRS will refuse to consider your offer. Challenges to this policy have met with only limited success. And, even if you "win," all you get is IRS consideration. The fact the IRS may be forced to review your offer in compromise does not mean the agency will accept it.
May 15, 2006 - Offers in Compromise-cash items
When you first even think about making an offer in compromise, start saving cash receipts for things like: medicines, utilities, gas, and anything else you pay in cash. The IRS will often require proof of expenses when you make an offer. If you don't have a check or charge card to show this, but you paid in cash, the IRS will often deny the otherwise-"allowable" expense for lack of proof. Mostly the IRS requires 3 months' proof, so if you start early, you will have those 3 months in hand when the agent requests that proof.
May 8, 2006 - Suing the IRS? Find the right court.
Tax disputes are mostly resolved at the IRS level. But when they go to court, the choices can be confusing. Tax cases can wind up in one of about five different types of court, depending on the type of tax and, sometimes, the taxpayer's choice of forum (or the government's choice). One taxpayer found that out the hard way; its suit in United States Tax Court was dismissed for lack of jurisdiction because it should have sued in federal district court. Mars's Contractors v. Commissioner, TC Memo 2006-94 (May 3, 2006). (But the Tax Court gave 30 days to get to the right court.)
May 1, 2006 - Offer in Compromise-Housing Costs
When you make an offer in compromise, sometimes you anticipate borrowing on your home to pay all or part of the offer amount. That new housing cost is an "allowable" expense for offer purposes. Allowing the additional payment could further reduce your offer amount since it reduces your future ability to pay the remaining taxes.
April 24, 2006 - Publication 55B-IRS at a Glance
Each year, the IRS publishes Pub. 55B, a Data Book of statistics on audits, collections, returns, and many other fascinating statistics. For example, did you know the IRS conducted about 1.2 million audits in fiscal 2005 (a 20% increase), or that the IRS accepted 19,000 offers in compromise while 74,000 were filed? This publication has very useful data, organized in 33 tables, on these and other statistics.
April 17, 2006 - Tax Day! - Watch out for "Frivolous" Tax Arguments
Want to get in real trouble, and risk an additional $25,000 fine by a court? Then make "tax protestor" type arguments to avoid paying taxes. A recent case, typical in this field, identified these as such aguments: (1) He is not a taxpayer; (2) IRS has no jurisdiction over him; (3) IRS lacks authority to assert income tax deficiencies; (4) IRS failed to provide him with the "most basic 'DUE PROCESS' protections as provided by both Federal (4th, 5th, 6th and 7th Amendments) and State Constitutions. The Tax Court rejected these of course, and while the protestor avoided the fine in this case, many other, similar protestors are not so lucky. Ref: Lewis v. Commissioner, TC Memo. 2006-73, April 12, 2006.
April 10, 2006 - Forgiveness of Interest on Taxes
Yes, it's possible, but extremely rare. A special provision of the Internal Revenue Code allows the IRS to forgive interest on taxes. But you must prove the IRS committed a "ministerial" or "managerial" error that caused you to pay more interest than would otherwise have been due. And, not only is the burden of proof on you, but the IRS' decision on your request is normally not reviewable, even by a court.
April 3, 2006 - Can you be personally liable for payroll taxes even though you own the defaulting corporation?
Yes. Normally using a corporation provides "limited liability" to the shareholders. But the IRS can pierce through that shield when a corporation does not pay its payroll taxes; the agency does this thousands of time every year. It's called the "Trust Fund Recovery Penalty." But you have procedural rights to contest the IRS' allegations, both before and after the agency imposes this tax.
March 27, 2006 - IRS Audit Deadlines
How long does the IRS have to audit your tax return? If you said "3 years," you are correct - generally. However, several rules can extend this time. For example, if the IRS finds you have omitted more than 25% of your gross income from your return, it has up to six years to audit. If you committed civil tax fraud, there is no statute of limitations - the IRS could go back many years. These are only a few of the many "exceptions" to the normal 3-year statute of limitations for tax audits.
March 20, 2006 - Extend your time to file - but watch out
The IRS has a relatively new rule on extensions to file: you can get an automatic 6-month extension by filing Form 4868 for your individual tax return. However, the catch is that if you can't pay the full amount due, you must accurately estimate that amount and write it on the form. If you don't, the IRS could disallow the extension. Then you are liable for the late-filing penalty despite (what you thought was) a valid extension. And, extra time to file is not extra time to pay, so you could be liable for penalty and interest on any unpaid balance on the finally-filed tax return.
March 13 , 2006 - Private IRS Tax Collection is Here
The IRS is about to start using private debt collectors to get your back taxes. Congress authorized this in 2004 (Many states have similar programs.) The IRS has authorized three private debt collection firms to begin the program after thinking through strict guidelines , including background checks on collection personnel. Importantly, these firms must to obey the Fair Debt Practices Collection Act, and will have none of the IRS' enforcement powers such as levies, liens or seizures. Reference: IRS News Release IR-2006-42 (March 9, 2006).
March 6, 2006 - Getting a copy of your tax return
Use IRS Form 4506, and for $39 only and a stamp, you too can get a copy of your tax return! It can take up to 8 weeks, but the hard copies are available normally for at least 6 years after filing. To get the form, go to the IRS website, irs.gov, and search on "Form 4506." You are authorized to get only your return (joint or individual), or a business return where you are an official of the business. If someone else authorizes you in writing (IRS Form 2848 and sometimes one other form), you can have access to that person's return as well.
February 27, 2006 - Keeping Tax Records
How long to keep them? You get many, many answers to this question. The law has only a few rules, but these broadly state that you must keep records for as long as they may be useful in your tax matters. A vague standard, yes, but workable. For example, keep stock purchase records as long as you own the stock, to show "basis," that is, the amount you paid for the stock, (so you pay tax only on the profit). Keep business records at least four years (after you file your tax return): three years for the normal statute of limitations on audits, and one more for good measure. Look at each record you have and ask: "Will I ever need this again," and "Am I sure I will never need it?" Then act accordingly. Remember also that in tax matters, the burdne of proof is almost always on you. Even if you don't need a record for tax purposes, you may want to keep it for business or personal reasons.
February 20, 2006 - Annual “Dirty Dozen” List of Tax Scams
Each year, the IRS publishes a list of tax scams it deems to be totally abusive. These scams are typically intended to lure you into filing false claims with the IRS in hopes of obtaining a refund or other tax benefit. Of course, the promoter also makes money; that's normally the intent of the scheme. There are many ways of saving taxes – legally – and no one needs to get involved in these scams. So even though you may view the IRS with some skepticism in some tax issues, the agency is right on target by identifying these as scams.
February 13, 2006 - Can the IRS seize your retirement account? Social Security benefits?
Yes, it can. And, it does, if forced to. Many people believe retirement assets and social security benefits are exempt from creditors’ claims. That is often true, especially in bankruptcy cases. But these assets are fair game for the IRS. The basic rule is: If you can get it, so can the IRS. In one case, it actually seized the retirement assets of a judge! The only exception is a retirement plan where you do not have a current, vested interest. In such a case, since you can’t get to the assets (or not until retirement, age 65, etc.), neither can the IRS. See Chapter 4 (Levies) of the book, Everyone's Guide to Dealing with the IRS in the Members Only section of this site.
February 6, 2006 - Can you get your money back from the IRS?
Yes. A "tax refund" is the most common form of such "money back." Millions of people get billions back each year. To get a tax refund, you file a "claim for refund." Your income tax return (Form 1040 or 1040X, the amended version) is that claim. (A smaller number of refunds are obtained by using Form 843 in special circumstances.) But be mindful of the deadlines! They are hard and fast, with very little "wiggle room." You generally can’t get a tax refund if more than three years have passed since the due date of your tax return. But you CAN get that same refund if you overpaid your tax within the past two years.
January 30, 2006 - Are taxes dischargable in bankruptcy?
Yes. Some taxes, under some conditions, are dischargable. The most important are federal and state income taxes (in the bankruptcy code, these are taxes measured by "income or gross receipts"). The rules are tricky, and the timing of filing for bankruptcy is critical. But with proper planning, bankruptcy can be an effective way to deal with tax debt just as it is with other debt. The recent new bankruptcy law makes a number of important changes to the discharge rules, but the general rules stated above still hold. See Chapter 13 (Bankruptcy) of Everyone's Guide to Dealing with the IRS in Members Only section of this site for more details.
January 23, 2006 - When you ask to pay back taxes in installments, will the IRS allow you to keep paying some “lavish” expenses?
Sometimes, yes. If you ask for an installment agreement to pay your back taxes, the IRS will review your income and expenses. Only "allowable" expenses may be subtracted from income to arrive at a net monthly amount that is theoretically "available" for you to pay to the IRS. If your payment plan provides for full payment within 36 months, generally the IRS will “allow” expenses that it otherwise would consider too much. If not, you can ask for one year to remove those unallowable amounts. Proper planning for such expenses can make the difference between an accepted payment plan and one that is rejected. See Chapter 12 (Installment Agreements) in Members Only section of this site for more detailed information.
January 16, 2006 - How long does the IRS have to collect a tax?
The IRS does NOT have forever to collect a tax. Generally, it has ten years after it bills you, but watch out for many extenders of this deadline. The most common are: waiver (you consent in writing to an extension), filing an offer in compromise or installment agreement request, filing for bankruptcy, or filing a number of administrative requests for relief (such as a Collection Due Process Hearing request). For more details, see Chapter 14 in book part of Members Only section of this site.
January 9, 2006 - Is a court order necessary for the IRS to seize your assets?
Generally, no. The IRS does NOT have to get a prior court order to seize your wages, says a federal court case out of New York (July, 2005). Moreover, you cannot sue in court for an injunction to prevent the IRS from seizing wages. Both of these rulings are correct; however, the IRS is required to give several notices before it is legally authorized to issue a levy or seize property. The IRS has wide authority to seize almost all types of assets: wages, property, retirement benefits (yes, retirement benefits, including Social Security). The only judicial restriction is that if the agency wants to seize a home or come onto business property (i.e., your office or shop), it must obtain a court order. However, those are typically small obstacles, and you normally would not even be notified that the IRS had applied for court permission.
January 2, 2006 - When is a "tax return" not really a "tax return"?
A tax return is not considered a true return when the IRS makes a “substitute for return.” The agency resorts to this where you have not filed your own return. The IRS has this authority, say the courts, although the "substitute for return" is nowhere even mentioned in the Internal Revenue Code.
The IRS also has the authority to make a true return for you, have you sign, or sign it for you. All three types of returns then allow the IRS to collect the taxes. And if you think this affects only a few people, note the IRS estimates there are 5 million nonfilers in the US. A "substitute for return" also allows the IRS to claim - successfully so far - that the taxes are not dischargeable in bankruptcy.
December 26, 2005 - Can the IRS continue seizing assets if you file an offer in compromise?
No. Since 1999, the tax law has provided that the IRS must stop collection activities if you file an offer in compromise. In the real world, the agency in fact abides by that rule. But watch some of the fine print: the IRS has to accept your offer for processing (the offer must be “processible”). Also, you cannot have filed the offer for delay purposes. Finally, if the IRS makes an official determination that collection of the tax is in “jeopardy,” it can continue collection. The same “no collection” rule applies to your request to pay your back taxes in installments (a request for an “installment agreement”).
December 19, 2005 - The difference between a levy and a seizure
The law has always allowed the IRS to take property to pay back taxes. The two types of takings are called levies and seizures. The difference is that a "levy" is normally used for intangibles, such as bank accounts, stock accounts, etc. A "seizure" is for objects such as cars, trucks, boats, etc. Before the IRS can seize any property (under either type), it must give notice to you, the taxpayer. These days, the IRS gives at least two, usually four, pre-levy notices, including a "final notice."
December 12, 2005 - What is a "Collection Due Process Hearing?"
A Collection Due Process Hearing ("CDP") is an informal hearing between you and an IRS Appeals Officer. Its purpose is to give you a chance to discuss whether the IRS should stop active collection in favor of collection alternatives such as an offer in compromise or installment agreement. You obtain such a hearing by filing a timely CDP request after a "final notice" is sent to you. If you file a CDP request, you should be prepared to pursue whatever alternative you are seeking. The hearing is held before a "neutral" IRS officer, normally in the Office of Appeals.
Articles by Robert G. Nath On-Line:
FAQs on IRS Procedures
Tips on IRS Procedures
Robert G. Nath has focused on IRS matters for over 30 years. He holds degrees from Yale, the University of Pennsylvania, and Georgetown University.
After clerking for a federal judge, Mr. Nath litigated tax cases for 8 years with the Tax Division, U.S. Department of Justice. Since 1984, he has
been in private practice, representing individuals, entities, accountants and attorneys before the IRS and in court in tax collection, audit and tax
litigation matters. Mr. Nath's book, "The Unofficial Guide to Dealing with the IRS" (Macmillan), was first published in 1997. He has been quoted in
national media on tax procedure matters and has also appeared on radio and television programs. He has been an editor of professional journals and his
articles have appeared in law reviews and other legal periodicals. Mr. Nath is a former U.S. Army Reserve Green Beret officer.
Note: Mr. Nath’s cases normally involved total tax liabilities of $100,000 or more.
Click here to contact Robert G. Nath.
Copyright 2007, by Robert G. Nath
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