AGOSTINO & ASSOCIATES, P.C. IRS Collections Presented by : Frank Agostino DISCLAIMER: The following materials and accompanying Access MCLE, LLC audio program are for instructional purposes only. Nothing herein constitutes, is intended to constitute, or should be relied on as, legal advice. The author expressly disclaims any responsibility for any direct or consequential damages related in any way to anything contained in the materials or program, which are provided on an as-is basis and should be independently verified by experienced counsel before being applied to actual matter. By proceeding further you expressly accept and agree to Author s absolute and unqualified disclaimer of liability. 1
How Does A Tax Debt Arise? Self- Assessment Audit Information Returns Substitute for Return Trust Fund Recovery Penalty - 60 Day Letter 2
1 st Notice Tax Balance Due 3
1 st Notice - Is the Tax Amount is Correct? Prepare & File form 2848, Power of Attorney Request IRS transcripts IRS Practitioner Priority Service tel. 866-860-4259 Request the IRS s administrative file. Make a Freedom of Information Act ( FOIA ) Request for the IRS s administrative file. 4
Is the Tax Invalid Because Assessment Statute Expired? 3-year rule (IRC Section 6501(a)) 6-year rule (IRC Section 6501(e) and Treas. Reg. Section 301.6501(e)-1) If the taxpayer omits additional gross income in excess of 25% of the amount of gross income stated in the tax return filed with the IRS. Unlimited (Fraud) (IRC Section 6501(c)(1) and Treas. Reg. Section 301.6501(3)-1) 5
Is the tax no longer due because the collection statue expired? The 10-year Statute of Limitations for Collection has expired.( IRC Section 6502). When does the Statute of limitations start to run? Filed tax returns - Date Taxpayer mailed the tax return plus six weeks Audit Adjustments (agreed) - Date Taxpayer signed the auditor s report plus three weeks. Audit Adjustments (unagreed) - Date appeals process and the tax court process (if any) is completed and the tax court judge has issued his or her ruling. (Decision Document) 6
Computing the Statute Exp Date: What Suspends the Statute? Filing of a bankruptcy petition. Duration of the bankruptcy proceedings plus 6 months thereafter. IRC Section 6503. Filing of an Offer-in-Compromise. Duration of the Offer or one year, whichever is greater. Filing of Requests for relief. CDP - Extended from the date the IRS receives the Request for a CDP to the date that the determination becomes final Innocent Spouse - the statute is extended from the date the Taxpayer requests relief to The date Tax Court decision becomes final, or If no Tax Court petition is filed, 90 days after the IRS mails its determination to the innocent spouse plus 60 days. IRC Section 6015(e)(2)(a). Treas. Regs. Section 1.6015-7(c)(3). See IRC Section 6503 7
Other Defenses Against Tax Proposed Responsible Person Assessment for Trust Fund Recovery Penalty cases not received. Letter was not mailed to Last Known Address Taxes discharged in bankruptcy. Penalty Abatement requested First Time Request -Taxpayer has been in compliance - three years before year at issue. Reasonable Cause 8
Innocent Spouse Relief Innocent spouse. Filing for innocent spouse relief will stop collection activity against both taxpayers until the innocent spouse determination is made. 9
2nd IRS Notice Reminder 10
2 nd Notice Determine whether to prepare penalty abatement request now or wait until Request for CDP (4th Notice) Determine whether to contact IRS to request installment agreement if tax due is less than $25k Taxpayer has the right to propose collection alternatives at anytime. 11
Penalty Abatement cont d IRM 20.1.1.3.6.1 (1) provides the following about administrative waivers for 1 st time penalty abatement: if the taxpayer has not previously been required to file a return or if no prior penalties have been assessed on the same MFT..in the prior 3 years. This first time abate aspect is an administrative waiver 12
3 rd IRS Notice Important Handout pg. 48 13
Tax Liability is less than $25k Taxpayer is eligible for Installment Agreement: - 24 months - Small businesses with $25,000 or less - 36 month (Guaranteed) Individual with Tax Liability = $10,000 or less (exclusive of penalties and interest) may be guaranteed an IA. Have not entered into an IA during any of the preceding 5 taxable years. No Form 433 A/B required. 60 month (Streamlined) Individuals with a tax liability of $25,000 or less (Includes tax, assessed interest and penalty. It does not include accrued interest and penalty) May be processed quickly, without financial analysis or managerial approval. IRM 5.14.5.1 14
4 th Notice Urgent, We intend to levy on certain assets. Please respond now 15
Federal Tax Lien Filing The IRS is required to make reasonable efforts to contact the taxpayer before filing a NFTL. IRM 5.12.2.3 The efforts to contact the taxpayer are to advise that a NFTL may be filed if full payment is not made when requested. Issuance of the statutory assessment notice and the balance due notices sent during the collection process will constitute reasonable efforts. (e.g. four notices) While the notices sent in the notice stream are sufficient for filing a NFTL, generally when a NFTL has not been previously filed the revenue officer s determination with respect to the filing of the NFTL will be done in conjunction with the initial actual contact or initial attempted contact. Contact (request for full payment) may be made by: field contact (preferably). telephone. mailing a notice or letter to the last known address (when appropriate). See IRM 5.11.1.2.1.1 for "last know address" description. 16
Notice of Federal Tax Lien 17
Withdrawal of Lien Reason for requesting withdrawal: Notice was filed prematurely Taxpayer entered into installment agreement Will facilitate tax collection Best interest of tp and gov t. 18
4th IRS Notice Collection Appeals Program ( CAP ) Enables Taxpayer to have time to obtain loan to pay tax before federal tax lien is filed. IRS FORM 9423 Collection Appeals Program 19
Form 9423 Collection Appeal Request 20
5 th Notice - Final Notice of Intent to Levy 21
IRS Notices, cont. 5 th Notice - Final Notice of Intent to Levy and Taxpayer s Right to a Collection Due Process Hearing Request Collection Due Process hearing within 30 days. Form 12153 Enforcement Action permitted if no Request for CDP submitted: Seizure and Sale of Property Backup withholding Garnishment of wages and other payments 22
Stop the IRS Levies Respond to Final Notice with CDP Request The IRS may not levy until it has given the Taxpayer 30-days notice The taxpayer must file a Request for a CDP Hearing within 30 days of the date of the IRS Final Notice. If the 30 days has expired, taxpayer can request an Equivalency Hearing (Form 12153) An Equivalency Hearing, however, is not appealable in Tax Court. 23
FORM 12153 Request for CDP 24
How to Make a Request for CDP Hearing Complete Form 12153, Request for CDP Hearing/ Equivalency Hearing. Include Form 2848 Cover Letter should provide: A Face-to-face conference request at the local IRS Appeals Office De Novo Review of Penalties (A/K/A Penalty Abatement). A Statement of all pertinent and potential issues. The Right to Amend the Request. The Right to Supplement. Request for no ex-parte communication between IRS employees working on case. 25
Requesting a CDP Hearing, cont. The IRS will always request that you withdraw your CDP request. Do not withdraw because withdrawals waive future appeals. Taxpayer is required to be in compliance to be granted a CDP hearing. 26
Deciding Among Collection Alternatives Currently Not Collectible Installment Agreement Partial Payment Installment Agreement Offer-in-Compromise Bankruptcy 27
Collection Alternatives Currently Not Collectible Taxpayer cannot currently pay anything toward the tax debt Form 433 Collection Information Statement Required. Hardship: any collection against the taxpayer would result in an undue hardship / untenable living situation. Delinquent tax returns do not need to be filed. 28
Currently Not Collectible, cont. Accounts will be marked currently not collectible if: Taxpayer is insolvent Taxpayer cannot be located Taxpayer is a defunct corporation with no remaining assets Taxpayer is deceased and estate is insolvent Pros: No IRS active collection action The statute of limitations will continue to run. Cons: Unpaid tax, interest & penalties. Any significant positive changes in the taxpayer s financial status will result in the taxpayer being taken out of currently not collectible status. 29
Installment Agreement When taxpayers are unable to pay a liability in full, an installment agreement (IA) may be considered. Cons Penalties and interest continue to accrue Fee = $105 or $52 for direct debit Notice of Federal Tax Lien may be filed Federal tax refunds will be offset The first time a taxpayer misses a payment, the IRS can consider it a default and resume collection activity; Requires the taxpayer to have access to the available funds and a continuing source of income sufficient to meet the obligation; 30
Installment Agreement - PPIA Partial Payment Installment Agreement (PPIA) Installment agreements that do not provide for full payment of the tax liabilities because collection statute expiration date. IRC Section 6159 PPIA will be for the period of time remaining on the statute of limitations for collection (CSED). Collection Information Statement (Form 433A or 433B) is required. 31
Partial Payment Installment Agreement, cont. A PPIA may be granted if: (IRM 5.14.2.1.2) No Asset/ No Equity cases A taxpayer has no assets or no equity in assets; or has liquidated available assets to make a partial tax payment. 32
Offer-in-Compromise The IRS has the authority to settle a tax liability for payment of less than the full amount owed pursuant to IRC Section 7122. Policy Statement P-5-100 states: The Service will accept an offer in compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. An OIC is a legitimate alternative to declaring a case currently not collectible or to a protracted installment agreement. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the Government. 33
OIC, cont. Types of OICs: Doubt as to Liability Doubt as to Collectability Effective Tax Administration 34
Effective Tax Administration Treas. Reg. Section 301.7122-1 authorizes the IRS to consider OICs for ETA. ETA offer allows for situations where tax liabilities should not be collected even though: the tax is legally owed, and the taxpayer has the ability to pay it in full 35
Determining the amount of the OIC The Offer should be greater than or equal to the total value of all assets, plus future income, minus expenses and debt computed over a period of 48-60 months. Reasonable Collection Potential (RCP) = Asset Equity Table + Income Equity Table. 36
Amount of OIC Corporate Offers Involving Trust Fund Taxes Only the amount representing the reasonable collection potential (RCP) of the corporation is needed to compromise a corporate trust fund liability The RCP of the persons responsible for the Trust Fund Recovery Penalty (TFRP) is no longer needed as part of the corporate trust fund offer, and The Trust fund portion of the tax liabilities must be paid or the TFRP either assessed or forwarded (by collection) for assessment before the corporate offer may be evaluated. IRM 1.23.3.6.1 (8-28-2009) 37
Pros and Cons: OIC: Pros and Cons Pros: an OIC allows for the full satisfaction of an outstanding tax debt for less than the full amount. Cons: Very hard to get accepted The statute of limitations is extended: During the pendency of the Offer, including appeal While the terms of the Offer remain unfulfilled For 30 days following the rejection of an Offer For one year in addition to the total of the periods listed above. 38
Requirements for OIC Requirements for OIC: Completed Form 656 with original signature; Taxpayer must not be in bankruptcy; Taxpayer must be in compliance and stay in compliance with all filing and tax payment requirements for 5 years; Submit $150 processing fee; Submit OIC Payment 1 st payment ; or Pay 20% non-refundable payment( lump sum payment type of OIC) 39
Types of Offers 90 Days - Cash Offer Net Disposable Monthly Income x 48 months Must be paid within 90 days of acceptance No NFTL filed 2 years - Short-Term Payment Offer Net Disposable monthly income x 60 months Must be paid within 2 years of acceptance NFTL filed Months Remaining on Collection Statute - Deferred Payment Offer Disposable income x number of months remaining on collection statute NFTL will be filed 40
Acceptance of Offer The Offer requires Taxpayer to forego certain refunds Taxpayer must be in compliance for 5 years or the Offer will be defaulted. 41
Rejection of Offer IRS will notify by mail. IRS will keep $150 application fee and 20% lump sum initial payment (if lump sum offer) Taxpayer may appeal within 30 days 42
Collection Alternative: Bankruptcy If the income tax is more than 3 years old at the time the petition is filed, it is dischargeable in bankruptcy. 43
After the CDP Hearing IRS will issue a Notice of Determination either denying or granting the collection alternative. Taxpayer may appeal the IRS s Notice of Determination by filing a US Tax Court Petition. 44
US Tax Court Review What does the USTC review? De Novo Abate or recompute the tax Abuse of Discretion Collection Alternatives will Remand to Appeals 45