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Making Appeals to the IRS: What You Need to Know

How to Make an Appeal to the IRS: What You Need To Know

irs appeals are made at their headquarters. The Internal Revenue Service in washington d.c.Tax cases fall into two categories: 

First, where there is no dispute over the amount of tax that is due, the only remaining question is how the taxpayer will satisfy the outstanding liability. The taxpayer can pay the amount in full, enter into an Installment Agreement or submit an Offer in Compromise. Where the taxpayer is suffering from financial hardship, it may be possible to be placed in uncollectible status.

The second type of tax case involves a dispute between the IRS and the taxpayer. A taxpayer, with the assistance of an attorney, should consider each of the various methods for resolving a tax dispute and select the method that makes most sense. The Appeals process is one such method for handling disputes with the IRS, but by no means the exclusive method. The following is a brief discussion of the Appeals process and the basic rules of engagement.

The IRS Office of Appeals (“Appeals”) is tasked with the responsibility of resolving tax controversies without recourse to litigation. The Appeals Mission Statement provides that resolution of tax disputes should be fair and impartial both to the government and the taxpayer and in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the Service. I.R.M.8.1.1.1 (1) (10/23/07).

The cornerstone for the preservation of the integrity in the Appeals process is independence. In this regard, Congress reaffirmed its commitment to “ensure an independent appeals function” within the IRS.  RRA’98 § 1001(a) (4). In order to avoid undue influence or even the appearance of impropriety, exparte communications between Appeals and other IRS employees are prohibited.

IRS Appeals hear taxpayer disputes in a number of ways and may conduct a hearing at one of its campuses or field offices in person. Appeals may also hear taxpayer disputes by way of correspondence or telephonically.

Jurisdiction for Appeals is very broad and may cover a variety of matters, including deficiency determinations, collections, penalty abatements and trust fund recover penalties.  Taxpayer disputes are segregated into docketed and non-docketed cases.

An Appeal is typically generated in response to a proposed audit or examination adjustment. After the examiner completes the audit or consideration of a refund request, the taxpayer will be given the opportunity to file a protest with Appeals. Typically, Exam will issue what is known as a 30 day letter,”unless the statute of limitations has less than nine months to go until expiration. In such cases, Exam will not issue a 30 day letter since Appeals will not accept a case with less than six months left on the statute of limitations.  When faced with the expiration of the statute of limitations, however, it is not uncommon for Appeals to solicit Form 872 from the taxpayer as a means of extending the statute.

In most cases, the taxpayer will need to file a formal written protest with Appeals. Smaller cases involving $25,000 or less may be subject to a small case request process that does not require a formal protest letter.

In cases where there is less than nine months left on the statute of limitations and the taxpayer refuses to sign an extension of the statute of limitations (Form 872), Exam will issue a Notice of Deficiency, which is sometimes referred to as a”90 day Letter.” The issuance of a 90 day letter will toll the statute of limitations. In addition, the filing of a tax court petition with the U.S. Tax court will further toll the statute of limitations until 150 days after the Tax Court Decision is final.

If the taxpayer wants to contest a revenue agent’s proposed adjustments, the taxpayer can:

  1. File a protest, resulting in a non-docketed Appeals case;
  2. Pay the proposed deficiency, file a claim for refund and, if that claim is denied, file a protest at that time;
  3. Request early referral under Rev. Proc. 99-28;
  4. File a Tax Court petition in response to a statutory Notice of Deficiency (90 day letter) and go to Appeals in docketed status; or
  5. Request Fast Track (Rev. Proc. 2003-40 for LB&I taxpayers and Announcement 2006-61 for SB/SE taxpayers).

The protest letter is filed with the examining agent within 30 days of receipt of the 30 day letter.  If the taxpayer needs additional time, an extension may be granted, but any request by the taxpayer should be made in writing.  In response to the taxpayer’s protest letter, the Agent will prepare a written response. The Agent will send both the protest letter and the Agent’s response, together with the case file to Appeals.

Thereafter, Appeals will contact the taxpayer to schedule a conference, generally within 60-90 days of the taxpayer’s filing of the protest letter.

In preparation for the Appeals conference, the taxpayer should be prepared to discuss the factual disputes, applicable law, and any additional research or the facts that need to be developed.

Following the initial conference, Appeals will expect the taxpayer to make the first settlement offer.  In developing a settlement offer the taxpayer needs to be realistic. He must determine the maximum concession he is willing to make, while at the same time gauging what Appeals would likely accept. If the taxpayer is sincerely interested in settling, the offer has to be reasonable.

Appeals will attempt to bring about a settlement based upon what the probable outcome would be if the parties were to litigate. In cases where there is substantial uncertainty as to how a court would decide the matter, the parties will be expected to make concessions to reflect the strength or weakness of each position. In some cases, the parties will agree on a split issue settlement, where the parties stipulate to a percentage or dollar amount of the adjustment or the tax that is due.

There are certain instances where filing an Appeal may not be advisable, particularly where there are sensitive issues and where there is a possibility that Appeal may uncover additional issues.

If the parties are unable to successfully negotiate a settlement, the taxpayer, in non-docketed cases, has the option of going to non-binding mediation, as an additional step in which to try and settle the case. It is important to note that mediation is not an available alternative in collection cases or in cases where the taxpayer did not act in good faith.

In addition to non-binding mediation, a taxpayer may elect to arbitrate following unsuccessful Appeals negotiations. The arbitrators are selected from an approved list of arbitrators. Unlike mediation, an arbitration decision is binding and considered final.

The takeaway here is that the Appeals process is one alternative available to the taxpayer as a means of resolving a tax dispute. It is by no means, however, the exclusive method for addressing a tax dispute. A decision to file an Appeal should only be made after thoughtful consideration and discussions with an experienced tax attorney for purposes of identifying the relevant and material facts of the case, assessing the taxpayer’s strengths and weaknesses, and developing an Appeal’s strategy designed to bring about the best possible outcome.

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Delinquent IRS Trust Fund Taxes Update

The Trust Fund Penalty for Delinquent IRS Trust Fund Taxes

Delinquent IRS Trust Fund Taxes Update. Avoiding the Trust Fund Recovery Penaly by properly classifying employees instead of independent contractorsIf you owe back payroll taxes, you should hire a capable Tax Attorney, who is experienced and familiar with the rules pertaining to the application of the Trust Fund Penalty. The IRS considers unpaid Trust Fund Taxes a serious matter and has made collection of these taxes a priority.

This is based upon two factors. First, as of September 2015, $59 Billion in payroll taxes remained outstanding.Second, approximately 69% of all taxes collected by the IRS are income taxes that are withheld from employers. The heightened scrutiny is evidenced by Assistant Attorney General, Caroline D. Ciraolo’s, statement made during a key note address at the American Bar Association’s 27th annual Philadelphia Tax Conference on November 2, 2016.

“Among our top priorities is civil and criminal employment tax enforcement. Employment tax violations represent $91 billion dollars of our country’s $458 billion dollar gross tax gap, and as of June 30, 2016 more than $59 billion reported on quarterly employment tax returns remained unpaid.”https://www.justice.gov/opa/speech/principal-deputy-assistant-attorney-general-caroline-d-ciraolo-delivers-keynote-address

In addition, recent prosecutions and convictions make clear that “the willful failure to comply with employment tax obligations is a crime – plain and simple.” https://www.justice.gov/opa/pr/nevada-business-owner-and-bookkeeper-sentenced-employment-tax-crimes.

The following is representative sample of criminal prosecutions and convictions for unpaid employment taxes.

  1. On October 26, 2016, Michigan owners of sixteen adult foster care homes were indicted for failure to pay employment taxes. From September 2010 through 2014, the owners withheld payroll taxes from their employee paycheck, but failed to file employment tax returns and also failed to pay over the trust fund taxes they collected.https://www.justice.gov/opa/pr/michigan-owners-sixteen-adult-foster-care-homes-indicted-failure-pay-employment-taxes
  1. On October 25, 2016, Kyle Archie was sentenced to 10 months in prison for failure to pay over employment taxes for the tax years 2003-2009 related several entities including Reno Rock, Inc., GKPA Inc. and D Rockeries, Inc. . https://www.justice.gov/opa/pr/nevada-business-owner-and-bookkeeper-sentenced-employment-tax-crimes
  1. On October 18, 2016 two West Virginian business owners pled guilty for failing to pay employment taxes. The defendants operated a construction business from July 2007 through 2010. The defendants also failed to pay over $490,000 in employment taxes for a prior business. https://www.justice.gov/opa/pr/west-virginia-business-owners-plead-guilty-failing-pay-employment-taxes
  1. On September 15, 2016 a North Carolina man pled guilty to failing to pay employment taxes. The defendant operated an audio business in Burlington, North Carolina. From 2008-2011 the defendant failed to pay over employment taxes withheld from his employees. Instead, the defendant used the trust fund taxes https://www.justice.gov/opa/pr/north-carolina-man-pleads-guilty-failing-pay-employment-taxes

In April of 2015 the IRS launched the Federal Tax Deposit X Coded Pilot Program.

The Program was designed to test the impact of alternate Alert treatments such as Soft Notices and Revenue Officer visits and identify which taxpayers benefit most from the alerts. In addition, In addition, the IRS plans to roll out Electronic Federal Tax Payment System (“EFTPS”) in 2017. According to the IRS, the EFTPS will modify the Federal Tax Deposit platform by creating a near real time system to identify variances in Federal Tax Deposits.  These initiatives are designed to improve collection case selection, assignment to agents, and enable the IRS to make data driven decisions regarding taxpayer contacts.

The takeaway here is that failure to pay Trust Fund Taxes can result in substantial penalties as well as imprisonment. If you have unpaid payroll taxes you should immediately contact a Tax Attorney.

© Anthony N. Verni, Attorney at Law, Certified Public Accountant

11/10/2016

 

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FBAR Collections Ten Billion and Counting

IRS Releases 2016 Offshore Voluntary Compliance Statistics

irs headquarters sign in washington d.c. a place for fbar reporting and becoming Fatca compliant

On October 21, 2016 the IRS released the latest statistics on Taxpayers who have made disclosures under the Offshore Voluntary Disclosure Program (OVDP) or by using the Streamline Procedures.

According to the News Release, a total of 55,800 taxpayers have come into compliance since 2009, resulting in the collection of approximately $9.9 billion in taxes, interest and penalties.

An additional 48,000 Taxpayers have made disclosures using the Streamlined Procedures, paying $450 million in taxes, interest and penalties.

In its News Release, the IRS implies that IRS detection is inevitable for those who fail to come forward.

The foregoing is based upon Taxpayer information received by the IRS through a number of initiatives including:

(i) inter-governmental agreements (IGA’s) executed between the U.S. and its international partners under FATCA providing for the exchange of Taxpayer  financial information;

(ii) Taxpayer information provided by institutions participating in the  Swiss Bank Program;

(iii)  criminal prosecution of Foreign Financial Institutions, institution relationship managers, bank officers, attorneys and other facilitators;

(iv) information gathered in response to the issuance of a John Doe Summons;

(v) Taxpayer information obtained from IRS “Whistleblowers;” and

(vi) Taxpayer information gathered through IRS participation in various international task forces.

For those who elect to proceed under the Streamline Procedures, the bar to establish “non-willfulness” has been raised. The IRS will no longer accept Taxpayer applications under the Streamlined Procedures unless the Taxpayer provides a “narrative statement of facts,” pays the tax due, and submits the required information returns.

This statement must clarify why the particular party failed to disclose offshore assets. Accordingly, a request for relief that fails to contain a detailed explanation, in all likelihood, will result in a denial of relief.  Similarly, a statement that the Taxpayer was unaware of the filing and reporting requirements will not meet the threshold for non-willfulness.

Finally, taxpayers, who self prepared their returns and who answered “no” to questions 7a and 7b on Schedule B pertaining to the existence of an interest in or signatory authority over a foreign financial account, will find it difficult, if not impossible, to establish “non-willfulness.”

© Anthony N. Verni, Attorney At Law, Certified Public Accountant         10/23/2016

A press release from the IRS

https://www.irs.gov/uac/newsroom/offshore-voluntary-compliance-efforts-top-10-billion-more-than-100000-taxpayers-come-back-into-compliance

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Tax Resolution Firms – Scams and Scoundrels

There are many reasons why clients with Tax issues with the IRS should avoid the use of Tax Resolution firms.

Tax Resolution Firms can help represent your case to the Internal Revenue Service

The “Tax Resolution Company“, a relatively recent development, has become a serious problem for consumers in our country and is not dissimilar to those companies that promise to solve your credit card debt, student loans, or help you save your home from foreclosure.

The Tax Resolution business model looks something like this:

  1. Tax resolution firms typically advertise heavily and/or may have a significant organic presence on leading search sites, offering to settle Federal tax obligations for a fraction of the amount owed.  These claims are for the most part false
  2. Tax resolution companies typically claim to have tax attorneys, CPAs, and enrolled agents within their employ, when in many cases, no such personnel exist or professional licenses are merely “parked” for appearance purposes
  3. The principals of many tax resolution companies are rarely, if ever, disclosed in any organization document filed with either the state of incorporation or with any state where the Firm conducts business. Ownership is usually in the form of a limited liability company whose members include either other entities or individuals (spouses, relatives, etc.) who have nothing to do with the firm. There are two reasons for this. One is to limit liability. The second reason is to prevent the client from uncovering prior unfavorable history about the Firm’s undisclosed principals
  4. Tax Resolution Companies may also attempt to pass themselves off as either a non-profit consumer group or a Christian business. This is simply another tactic to suck the consumer in
  5. A taxpayer who calls the Tax Resolution Firm is generally greeted by a high-pressure salesperson, who has neither the tax knowledge nor the experience to appropriately assess a particular tax situation. This should be the first signal to run!  These individuals will say anything to force you to part with your hard earned money since their compensation is strictly commission based
  6. Tax resolution firms take large retainers, typically $5,000-$10,000.

The settlement of any tax debt for less than its face value is based upon a myriad of factors, including but not limited to, the financial condition of the taxpayer and collectability, the number of years remaining on the statute of limitations for collections, and whether the tax debt was created based upon the IRS filing of substitute returns.

While reputable Tax Resolution Firms do exist, there are other reasons why hiring a reputable tax attorney is always the preferred choice.

  1. First, Enrolled Agents and CPAs cannot litigate tax cases. A reputable tax lawyer who is also a certified public accountant, and/or who has an LLM in tax law is the best combination of credentials to look for.   Tax attorneys focus their practices on tax law and are trained in the art of advocacy. Most tax attorneys also focus their continuing legal education on relevant tax topics and actively participate in organizations focusing on tax matters.
  2. Next, attorneys are licensed professionals, and as such, are subject to disciplinary authority of their state bar. Tax Resolution Firms are not subject to any professional licensure or professional regulation. An aggrieved client’s only recourse is to file a complaint with the relevant State Attorney General’s Office, the Federal Trade Commission, or to file a lawsuit against the Firm.
  3. Finally, communications between a client and his attorney are privileged. This generally means that neither the attorney nor the client can be forced to divulge those communications, unless the privilege has been waived.  No such privilege exists in the case of communication between an accountant, enrolled agent, or other Tax Resolution personnel and the client.

For the above reasons, any client looking to settle a tax debt for less than its face value should steer clear of any business operating under the Tax Resolution Firm model and hire a reputable tax attorney.

 

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Don’t pack your bags just yet

Don’t pack your bags just yet; you may not be going anywhere.

Tax evasion is a crime, it is better to get the help of a qualified tax attorney to help you file your FBAR returnsThe Senate  bill 1813 may just be the reason why you as a tax payer that owes the IRS taxes might just not be in a hurry to pack up your bags. In case you are planning on going anywhere, don’t pack your bags just yet; you may not be going anywhere. If this bill goes through, you might want to consider your tax debt first.

If your tax debt amounts to $ 50,000 and above, you may as well say bye to your traveling rights.

This is because your passport may be revoked soon. As a tax payer, you may want to consider the Senate bill 1813  introduced by Senator Barbara Boxer (D-Los Angeles) in November and passed by Senate on a 74 – 22 vote on March 14th  2012. The Highway Bill, also known as MAP-21 (Moving Ahead for Progress in the 21st Century) is to “reauthorize Federal-aid highway and highway safety construction programs and for other purposes.”

Your concern as a US citizen should be in the “Other purposes” section of the bill. Part of this is an amendment written by Senate Majority Leader Harry Reid, seeking to prevent any American citizen from leaving the country based upon a determination by the Internal Revenue Service (IRS) that you owe the government back taxes. The amendment, under Section 40304 of the legislation provides for “Revocation or denial of passport in case of certain unpaid taxes.” This would authorize the State Department to revoke passports for anyone the IRS certifies as having “a delinquent tax debt in an amount in excess of $50,000. The responsibility to prove that you owe taxes is solely vested in IRS and not any court. All the IRS need to do is to prove this without following any due process. IRS can move to suspend or revoke your passport on pure suspicion of tax delinquency before you even have a trial. Nothing will stop an IRS agent from flagging you with a lien to stop travel, even if the lien turns out to be false. It is important to note that the bill does not allow for exceptions in the following cases; emergency, humanitarian situations, limited return travel to the U.S., tax debt is being repaid in a timely manner and in situations where collection efforts have been suspended.

This bill is a step away from becoming law.

There is a high possibility that this bill will become law despite the stiffer opposition it is expected to face from Republicans in the House of Representatives. The provision for passport provocation is not so conspicuous; it is sandwiched deep within the very important transportation bill. The importance of saving the Highway Trust Fund from becoming bankrupt seems to be a priority overshadowing your need to travel freely. The need for the government to raise more finances in light of the shrinking economy may be the driving force to this provision. According to Lesniewski, passport provision has a good chance of becoming law for one reason; money. This provision is expected to raise almost $750 million in the 10-year budget window period. According to Senator Barbara, thousands of businesses are at stake, and nearly three million jobs at stake. She notes that, “there are many people on both sides of the aisle in the Senate who want to get our bill … passed into law, and I am going to do everything I can to keep the pressure on the Republican House to do just that.”

What does this mean to a U.S citizen with a delinquent tax debt in the excess of $50,000?

It means that if the house passes the bill, which has already been passed by Senate, then the IRS will have the power to revoke your passports. Constitutional Attorney Angel Reyes notes that this provision takes away your right to enter or exit the country based upon a non-judicial IRS determination that you owe taxes. Many businesses will be affected and so is the economy.

To be able to survive this, those with delinquent tax debts should make an effort to clear their debts with the IRS to avoid falling prey to this part of the bill; that is if it becomes law. Those with foreign bank accounts should report them and pay their taxes promptly to avoid this trap.

By Anthony N. Verni