Newsletter For Businesses And Individuals Number 1

CONGRESS PROMISED A KINDER GENTLER IRS, BUT PROMISES ARE OFTEN NOT KEPT
Congress promised a more level playing field concerning IRS collection activities. On July 22, 1998, President Clinton signed into law The IRS Restructuring and Reform Act of 1998 which has greatly affected the conduct of revenue officers who are responsible for tax collection activity. Despite this pervasive legislation, revenue officers (collectors) routinely still attempt to reject collection remedy requests.
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IRS MUST FOLLOW THE FAIR DEBT COLLECTION ACT
Before The IRS Restructuring and Reform Act of 1998, the IRS was allowed to act more aggressively than other debt collectors. Now, the IRS

(1) may not talk to a taxpayer if represented by a lawyer;

(2) may not talk to a taxpayer at their place of work if the IRS knows or should reasonably know such communication is not permitted by the employer;

(3) may not use the telephone to harass, abuse, or annoy;

(4) must show a contact name and telephone number on all manually generated correspondence; and

(5) revenue officer may not use an alias name on all manually generated correspondence.

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IT PAYS TO FIGHT IRS PENALTIES

Although the IRS denies it, the IRS almost always applies penalties, often incorrectly. I see penalties applied in approximately 90% of my client’s cases. Penalties can be abated!

How I Challenge IRS Penalties.Penalties can be challenged before payment, and in many cases after payment. There are two ways I typically do it. First, I ask the revenue officer to abate the penalty. If the revenue officer refuses to abate it I file an appeal (an appeal is conducted by a different, and often more reasonable IRS employee). Second, if the penalty is a return based penalty (ie. negligence, fraud), I ask for audit reconsideration where a different IRS department considers my request. I have a high success rate in abating penalties. Do not be afraid to fight the IRS on penalties!

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HOW YOU CAN RESOLVE A PAST DUE TAX LIABILITY WHEN YOU CANNOT PAY IN FULL

Assuming your tax liability is correct, there are generally three ways to resolve it so the IRS will leave you alone and not conduct enforced collection activity against you. For all of the following solutions, a detailed financial statement must be filed (unless an installment agreement for a tax liability under $10,000) that discloses your or your business’s assets, liabilities, income, and expenses.

1. INSTALLMENT AGREEMENT. A monthly payment amount is negotiated, and if IRS accepted will continue until the tax liability is paid. More than one year’s tax liability may be handled in this manner. The starting point is to take gross income less required taxes less necessary expenses. Then the negotiation process begins.

2. OFFER IN COMPROMISE. An offer amount is requested less than the tax liability (pennies on the dollar) for a full settlement. The offer amount is {a} net asset value, plus {b} net monthly income for the next twelve future months. Individuals, partnerships, corporations, or any taxable entity may file an offer in compromise for any type of tax, including payroll tax. More than one year’s tax liability may be handled in this manner.

3. TEMPORARILY UNCOLLECTIBLE STATUS. Here you or your business must prove (by financial statements and possibly additional evidence) that the IRS cannot currently collect any amount due to some temporary hardship. This status is usually good for at least one year.

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ARE YOU ENTITLED TO INNOCENT SPOUSE RELIEF?

Innocent spouses have something to celebrate – Congress has provided significant protection from the tax misdeeds of their spouses where the couple signed a joint income tax return. If the IRS refuses to grant innocent spouse relief, you can now sue the IRS in United States Tax Court!

There are three ways to get innocent spouse relief.

1. Innocent Spouse Did Not Know His/Her Spouse Understated Tax.
Relief will be granted if the spouse shows that, in signing the return, he or she did not know, and had no reason to know, of an understatement of tax.

This type of innocent spouse relief must be made within two years after the IRS begins collection activities (ie. wage or bank levy) against the innocent spouse.

2. Innocent Spouse Elects Separate Liability.
The innocent spouse may elect to have his or her tax liability recalculated as though a married filing separate return was filed. In addition, the electing spouse must (1) be either legally separated or divorced at the election time, or (2) not have lived with his or her spouse in the same household during the 12 months prior to the election.
This election must be made within two years after the date the IRS begins collection activities against the innocent spouse (ie. wage levy, bank levy) or two years after July 22, 1998, whichever is later.

3. Where It Is Not Fair To Hold The Innocent Spouse Liable.
That’s right – where it is not fair! If an innocent spouse does not qualify for the other two types of innocent spouse relief, the IRS now has the power to grant innocent spouse relief if it would not be fair to hold the innocent spouse liable. It may even be possible here to relieve PAYROLL TAX liability under the Trust Fund Penalty in community property states (ie. California).

This type of innocent spouse relief must be made within two years after the IRS begins collection activities (ie. wage or bank levy) against the innocent spouse.

This type of innocent spouse relief also applies to UNPAID tax liabilities from a joint income tax return. For example, assume (1) today you still owe 2010 income tax of $50,000 from signing a joint income tax return, (2) the IRS levied your wages on December 1, 2013, and (3) all $50,000 is from your ex-spouse’s income he or she said would be paid sometime in early 2011 but never was. If IRS accepts your innocent spouse request, you would not owe this $50,000.

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YOUR RIGHTS AS A TAXPAYER

1. To be represented and not be directly contacted by the IRS;
2. To appeal a Notice of Federal Tax Lien before or after it is filed;
3. To appeal a seizure of property before or after seizure;
4. To obtain relief from certain penalties;
5. To challenge the legality of the tax assessment giving rise to enforced tax collections in some cases;
6. To obtain help from the IRS’s Problem Resolution Office when enforced tax collections causes a significant hardship;
7. To pay only the tax, interest, and penalty due; and
8. To have enforced collection action stopped while an enforced collection action appeal is pending in most circumstances.

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This newsletter does not represent legal advice – it is a general information tool.

This newsletter is authored by David C. Dodge, JD, CPA, MBA, EA. He is a a practicing civil and criminal tax litigation lawyer. His practice includes tax collection representation. His firm name is David C. Dodge, Inc., and his main office is located at 19200 Von Karman Avenue, Suite 400, Irvine, CA 92646.

Telephone: (714) 378-4355
Facsimile: (714) 963-1115
Email: Dodge@ATaxLawyer.com