Answer: By law, if appropriate timely actions are taken, the IRS is required to consider “collection alternatives” including installment agreements and offers in compromise. I.R.C. §6330(c)(2). Thus, a timely Collections Due Process Hearing request usually prevents immediate levy by the IRS provided it is sought within 30 days of issuance of a Notice of Intent to Levy.

3. Question: I was an investor in a business that failed. One of the partners in the business was responsible for paying payroll taxes. That partner told everyone else the payroll taxes were being paid. In fact, the partner lied and applied the monies that were earmarked for payroll taxes toward other business bills. Thus, delinquent payroll taxes for the business exist. The IRS has now assessed me a hefty Trust Fund Recovery Penalty (100% penalty) and wants me to personally pay these unpaid payroll taxes. Is there anything I can do?

Answer: Trust Fund Recovery Penalties (formerly known as the 100% penalty) may be successfully contested by filing a timely written protest with the IRS if there are legal or factual grounds for reversal. Generally, a Trust Fund Recovery Penalty can be contested on the basis that the taxpayer was not (i) a responsible person, or (ii) the taxpayer’s failure to pay the payroll taxes was not “willful”. Nonetheless, a written protest contesting the Trust Fund Recovery Penalty on one of the bases set forth in the preceding sentence must be generally filed within 30 days of receipt of an IRS notice imposing the penalty (normally IRS Form Letter 1153 DO). The written protest is largely akin to a legal brief setting forth the taxpayer’s position on why he/she is not the responsible person or why his/her failure to pay the payroll taxes was not willful. The written protest is thereafter heard by an IRS Appeals Officer. If resolution is not reached with the IRS Appeals Officer, the taxpayer always has the option in challenging the Trust Fund Recovery Penalty in the United States District Court.

4. Question: I failed to file returns for a few years. I received some IRS notices informing me that I had not filed a return. Unfortunately, even after receiving these notices, I procrastinated on filing the past due returns. The IRS thereafter apparently filed returns on my behalf. Is there anything I can do since the IRS numbers on those returns are wrong?

Answer: When a taxpayer fails to file a return in a timely fashion, the IRS has the legal right to prepare a return for that taxpayer. I.R.C. §6020. This type of return prepared by the IRS is known as a “substitute return”. Typically when the IRS prepares substitute returns it only accounts for the taxpayer’s income and rarely afford the taxpayer any deductions to which the taxpayer would normally be entitled. The reason for this is that the Service usually lacks basic information concerning a taxpayer’s deductions. The Service often misstates the taxpayer’s marital status among other things. Substitute returns often vastly overstate income and usually contain no deductions that would normally be afforded the taxpayer. Substitute returns are generally forwarded by the IRS to the taxpayer with what is known as a “Statutory Notice of Deficiency”. The Statutory Notice of Deficiency provides that if the taxpayer wishes to challenge the substitute return, he or she may do so by filing a petition with the United States Tax Court within 90 days of issuance of the Statutory Notice of Deficiency. Our experience has been that informal efforts to resolve substitute return issues are often ineffective especially if the taxpayer does not have a tax accountant prepare “correct” returns on an immediate basis and forward these to the IRS office generating the Statutory Notice of Deficiency. Therefore, often the most effect method of challenging the numbers on a substitute return is to file a petition in the United States Tax Court challenging that return. Once the case is docketed and assigned to an Appeals Officer, the taxpayer has the right to present proper evidence of income, deductions and credits. For example, if the taxpayer trades stocks and bonds, very often when the IRS prepares a substitute return, the Service simply uses gross figures of stocks and bonds sold giving the taxpayer no credit for the original purchase price of the stock or bond. This results in income being vastly overstated via a substitute return. This can be corrected at an appeals conference after the Tax Court case is docketed by presentation of proper substantiation.

However, if the taxpayer fails to act within the 90-day period after issuance of the Statutory Notice of Deficiency, the IRS generally has the right to assess the tax set forth in the Statutory Notice of Deficiency and levy. However, that does not necessarily mean that the taxpayer relinquishes all rights to challenge incorrect numbers on an assessment, only, that the procedure for challenge becomes much more difficult. Procedurally, those numbers can still be challenged on an ad hoc basis using various procedures such as Collections Due Process Hearing, all depending on the circumstances.

5. Question: I received from the IRS a notice that I owe tax and that if I disagree with the Service’s numbers or tax issues, I have 90 days to file in the Tax Court. The numbers on the IRS notice were wrong and several tax issue positions are incorrect. What do I do?

Answer: What the taxpayer received in this instance is known as a “Statutory Notice of Deficiency”. I.R.C. §6212. Generally this is a notice the IRS is required to issue before it can assess tax against the given taxpayer. Generally, to contest the tax, the taxpayer must file a Tax Court petition within 90 days of the date of issuance of the Statutory Notice of Deficiency. If a petition is filed, after the IRS answers the Tax Court petition, generally the case is assigned to an Appeals Officer in the IRS’s Appellate Division. Although control of the case is ultimately afforded to an attorney in the IRS’s Chief Counsel Division, the Appeals Officer reviews the case with the taxpayer’s counsel to ascertain whether a settlement can be reached.

Any settlement is usually based upon errors of law or fact made by the IRS in the Statutory Notice of Deficiency. The taxpayer’s counsel must identify those errors of law or fact for the Appeals Officer and provide the tax legal basis demonstrating why the IRS basis for assessment of the tax is wrong. Additionally, there are instances where the law in a given area is ambiguous - in these instances, often a “split issue” settlement can be reached where the taxpayer and the IRS each agree to concede a percentage of tax on that contested tax issue.

6. Question: I just went through an audit. I do not like the results of the audit. The IRS forwarded to me the audit results in a Revenue Agent’s Report accompanied by a conclusive letter that these were the final results of the audit. I do not necessarily want to incur the expenses associated with a Tax Court petition lawsuit, but do want to challenge the IRS on a number of issues on which I believe they were wrong. What can I do?

Answer: What the taxpayer received in this instance is commonly referred to as an “Thirty-Day Letter” which is issued after conclusion of a audit. Such letter normally affords the taxpayer (i) a group supervisor’s conference, or (ii) the right to file a written protest with the IRS’s Appellate Division and re-contest issues on which the taxpayer believes the IRS was wrong (at the audit level) with the Appellate conferree (Appeals Officer). In these instances, the taxpayer, through counsel, must file a written protest which is in essence a legal brief setting forth the applicable facts of the taxpayer’s case and then applying the appropriate tax law to those facts. The written protest generally must be filed in a timely manner within 30 days of issuance of the Thirty-Day Letter. Once the protest is filed, the case will be heard by an Appellate conferree who will offer the taxpayer and the taxpayer’s representative a conference to review all applicable tax issues being challenged.

7. Question: Is it safe for me to discuss a contested IRS tax matter with IRS personnel prior to engaging an accountant or tax attorney?

Answer: Generally, on contested tax matters, discussing them yourself with IRS personnel without representation is not a good idea. The reason for this is that the taxpayer may very well make an incorrect admission in response to an IRS personnel’s question that undermines the taxpayer’s tax position. Questions will often be phrased in a manner that appears unremarkable to the taxpayer/layman, but results in a taxpayer emphasizing facts harmful to the taxpayer’s case. For that reason taxpayers should strongly consider hiring a good tax accountant to handle matters for them at the IRS’s lower level (e.g., audit level) and a tax attorney to resolve more complex tax issues. The unrepresented taxpayer often represents himself or herself at his or her peril.

8. Question: Years ago I had a tax lien filed against me which I have been unable to pay due to my adverse financial condition. The IRS has not bothered me regarding this delinquent tax, but did file a tax lien in my county of residency’s public records. I think that the tax lien is not good at this time due to passage of time. However, I am trying to refinance my house and cannot obtain a mortgage due to the tax lien. Is there anything I can do to have the tax lien removed so that the bank will offer a mortgage?

Answer: The answer to this question is largely dependent on whether the statute of limitations on tax collections has run. To answer that question it is necessary for the taxpayer to obtain an actual copy of the tax lien from the county’s public records. If the statute of limitations on collections has actually run, by filing a written request with the appropriate IRS division dealing with liens and proving to the Service that the statute of limitations on collections has run, it is possible to get the lien released without payment of any additional taxes. After a release of lien is filed in the public records, assuming the taxpayer qualifies for a mortgage with the appropriate lending institution, the tax lien, now released, does not pose an impediment to a new mortgage.

9. Question: I was married to an individual who unbeknownst to me was taking monies “under the table” from his business. Our marriage was, at that time, falling apart and I certainly did not receive the benefit of any of these monies that my spouse was taking from the business since the spouse was spending these monies on an extramarital affair. I stupidly filed joint returns with that spouse. My former spouse is apparently hiding all of his/her assets from the IRS. Now the IRS has assessed the tax liability for those joint returns personally against me. Is there anything that I can do that would afford me relief?

Answer: Depending upon the exact facts involved, the taxpayer may be able to seek relief from the tax liability by claiming “innocent spouse” status. I.R.C. §6015. If the spouse, in fact, meets the statutory requirements and demonstrates that he or she did not know and had no reason to know of the “under the table” money taken by the other spouse, relief in certain circumstances can be afforded.

REQUIRED IRS DISCLOSURE

To ensure compliance with the requirements imposed by the Internal Revenue Service under Circular 230, we must inform you that any U.S. Federal tax advice contained in the above, unless otherwise specifically stated, was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any matters addressed herein.