Tax Problems

Dirty Dozen tax scams for 2018; Taxpayers to remain vigilant

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The IRS has issued its list of the Dirty Dozen tax scams for 2018, warning taxpayers to remain vigilant. The scams are aggressive and evolving throughout the entire year, not merely at filing season. So what are the Dirty Dozen tax scams? The Dirty Dozen tax scams are: Phishing: Phone Scams: Identity Theft: Return Preparer Fraud: Fake Charities: Inflated Refund Claims: Excessive Claims for Business Credits: Falsely Padding Deductions on Returns: Falsifying Income to Claim Credits: Frivolous Tax Arguments: Abusive Tax Shelters; and Offshore Tax Avoidance.

IR-2018-66, March 21, 2018

WASHINGTON — The Internal Revenue Service today concluded its annual “Dirty Dozen” list of tax scams with a warning to taxpayers to remain vigilant about these aggressive and evolving schemes throughout the year.

This year’s “Dirty Dozen” list highlights a wide variety of schemes that taxpayers may encounter throughout the year, many of which peak during tax-filing season. The schemes can run the gamut from simple refund inflation scams to technical tax shelter deals. A common theme throughout these: Scams put taxpayers at risk.

Taxpayers need to guard against ploys to steal their personal information. And they should be wary of shady promoters trying to scam them out of money or talk them into engaging in questionable tax schemes.

The IRS highlighted the “Dirty Dozen” scam list in separate news releases across 12 days. Taxpayers are encouraged to review the list in a special section on IRS.gov and be on the lookout for these con games throughout the year.

The IRS reminds people that participating in illegal schemes can lead to significant fines and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.

Taxpayers should always keep in mind that they are legally responsible for what is on their tax return even if it is prepared by someone else. Consumers can help protect themselves by choosing a reputable tax preparer. For more see the Choosing a Tax Professional page.

Here is a recap of this year’s “Dirty Dozen” scams:

Phishing: Taxpayers should be alert to potential fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a bill or tax refund. Don’t click on one claiming to be from the IRS. Be wary of emails and websites that may be nothing more than scams to steal personal information. (IR-2018-39)

Phone Scams: Phone calls from criminals impersonating IRS agents remain an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent years as con artists threaten taxpayers with police arrest, deportation and license revocation, among other things. (IR-2018-40)

Identity Theft: Taxpayers should be alert to tactics aimed at stealing their identities, not just during the tax filing season, but all year long. The IRS, working in the Security Summit partnership with the states and the tax industry, has made major improvements in detecting tax return related identity theft during the last two years. But the agency reminds taxpayers that they can help in preventing this crime. The IRS continues to aggressively pursue criminals that file fraudulent tax returns using someone else’s Social Security number. (IR-2018-42)

Return Preparer Fraud: Be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest, high-quality service. There are some dishonest preparers who operate each filing season to scam clients, perpetuating refund fraud, identity theft and other scams that hurt taxpayers. (IR-2018-45)

Fake Charities: Groups masquerading as charitable organizations solicit donations from unsuspecting contributors. Be wary of charities with names similar to familiar or nationally-known organizations. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate charities. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. (IR-2018-47)

Inflated Refund Claims: Taxpayers should take note of anyone promising inflated tax refunds. Those preparers who ask clients to sign a blank return, promise a big refund before looking at taxpayer records or charge fees based on a percentage of the refund are probably up to no good. To find victims, fraudsters may use flyers, phony storefronts or word of mouth via community groups where trust is high. (IR-2018-48)

Excessive Claims for Business Credits: Avoid improperly claiming the fuel tax credit, a tax benefit generally not available to most taxpayers. The credit is usually limited to off-highway business use, including use in farming. Taxpayers should also avoid misuse of the research credit. Improper claims often involve failures to participate in or substantiate qualified research activities or satisfy the requirements related to qualified research expenses. (IR-2018-49)

Falsely Padding Deductions on Returns: Taxpayers should avoid the temptation to falsely inflate deductions or expenses on their tax returns to pay less than what they owe or potentially receive larger refunds. Think twice before overstating deductions, such as charitable contributions and business expenses, or improperly claiming credits, such as the Earned Income Tax Credit or Child Tax Credit. (IR-2018-54)

Falsifying Income to Claim Credits: Con artists may convince unsuspecting taxpayers to invent income to erroneously qualify for tax credits, such as the Earned Income Tax Credit. Taxpayers should file the most accurate tax return possible because they are legally responsible for what is on their return. This scam can lead to taxpayers facing large bills to pay back taxes, interest and penalties. (IR-2018-55)

Frivolous Tax Arguments: Frivolous tax arguments may be used to avoid paying tax. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims about the legality of paying taxes despite being repeatedly thrown out in court. The penalty for filing a frivolous tax return is $5,000. (IR-2018-58)

Abusive Tax Shelters: Abusive tax structures are sometimes used to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered. (IR-2018-62)

Offshore Tax Avoidance: Successful enforcement actions against offshore cheating show it’s a bad bet to hide money and income offshore. People involved in offshore tax avoidance are best served by coming in voluntarily and getting caught up on their tax-filing responsibilities. (IR-2018-64)

NOTE:

Taxpayers and tax professionals should be vigilant as to the Dirty Dozen tax scams for 2018.

Unpaid Employment taxes: Trust Fund liability, Criminal Prosecution

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Unpaid employment taxes can subject you to criminal prosecution.  Additionally, you can be subjected to the Trust Fund Recovery Penalty (which is your personal liability for the trust fund portion of the unpaid employment taxes).

The Department of Justice (press release 18-914 – July 12, 2018)  reports that a business man plead guilty to $5 Million Employment Tax Fraud. The business man faces a statutory maximum sentence of 10 years in prison, a period of supervised release, restitution, and monetary penalties.  The business man owned and operated a Discount Pharmacy (a corporation) with multiple locations. As owner, he was determined to be responsible for collecting and paying over the company unpaid employment taxes. However, during the period from 1998 through 2014 the corporation accrued employment tax liabilities of more than $5 million. The taxes were withheld from the employee’s wages; however, the taxes were not paid to the IRS. In over 15 years, only one employment tax return was filed.

The crime was for unpaid employment taxes. The business man / owner used the employment tax funds for such matters as:  wiring over $1 million to his personal bank account, making in excess of $500,000 in stock market investments, spent over $100,000 on his son’s pharmacy school tuition, and purchased over $370,000 of real property in Virginia and North Carolina.  He also used part of the money to purchase a Jeep Grand Cherokee and a jet ski.

The significance of these criminal tax prosecutions is that they are not solely aimed at the specific criminal defendant. The government pursues them to send a message to all taxpayers. If you ignore the message (in this case,  unpaid employment taxes can result in criminal prosecution and jail time), you may become the next target of criminal prosecution. The incentive for the government to prosecute is obvious. At stake are the tens of billions of dollars in lost revenue to the U.S. Treasury. It’s about the money!

Unpaid employment taxes – will not be tolerated

As stated by the Principal Deputy Assistant Attorney General: “Today’s guilty plea sends a clear message that this type of conduct will not be tolerated,”… “Employment tax violations represent tens of billions of dollars in lost revenue to the U.S. Treasury and the Justice Department is committed to prosecuting individuals involved in these tax frauds.”

If you have a business, unpaid employment taxes may subject you to the Trust Fund Recovery Penalty (personal liability). Additionally, you may face Criminal prosecution.   In connection with the unpaid employment taxes, the IRS will request an “interview”.  This “interview” is a very serious matter. Here is why.

Trust Fund Penalty and the  Interview – (copy of form 4180)

In these situations, the IRS will request targeted taxpayer’s, as well as other potential witnesses, to complete an interview form (form 4180). The purpose of the questions is to determine liability (an element of which is “willfulness”). Experience has shown that persons do not understand nor appreciate the significance of their responses.

The IRS representative is not your friend. He or she is there to achieve the objective of targeting as many persons for the liability as possible.  These forms should never be filled out without the aid and assistance of legal counsel.  There is potential criminal exposure.

POTENTIAL CRIMINAL PROSECUTION

The serious nature of unpaid employment taxes and the Responsible Person “Interview” (form 4180), is that there exists not only civil liability exposure for the Trust Fund Recover Penalty, but also the potential for criminal prosecution.

As stated by in the U.S. Department of Justice Criminal Tax Manual (copy here 5/2017):

“the primary focus of § 7202 [criminal prosecution] is on taxes required to be withheld from the gross wages paid to employees”.

This is the same subject as the Trust Fund Recovery Penalty (civil liability).

The Criminal Statute, 26 U.S. Code § 7202 – Willful failure to collect or pay over tax, provides:

“Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.”

Now, let’s look at  26 U.S. Code § 6672 – Failure to collect and pay over tax, or attempt to evade or defeat tax (The Trust Fund Recovery Penalty – civil liability provision):

“ (a) General rule “Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over….” (you can read more here)

The use of the same terminology in both the Civil statute and Criminal statute, is cause for concern.

The Trust Fund Interview – a gateway to Civil and Criminal liability

What about your admissions, or making statements, during an interview concerning the Trust Fund Recovery Penalty (civil liability)?  How does the U.S. government view such?  The Department of Justice advises its prosecutors to review form 4180 (interview form) because it “may contain relevant admissions or statements by the defendant” for criminal prosecution.

Alright, you are thinking that the defendant in the above case (18-914) deserved what he got (he used the money for personal gain).

Maybe you are thinking, “My case is different.  I have unpaid employment taxes, but my business is struggling. I am only using the money to keep the business running, keep the doors open, and to help keep the families of my employees in their homes. The government surely wouldn’t go after me for that. Or, would they?” A reality check is in order.

Here is what the Department of Justice Criminal Tax Manual states about your “good faith”:

“A defendant may argue that she was using the withheld tax to pay current expenses so she could keep the company operating and eventually pay the delinquent tax in the future. Although such facts may affect jury appeal and perhaps how the judge views sentencing, if the government proves the defendant voluntarily and intentionally used unencumbered funds to pay creditors other than the United States, the jury may properly convict even if the intentional non-payment of the known trust fund tax liability was motivated by a desire to keep the business afloat. … (in a § 6672 case, the court held that “[i]t is no excuse that, as a matter of sound business judgment, the money was paid to suppliers and for wages in order to keep the corporation operating as a going concern—the government cannot be made an unwilling partner in a floundering business.”).

If you your business has unpaid employment taxes,  consult legal counsel.

Avoid IRS scams: Know the facts on how the IRS contacts taxpayers

IRS scams. The IRS has issued a fact sheet on crooks impersonating the IRS by phone or in person, IRS Scams, and being vigilant in order to avoid becoming a victim.

FS-2018-12, May 2018

Crooks impersonating the IRS either by phone, email or in person cost people their time and money. The IRS urges people to stay vigilant against schemes and scams and avoid becoming a victim.

Here are some important tips for taxpayers to keep in mind to avoid scams:

How the IRS initiates contact

The IRS initiates most contacts with taxpayers through regular mail delivered by the U.S. Postal Service. However, there are special circumstances in which the IRS will call or come to a home or business, such as:

  • When a taxpayer has an overdue tax bill,
  • To secure a delinquent tax return or a delinquent employment tax payment, or
  • To tour a business, for example, as part of an audit or during criminal investigations.

Even then, taxpayers will generally first receive a letter or sometimes more than one letter, often called notices, from the IRS in the mail.

Avoid telephone scams

Criminals impersonate IRS employees and call taxpayers in aggressive and sophisticated ways. Imposters claim to be IRS employees and sound very convincing. They use fake names and phony IRS identification badge numbers. They’re demanding and threatening – and do not reflect how the IRS handles enforcement matters.

Note that the IRS does not:

  • Demand that people use a specific payment method, such as a prepaid debit card, gift card or wire transfer. The IRS will not ask for debit or credit card numbers over the phone. For people who owe taxes, make payments to the U.S. Treasury or review gov/payments for IRS online options.
  • Demand immediate tax payment. Normal correspondence begins with a letter in the mail and taxpayers can appeal or question what they owe. All taxpayers are advised to know their rights as a taxpayer.
  • Threaten to bring in local police, immigration officers or other law enforcement agencies to arrest people for not paying. The IRS also cannot revoke a license or immigration status. Threats like these are common tactics scam artists use to trick victims into believing their schemes.

IRS employees may make official, unannounced visits

IRS employees may make official and sometimes unannounced visits to discuss taxes owed or returns due as a part of an audit or investigation. Taxpayers generally will first receive a letter or notice from the IRS in the mail. If a taxpayer has an outstanding federal tax debt, IRS will request full payment but will provide a range of payment options.

Here are the facts:

  • All IRS representatives will always provide their official credentials, called a pocket commission and a HSPD-12 card. The HSPD-12 card is a government-wide standard form of reliable identification for federal employees and contractors. Taxpayers have the right to see these credentials. IRS employees can provide an additional method to verify their identification. Upon request, they’re able to provide a toll-free employee verification telephone number.
  • Collection employees won’t demand immediate payment to a source other than “U.S. Treasury.”
  • IRS employees may call taxpayers to set up appointments or discuss audits but not without first attempting to notify taxpayers by mail.
  • IRS employees conducting criminal investigations are federal law enforcement agents and will never demand money.

Find more information about Criminal Investigation and how to know it’s really the IRS calling or knocking on doors for audits and collection on IRS.gov.

Avoid email, phishing and malware schemes

Scammers send emails that trick businesses and taxpayers into thinking the messages are official communications from the IRS or others in the tax industry. As part of phishing schemes, scammers sometimes ask taxpayers about a wide-range of topics, such as refunds, filing status, confirming personal information, ordering transcripts and verifying personal identification numbers.

The IRS does not use email, text messages or social media to discuss tax debts or refunds with taxpayers.

Calls from IRS-contracted private collection agencies

The IRS assigns certain overdue tax debts to private debt collection agencies or PCAs. Here are the facts about this program:

  • The IRS will send a letter to the taxpayer letting them know the IRS has turned their case over to one of the four PCAs. The PCA will also send the taxpayer a letter confirming assignment of the taxpayer’s account to the agency.
  • The IRS will assign a taxpayer’s account to only one of these agencies, never to all four. The IRS authorizes no other private groups to represent the IRS.
  • It’s important to know that PCA representatives:
    • Will identify themselves and will ask for payment to “U.S. Treasury,”
    • Will not ask for payment on a prepaid debit or gift card, and
    • Will not take enforcement action.

How to report scams

Taxpayers can use these options to report phone, email and other impersonation scams:

  • Report impersonation scams to the Treasury Inspector General for Tax Administration. on the “IRS Impersonation Scam Reporting” webpage.
  • Report phone scams to the Federal Trade Commission using the FTC Complaint Assistant. Add “IRS Telephone Scam” in the notes.
  • Report an unsolicited email claiming to be from the IRS or an IRS-related system like the Electronic Federal Tax Payment System to the IRS at [email protected].

More information:

Source IRS Fact Sheets.

IRS REFORM 2018 - Congress unveils package of bills to reform the IRS

IRS reform: Largest proposed IRS reform / overhaul in decades (copy here)    IRSreform2018discussion_draft_the_taxpayer_first_act

Some of the proposed IRS Reform provisions include:
TITLE I—INDEPENDENT APPEALS PROCESS
Sec. 101. Establishment of Internal Revenue Service Independent Office of Ap-
peals.
TITLE II—IMPROVED SERVICE
Sec. 201. Comprehensive customer service strategy.
Sec. 202. Return preparation programs for low-income taxpayers.
Sec. 203. IRS Free File Program.
Sec. 204. Low-income exception for payments otherwise required in connection
with a submission of an offer-in-compromise.
Sec. 205. Notice from IRS regarding closure of taxpayer assistance centers.
Sec. 206. Provision of information regarding low-income taxpayer clinics.
TITLE III—SENSIBLE ENFORCEMENT
Sec. 301. Internal Revenue Service seizure requirements with respect to struc-
turing transactions.
Sec. 302. Exclusion of interest received in action to recover property seized by
the Internal Revenue Service based on structuring transaction.
Sec. 303. Clarification of equitable relief from joint liability.
Sec. 304. Rules for seizure of perishable goods restricted to only perishable
goods.
Sec. 305. Modification of procedures for issuance of third-party summons.
Sec. 306. Establishment of income threshold for referral to private debt collec-
tion.
Sec. 307. Reform of notice to contact third parties.
Sec. 308. Modification of authority to issue designated summons.
Sec. 309. Limitation on access of non-Internal Revenue Service employees to
returns and return information

IRS Collection Action, IRS Levy, IRS Tax Lien, IRS Audit

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IRS collection action is down. There are fewer IRS audits, IRS levy and IRS Tax Lien filings. The IRS budget expenditures are lower and there is a reduced IRS workforce. While IRS collection action is down, taxpayer service and taxpayer rights are being jeopardized.  [See The 2017 IRS Data Book (released March 29, 2018) describing activities conducted by the IRS from Oct. 1, 2016, to Sept. 30, 2017].

Examinations and appeals – fewer audits:

Compared to the prior year, there were fewer IRS audits and IRS collection action is down (e.g., IRS levy, IRS Tax Lien filing) during fiscal year 2017.  The IRS audited almost 934,000 individual income tax returns during the fiscal year, the lowest number of audits since 2003. The chance of being audited fell to 0.6 percent, the lowest coverage rate since 2002.

Tax-related Identity theft – the fight continues:

In fiscal year 2017, the IRS also continued a years-long effort to fight tax-related identity theft. The IRS Criminal Investigation Division completed 524 criminal investiga­tions of tax-related identity thefts.

Changes in IRS enforcement activities – IRS Levy action down and fewer IRS Tax Lien filings:

IRS collection action fell during the fiscal year. IRS levy action was down 32 percent compared to the prior year, and the agency filed about 5 percent fewer IRS tax liens than in fiscal year 2016.

FY 2016

FY 2017
Number of offers received

63,000

62,000
Number of offers accepted

27,000

25,000
Number of federal tax liens filed

470,602

446,378
Number of notices of levy requested on 3rd parties:

869,196

590,249
Number of seizures

436

323

IRS budget and workforce levels when compared to fiscal year 2016 – down.

IRS’s actual expenditures were $11.5 billion for overall operations in Fiscal Year (FY) 2017, down from more than $11.7 billion in FY 2016

In FY 2017, the IRS used 76,832 full-time equivalent positions in conducting its work, a decrease of 14.9 percent from 2012.

The National Taxpayer Advocate also sheds some light on the current situation.

Taxpayer Services Reduced.

National Taxpayer Advocate Nina Olson, informed lawmakers recently that only about 4 in every 10 callers to IRS hotlines will be able to get through to a live operator to answer their tax questions during the fiscal 2018 filing season. The IRS plans to reduce telephone interactions with taxpayers and rely instead on more web-based services and tax practitioners. “Because of the IRS’s archaic telephone technology and operations, taxpayers face long wait times with the worry that the IRS’s telephone assistors will not be able to answer their questions if they are able to get through.”

Private Debt Collectors – a negative cash flow.

According to the Taxpayer Advocate, the use of Private Debt Collectors is not generating net revenues, appears to have been implemented inconsistently with the law, and burdens those taxpayers experiencing economic hardship. The Taxpayer advocate summarizes that according to the IRS, for Fiscal Year 2017, the Private Debt Collection program generated $6.7 million of payments from  taxpayers, but cost $20 million. At the same time, the IRS pays commissions to PCAs on payments from taxpayers that are attributable to IRS, rather than Private Debt Collector action.

Offer in Compromise Program – Still needs improvement.

The IRS continues to hold an exaggerated view of  taxpayer’s reasonable collection potential. This results in the IRS rejecting an Offer in Compromise which should have otherwise been accepted. The Offer in Compromise may be considered a potential alternative to IRS collection action.  However, an Offer in Compromise, absent special circumstances,  will not be accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement. This involves determining the taxpayer’s reasonable collection potential.

Citing a prior 2004 report, the Taxpayer Advocate advised that the IRS  is often overly optimistic in its view as to the collection potential from taxpayers with rejected offers.  Now, updated with the results of a current study,  the Taxpayer Advocate, advises that, “The IRS secures at least as much (often more) than the offered amount in 60 percent of the OICs it rejects. However, in the remaining 40 percent, the IRS has only collected a third of the amount offered through subsequent payments.  Overall, even after we factor in refunds offset to satisfy the delinquent liabilities, the IRS still collects significantly less than the amount offered on rejected or returned OICs” (emphasis added).

The Taxpayer Advocate, continued: “…when examining rejected OICs, the IRS determined reasonable collection potential was over 15 times the amount offered, and over 40 times the amount actually collected. While the rejection of the OIC is sometimes appropriate, in many instances, the IRS often has an exaggerated view of the taxpayer’s reasonable collection potential, with the dollars collected being less than the amount offered, and significantly less than the amount the IRS determined as the taxpayer’s reasonable collection potential.”

The Taxpayer Advocate recommended that the IRS should consider devoting more resources to obtaining acceptable OICs from taxpayers who seek to compromise their liabilities. See Offer in Compromise acceptance rate, and  IRS Offer in Compromise – will mine be accepted or rejected?

Reduced Training and reduction in competent advice and taxpayer services.

“The IRS has reduced its employee training budget by nearly 75 percent since fiscal year (FY) 2009. Not only has the budget for training drastically declined, but the way in which employees receive that training has shifted from in-person face-to-face training to virtual training. IRS employees cannot be expected to provide competent advice and adequate service to taxpayers who present myriad issues when they do not receive training timely or effectively. The downstream consequences to the IRS and taxpayers, including rework, misleading or incomplete advice, improper compliance actions, and distrust in the IRS serve to further degrade the relationship between the IRS and taxpayers, and violate the taxpayer rights to be informed, to quality service, and to a fair and just tax system. Employees must receive timely, comprehensive, and effective training in order to protect taxpayer rights and provide top quality service to taxpayers.” (Taxpayer Advocate Service – 2017 Annual Report to Congress).

For additional problems and recommendations, see the NATIONAL TAXPAYER ADVOCATE

Annual Report to Congress 2017.

 

 

Offer in Compromise acceptance rate

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What are the current IRS statistics on the Offer in Compromise acceptance rate?

The Offer in Compromise acceptance rate is 40.32 percent. The IRS Data Book for 2017 (released March 29, 2018) shows that  62,000 Offers were received with 25,000 being accepted. Thus, the Offer in Compromise acceptance rate was  40.32 percent and the Offer in Compromise rejection rate was 59.68 percent. The Average Dollar amount of the Accepted Offers was $10,234.48.

The Offer in Compromise is a collection alternative.  The policy behind the Offer in Compromise program is to afford taxpayers a “fresh start”, while collecting what is potentially collectible at the earliest time, and at the least cost to the government. As such, an Offer in Compromise may be a more attractive alternative than a protracted installment agreement. The Offer may also be a good alternative to having the IRS place an account in currently not collectible status (with interest continuing to enlarge the bill).  Another benefit to the Offer in Compromise is the release of federal tax liens. However, one must remember that the Offer in Compromise is a proposal by a taxpayer to the Federal Government to settle a tax liability for payment of less than the full amount owed. It is a long process, and over the last 4 years, about 59.20 percent of Offer in Compromise proposals are rejected.  Absent special circumstances, an Offer in Compromise will not be accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement. There has been a continuing history of the IRS not administering the Offer in Compromise program in a proper manner to achieve the intent of the law.

When you compare the above most recent Offer in Compromise acceptance rate statistics (Fiscal Year 2017) with Fiscal Years 2014 through 2016,  the acceptance and rejection percentages are about the same.  The average Offer in Compromise acceptance rate for such years being 40.80 percent. The average Offer in Compromise rejection rate is 59.20 percent.   However, the Average Dollar Amount of Accepted Offers is steadily increasing each year (i.e., from $6,642.74 to $10,234.48).

The IRS Data Books for 2016 and 2015, show the number of IRS Offers in Compromise received, number of Offers accepted, and the total dollar amount of the Offers accepted as follows:

FY TTL Offers Received Offers Accepted % Accepted % Rejected Average $ Amount of Accepted Offers (Derived)
2016 63,000 27,000 42.86 57.14 $225,946,000 /27,000= $8,368.00 Average
2015 67,000 27,000 40.3 59.7 $204,748,000 / 27,000= $7,583.00 Average
2014 68,000 27,000 39.71 60.29 $179,354,000 / 27,000= $6,642.74 Average

Your specific facts and circumstances and skilled representation determine your specific results.  The Taxpayer Advocate has made recommendations to improve the Offer in Compromise program.

IRC Section 7122(b) requires that in civil cases where the unpaid amount of tax assessed (including any interest and other additions) is $50,000.00 or more, the Treasury Department’s General Counsel review and provide an opinion in support of accepted Offers in Compromise. The Taxpayer Advocate believes that the present Counsel review procedure burdens taxpayers and the government by significantly delaying Offer in Compromise decisions.The Taxpayer Advocate also recommends repealing of the Partial Payment requirements for both “lump sum” and “periodic payment” offer applications. Hopefully, such recommendations will be acted on.

IRS Collection Standards revised March 26, 2018

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The IRS has issued revised National and Local standards (IRS Collection Standards) for calculating repayment of delinquent taxes. These revised IRS Collection Standards are effective March 26, 2018.

These “standards” are used by the IRS in cases requiring financial analysis to determine a taxpayer’s ability to pay on delinquent taxes. As such, they impact, installment agreements, Offers in Compromises, determinations of undue hardship, and collection matters.

Overview of Changes to IRS Collection Standards:

National Standards – Food, Clothing and  Other Items.

The revised Total allowances for Food, Housekeeping supplies, Apparel & Services, Personal Care Products & Services and Miscellaneous were increased by varying amounts for each Family Size category ranging from a .435 Percent increase to a 6.183 Percent increase. The Additional Person allowance (above 4 persons) was increased by 9.84 percent.

National Standards – Out of Pocket Health Care Expenses.

The Out of Pocket Health Care Expense Allowance was increased by 6.122 percent (from $49. to $52.) for the under age 65 category.

But, the allowance for the age 65 and older category was decreased by 2.56 percent (from $117. to $114.).

Local Standards – Transportation.

The Public transportation allowance was reduced from $189.  to  $178.

On the other hand, the Ownership Costs for one car and for two cars were each increased by 2.47 percent.

Operating Costs by region were revised, with some geographic regions having increased allowances while others were reduced.

Local Standards – Housing and Utilities.

          These standards were also revised by state and county.

IRS Collection Standards – Not in compliance with the law?

A substantive legal problem, apparently ignored by the IRS, continues to exist as to the IRS Collection Standards. The law mandates that the IRS collection standards are to provide for an adequate means to provide for basic living expenses.  In contrast, the IRS computation is based upon what people spend to live, not what goods or services actually cost to live.  Just because your family can’t afford to pay for a basic living expense, doesn’t mean that it is no longer a basic living expense. But, this is how the IRS determines its allowances.  The Taxpayer Advocate has continued to recommend that the IRS adopt proper standards. The IRS has not. See Your basic standard of living and determining “ability to pay”. Is the IRS not following the law? ; and providing for retirement is necessary for a family’s health and welfare). Also, IRS Collections continues to routinely “impose” these “standards” and ignores the legal requirement that they take into account a taxpayer’s particular facts and circumstances.

The Current IRS Collection Standards are referenced at this link.

 

Tax Cuts and Jobs Act of 2017: Impact on IRS Collection Financial Statement Submissions and Substantiation

To determine the allowable National Standard for food, clothing, and other items, the IRS generally bases the allowable National Standard expense on the number of persons allowed as exemptions on the taxpayer’s most recent year income tax return (see IRS National Standard, food, etc…, as of March 14, 2018).  However, for tax years 2018 through 2025, H.R. 1-115th Congress (the Tax Cuts and Jobs Act) reduced the deduction amount for personal exemptions to “zero”.  The IRS will be modifying the tax forms for this and other changes. However, for tax year 2018 and future individual returns, it would appear necessary that the IRS continue to have at least some information for personal exemption information on the tax form (e.g., pages 1 and 2 of F 1040).  Why?  Other tax provisions still utilize the number of taxpayer’s “dependents”.  For example: to determine property exempt from levy – Tax Cuts and Jobs Act Section 11041 (d)(4)(A) and (B);  wage withholding rules – Tax Cuts and Jobs Act Section 11041 (c)(2)(B); and, Child Tax Credit – Tax Cuts and Jobs Act Section 11022(a).  If this “exemption” / “dependent” information doesn’t continue to be set forth on the face of the F 1040 returns (for tax years 2018 and following), then it would appear that additional forms and/or documentation may be required as part of the substantiation process for IRS Collections Financial  Statements  (e.g., for 433 A,  433 F)  to determine (and verify) your “allowable” National Standard expense Allowances.

STOP IRS Wage Garnishment - Economic Hardship

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An IRS Wage Garnishment can be devastating. An individual’s wages, salary, and other income ( includes payment for personal services in a work relationship) can be levied. But, Economic hardship can stop an IRS Wage Garnishment.

IRC Section 6343(a)(1)(D) states that a levy shall be released if the Secretary has determined that “such levy  is creating an economic hardship due to the financial condition of the taxpayer”.  For example, the IRS wage garnishment is causing an economic hardship and preventing the taxpayer from paying necessary living expenses (rent, utilities, food, car payment, medical bills, etc…) for the taxpayer and family.

Unlike other levies, when the IRS levies your wages and salary, the levy is continuous. That means an IRS wage garnishment attaches to future payments, until the levy is released. Wages and salary include fees, bonuses, commissions, and similar type compensation. In comparison, a bank levy attaches only the monies in the account when the levy is served. It does not reach money deposited later.

A limited part of an individual taxpayer’s wages, salary, (including fees, bonuses, commissions and similar items) and other income, as well as retirement and benefit income, is exempt from levy.  When the IRS wage garnishment is served on the employer, the employer is to provide the employee with a statement that the taxpayer is to complete and return within 3 days. If not provided, then the exempt amount will be figured as if the taxpayer is married filing separate with one exemption.

When there is a joint liability, the IRS will generally not levy on both  incomes of husband and wife, except in flagrant cases of neglect or refusal to pay.  If the taxpayers are separated, then the IRS will consider collecting from both spouse’s income by serving an IRS wage garnishment on the employer of each.

By IRS policy, a levy attaches only to the taxpayer’s usual take home pay. However, voluntary deductions can be disallowed. For example, if the taxpayer has deductions for a savings account or to buy shares in a mutual fund, the IRS will require that those deductions be stopped so that the funds will be applied to the levy.

The IRS wage garnishment is not an installment agreement.  If you ignore the wage garnishment, other seizure actions may still take place.

ECONOMIC HARDSHIP CAN STOP WAGE GARNISHMENTS.

An IRS wage garnishment can be stopped by proving that you have an economic hardship.

IRM section 1.2.14.1.14 (Policy Statement 5-71) provides, in part:  “A hardship exists if the levy action prevents the taxpayer from meeting necessary living expenses. In each case a determination must be made as to whether the levy would result in actual hardship, as distinguished from mere inconvenience to the taxpayer.”

Generally a detailed financial statement will be required.  This process can become involved and complex  due to various factors. For example:

Not preparing the financial statement forms correctly.

A picture is worth a thousand words, and the financial statement is the portrait of your economic situation, and your particular facts and circumstances.  Most taxpayers simply do not fill these forms out properly because they may not recognize what factors are important to the IRS.

Statute of Limitations:

What if the Statute of Limitations is about to run out on the ability of the IRS to take collection actions (e.g., wage garnishment, bank levy, seizure, etc…)  as to an older year? In these situations, the IRS may become increasingly aggressive by demanding payments which the taxpayer truly can’t pay without suffering economic hardship.

Failure to meet deadlines

Taxpayers having a history of failing to comply with previously agreed deadlines for submitting financial statement information. This can result in a more aggressive administrative posturing by the IRS.

IRS National and Local Living Expense “Standards”

The IRS may very well seek to impose  its National and Local living expense standards when the facts and circumstances show that a deviation from such standards is necessary to avoid an actual hardship.  There are ongoing “issues” (problems) with the IRS position in these matters. For example, The Taxpayer Advocate issued its 2013 Annual report To Congress –  listing as  Most Serious Problem #7, that the IRS Continues to Levy on Taxpayers it Acknowledges are in Economic Hardship and then Fails to Release the Levies. Then,   as to your basic standard of living and determining “ability to pay”,  there is a fundamental issue as to whether the IRS is following the law.  And,  If you owe back taxes, then there is no retirement savings provision for you. The Taxpayer Advocate disagrees with such position.

Unfiled tax returns – and undue hardship 

Where there are unfiled returns, it is not only an abuse of discretion, but illegal for the IRS to proceed with an IRS levy where the levy is creating an economic hardship (see Vinatieri v. Commissioner of Internal Revenue, 133 T.C. 392 (2009).  However, your mere assertion of such status is not going to win the day.  It is important that taxpayers provide the required financial information, with supporting documentation, to substantiate economic hardship. Further, do not make frivolous arguments as they detract from the claim of economic hardship.

When you need assistance, call a tax lawyer with over 30 years of experience. 1-866-482-9767

IRS Offer in Compromise - will mine be accepted or rejected?

An IRS Offer in Compromise is an agreement between a taxpayer and the Federal Government that settles a tax liability for payment of less than the full amount owed. Absent special circumstances, an Offer in Compromise will be rejected if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement.

What are your chances of having your IRS Offer in Compromise accepted?

The IRS Data Books for 2016 and 2015, show the number of IRS Offers in Compromise received, number of Offers accepted, and the total dollar amount of the Offers accepted as follows:

FY TTL Offers Received Offers Accepted % Accepted % Rejected Average $ Amount of Accepted Offers (Derived)
2016 63,000 27,000 42.86 57.14 $225,946,000 /27,000= $8,368.00 Average
2015 67,000 27,000 40.3 59.7 $204,748,000 / 27,000= $7,583.00 Average
2014 68,000 27,000 39.71 60.29 $179,354,000 / 27,000= $6,642.74 Average

YOUR FACTS AND CIRCUMSTANCES AND SKILLED REPRESENTATION DETERMINE YOUR RESULT

While the above percentages may be of interest, the fact is that it is your particular facts and circumstances, and how you fit into the IRS formulas for calculating an acceptable IRS Offer in Compromise payoff, that will determine if your Offer is accepted or rejected. It is clear, that more than half of the IRS Offers in Compromise are still being rejected. Professional representation by an experienced Tax Attorney is important. You need to have someone with experience to advise you as to whether an Offer is even realistic for you, and the potential result. To negotiate favorably, one must understand the investigative process as to your income, living expenses, and assets, and integrate such with the IRS process. There is no “one size” fits all, and there is no magic percentage.

The number of accepted IRS Offers in Compromise remain about the same. The IRS Offer in Compromise process is long. If the end result is rejection, then the effort was counterproductive, while you have merely given the IRS more time on its statute of limitations to pursue the tax debt.

During the past years, modifications have been made to the IRS Offer in Compromise program in order to improve it, and the program is continuing to evolve. For example, the IRS Fresh Start Initiative (FSI) of 2011 made it easier to qualify for an Offer in Compromise. Currently, as to a Lump Sum Offer in Compromise (paid in 5 or fewer payments within 5 months) the IRS now uses a cash flow valuation factor of 12. For a Short-Term Periodic Offer in Compromise (paid within 6 to 24 months), the IRS uses a cash flow valuation factor of 24. These valuation factors are more favorable than in the past. Of course a determination needs to be made on whether Special Circumstances apply. The IRS has an Offer in Compromise pre-qualifier tool; however, this doesn’t take into account a taxpayer’s particular facts and circumstances, and merely “plugs” in the IRS Standards from its tables. This may have the negative consequence of having you turn away from an Offer because your facts and circumstances were ignored in this plug and play “evaluation”.

CURRENT RECOMMENDATIONS TO IMPROVE THE IRS OFFER IN COMPROMISE PROGRAM

In order to assist is further streamlining of the IRS Offer in Compromise process and make the program better, the Taxpayer Advocate has continued making recommendations for improvement.

The National Taxpayer Advocate Purple Book (December 31, 2017) made several recent recommendations concerning the IRS Offer in Compromise program. One of the recommendations is to modify the existing requirement that the Office of Chief Counsel Review Certain Offers in Compromises. The second recommendation is for the purpose of improving taxpayer’s accessibility to the Offer in Compromise program by repealing the Partial Payment Requirement.

IRC Section 7122(b) requires that in civil cases where the unpaid amount of tax assessed (including any interest and other additions) is $50,000.00 or more, the Treasury Department’s General Counsel review and provide an opinion in support of accepted Offers in Compromise.

The Taxpayer Advocate believes that the present Counsel review procedure burdens taxpayers and the government by significantly delaying Offer in Compromise decisions. Factors include: impeding taxpayer’s ability to make other financial decisions while waiting for a response; jeopardizing a taxpayer’s ability to pay the amount offered if the taxpayer’s financial circumstances change; additional burden on the government due to the Office of Chief Counsel staff having to learn the facts of each case, and write supporting opinions; and the Chief Counsels work is many times duplicative of work already done by the IRS. The Taxpayer Advocate proposes that the Dollar criteria for Chief counsel be repealed and replaced with requiring review in cases that present significant legal issues.

The Taxpayer Advocate also recommends repealing of the Partial Payment requirements for both “lump sum” and “periodic payment” offer applications. Even the Treasury Department acknowledges that the partial payment requirement may be “substantially” reducing access to the Offer in Compromise program. See IRSLevyRelief discussion Here.

By engaging an Offer in Compromise Attorney with experience, and the tenacity to vigorously pursue your case, you are setting course to resolve your tax problems.

The Filing of Federal Tax Liens and Abuse of Discretion.

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Filing of a Federal Tax Lien as a condition for an installment agreement was an abuse of discretion.

A sculptor (working in cast bronze) filed his individual federal income tax return and reported a balance of tax due of $163,928.00. He did not pay the balance. The IRS assessed the tax, penalties and interest. A notice of intent to levy was issued and the taxpayer requested and received a collection due process hearing.

During the hearing, the taxpayer agreed with the terms of an installment agreement which would full pay the liability with monthly installment payments of $5,500.00. However, the IRS Appeals Officer insisted on the filing of a notice of federal tax lien as a condition of entering into such installment agreement. Taxpayer had negligible assets. The only source for payment of the balance owing was taxpayer’s income from his business.

Tax Lien Filing would destroy the business.

The taxpayer’s legal counsel advised the IRS Appeals Officer that the filing of a tax federal lien would destroy the taxpayer’s business rendering him unable to satisfy the terms of the installment agreement. Specifically, the taxpayer had a longstanding business relationship with a foundry (supplier) which provided the taxpayer with 30% to 50% discounts from market prices.

The federal tax lien filing would adversely impact production, sales and payment for materials.

The filing of the tax lien would adversely impact all sides of the cash flow equation. It would drastically alter the discounts previously provided. The taxpayer would be required to immediately pay for all work previously produced, and additionally have to make “up front” payments for all future work. At the other end of the spectrum, the notice of tax lien would cause buyers to cease financing petitioner by paying up front commissions out of concern that they might never receive the artwork because of the taxpayer’s financial difficulties, or because the artwork may be encumbered by the tax lien. Further, the filing of a tax lien would even adversely affect the taxpayer’s ability to pay the foundry (supplier) using his American Express credit card (to pay for materials and casting costs) because of the detrimental effect on his credit rating.

IRS Appeals Ignores Economic Realities.

The IRS Appeals Officer essentially ignored all of the above factors. Instead, Appeals issued a notice of determination sustaining the notice of levy and that a federal tax lien would be filed to “protect the government’s interest”.

I have found that the phrases “best interest of the government”, and “protect the governments interest” are phrases routinely used by the IRS in collection cases. However, they are in fact used with little or no actual mental thought process or concern as to the real world consequences.

In this case, the taxpayer filed a timely Tax Court proceeding alleging that the Appeals Officer abused her discretion by requiring that a notice of lien be filed in conjunction with the installment agreement.

The Tax Court held that the Appeals officer was in error by concluding that the Internal Revenue Manual required the filing of a notice of federal tax lien under the circumstances of this case. The Tax Court found that under the facts of this case, the Appeals determination was an “abuse of discretion” (i.e., The Appeals Officer’s determination was arbitrary, capricious, or without sound basis in fact or law).

The Tax Court found that the Appeals officer gave little, if any, consideration to petitioner’s arguments and, instead, decided a notice of lien should be filed because of her mistaken belief that she lacked discretion to do otherwise under the IRM. The Court found that the Appeals officer did not balance the need for the efficient collection of taxes with petitioner’s legitimate concern that the collection action (i.e., the notice of lien) be no more intrusive than necessary, as required by section Internal Revenue Code Section 6330(c)(3)(C). By failing to perform that function, she abused her discretion in sustaining the levy against the taxpayer’s assets.

In this case, the Tax Court rejected the determination of Appeals, and remanded the case to Appeals for a supplemental collection due process hearing with directions that proper balancing of factors be done (i.e., efficient collection of the liability vs. taxpayer’s concern that collection action be no more intrusive than necessary).

T.C. Memo. 2014-239
UNITED STATES TAX COURT
JAMES B. BUDISH, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4243-12L. Filed November 24, 2014.

IRS Wrongful Levy:

The Tax Cuts and Jobs Act  extended the IRS wrongful levy periods for returning the monetary proceeds from the sale of property that has been wrongfully levied upon, and the period for bringing a civil action for wrongful levy, from nine months to two years.

The above amendments apply to:

(1) levies made after the date of the enactment of this Act, and

(2) levies made on or before such date if the 9-month period has not expired under section 6343(b) of the Internal Revenue Code of 1986 (without regard to this section) as of such date.

NOTE:

See IRC Sections 6343 and 6532 as amended by the Tax Cuts and Jobs Act (TCJA) (12/22/2017 Became Public Law No: 115-97).

FTB Issues Report on impact of Federal Tax and Jobs Act of 2017

How will the new federal tax law affect state and local tax deductions?

The California Franchise Tax Board has issued its preliminary report on the impact of the Federal Tax and Jobs Act of 2017 on the California tax system (including state and local tax deductions).  Items covered:

  • Temporary Reduction in Medical Expense Deduction Floor
  • Limitation on Deduction for State and Local Taxes
  • Repatriation

The report illustrates how some elements of the federal tax package affect California taxpayers and impact on state and local tax deductions.

“…Under the new law, taxpayers will still be able to deduct up to $10,000 for state and local taxes paid. Therefore, a taxpayer previously deducting $12,000 would have their deduction reduced by $2,000 because of the limit. …

“The $10,000 [State and Local Tax – “SALT”] limit is one part of a large package of changes to the federal tax code. These federal tax code changes also include provisions that will reduce the federal tax paid by individual California taxpayers and other provisions that will increase their taxes, depending on the income sources, deductions, and other specific circumstances of the individual taxpayer. Two of the most important provisions reducing federal taxes are the increase in the standard deduction and the reduction in tax rates. As a result of these provisions, there are some taxpayers who were previously claiming more than $10,000 in SALT deductions who will have their overall federal tax burden reduced by the changes to the federal tax code. …”

“…Table 4 also shows that, taking the entire federal tax change package into account, of the

2.6 million taxpayers with more than $10,000 in SALT deductions, about 900 thousand California taxpayers have lower federal tax liability under the new law then under the old law, about 100 thousand California taxpayers would have approximately the same federal tax liability, and about 1.6 million California taxpayers have an increase in federal tax liability….”

To Read the Full Report go here FTB-Preliminary-Review-of-Federal-Tax-Reform-Part-1

Stop IRS Wage Garnishment. Economic Hardship

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Have a hardship?  Stop IRS wage garnishment.  By showing economic hardship you can reduce or stop IRS wage garnishment.  But, many times it is difficult to obtain a hardship determination from the IRS. For example, if you owe for a particular tax year for which the statute of limitations on collection is about to run (the IRS generally can collect on a tax debt for 10 years), IRS collection employees will seek to impose a minimum payment amount on you even if  you are  suffering from financial hardship.

The reason for this is that the IRS knows that in the near future,  it will be prohibited by law from getting payment.  In reality, the IRS will work in “reverse” and determine the amount they “need” to pay the debt before it expires. The IRS will then seek to impose that amount upon you.

IRM section 1.2.14.1.14 (Policy Statement 5-71) provides, in part:  “A hardship exists if the levy action prevents the taxpayer from meeting necessary living expenses. In each case a determination must be made as to whether the levy would result in actual hardship, as distinguished from mere inconvenience to the taxpayer.”

Generally, detailed financial statement analysis is needed in order obtain “undue hardship” status.  The fact is that in most cases taxpayers do not prepare the financial statement forms (e.g., Form 433-A, 433-F, etc…) properly. In many cases, important facts and circumstances are not provided by the taxpayer, because the IRS forms “didn’t ask for them”.  Moreover, proper legal argument and presentation of your particular facts and circumstances is critical in order to have the IRS stop wage garnishment and bank levy.

Another problem is that the IRS will use its Allowable Living Expense “standards”, and will seek to ignore your particular facts and circumstances, as required by law.

Obtaining “currently not collectible” status merely places your account on the IRS back burner. Interest and penalties continue to accrue, and the debt grows.  However, if you are suffering from undue hardship, then you need such relief. Additionally, such may, in appropriate cases, be a planning opportunity to have the statute of limitations run on a particular tax year and have the tax debt “go away”.

When you need IRS wage garnishment and levy release assistance, please contact  IRSLevyRelief.com  – toll free 1-866-482-97

 

 

 

 

IRS Levy - Innocent Spouse Relief

Innocent Spouse Relief Attorney Services

Married taxpayers will many times file joint tax returns with their spouse in order to obtain tax benefits. For example, a lower tax rate. However, in doing so, each spouse becomes jointly and individually liable for any tax shown owing on the return (including, penalties and interest) and any additional taxes, penalties and interest resulting from an audit. This would include the situation where only one spouse was responsible for the underreported income or improper deduction. Even in that case, both spouses are jointly and individually liable. The good news is that you may qualify for innocent spouse relief.

In order to see if you qualify for innocent spouse relief, you should consult with an innocent spouse relief lawyer.  Located in California, innocent spouse relief attorney services are provided to taxpayers nationwide. In these cases, it is important that the facts surrounding the tax liability are obtained and then framed by innocent spouse relief legal counsel in the best possible legal  posture. This involves analysis of the facts and integrating such with legal authorities and citations.

In a typical innocent spouse case, the husband is self-employed. The husband didn’t report all of his income on the joint return. The wife didn’t know about the unreported income and didn’t benefit from it.  A separation and divorce takes place. The IRS conducts an audit, discovers the unreported income, and assesses additional taxes, interest and penalties.  But now, the “husband” can’t be found or may not have the ability to pay. The IRS is seeking payment for the liability and goes after the easiest target, in this case the “wife”. In other situations, one spouse may have died and the surviving spouse only learns of the tax problems after his or her spouse’s death.

There are different types of innocent spouse relief available. They include:

Innocent spouse relief.

Separation of liability.

Equitable relief.

Contact me at www.IRSLevyRelief.com to see if you qualify for relief.

Toll Free:  1-866-482-9767

IRS Jeopardizing Taxpayer Representation. Practitioner Call to Action!

In my recent blog posting,  I advised how the IRS was now requiring tax practitioners to provide their personal social security number and date of birth when representing a taxpayer. This is being done under the false and fabricated pretext of “security”.  My prior posting is here .  I had written the National Taxpayer Advocates office about this issue.

As of last week (ending February 2, 2018) the Taxpayer Advocate’s Office called me regarding this matter.  The Analyst advised me that a Team had been set up to review this particular issue and that a considerable number of tax practitioners had contacted the Taxpayer Advocate concerning this.  The Analyst also informed me that some practitioners were even being asked to  provide the name of their spouse.

It is urged that tax practitioners immediately contact the Taxpayer Advocate about this invasive and abusive new procedure and request that it be immediately stopped.  Request that a Taxpayer Assistance Order be issued.

Also, contact your representative in Congress.

Contact:  Mr. Shepard , Taxpayer Advocate Analyst

Telephone:  206-946-3007

IRS Levy Relief

 

Passport denial, limitation or revocation - IRS violates Taxpayer Due Process Rights.

Taxpayers owing the IRS may face passport denial, limitation or revocation. The IRS is violating taxpayer rights.

On Jan. 22, 2018, the IRS began implementation of the passport certification program (passport denial, limitation or revocation). Under this program (IRC § 7345) the IRS is authorized to certify a taxpayer’s seriously delinquent tax debt to the Department of State for the purposes of passport denial, limitation, or revocation. A seriously delinquent tax debt is an assessed, individual tax liability exceeding $51,000 for which either a notice of federal tax lien has been filed and the administrative rights under section 6320 with respect to such filing have been exhausted or have lapsed, or a levy has been made. Exceptions include: current installment agreements (IAs), offers in compromise (OICs), and Collection Due Process (CDP) hearings.

The Taxpayer Advocate has advised that the IRS planned procedures for implementing this program (passport denial, limitation, or revocation) is a Most Serious Problem in its Annual Report to Congress.

The passport denial, limitation or revocation is a Most Serious Problem, due to the lack of prior notice to taxpayers and the potential for this lack of notice to infringe on U.S. Constitutional due process protections. Research estimates that over three-quarters of the individual taxpayers potentially eligible to be certified will not have received any notice at all prior to certification because they received their CDP notices prior to the IRS including passport information in these notices.

One of the major issues which the Taxpayer Advocate has focused upon is the REFUSAL OF THE IRS to exclude from the passport certification program taxpayers with already open Taxpayer Advocate cases. Moreover, the IRS has ignored the legislative history, which reflects Congress’s intent that taxpayers not be certified until their administrative rights have been exhausted or lapsed. In addition, the IRS also ignores its own guidelines. Further, the IRS has refused to exclude taxpayers who have come to the Taxpayer Advocate for help in trying to resolve their tax debts, either because they have economic difficulties or because IRS processes have failed the taxpayer.

Because the IRS has denied the repeated requests by the Taxpayer Advocate for the IRS to exclude already open Taxpayer Advocate cases from certification, the Taxpayer Advocate has taken action to protect these taxpayers.

On Jan. 16, 2018, the Taxpayer Advocate issued Taxpayer Assistance Orders (TAOs) for every one of almost 800 taxpayers, ordering the IRS not to certify their seriously delinquent tax debts to the Department of State. By operation of law, the IRS must refrain from certifying any of these taxpayers until these Taxpayer Advocate Orders are rescinded or modified.

The action was necessary due to the imminent, irreparable harm that taxpayers may face by the loss of their passports and the right to travel internationally, such constituting a clearly compelling public policy for assisting any taxpayer subject to passport certification.

For assistance, please contact IRSLevyRelief.com

Taxpayer Advocate posting at this link – HERE

IRS Accountability at the top – can we hope for “change”?

Do you have a tax problem? Do you find yourself hitting the concrete wall of bureaucracy? A new IRS Commissioner is on the Horizon and it’s time to correct the business management model for the Office of the Commissioner.

There was a time, before the prior administration, that a one could actually reach the Office of the IRS Commissioner without too much difficulty. Attempt to locate the telephone number for the Office of the IRS Commissioner and you will be referred to the IRS web site.

In the past, a FAX could be sent to the Office of the IRS Commissioner detailing a problem and an actual response would be received. There was previously, as I recall, an Executive Services Office. Also, the IRS had a Collection Due Process Coordinator and ACS support staff which you could contact. Many times, excellent assistance was obtained using these resources. For example, at one time, I had written the Commissioner’s Office with a very troubling collection case. Shortly thereafter, I received a call and was advised (along these words) – “…you wrote the Commissioner, stuff rolls down hill, and it is on my desk, what can I do for you?” The result was a very professional individual who worked with me on the case and helped resolve it!

Years ago, on collection cases and dealing with Field Revenue Officers, a Manager advised me (along these words) “ … when you write these faxes to the Commissioner, this results in our having conference calls lasting many hours between the east coast and the west coast…” . Typically those cases had involved abusive collection matters and resulting lengthy faxes by legal counsel with support and argument. But, this actually allowed log jams to be cleared and move forward. This was because someone at the “top”, with more “in the trenches” experience and knowledge, could see the larger picture and cut to the chase. But, today, the IRS publishes information about your “bill of rights”; however, as the Taxpayer Advocate reports, the actions by the IRS violate your rights.

In the arena, the Office of the Commissioner remains “missing in action”, as it has for years. The Mission of the IRS is to provide “top quality service”, but taxpayer’s and representatives are left to deal with an institution whose training budget has been reduced by nearly 75% since FYE 2009. Moreover, IRS employees receive training in the form of “virtual training”. The shift has been away from in-person, face-to-face training.

As stated by the Taxpayer Advocate, “The downstream consequences to the IRS and taxpayers, including rework, misleading or incomplete advice, improper
compliance actions, and distrust in the IRS serve to further degrade the relationship between the IRS and taxpayers and violate the taxpayer rights to be informed, to quality service, and to a fair and just tax system.”

A common concern, of taxpayers and practitioners alike, is that they are not receiving accurate advice in order to resolve their issues when they contact the IRS. One consequence to an “out of control” IRS Collection situation is that you may have to file for a Taxpayer Assistance Order (through the Taxpayer Advocate). However, this can serve to reward the IRS for its abusive conduct, by extending the statute of limitations for collection on the matter you are seeking to resolve. Thus, with one hand, you are trying to restrain the attack dog, while at the same time enticing him with a juicy, bloody bone in the other.

Do you ever call the IRS and feel you are speaking to a robot? Well, the IRS employee may merely be in fact reading from a script! To compound the situation, you will find that if you disagree with the scripted text that the IRS employee is robotically reading from, he or she may “resolve” the issue by hanging up on you!

On the other hand, you may have spent time on the phone with IRS/ACS and faxed in financial information. Then during your next follow up call you find out that the prior IRS employee didn’t enter the information into the computer at all, or entered erroneous information. Sometimes you find out that the IRS/ACS employee actually tossed in the trash the documentation provided. Another situation is that the subsequent IRS/ACS employee reverses the IRS position on a matter previously already worked out by the prior IRS/ACS employee. It would appear that resolution of calls and “taxpayer service” is not the actual objective.

Request a Manager call back? What a joke! You end up with a low level call back (if you even get one at all), with a big Rubber Stamp on it. If a voice message is left for you, no direct manager telephone number is provided – you are to call the 800 number and start over. At times, the purported manager leaves a message but doesn’t even mention the case name. The system is not designed to resolve matters!

With new leadership, it is recommended that the Office of the IRS Commissioner be made available and be proactive in working with the taxpayers the IRS is to serve. In the past, procedures were in place that allowed interface with tax practitioners. It facilitated case resolution. A new IRS Commissioner is going to be appointed. Now is the time to correct the business management model for the Office of the Commissioner.

Offer in Compromise Program partial payment requirement - time to repeal it

The Offer in Compromise partial payment requirement is hurting taxpayers who want a fresh start. An Offer in Compromise benefits the government by collecting money it would not otherwise collect. An accepted Offer in Compromise concurrently provides the taxpayer a fresh start. A condition to the Offer in Compromise is that the taxpayer must also file and pay their taxes for five years after an offer is accepted.  However, taxpayer participation in the offer program is being reduced because of the Offer in Compromise partial payment requirement. Waivers can be obtained for the Offer in Compromise partial payment requirement, but only in limited situations.

A a current impediment to the offer in compromise program is the requirement that taxpayers who would like to consider a “lump sum” offer (payable in five or fewer installments), must include a non refundable partial payment of 20 percent of the amount of the offer. For “periodic payment” offers (an offer payable in six or more installments), a first proposed installment is required with the application, and continued monthly payments are to be made while the IRS is considering the proposal. Additionally, the IRS requires that a user fee be paid. The partial payment requirement and user fee can be waived for taxpayers with low incomes (less than 250 percent of the Federal poverty level).

The Treasury Department (report in 2017) has estimated that repealing the requirement of the Offer in Compromise partial payment would have a positive revenue impact since it may be substantially reducing access to the offer program. This is further supported by 2005 Treasury Inspector General for Tax Administration report finding that when the IRS first imposed a $150.00 Offer in compromise fee, offer submissions declined by more than 20 percent among taxpayers at every income level. Accordingly, the partial payment requirement is likely causing a decrease in collections by the government and increasing the costs of collection.

The Taxpayer Advocate has recommended that the Internal Revenue Code be amended to remove the requirement that taxpayers include a partial payment with “lump-sum” and “periodic payment” offers. [See National Taxpayer Advocate PURPLE BOOK, December, 2017].

When you need help for your Offer in Compromise, call 1-866-482-9767
20180118

IRS Urges Travelers Requiring Passports to Pay Their Back Taxes or Enter into Payment Agreements; People Owing $51,000 or More Covered

WASHINGTON ─ The Internal Revenue Service today strongly encouraged taxpayers who are seriously behind on their taxes to pay what they owe or enter into a payment agreement with the IRS to avoid putting their passports in jeopardy.

This month, the IRS will begin implementation of new procedures affecting individuals with “seriously delinquent tax debts.” These new procedures implement provisions of the Fixing America’s Surface Transportation (FAST) Act, signed into law in December 2015. The FAST Act requires the IRS to notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt. See Notice 2018-1. The FAST Act also requires the State Department to deny their passport application or deny renewal of their passport. In some cases, the State Department may revoke their passport.

Taxpayers affected by this law are those with a seriously delinquent tax debt. A taxpayer with a seriously delinquent tax debt is generally someone who owes the IRS more than $51,000 in back taxes, penalties and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired or the IRS has issued a levy.

There are several ways taxpayers can avoid having the IRS notify the State Department of their seriously delinquent tax debt. They include the following:

• Paying the tax debt in full
• Paying the tax debt timely under an approved installment agreement,
• Paying the tax debt timely under an accepted offer in compromise,
• Paying the tax debt timely under the terms of a settlement agreement with the Department of Justice,
• Having requested or have a pending collection due process appeal with a levy, or
• Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief.

A passport won’t be at risk under this program for any taxpayer:

• Who is in bankruptcy
• Who is identified by the IRS as a victim of tax-related identity theft
• Whose account the IRS has determined is currently not collectible due to hardship
• Who is located within a federally declared disaster area
• Who has a request pending with the IRS for an installment agreement
• Who has a pending offer in compromise with the IRS
• Who has an IRS accepted adjustment that will satisfy the debt in full…

If you need assistance with your tax problems, please call 1-866-482-9767. The consultation is free.
Please visit my web sites: www.IRSLevyRelief.com.

Right to Tax Representation – a “Right” being gutted

You have a right to representation when dealing with the IRS. But, the IRS is now demanding that tax practitioners provide their social security number and date of birth when contacting the IRS concerning a client. The Internal Revenue Manual (on IRS website) has not yet been updated as of January 11, 2018. This “requirement” is just now being imposed.  This new mandate will have a chilling effect on your right to representation when dealing with the IRS.

This new mandate was required by the IRS even in a situation where counsel had recently spoken to the IRS (without such requirement); faxed financial statement information and supporting documentation, discussed the financial information with two (2) ACS employees, faxed the power of attorney, and provided the routine CAF number together with taxpayer’s address and other information requested. Thus, the practitioner could answer any factual question presented in the volume of financial information just previously provided. However, in the cited case, during the requested “Manager” call back, legal counsel questioned the need to provide the social security number / DOB, as this has never been requested before. The IRS “Manager” hung up! End of discussion. Now call ACS again and wait on hold.

The abusive tactics by the IRS (historical and current) is well documented. It is clear that this new “requirement” will have a National Chilling Effect on a taxpayer’s right to representation when dealing with the IRS, and  your  chosen representatives ability or desire to aggressively represent you. The ruthless and many times illegal actions of IRS Collections personnel are well documented.

Even the Office of the Director of Collections was not aware of this new “requirement”, and was surprised, appeared shocked and responded “what?” when the procedure was explained.

Moreover, the procedure is not needed. This is overkill. Moreover, it will be used for illegal and wrongful purposes by the IRS and whoever else they release the information to (either intentionally or through IRS incompetence).  Unless the IRS is reigned in,  this will become another another IRS abuse scandal. You will  read about the chilling and negative impacts upon your right to representation when dealing with the IRS.

Reflect on some case examples:

* A case wherein multiple IRS collection managers lied during case representation. It was not until the case reached the Head of the IRS National Office that tax counsel was able to cut through the IRS Managers lying and targeting of the taxpayer.

* The IRS previously released e-mail contact information of tax representatives on the internet. Tax professionals had argued against such, but the IRS did it anyway. The result, tax representatives were then targeted by perpetrators of ID theft. The IRS caused the problem.

* The documented illegal targeting done by the IRS (Lois Lerner). “Former IRS tax-exempt chief Lois Lerner has refused to testify about targeting conservative groups / A formal apology and reported $3.5 million settlement by the IRS with tea party and other conservative organizations the federal agency targeted during the 2012 election may not be the end of the story.”(WND). “Lerner / IRS deliberately targeted political opponents … FBI, Justice Dept. Collaborated with IRS to prosecute groups illegally …” (WND)

* Tax Court case involving taxes and penalties in excess of $28,500.00. The case was successfully brought to resolution with zero owing by the taxpayer. Yet, the taxpayer advised that the IRS has audited her every year since.

* In a collection case the IRS Field Revenue Officers seized random books from a professional out of the library (essential for production of income). They laughed about how his books were now worthless to him and he couldn’t work. The seizure didn’t result in any revenue to the government.

* ACS collection case wherein the IRS was refusing to allow legal fees as an allowable cash flow item for representation before the IRS.

* Just within this last week, ACS employee who advised legal counsel he was like a “2 year old child” because legal counsel was disagreeing with the ACS employee and wouldn’t agree to the ACS employee disregarding the taxpayer’s particular facts and circumstances (which is required under the law).

* The TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION issued its July, 2017 report findings: including IRS rehiring of former employees previously terminated from the IRS … while under investigation for a substantiated conduct or performance issue. … separated while under investigation for unauthorized accesses to taxpayer information; … separated while under investigation for absences and leave, workplace disruption, or failure to follow instructions. This includes positions with access to sensitive taxpayer information, such as contact representatives….” A Table of Examples of Significant Prior IRS Conduct Issues for Rehired Former Employees shows multiple categories, including the rehiring of former IRS employees who had Falsified Employment Forms, Official Documents, or Unofficial Documents. Two rehired employees had repetitively falsified employment forms by omitting prior convictions or terminations. One rehired employee had several misdemeanors for theft and a felony for possession of a forgery device, and another rehired employee had threatened his or her co-workers.

This new mandate is NOT needed and should be stricken.

Your right to representation when dealing with the IRS is threatened. The legislative history of the Taxpayer Bill of Rights is full of documented abuses. Human nature hasn’t changed. IRS employees will seek revenge. This will be a means to accomplish such vendetta and revenge more “discreetly” (whatever rationale is provided).

I have advised the National Taxpayer Rights Advocate of this “new” collection procedure and its direct chilling and harmful impact on taxpayer’s rights. It has been requested that the Taxpayer Advocate issue an immediate order prohibiting this provision from being instituted.

Posted: 20180112

Trust Fund Penalty - Do you really owe it? Erroneous liability

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Are you actually liable for the Trust Fund Penalty Assessment?  Is the IRS billing you for a liability which you shouldn’t be paying? Has a Tax Lien been filed against you for a tax bill you shouldn’t owe?

The Taxpayer Advocate Service has posted case results in which a widow’s social security payments were being levied for employment taxes owed by her deceased husband’s business, which had closed.  The Trust Fund Penalty assessment had erroneously been made against the widow.

The business was a Corporation and the deceased husband’s accountant had told the widow to pay the outstanding payroll taxes. She had sold her home and paid as much as she could. She kept paying until she had sold her assets, didn’t have anything else to sell, and no money to pay with. Then the IRS levied her Social Security Payments, causing undue hardship.

The accountant was wrong! The surviving spouse was not a Responsible Person. She was not liable! The levy was released. It is not known whether the Taxpayer Advocate Service, inter-alia, filed claims for refund and sought abatement of the erroneous assessment (which is beyond merely obtaining a stay based on Currently Not Collectible). Such would have been recommended by me.

If you have a tax problem, I can be reached at 1-866-482-9767. The consultation is free.

Owe Back Taxes? No retirement savings for you.

The IRS Allowable Living Expense standards do not provide for a minimal retirement savings allowance in computing a taxpayer’s ability to pay. However, retirement savings are in actuality necessary for maintaining the health and welfare of today’s families. The IRS position is that “discretionary retirement savings” are not a necessary current living expenses while the taxpayer is repaying past due taxes. Instead, the IRS views such a provision as an amount which can be paid to them. Of course, for example, if you work for a State or a City which “requires” retirement savings, then such is “allowable”. This IRS “double speak” is absurd.

The Taxpayer Advocate in its Fiscal Year 2018 Objectives Report to Congress has clearly stated that the current Allowable Living standards are not based upon “an amount of money that allows for a basic standard of living”. Contrary to the IRS position, providing for retirement is necessary for a family’s health and welfare. The Taxpayer Advocate has advised in its Objectives Report that it will be issuing a Taxpayer Advocacy Directive ordering the IRS to expand the categories available in the Allowable Living Expenses. Hopefully, this will include minimal retirement savings.

Your basic standard of living and determining “ability to pay”. Is the IRS not following the law?

When a taxpayer owes back taxes, a financial analysis is done. Question: what expenses are you “allowed” to claim? Despite the IRS publications about “taxpayer rights”, the reality is that in many cases, such is merely “for publication”. The IRS is not actually respecting your “rights”.

The Internal Revenue Code mandates that the IRS national and local allowances for taxpayer’s living expenses are to provide for an adequate means to provide for basic living expenses. These “allowances” play a major role in collection cases (for example, Offers in Compromise, installment agreements, undue hardship, etc… ).

The problem is that the IRS computational basis for its allowances is what people spend to live, not what goods or services actually cost to live. Moreover, the IRS excludes some essential expenses from its category of “necessary” (thus the IRS prevents you from claiming them).

As stated by the Taxpayer Advocate – “By focusing on what expenses are allowable instead of adequate, the IRS has exercised its discretion in a way that does not meet congressional intent, since “allowable” is not synonymous with “adequate” or “basic”. Instead, the IRS should adopt standards that allow for a sufficient or adequate standard of living”. [See Taxpayer Advocate Service – Fiscal Year 2018 Objectives Report to Congress – Volume One – Area of Focus #8].

The Taxpayer Advocate concluded in its report that the current IRS allowable expense standard “is not based on an amount of money that allows for a basic standard of living. It also does not take into account all expenses that are necessary for a basic standard of living today”. [See Taxpayer Advocate Service – Fiscal Year 2018 Objectives Report to Congress – Volume One – Area of Focus #8].

When you need assistance with an IRS problem, please call me. The consultation is free. My toll free number is 1-866-482-9767. Visit me on the web at: www.irslevyrelief.com