2018 national income tax workbook™ - ohio state university · withdrawal = irs abandoning lien...
TRANSCRIPT
Tax PracticeChapter 6 pp.157-203 2018 National Income
Tax Workbook™
Tax Practice p. 157
When the IRS Pays a Taxpayer Interest Requesting Technical Advice from IRS Responding to IRS Liens and Levies Installment Agreements and CNC Status Innocent Spouse/Injured Spouse Relief
pp. 158-159
When IRS Pays Interest
Whether interest is paid & rate paid is dependent on event, time of payment, & when filed Overpayment arises only after tax fully
paid▪ Overpayment date
• Starts when 1st payment > liability• Based on actual payment date
pp. 158-159
When IRS Pays Interest
Ex. 6.1 1120 filed 4/18/18 $1,000 due – paid in $500 installments▪ 4/18/18 and 6/15/18
IRS adjusted liability to $900 6/15/18 $100 overpayment starts interest
p. 159
Important Dates for Interest
Payment dates▪ Withholding: 15th day of 4th month > year▪ Estimated: Due date of return (w/o ext.)▪ No interest until due date of return
Availability date (for refund or offset)▪ Due date: W/h’g, est., pay < due date▪ Date paid/credited: If after due date
p. 159
Offsets
Overpayment offset to other year’s liability:▪ To earlier year → no interest▪ To later year → interest from availability
date to due date of later year A late filed return will affect availability dateEx. 6.2 Timely filed 1120 $15,000 2016 overpayment to 2017 tax Interest: 04/18/17 to 04/17/18 (due dates)
Refunds p. 160
Original Return
Filed before due dateNo interest if refunded w/in 45 days > due date
Filed after original due date & before ext.No interest if refunded w/in 45 days > date filed
Late filedNo interest if refunded w/in 45 days > date filed
Interest to refund date minus not more than 30 days (i.e., back off period)
Refunds p. 160
Amended Return
Interest begins:▪ On due date if original timely-filed▪ On date original filed if filed late
Interest ends (subject to back-off period):▪ If paid w/in 45 days: Date amended filed▪ If not paid w/in 45 days: Date of refund
Refunds p. 156
Amended Return
Ex. 6.3 Timely-filed 2014 amended 8/14/16 Refund issued 9/21/16 Interest from 4/15/15 (due date) to 8/14/16
(filing date of amended) less back-off
If not refunded within 45 days, interest would run to refund date (less back-off period)
Refunds p. 160
NOL Carrybacks Overpayments
Treated as arising from loss-year return No interest if paid w/in 45 of latest of:
1. Due date of loss-year return2. Filing date of loss-year return3. Date loss-year return is processible4. Application or claim received date5. Date application/claim is processible
Interest paid if not w/in 45 days
Refunds p. 160
NOL Carrybacks Overpayments
If interest to be paid, runs from:▪ Due date of loss year timely filed▪ Filing date if loss year delinquent
Note: Farm losses and Prop & Casualty insurance losses still have possible 2-year carrybacks after TCJA
Refunds pp. 160-161
IRS Initiated Adjustments
Interest stops 45 days prior to refund▪ No additional back-off period
IRS initiated = no TP request
Refunds p. 161
Interest Rate - § 6621
General rule: federal short-term + 3% Corporate: federal short-term + 2%▪ If > $10,000, federal short-term + .5%
Compounded daily Rate set in the 1st month of the preceding
calendar quarter (3rd Qtr 2018 set in April) Figure 6.2 (2017-18 quarterly rates)
Special Interest Rules p. 161
Reissued Refund Checks Check undeliverable, incorrect, not rec’d Interest paid if government’s fault
§ 6603 Deposits Deposit for later payment of tax Withdrawn $, interest at short-term rate After applied to tax, normal rate applies
Special Interest Rules pp. 161-2
Credit Elect Treated as payment for next year If refund wanted & IRS error → interest If TP error, no interest (hardship needed)
Quick Refund – Corporate – Form 4466 Interest if not refunded w/in 45 days of later of
1120 due date, received or processible date
Special Interest Rules pp. 162-3
Overpaid overpayment interest IRS cannot use assessment procedures Offset, request pay, file erroneous refund
suit (w/in 2 years, 5 if fraud)
Underpaid overpayment interest Form 843 w/in 6 years of refund – always
do 1st to exhaust administrative remedies Can file civil suit w/in 6 years
p. 163Requesting Technical Advice from IRS
Private Letter Ruling – PLR Before a transaction or before return filed Interprets laws & applies to TP’s specific facts Binding on IRS unless facts inaccurate User fee for most PLRs is $10,000Determination Letter Issued by an IRS Director Completed transactions Principles/precedents by Chief Counsel
pp. 163-164Technical Advice Memorandum - TAM
From Office of Chief Counsel Requests arise during examinations Issued on closed transactions Final determination of IRS position on
specific issue in specific case TEAM: Expedited TAM (shorter timeframes) Overview of process – p. 164
TAM - Process pp. 164-165Initiating the Request
TP (Rep) or IRS may initiate Issues warranting TAM
▪ Law & regs not clear on the issue, no published precedents
▪ Lack of uniformity on issue disposition▪ Doubtful/contentious issue▪ Issue unusual/complex▪ A director believes securing TAM is in best
interest of IRS
TAM - Process p. 165Appeal of Denial of Initial TAM Request
Within 30 days, submit written statement of facts, issue, legal arguments, TP’s position & explanation of need for TAM
No conference held, no appeal If appeal denied, review available Field suspends activity on the issue(s)
while pending
TAM - Process p. 165Acceptance of TAM Request
Exchange of Statements – Field and TP▪ Facts & issues to go to associate office
Presubmission Conference▪ Held w/in 30 days – field, TP, assoc.▪ Generally by phone, can be in person▪ Mandatory for all TAM requests▪ Agree to scope, facts, documents
TAM - Process pp. 165-166
TAM Request ▪ Field office & field counsel prepares▪ Memo of facts, issues, law, arguments
supporting TP and field’s positions• TP: 10 days to reply w/disagreements• Both: 10 days to resolve disagreements• Memo sent to associate office
TAM - Process p. 166
Review by Associate Office▪ In 7 days: discuss deficiencies w/field▪ In 21 days: discuss issues, additional info▪ Attorney calls TP – 10 days for info needed
Tentative Advice to Field▪ 21 days of having all info (TEAM 5)▪ Issued to field, not taxpayer (since it is not
final)
TAM - Process p. 166
Adverse Conference▪ Associate office advises TP of adverse TAM▪ Associate office offers conference▪ Held within 21 days of notice (TEAM 10)
Final TAM▪ Informally discussed w/field▪ Final TAM issued to field and counsel▪ Field office gives copy to TP
p. 167
Federal Tax Lien
Lien attaches automatically to all real and personal property after demand for payment and no payment made▪ Attaches also to later acquired property
Notice of Federal Tax Lien (NFTL) filed to▪ Provide public notice of the lien▪ Protect the government’s interest
pp. 167-168
Federal Tax Lien
Jointly Owned Property▪ Joint tenancy or tenants in common
• Entire property may be sold• Nonliable tenant must be compensated
from sale proceeds▪ Joint tenancy: Death - Lien ceases to attach ▪ Tenants in common: Lien survives death
Federal Tax Lien p. 168Filing Notice of Federal Tax Lien (NFTL)
Real: filed where property located Tangible/intangible personal: filed where
taxpayer resides▪ If resides outside US, filed in D.C.
TP receives notice of filing – 5 days▪ Notice + info on appeal rights
Federal Tax Lien p. 169Filing Notice of Federal Tax Lien (NFTL)
Tax lien continues until liability full paid▪ Collection statute expiration date
(CSED) is generally 10 years from assessment (can be extended)
▪ If judgment by suit, no expiration of time to collect until satisfied
Federal Tax Lien p. 170Options after NFTL Filed
Can affect credit rating…employers, landlords, getting loans
Options after NFTL filed Appeal Request release Apply for withdrawal Apply for discharge Request subordination of the lien
Federal Tax Lien p. 170NFTL Filed - Appeal
Collection Due Process (CDP) Hearing –w/in 30 days of notice• IRS cannot levy, suspends statute
Form 12153 TP identifies alternatives/disagreement
• Equivalency Hearing – > 30 days• Collection activity can continue• Cannot appeal decision to Tax Court
Federal Tax Lien p. 170NFTL Filed - Appeal
Collection Appeals Program (CAP) Hearing▪ Form 9423▪ Faster results than CDP▪ Cannot appeal determination in court▪ TP should attempt to resolve with
collection manager
Federal Tax Lien pp. 170-171NFTL Filed - Release
IRS must release w/in 30 days of:▪ Full payment▪ Expiration of collection statute▪ Bond accepted for liability payment
If > 30 days & no release▪ Call Centralized Lien Operation▪ Submit written request for release
Federal Tax Lien p. 171NFTL Filed - Withdrawal
Withdrawal = IRS abandoning lien priority Federal tax lien still remains (still liable) NFTL may be withdrawn if:
▪ Installment agreement▪ Will help taxpayer pay the liability▪ IRS failed to follow proper procedures▪ NFTL in violation of bankruptcy stay▪ Best interest of the government and taxpayer
Federal Tax Lien p. 172NFTL Filed - Discharge
Lien can be removed from specific property when it is being sold1. Value of other property under NFTL = ≥ 2 x
liability (gov’t share)2. Payment ≥ value of govt’s interest 3. Value of gov’t interest in property = 04. Sale proceeds in fund – retains priority5. 3rd party deposit/bond = gov’t’s interest
Form 14135 (Application for Certificate of Discharge)
Federal Tax Lien pp. 173-174NFTL Filed - Subordination
Allows other creditors ahead of government Form 14134 (application for subordination) Appropriate when refinancing Can appeal denial of discharge/subordination
Federal Tax Levy p. 174Requirements for IRS to Levy
1. Tax assessed & IRS sent Notice & Demand for Payment to Taxpayer
2. Taxpayer neglected/refused to pay3. IRS sent Final Notice of Intent to Levy
and Notice of Your Right to a Hearing
In person, left at home or business, sent by certified/registered mail w/ return receipt request
Federal Tax Levy p. 174Requirements for IRS to Levy
Notices issued simultaneously if TP is:▪ Pyramiding employment taxes
(w/h’g and not remitting)▪ Made certain frivolous arguments to IRS for
2 or more periods, or▪ Failed to file required returns for 2
successive periods or 3 nonconsecutive periods – IRS prepared SFRs
If IRS believes collection of tax in jeopardy, levy without notice
Federal Tax Levy pp. 174-175Property Subject to Levy
Wages, salary, commissions▪ Served once, remains in effect until full paid
Dividends, promissory note payments▪ Applies only to those due or right to future
payments as of date of levy Bank account
▪ Funds available for withdrawal ▪ Bank holds for 21 days before giving to IRS
Federal Tax Levy pp. 174-175Property Subject to Levy
Federal Payments▪ Federal retirement, social security (up to
15%)▪ Vendor/contractor payments (up to 100%)
House, car, other property▪ Results in seizure and sale▪ IRS sets value, TP can challenge▪ Any excess proceeds from sale go to TP
Federal Tax Levy pp. 175-176Property Exempt from Levy
List – 175 Minimum wage amount based on standard
deduction + exemption▪ Figure 6.3
Personal residence if deficiency small (≤ 5,000) Seizure of residence requires judicial approval Seizure of business assets exempt unless area
director approves or collection in jeopardy
Federal Tax Levy p. 176Release of Levy
Avoid a levy → pay, installment agreemt, OIC Release of levy required by law if
▪ Amount owed paid in full▪ Levy not issued before CSED▪ Release would facilitate collection▪ Installment agreement terms do not allow▪ Levy creates an economic hardship▪ Value of property > amount owed & release
will not hinder government’s ability to collect
Federal Tax Levy p. 177Release of Levy
Will release wrongful or erroneous levy
Wrongful: Improperly attaches to 3rd party property
Erroneous Levy – If issued…1. Against exempt property2. Prematurely3. Before TP received required notice4. While TP in bankruptcy w/automatic stay
Federal Tax Levy p. 177Release of Levy
Erroneous Levy – If issued….5. When seizure & sale costs would exceed
FMV of property6. While alternative requests were pending or
accepted (IA, innocent spouse, OIC)7. While Appeals or Tax Court is considering
CDP cases8. While Appeals or Tax Court is considering
denial of innocent spouse relief
Federal Tax Levy p. 177
Appealing a Levy▪ 30 days from notice to request CDP hearing▪ 30 days from appeals determination to
appeal to Tax Court▪ May appeal through CAP if CDP not
available
Federal Tax Levy pp. 177-178Recovery of Wrongfully Seized Property
Property may be returned at any time if not sold If sold, $ may be returned w/in 2 years of date
of levy▪ Interest may accrue (at overpayment rate)
Retirement Plan Levies▪ Interest paid regardless of reason for release▪ Treated as a rollover if contributed back to plan (if by
original due date of return)▪ Interest paid treated as earnings w/in the plan and
not included in income
Federal Tax Levy p. 178Recovery of Wrongfully Seized Property
Third Party Claim▪ File a claim or civil action Claim by letter to IRS advisory group Details and documents to support If rejected, appeal through CAP hearing
No economic damages by court if administrative remedies not exhausted first
Federal Tax Levy p. 178Recovery of Wrongfully Seized Property
Claim for Bank Charge Reimbursement▪ Charges incurred due to wrongful levy▪ Form 8546▪ Claim w/in 1 year of date claim accrues▪ Limited to $1,000▪ Must include copy of levy and bank records▪ Allowed if: IRS agrees erroneous, TP did not
contribute to error, TP cooperative < levy
p. 179
If Can’t Pay Currently
Extension of Time to Pay – locally, online Offer in Compromise (2017 Workbook)
▪ Doubt as to collectability▪ Doubt as to liability▪ Effective tax administration
Installment Agreement Currently Not Collectible
p. 179
Installment Agreements
Must be current in all filings Online or through Form 9465 Enforcement action suspended ▪ While agreement pending▪ While in effect▪ 30 days after rejected ▪ During appeal of rejection/termination
▪ User fees apply (see p. 179-180)
Installment Agreements p. 181
Guaranteed Installment Agreements
1. Aggregate ≤ $10,000 (no int., penalt.,additions)2. In preceding 5 years, TP & spouse have not: Failed to file any return Failed to pay tax required to be on return Entered in an IA for payment of any tax
3. IRS determines TP unable to pay in full4. Agreement requires full payment in 3 years5. TP agrees to file all returns & pay
Installment Agreements p. 182
Agreed Examination Deficiency
Individuals (no delinquent 941), out-of-business business entities, corps (income tax only), other business entities
All required returns filed All required tax deposits/estimates made Installment agreements may be
guaranteed (depending on amount) Deficiencies over $50,000/$100,000 involve being sent
to collections
Installment Agreements p. 182Partial Payment Installment Agreement
Unable to full pay by CSED with some ability to pay
Form 433-A or B needed IRS may require assets sold If enforcement action appropriate
(taxpayer has significant equity in assets) IRS will not approve PPIA
Installment Agreements p. 184Termination (Default)
Cause for termination: Fails to make payment when due Fails to pay another liability when due Fails to provide requested financials Provided info prior to IA that was
inaccurate or incomplete Fails to pay modified payment based on
updated financial info
Installment Agreements p. 184Termination (Default)
IRS sends written notice re: termination▪ 30 days: Comply or request CAP
hearing▪ IRS cannot levy during appeal period
pp. 184-185
Currently Not Collectible Status
Paying any amount prevents TP from meeting basic living expenses▪ Delay collection until ability improves▪ Must be current with all required returns
– estimates and withholding sufficient ▪ Forms 433-A, B, or F ▪ IRS still bills but no collection action
List of reasons – p. 184-185
p. 185, 188
Currently Not Collectible Status
NFTL generally filed on CNC if aggregate unpaid > $10,000
Levy on wages must be released if CNC If CNC, IRS will check for transfereesIRS Follow-up Automatic system follow-up on hardship,
unable to locate, unable to contact Mandatory if TPs ability to pay improves
p. 189
Innocent Spouse & Injured Spouse
Innocent Spouse▪ Relieved of joint liability
Injured Spouse▪ Share of refund offset spouse’s
liability
pp. 189-190
Innocent Spouse
§6015 (b) Innocent Spouse Relief▪ Relief of additional tax on item of spouse
§6015(c) Separation of Liability Relief▪ Separate allocation of additional tax
§6015(f) Equitable Relief▪ Unfair to hold TP liable for unpaid or
understated taxFigure 6.8 – p. 190 (requirements for each
type of relief)
Innocent Spouse pp. 190-191
Filing Deadline
Form 8857 W/in 2 years of collection activity
▪ Offset a refund by joint tax due▪ IRS claim in court▪ IRS files suit to collect▪ IRS issues notice of intent to levy▪ Collection activity ≠ stat notice, notice of
lien, notice & demand for payment
Innocent Spouse p. 191
Requesting Relief
Cannot request if:▪ Court already considered issue▪ TP meaningfully participated in court
proceeding & did not request then▪ TP entered into OIC for the liability▪ TP entered into closing agreement for
the year
Innocent Spouse p. 191
Participation of Spouse/Former Spouse
IRS must contact spouse/ex-spouse Allowed to participate – no exceptions Right to appeal preliminary partial/full
relief but not appeal to Tax Court
Form 8857 information shared w/nonrequesting spouse. May provide some info orally rather than w/Form 8857
Innocent Spouse Relief p. 191
Conditions for qualifying1. Joint return understatement due to
erroneous items of other spouse2. When signed return did not
know/had no reason to know3. Unfair to hold liable4. No fraudulent asset transfers
Innocent Spouse Relief p. 191
Erroneous item Unreported income Incorrect deduction, credit, prop. basis
Actual knowledge Knew spouse received unreported income Knew the facts that disallowed
deduction/credit Knew expenses not incurred or to extent of
deduction
Innocent Spouse Relief pp. 191-192
Domestic Abuse: May qualify even with actual knowledge Fear of retaliation – did not challenge
Reason to Know Reasonable person standard Reason to know of the transaction that
gave rise to the understatement
Innocent Spouse Relief p. 192
Reason to Know1. Level of education2. Involvement in the financial/business
activities of the family3. Unusual or lavish expenses4. Nonrequesting spouse’s evasiveness
or deceitfulness about finances
Innocent Spouse Relief p. 192
Indications of Unfairness – IRS considers whether 1. Requesting spouse received significant
benefit▪ Property transfer, exceeds regular support
2. Nonrequesting spouse deserted3. Divorced or separated
▪ No longer married – favors relief4. Requesting spouse received benefit on
return
Innocent Spouse Relief p. 192
Indications of Unfairness – IRS considers whether 5. Requesting spouse will suffer economic
hardship6. Is legal obligation of nonrequesting spouse7. Nonrequesting spouse made good-faith
effort to comply (even if not successful)8. Requesting spouse knew/had reason to
know tax would not be paid
Separation of Liability p. 193
Allocation of an understatement of tax (interest & penalties) to responsible spouse Available for unpaid liability arising from
an understatement (not on return) Cannot request refund of tax paid
Separation of Liability p. 193
Requirements ▪ No longer married to or legally separated
from spouse on joint returnOR
▪ Not a member of same household at any time during 12 mos prior to filing Form 8857
Must establish basis for allocation and that no property transfer to avoid tax
Separation of Liability p. 193
Limitations on relief – no relief if:▪ IRS proves assets transferred in
scheme to defraud IRS or 3rd party▪ IRS proves requesting spouse had
actual knowledge when signing return▪ Nonrequesting spouse transferred
property to requester to avoid tax
Separation of Liability p.194
Allocations of Deficiency
Allocate deficiency in same ratio as spouse’s share of erroneous/total Penalties follow allocation of items
causing the penalty Separate treatment item allocable solely
to one spouse Erroneous items TP knew of cannot be
allocated only to other spouse
Separation of Liability p.195
Allocations of Deficiency
Separate Treatment Items Deficiency attributable to an item allocable
solely to one spouse▪ Credit▪ Self-employment tax
Separate treatment item added to allocable share of remainder of deficiency
Equitable Relief pp. 196-7
If innocent spouse relief and separation of liability do not apply Understatement or underpayment of tax Inequitable to hold liable Requirements – pp. 196-7 Unpaid liabilities: File relief request on or
before CSED Credit/Refund of amounts paid: File relief
request within 3 yrs of filing/2 yrs of payment (later of)
Equitable Relief pp. 197Streamlined Determination
Establish: No longer married to nonrequesting Would suffer economic hardship Did not know/have reason to know of
understatement or deficiency
If streamlined N/A, facts & circumstances
Injured Spouse Relief p. 201
TP’s refund applied to spouse’s past-due financial obligation Requirements of injured spouse:▪ Withholding, estimated payments,
refundable credit▪ No obligation to pay past-due amount
to which the refund is applied
Injured Spouse Relief p. 201
Form 8379
File Form 8379▪ With tax return▪ With amended return▪ By itself
File when first aware of offset▪ W/in 3 years of due date (w/ext) or▪ W/in 2 years of tax paymt used for offset
Questions?