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AGOSTINO & ASSOCIATES, P.C.

IRS Collections

Presented by : Frank Agostino

DISCLAIMER: The following materials and accompanying Access MCLE, LLC audio program are for instructional purposes only. Nothing herein constitutes, is intended to constitute, or should be relied on as, legal advice. The author expressly disclaims any responsibility for any direct or consequential damages related in any way to anything contained in the materials or program, which are provided on an “as-is” basis and should be independently verified by experienced counsel before being applied to actual matter. By proceeding further you expressly accept and agree to Author’s absolute and unqualified disclaimer of liability.

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How Does A Tax Debt Arise?

• Self- Assessment

• Audit

– Information Returns

– Substitute for Return

• Trust Fund Recovery Penalty - 60 Day

Letter

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1st Notice – Tax Balance Due

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1st Notice - Is the Tax Amount is

Correct ?

• Prepare & File form 2848, Power of

Attorney

• Request IRS transcripts • IRS Practitioner Priority Service tel. 866-860-4259

• Request the IRS’s administrative file. • Make a Freedom of Information Act (“FOIA”)

Request for the IRS’s administrative file.

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Is the Tax Invalid Because Assessment

Statute Expired?

• 3-year rule (IRC Section 6501(a))

• 6-year rule (IRC Section 6501(e) and

Treas. Reg. Section 301.6501(e)-1)

– If the taxpayer omits additional gross income in

excess of 25% of the amount of gross income

stated in the tax return filed with the IRS.

• Unlimited (Fraud) (IRC Section 6501(c)(1)

and Treas. Reg. Section 301.6501(3)-1)

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• The 10-year Statute of Limitations for Collection has expired.( IRC Section 6502).

– When does the Statute of limitations start to run?

• Filed tax returns - Date Taxpayer mailed the tax return plus six weeks

• Audit Adjustments (agreed) - Date Taxpayer signed the auditor’s report plus three weeks.

• Audit Adjustments (unagreed) - Date appeals process and the tax court process (if any) is completed and the tax court judge has issued his or her ruling. (Decision Document)

Is the tax no longer due because the

collection statue expired?

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• Filing of a bankruptcy petition. – Duration of the bankruptcy proceedings plus 6 months thereafter.

IRC Section 6503.

• Filing of an Offer-in-Compromise. – Duration of the Offer or one year, whichever is greater.

• Filing of Requests for relief. – CDP - Extended from the date the IRS receives the Request for a

CDP to the date that the determination becomes final

– Innocent Spouse - the statute is extended from the date the Taxpayer requests relief to

– The date Tax Court decision becomes final, or

– If no Tax Court petition is filed, 90 days after the IRS mails its determination to the innocent spouse plus 60 days. IRC Section 6015(e)(2)(a). Treas. Regs. Section 1.6015-7(c)(3).

• See IRC Section 6503

Computing the Statute Exp Date:

What Suspends the Statute?

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• Proposed Responsible Person Assessment for Trust Fund Recovery Penalty cases not received.

– Letter was not mailed to Last Known Address

• Taxes discharged in bankruptcy.

• Penalty Abatement requested

– First Time Request -Taxpayer has been in compliance - three years before year at issue.

– Reasonable Cause

Other Defenses Against Tax

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Innocent Spouse Relief

• Innocent spouse.

• Filing for innocent spouse relief will stop

collection activity against both taxpayers

until the innocent spouse determination is

made.

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2nd IRS Notice – “Reminder”

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2nd Notice

• Determine whether to prepare penalty

abatement request now or wait until

Request for CDP (4th Notice)

• Determine whether to contact IRS to

request installment agreement if tax due is

less than $25k

• Taxpayer has the right to propose collection

alternatives at anytime.

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Penalty Abatement – cont’d

• IRM 20.1.1.3.6.1 (1) provides the following

about administrative waivers for 1st time

penalty abatement:

– …if the taxpayer has not previously been

required to file a return or if no prior penalties

have been assessed on the same MFT..in the

prior 3 years. This first time abate aspect is an

administrative waiver…

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3rd IRS Notice – Important

Handout pg. 48

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Tax Liability is less than $25k

Taxpayer is eligible for Installment Agreement:

- 24 months - Small businesses with $25,000 or less

- 36 month (Guaranteed) • Individual with Tax Liability = $10,000 or less (exclusive of

penalties and interest) may be guaranteed an IA.

• Have not entered into an IA during any of the preceding 5 taxable years.

• No Form 433 A/B required.

– 60 month (Streamlined) • Individuals with a tax liability of $25,000 or less (Includes tax,

assessed interest and penalty. It does not include accrued interest and penalty)

• May be processed quickly, without financial analysis or managerial approval. IRM 5.14.5.1

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4th Notice – Urgent, We intend to levy

on certain assets. Please respond now

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Federal Tax Lien Filing

• The IRS is required to make reasonable efforts to contact the taxpayer before filing a NFTL. IRM 5.12.2.3

• The efforts to contact the taxpayer are to advise that a NFTL may be filed if full payment is not made when requested. Issuance of the statutory assessment notice and the balance due notices sent during the collection process will constitute reasonable efforts. (e.g. four notices)

• While the notices sent in the notice stream are sufficient for filing a NFTL, generally when a NFTL has not been previously filed the revenue officer’s determination with respect to the filing of the NFTL will be done in conjunction with the initial actual contact or initial attempted contact. Contact (request for full payment) may be made by: – field contact (preferably).

– telephone.

– mailing a notice or letter to the last known address (when appropriate). See IRM 5.11.1.2.1.1 for "last know address" description.

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Notice of Federal Tax Lien

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Withdrawal of Lien

• Reason for requesting

withdrawal:

• Notice was filed

prematurely

• Taxpayer entered into

installment agreement

• Will facilitate tax

collection

• Best interest of tp and

gov’t.

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4th IRS Notice

– Collection Appeals Program (“CAP”)

• Enables Taxpayer to have time to obtain loan to pay

tax before federal tax lien is filed.

• IRS FORM 9423 – Collection Appeals Program

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Form 9423 – Collection Appeal

Request

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5th Notice - Final Notice of Intent to

Levy

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• 5th Notice - “Final Notice of Intent to Levy

and Taxpayer’s Right to a Collection Due

Process Hearing” • Request Collection Due Process hearing within 30

days. Form 12153

• Enforcement Action permitted if no Request for

CDP submitted:

– Seizure and Sale of Property

– Backup withholding

– Garnishment of wages and other payments

IRS Notices, cont.

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Stop the IRS Levies – Respond to

Final Notice with CDP Request

• The IRS may not levy until it has given the

Taxpayer 30-days notice

• The taxpayer must file a Request for a CDP

Hearing within 30 days of the date of the

IRS Final Notice.

– If the 30 days has expired, taxpayer can request

an Equivalency Hearing (Form 12153)

– An Equivalency Hearing, however, is not

appealable in Tax Court.

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FORM 12153 – Request for CDP

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• Complete Form 12153, Request for CDP Hearing/ Equivalency Hearing.

• Include Form 2848

• Cover Letter should provide: – A Face-to-face conference request at the local IRS

Appeals Office

– De Novo Review of Penalties (A/K/A Penalty Abatement).

– A Statement of all pertinent and potential issues.

– The Right to Amend the Request.

– The Right to Supplement.

– Request for no ex-parte communication between IRS employees working on case.

How to Make a Request for CDP

Hearing

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• The IRS will always request that you

withdraw your CDP request. Do not

withdraw because withdrawals waive future

appeals.

• Taxpayer is required to be in compliance to

be granted a CDP hearing.

Requesting a CDP Hearing, cont.

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Deciding Among Collection Alternatives

• Currently Not Collectible

• Installment Agreement

– Partial Payment Installment Agreement

• Offer-in-Compromise

• Bankruptcy

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Collection Alternatives

• Currently Not Collectible

– Taxpayer cannot currently pay anything toward

the tax debt

– Form 433 Collection Information Statement

Required.

– Hardship: any collection against the taxpayer

would result in an undue hardship / untenable

living situation.

– Delinquent tax returns do not need to be filed.

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• Accounts will be marked currently not collectible if:

– Taxpayer is insolvent

– Taxpayer cannot be located

– Taxpayer is a defunct corporation with no remaining assets

– Taxpayer is deceased and estate is insolvent

• Pros:

– No IRS active collection action

– The statute of limitations will continue to run.

• Cons:

– Unpaid tax, interest & penalties.

– Any significant positive changes in the taxpayer’s financial status will result in the taxpayer being taken out of currently not collectible status.

Currently Not Collectible, cont.

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Installment Agreement

• When taxpayers are unable to pay a liability in full, an installment agreement (IA) may be considered.

• Cons – Penalties and interest continue to accrue

– Fee = $105 or $52 for direct debit

– Notice of Federal Tax Lien may be filed

– Federal tax refunds will be offset

– The first time a taxpayer misses a payment, the IRS can consider it a default and resume collection activity;

– Requires the taxpayer to have access to the available funds and a continuing source of income sufficient to meet the obligation;

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• Partial Payment Installment Agreement (PPIA)

– Installment agreements that do not provide for full

payment of the tax liabilities because collection

statute expiration date. IRC Section 6159

– PPIA will be for the period of time remaining on

the statute of limitations for collection (CSED).

– Collection Information Statement (Form 433A or

433B) is required.

Installment Agreement - PPIA

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• A PPIA may be granted if: (IRM

5.14.2.1.2)

– No Asset/ No Equity cases

• A taxpayer has no assets or no equity in assets;

or has liquidated available assets to make a

partial tax payment.

Partial Payment Installment

Agreement, cont.

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Offer-in-Compromise

• The IRS has the authority to settle a tax liability

for payment of less than the full amount owed pursuant to IRC Section 7122.

• Policy Statement P-5-100 states:

– The Service will accept an offer in compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. An OIC is a legitimate alternative to declaring a case currently not collectible or to a protracted installment agreement. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the Government.

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OIC, cont.

• Types of OICs:

– Doubt as to Liability

– Doubt as to Collectability

– Effective Tax Administration

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Effective Tax Administration

• Treas. Reg. Section 301.7122-1 authorizes

the IRS to consider OICs for ETA.

• ETA offer allows for situations where tax

liabilities should not be collected even

though:

– the tax is legally owed, and

– the taxpayer has the ability to pay it in full

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Determining the amount of the OIC

• The Offer should be greater than or equal to

the total value of all assets, plus future

income, minus expenses and debt computed

over a period of 48-60 months.

– Reasonable Collection Potential (RCP) = Asset

Equity Table + Income Equity Table.

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Amount of OIC

• Corporate Offers Involving Trust Fund Taxes

– Only the amount representing the reasonable collection

potential (RCP) of the corporation is needed to

compromise a corporate trust fund liability

• The RCP of the persons responsible for the Trust Fund

Recovery Penalty (TFRP) is no longer needed as part of the

corporate trust fund offer, and

• The Trust fund portion of the tax liabilities must be paid or the

TFRP either assessed or forwarded (by collection) for

assessment before the corporate offer may be evaluated. IRM

1.23.3.6.1 (8-28-2009)

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OIC: Pros and Cons

• Pros and Cons:

– Pros: an OIC allows for the full satisfaction of

an outstanding tax debt for less than the full

amount.

– Cons: Very hard to get accepted

• The statute of limitations is extended:

– During the pendency of the Offer, including appeal

– While the terms of the Offer remain unfulfilled

– For 30 days following the rejection of an Offer

– For one year in addition to the total of the periods listed

above.

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Requirements for OIC

– Requirements for OIC:

• Completed Form 656 with original signature;

• Taxpayer must not be in bankruptcy;

• Taxpayer must be in compliance and stay in

compliance with all filing and tax payment

requirements for 5 years;

• Submit $150 processing fee;

• Submit OIC Payment

– 1st payment ; or

– Pay 20% non-refundable payment( lump sum payment

type of OIC)

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Types of Offers

• 90 Days - Cash Offer – Net Disposable Monthly Income x 48 months

– Must be paid within 90 days of acceptance

– No NFTL filed

• 2 years - Short-Term Payment Offer – Net Disposable monthly income x 60 months

– Must be paid within 2 years of acceptance

– NFTL filed

• Months Remaining on Collection Statute - Deferred Payment Offer – Disposable income x number of months remaining on

collection statute

– NFTL will be filed

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Acceptance of Offer

• The Offer requires Taxpayer to forego

certain refunds

• Taxpayer must be in compliance for 5 years

or the Offer will be defaulted.

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Rejection of Offer

• IRS will notify by mail.

• IRS will keep $150 application fee and 20%

lump sum initial payment (if lump sum

offer)

• Taxpayer may appeal within 30 days

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Collection Alternative: Bankruptcy

• If the income tax is more than 3 years old at

the time the petition is filed, it is

dischargeable in bankruptcy.

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After the CDP Hearing

• IRS will issue a Notice of Determination –

either denying or granting the collection

alternative.

• Taxpayer may appeal the IRS’s Notice of

Determination by filing a US Tax Court

Petition.

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US Tax Court Review

• What does the USTC review?

– De Novo

• Abate or recompute the tax

– Abuse of Discretion

• Collection Alternatives will Remand to Appeals