Dealing with an IRS Revenue Officer

Who is an IRS Revenue Office

IRS Revenue Officers work for IRS field collection offices and their job is to collect past due taxes. Do not confuse a Revenue Officer with a Revenue Agent. A Revenue Agent conducts audits of tax returns.

When will a Revenue Officer be Assigned

After the IRS assesses taxes against you and you do not pay the tax or make an arrangement to pay, the IRS will send you a series of notices. If you owe a small balance, your account will likely be assigned to the Centralized Automated Collections System (ACS). Accounts with balances over $250,000, business accounts and accounts with potential trust fund issues are generally assigned to a Revenue Officer automatically.

Nevertheless, this does not always happen and an account may end up sitting in ACS until it is caught. Due to the current deficit in Revenue Officers and the early 2019 government shutdown, there has been a significant delay is case assignment. If you have a liability with the IRS that qualifies for a Revenue Officer assignment and you try to resolve the liability through ACS, ACS will not work with you and will attempt to refer your account to a Revenue Officer.

What an IRS Revenue Officer Can and Cannot Do

A Revenue Officer cannot arrest you and does not carry a gun. A revenue officer can take money out of your bank accounts and investment accounts. A revenue officer can force the sale of your home and can shut down your business. A Revenue Officer can also take steps to extend the initial ten year statute of limitation for collections for another ten years if he or she finds cause to do so. Whether the Revenue Officer will actually do any of the above depends on the Revenue Officer and your cooperation.

What does an IRS Revenue Officer Want

The success of a Revenue Officer depends on how many cases he or she successful resolves. Successful resolution means that the Revenue Officer either convinced the taxpayer to full pay the liability or set the taxpayer up on a collection alternative such as an Offer in Comprise, Payment Plan or Currently Non Collectible. The resolution is successful if the case does not come back into the Revenue Officer's inventory 1-2 years after the resolution is put in place because of a default. Therefore, it is in the Revenue Officer's interest to assure that you do not default your collections alternative in the future. That means that the most important thing to a Revenue Officer, is that the taxpayer is in compliance, stays in compliance and is on a reasonable collection alternative.

What is an IRS Revenue Officer Going To Do

The Revenue Officer is first going to require that all missing tax returns are filed. Next, the Revenue Officer will ensure that you are making all required estimated tax payments and are therefore not going to owe another liability when another tax return is filed. This is called being in compliance and a Revenue Officer cannot start to work out a collection alternative until you are in compliance.

Once the Revenue Officer is satisfied that compliance has occurred, he or she will start reviewing your financial information. This includes a 433A and/or 433B financial statement, bank statements and proof of income and expenses. This will allow the Revenue Officer to determine your ability to pay off the past due liability. If your finances show that you are not able to pay, the Revenue Officer can temporarily put you on Currently None Collectible status or suggest that you file an Offer in Compromise.

If you do have an ability to pay, the Revenue Officer will set you up on a full pay or partial pay installment agreement. The distinction is that with a partial pay agreement, you will not be able to full pay the liability before the statute of limitations for collections expires. In order to qualify for partial pay, you must not have any available assets that could be used to pay the liability. A full pay installment agreement will pay off the liability before statute expiration.

This is a general explanation and requests made by Revenue Officers vary greatly depending on the specific circumstances of the taxpayer involved.

Do You Want a Revenue Officer to Be Assigned? 

In most cases, assignment is inevitable because ACS cannot work the case due to their restrictions. Working with a Revenue Officer could be very pleasant and convenient. Many Revenue Officers are great people who truly want to help taxpayers resolve their tax issues in the best way possible. They will go out of their way to help you and make life easier for you. Other Revenue Officers are rude, angry and disrespectful and will levy and make unreasonable demands. If you are assigned to a Revenue Officer with this type of personality, get their manager, taxpayer advocate and appeals involved when you can.

There is luck involved but if you are unlucky, there are options to protect yourself. In balance, most Revenue Officers that I worked with have been great. They are people like you and me who do genuinely want to help people.

This content is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional. 

What If You Can't Afford To Pay Your Taxes: Obtaining a Hardship Status

If you cannot afford to set up an installment agreement to pay your taxes, some taxing agencies will allow you a temporary break in the form of a hardship deferral.

The Internal Revenue Service (IRS) can put you in Currently Non-Collectible (CNC) status if a representative verifies that you currently do not have enough income to meet your basic living expenses and have enough left over to pay the IRS. The California Franchise Tax Board (FTB) and the California Employment Development Department (EDD) have a similar status called a hardship. While the hardship process is generally straightforward with the IRS, it is more difficult to qualify for this temporary break with the FTB and may be substantially more difficult to qualify with the EDD.

If you qualify for CNC or a hardship with these agencies, you should also look into the Offer In Compromise (OIC) Program through which these agencies may settle your tax debt for less then you owe.

IRS Currently Non-Collectible Status 

The CNC program through the IRS is fairly straightforward and there are regulations available which provide an overview of the program.

The CNC status is only granted after full financial disclosure. The IRS agent will request that the taxpayer fill out a financial statement such as a 433A or 433F. The agent will also request and review supporting documentation such as bank statements, pay stubs and a profit and loss statement to substantiate the financial statement.

When evaluating a taxpayer's financial status, the agent must use national and local standards. This means that certain expenses are already set and do not require proof. These include Food, Clothing and Misc, Out-of-Pocket Health Care and Vehicle Operating Costs. For example, a family of four automatically receives $1,465 for the Food Clothing and Misc expenses.

If the taxpayer's expenses are greater than or equal to his or her income, the CNC status will generally be granted by the IRS.

While a taxpayer is in CNC, penalties and interest continue to accrue and the IRS will file a lien against the taxpayer. The IRS also reserves the right to re-evaluate this status at any time.

FTB Hardship 

The process for obtaining a hardship with the FTB is similar to the CNC process with the IRS. The taxpayer is required to fill out a financial statement and submit supporting documentation. The difference is that the FTB does not have set standards. The FTB Collection Procedures Manual states that the FTB offers "payment options based on the taxpayers disclosure of their true and complete financial condition." Nevertheless, the manual goes on to say that an FTB staff member may consider IRS Financial Standards when determining a taxpayer's ability to pay.

Therefore, that same family of four is not guaranteed the $1,465 for Food Clothing and Misc since the use of the IRS standards is at the discretion of the individual staff member. It is possible that this family will be placed on CNC with the IRS but will not qualify for a hardship with the FTB.

Furthermore, like the IRS, the FTB's Collection Procedures Manual discusses the financial hardship.

EDD Hardship 

Obtaining a hardship with the EDD is substantially more difficult than it is with the IRS and FTB. Even though this status does exist, there is no mention of it on the EDD website and, as I have been told by EDD employees, in EDD training manuals. In fact, I have been told by multiple EDD collections agents and their managers that no hardship status is available for taxpayers that cannot afford to pay.

This is not to say that every EDD agent will deny the existence of hardship status. Some agents that I have worked with acknowledged the existence of the hardship status and, after having my client fill out a financial statement and reviewing financial documentation, granted the status.

If you are unlucky enough to be assigned to a collections agent who refuses to acknowledge the existence of a financial hardship even though you have no ability to pay through an installment agreement, contact the EDD Taxpayer Advocate Office. The taxpayer advocates are there to protect your rights and will assist you in obtaining a hardship.

If you cannot afford to pay your liability with any of the taxing agents mentioned above, evaluate your financial status to see if you qualify for a hardship. The hardship is available to protect taxpayers from unexpected wage garnishments and bank levies. Don't leave yourself open to involuntary collection.

This content is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional. 

Problems Found With IRS Collections Due Process Hearings

A recent report from the Treasury Inspector General for Tax Administration (TIGTA) has uncovered some troubling information about how the IRS handles Collection Due Process (CDP) hearings.  Specifically, the investigation identified the following problems:

(1) An estimated 1,450 of 47,855 taxpayer cases may have incorrectly received a CDP hearing when they should have been granted an Equivalent Hearing (EH).
(2) In an estimated 10,151 of 47,855 taxpayer cases, the Collection Statute Expiration Date (CSED) was incorrectly calculated.
(3) In an estimated 7,251 of 47,855 taxpayer cases the hearing officers did not correctly document their impartiality as required.
(4) Taxpayer requests for CDP hearings are not consistently sent by the IRS's Collection office to Appeals in a timely manner.

Background Information

After assessing a tax liability, the IRS has 10 years to collect this liability from a taxpayer. When a case reaches its expiration date or CSED, the IRS may no longer collect and must write off the balance due.

The IRS begins the collections process by sending out a number of notices to the taxpayer. Over several months, these notices become progressively more threatening, urging the taxpayer to contact the IRS in order to resolve the liability. If these initial contacts are unsuccessful, the IRS issues a "Notice of Intent to Levy and Your Right to a Hearing". If a taxpayer does not respond to this notice, the IRS can begin active collections such as wage garnishments, bank levies, etc.

If a taxpayer responds to this notice within 30 days, he is allowed a CDP hearing with IRS Appeals.  The 10 year statute of limitations is suspended while the taxpayer is in CDP status. If the taxpayer responds after the 30 day period has expired, the IRS may grant him an EH (during which the IRS can continue to collect from the taxpayer). At these hearings, Appeals may consider a number of alternatives to active collection, including, setting up an installment agreement, an Offer in Compromise, penalty abatement and the Innocent Spouse defense. If the taxpayer disagrees with the decision reached by Appeals at a CDP hearing, he can petition the U.S. Tax Court. A decision reached at an EH hearing may not be appealed.

Of the problems identified by TIGTA, the incorrect calculation of the CSED and the delays in forwarding CDP requests to appeals were found to most violate taxpayer rights.

Incorrect Computation of the CSED

Because the IRS ceases collections activity if a CDP hearing is granted, the CSED is temporarily suspended during a CDP hearing. TIGTA estimates that in almost a fifth of all CDP cases, the IRS suspended the collection statute for an incorrect period of time. In cases where the IRS suspended the CSED for longer than required, it violated the rights of the taxpayers since it allows the IRS more time to collect.

Delays in Referring Requests for CDP Hearings to Appeals 

Currently, the IRS has a target time of 90 days to initially resolve or forward a taxpayer's request to Appeals. A large portion of the cases reviewed took more than 180 days to resolve or forward to Appeals. TIGTA noted that when the IRS takes too long to forward a case to Appeals, the CSED is suspended for this additional time and this increases the time that the IRS is allowed to collect.

In response, the IRS agreed that these oversights violate the rights of taxpayers and has begun to take steps to prevent future violations. 

This content is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional. 

10th Circuit BAP Ruled That You Cannot Discharge Your Tax Debt In Bankruptcy If You Filed Your Tax Return Post-Assessment

If you intend to discharge your tax debt in bankruptcy, there is an important holding that you should be aware of. If you file your tax return after the IRS has already prepared a substitute return (SFR) on your behalf, your form 1040 does not qualify as a tax return for purposes of bankruptcy.

An SFR is based entirely on information that the IRS received about you from third parties (i.e. your employer). Therefore, the SFR does not include any additional exemptions or expenses that you are entitled to and will therefore overstate your tax liability. 

This holding came out of last year's US Bankruptcy Appellate Panel (BAP) 10th circuit case Wogoman vs. IRS. The Wogomans did not file their 2001 tax return by the IRS deadline. In 2004, the IRS began the SFR process and sent the Wogomans a notice of deficiency notifying them of their right to challenge the deficiency in Tax Court within 90 days. The 90 days passed and on February 21, 2005 the IRS assessed the Wogomans for 2001. The Wogomans filed their correct 1040 for 2001 on August 1, 2006. In response, the IRS adjusted the Wogomans' liability and penalties to reflect the amounts on their filed 1040.

Subsequently, the Wogomans filed for bankruptcy attempting to discharge their tax debt. 

In deciding this case, the BAP relied on 11 USC 523 (a)(1)(B)(i) which states that a tax debt cannot be discharged in bankruptcy if the tax return, upon which it is based, was not filed. The BAP determined that a return filed after assessment did not qualify as a tax return filed under section 523. The BAP reasoned that "as a matter of law, a Form 1040 is not a return if it no longer serves any tax purpose or has any effect under the IRC." Since the IRS had already assessed the Wogomans with the SFR, their return filed after the fact no longer qualified as an honest attempt to satisfy their obligation to file a tax return.

This content is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional. 

IRS Makes Changes To Its First-Time Abate Penalty Waiver

This is an update to my previous article: IRS First-Time Abate Penalty Waiver and the Report from the Treasury Inspector General for Tax Administration, published on October 26, 2012. 

The IRS has updated its First Time Abate program for penalty relief. This program allows taxpayers a one-time waiver the first time a failure to file, failure to pay or failure to deposit penalty is charged. The waiver is available for only one tax period. 

According to the update, in order to qualify for relief the taxpayer must have 

1. Filed all tax returns
2. Paid or arranged to pay all tax currently due (for example, the taxpayer has set up an installment agreement and is current with his or her payments). 

This content is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional. 

Last Minute Filing: How To Guarantee Timely Filing With The IRS

There are many reasons for waiting until the last minute to meet an IRS deadline.  You may be having trouble getting your documents together or you may be searching for an attorney to represent you in Tax Court. No matter if you are running late out of necessity or out of procrastination, the consequences for missing an IRS deadline range from minor to drastic depending on the type of filing. 

For example, if you miss the deadline to file a tax return, a late filing means a late filing penalty. On the other hand, the consequences for missing the deadline to file a petition in Tax Court in order to contest an IRS notice of deficiency are severe. Taxpayers only have 90 days to file a Tax Court petition and if the deadline is missed, the Tax Court will not have jurisdiction to hear your case. Your only remaining option is to pay the tax owed and file suit in either the United State District Court or the Court of Claims. 

In order to determine whether a filing is timely, the IRS follows the "timely mailing treated as timely filing/paying rule" (26 USC Section 7502). This rule states that a tax return (or other document) required to be filed (or payment to be made) with the IRS (or Tax Court) is timely filed if:

1. The date of the U.S. Postal Service postmark is no later than the due date (or the date of its extension), 
2. The return is properly addressed and 
3. Has proper postage. 

If, on the other hand, the filing has a postmark after the due date, it is considered filed on the date that it is received by the IRS. 

According to 26 USC Section 7502 (c), if a return or other document is sent by United States registered mail, registration shall be prima facie evidence (accepted as correct) that the return or other document was delivered and the date of registration shall be deemed the postmark date. 

Furthermore, the IRS has only a handful of approved private-delivery services which will meet the "timely mailing as timely filing/paying" rule (see Internal Revenue Bulletin: 2004-83). 

• DHL Express (DHL): DHL Same Day Service.
• Federal Express (FedEx): 
• FedEx Priority Overnight
• FedEx Standard Overnight
• FedEx 2Day
• FedEx International Priority
• FedEx International First
• United Parcel Service (UPS): 
• UPS Next Day Air
• UPS Next Day Air Saver
• UPS 2nd Day Air
• UPS 2nd Day Air A.M.
• UPS Worldwide Express Plus 
• UPS Worldwide Express

If your private-delivery service provider is not on this list, neither the IRS nor the Tax Court will make an exception for you. This point can be illustrated by a recent Tax Court case, Scaggs v.s Commissioner of Internal Revenue. In this case the taxpayers used FedEx Airbill "Express Saver Third business day" to mail their Tax Court petition. The court held that since the private-delivery service used was not on the approved list, the petition was not filed within the requisite period prescribed by section 6213(a) and their case was dismissed for lack of jurisdiction. 

It is important to note that if you file your tax return online (e-file) it is not considered filed until you receive an IRS acknowledgement of acceptance. Since this could take up to two days, don't rely on electronic filing if you are filing your tax return last minute.  If your return was e filed on time but was rejected after the deadline, your return will be considered timely if it is corrected and re-e filed again within 5 business days or printed and mailed to the IRS within 10 days. 

Update 6/7/13: the "timely mailing as timely filing/paying" rule does not apply to FBARs which must be received by June 30th (see instructions to form TD F 90-22.1). Likewise, when dealing directly with an IRS officer or agent, clarify beforehand whether they expect the document mailed by or received by the deadline they set (thank you to tax attorney Michael A. Lampert for bringing these exception to my attention). 

This content is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

IRS to Pursue "Quiet" Disclosure of Foreign Income

US taxpayers have different reasons for not disclosing their foreign bank accounts (by filing FBARs). While some taxpayers are intentionally hiding foreign income to avoid paying US taxes, many just don't know that they are required to disclose their account and pay taxes on the interest income. Some of these individuals are foreign born US citizens maintaining a bank account in their country of origin. Others are US citizen living overseas. Uninformed or not, during the last few years the US government has made it a priority to crack down on offshore tax evasion. 

As part of this effort, the US enacted the Foreign Account Tax Compliance Act which requires foreign financial institutes to report to the IRS information about financial accounts held by U.S. taxpayers. As a result of this enactment, the risk of an audit for individuals with foreign bank accounts increased substantially. 

In 2009, the IRS introduced its first Offshore Voluntary Disclosure Program (OVDP) to encourage individuals to voluntarily disclose their foreign bank accounts. As part of the deal offered by the program, the IRS agreed not to audit or criminally prosecute these individuals in exchange for the payment of taxes, penalties and interest on any undisclosed income and a one time 20% penalty on the highest balance in the foreign bank account (lower penalties are available if special circumstances are met). Due to the success of the first OVDP, the IRS reintroduced the OVDP in 2010 with a 25% highest balance penalty and in 2011 with a 27.5% penalty. 

As the penalties under the OVDP increase each year, more taxpayers are opting to instead come clean through a "quiet" disclosure. A "quiet" disclosure" means that taxpayers amend their past tax returns and FBARS without actually coming forward under the OVDP and paying the penalty on the highest balance. As a result, the government misses out on billions of dollars in revenue. 

This month, the Government Accountability Office (GAO), the "congressional watchdog," issued a report urging the IRS to pursue those taxpayers making "quiet" disclosures. The report, titled Offshore Tax Evasion. IRS Has Collected Billions of Dollars, but May be Missing Continued Evasion, found that as of December 2012, the OVDP programs have resulted in over 39,000 disclosure and over $5.5 billion in revenue. Furthermore,while the IRS has also detected some taxpayers trying to avoid paying taxes, interest and penalties, many attempts have been missed. The GAO found many more potential "quiet" disclosures than the IRS detected by analyzing amended returns from 2003-2008 and matching them to available information about taxpayer offshore activities. The GAO concluded that the act of "amending past returns or reporting on current returns previously unreported offshore accounts, results in lost revenue and undermines the programs' effectiveness." 

The GAO recommended that in addition to identifying and educating taxpayers about their reporting requirements, the IRS should "explore options for employing a methodology to more effectively detect and pursue 'quiet' disclosures." The IRS has agreed to adopt these recommendations.  

Currently, in the OVDP question and answer section, the IRS urges taxpayers who have already made a "quiet" disclosure to take advantage of the penalty framework provided by the OVDP. The IRS warns that those taxpayers making a "quiet" disclosure should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years (question #15). 

Although it is uncertain what methodology the IRS will adopt to ferret out "quiet" disclosures, it is likely that the risks may no longer be worth taking. 

This content is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.