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. 

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.

What Should You Know If Your Case Has Been Assigned To An IRS Revenue Officer

Who Is An IRS Revenue Officer 

An IRS revenue officer ("RO") is a highly trained employee of the IRS collection division.  ROs are granted total collection authority by the IRS and are therefore able to make phone calls and visit you at home or at your place of business.  If you are not at home or work when the RO comes to visit, he or she will leave a request that you contact them by a specific date.  This request should not be ignored.  If you do not voluntarily comply with this request, the RO has the power to summons you to a mandatory meeting.  The RO also has the power to garnish wages and bank accounts, seize accounts receivables and seize property.  It is very common for an RO to use these collections techniques against an uncooperative taxpayer.

Every RO is different.  I have personally worked with many ROs who care deeply about a taxpayer's situation and do everything in their power to find the best solution possible.  I have also worked with unreasonable ROs who don't have patience for excuses and are quick to garnish wages and seize bank accounts.

The bottom line is that ROs are people with a very difficult and dangerous job. Although they do not carry weapons or make arrests, they do work long hours and make face-to-face contact with many unreasonable and desperate people.  It is not uncommon for an RO to be threatened on the job.  Dealing with a reasonable and responsive taxpayer is often a welcome opportunity for an RO.

Why Is An RO Assigned To Your Case?

If you owe the IRS money, the IRS may assign your case to an RO for a number of reasons.  These include: (1) you owe a large debt (2)  you owe payroll taxes (3) you have unfiled tax returns and/or (4) the regular IRS collection division has been unsuccessful in collecting from you.

What Should You Do?

If you receive a call or visit from an RO, do not ignore the RO.  Whether or not you should hire a tax controversy attorney to represent you depends on how comfortable you are dealing with the RO and the complexity of your tax situation.  If you decide to handle communications with the RO on your own, consider the following:

1. You should obtain a complete snapshot of your account with the IRS.  In order to do this, contact the IRS in order to gather the following information:
• Confirm that all necessary tax returns have been filed 
• If any tax returns have not been filed, these need to be prepared and filed immediately.  In order to get these prepared, request that the IRS send you your Wage and Income Transcripts for the tax years that have not been filed.  Wage and Income Transcripts show your W2s, 1099s, mortgage interest information, etc.  
• Request that the IRS send you an Account Transcript for each year that you have a balance.  This transcript will show you each year's balance due and the interest and penalties that have been added on.  
2. Keep in contact with the RO and comply with his or her requests.  As mentioned above, ROs have complete collection authority and will use it against you if you are unresponsive. 
3. The RO will want to resolve your account by reviewing your finances in order to determine whether you can (1) pay your balance in full, (2) pay on an installment agreement or (3) cannot pay at all. If you need more time than the RO initially allows to gather your financial information, request an extension.  Do not ignore deadlines.  
4. The documentation and information that the RO will request varies depending on your specific circumstances.  If you feel that the RO's request is burdensome or unreasonable, it may be best to contact a tax controversy attorney.
5. The RO has the power to abate delinquency penalties.  Therefore, if you have a good reason for failing to file your returns on time or failing to pay your liability in full, bring the issue up with the RO.

Finally, understand that ROs are often out of the office (making personal contact with other taxpayers) or are in training.  Therefore, it is common that an RO will take his or her time responding to your or your attorney's calls.

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

Notice of Federal Tax Lien: Understanding IRS Tax Liens

A Notice of Federal Tax Lien ("Notice") from the IRS is a public document meant to alert creditors that the government has a legal right to your property, all your rights to property and to property that you acquire after the lien is filed.  This Notice is issued because you have not paid your tax debt.  The purpose of the lien is to protect the government's interest in your property.  Nevertheless, the mere existence of this lien does not transfer title or constructive possession of your property to the government.  Instead, the IRS must either levy against the property or bring a civil action to collect the tax.

The IRS will only file a tax lien against you if (1) the IRS assesses your liability (2) sends you a bill that explains how much you owe and (3) you do not pay the debt in time.

When this Notice is filed, it is important to know your rights and options.  Many people intend to borrow funds to pay off their tax debts and the filing of the Notice may harm their ability to obtain these funds.  Also, people with tax liens on their credit records also may have a harder time getting a job, a car loan or finding a place to live.

Currently, as part of its Fresh Start Program, the IRS will not issue a tax lien unless you owe at least $10,000 in taxes.  Nevertheless, the IRS warns that a tax lien may still be filed on amounts less than $10,000 when circumstances warrant.

Appeal Rights 
The IRS is required to send you the Notice by certified mail under I.R.C. section 6320 within five days of the lien being filed.  The Notice also provides you with information about your appeal rights.  If you believe that this Notice is filed in error, you have 30 days to appeal.  The Notice is filed in error if any of the following apply:

• You satisfied your liability before the lien was filed
• Assessment of the tax liability violated either the notice of deficiency procedures (i.e. the notice of deficiency was mailed to the wrong address or you have already filed a timely petition with the Tax Court) or the bankruptcy code. 
• The statute of limitations for collection ended before the IRS filed the notice of lien 

If you request a hearing, the hearing will be conducted by an Appeals officer who was not previously involved with your case.  If the Appeals officer reaches a decision that you do not agree with, you may seek judicial review by filing a tax court petition within 30 days of the Appeals officers' decision.  

Release Of Lien
Per I.R.C. section 6325(a), The IRS will issue a Certificate of Release of Notice of Federal Tax Lien within 30 day after either:

• You pay the full amount of your debt, penalties, interest or the IRS adjusts the amount due 
• The IRS accepts a bond guaranteeing payment of the debt 
• A decision is made to adjust your account during an Appeals hearing or 
• The period during which the IRS can collect the tax ends.  

If the IRS has not released the lien within 30 days, you can request a Certificate of Release of Federal Tax Lien.

Withdrawal Of Lien 

Even if the IRS agrees to release a lien, it will remain on your credit report as "released" for up to seven years.  Therefore, you must request that the IRS also withdraw the lien in order for the IRS to remove the public notice.  This is not automatic.  In order to request that the Notice be withdrawn, you must complete Form 12277.  

General Instruction four on the form also states that you must request in writing that the IRS notify other interested parties of the withdrawal notice. You must provide the names and addresses of the credit reporting agencies, financial institutions and or other creditors that you want notified.  

In order to qualify for a withdrawal,

• Your tax liability must be satisfied and your lien must be released
• You must have filed all individual, business and information returns for the bast three years.  
• You must be current on your estimated tax payments and federal tax deposits 

Withdrawal Of Lien After Entering Into An Installment Agreement

If you meet the eligibility requirements, the IRS may withdraw your Notice after you enter into a direct debit installment agreement.  You will still need to complete and send the IRS Form 12277 to obtain the withdrawal. In order to be eligible, you must meet the following requirements: 

• The amount you owe must be $25,000 or less
• Your installment agreement must full pay the amount you owe within 60 months or before the collection statute expires (whichever is earlier)
• You must be in full compliance with other filing and payment requirements 
• You must have made three consecutive direct debit payments 
• You cannot have previously received a lien withdrawal for the same taxes (unless the withdrawal was for an improper filing of the lien)
• You cannot have defaulted on you current or any previous direct debit installment agreement.  

The IRS certainly does not make it easy or obvious for you to take the necessary steps to repair your credit.  Nevertheless, you do have options and is very important to be aware of your rights and obligations when resolving your tax liability with the IRS.

For a great overview and more information about the IRS Lien Process, please see this article by Attorney Anthony E. Parent.  

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

Final Notice of Intent to Levy and Notice of Your Right to a Hearing

If you owe money to the IRS, you will receive a consistent stream letters that become progressively more threatening.  There is one letter, in particular, that may be the most important one you receive from the IRS. If you agree with your liability but have not yet paid it, this letter is titled "Final Notice of Intent to Levy and Notice of Your Right to a Hearing" ("Final Notice").  Do not ignore this letter or else you will soon find your bank account empty and your wages garnished.  The other important letter is the "Notice of Determination" which gives you 90 days to petition the Tax Court in order to dispute your liability. 

What does the Final Notice" mean? Lets go back to the beginning.  When you initially owe money to the IRS and your rights to dispute your liability in Tax Court have expired, you will receive a notice stating something along the lines of "according to our records, you have an amount due on your income taxes."  This notice will encourage you to pay your balance in full or set up an installment agreement.  This notice is polite because, at this time, your account with the IRS is not yet in Automated Collections.  Collections is the branch of the IRS that deals with actively collecting a liability due from taxpayers. If you do not respond to this notice, you may receive several other notices prompting you to pay.  Again, even though these notices appear increasingly more threatening, your account is still not in Collections.  Eventually, you will receive a notice titled "Intent to Seize your Property or Rights to Property" (CP-504).  The CP-504 is your final notice before your account is transferred to collections.  If you don't pay the amount due, the IRS may seize your state tax refund and file a Notice of Federal Tax Lien on your property.  

This is also the notice before the IRS sends you your Final Notice. When you receive the Final Notice, you have to request a Collection Due Process Hearing ("CDP Hearing") by filing out and sending in Form 12153 (please read this form carefully when you are filling it out).  When you request a CDP Hearing, the IRS will assign your account to an agent who will contact you directly through the mail or phone in order to set you up on an installment agreement or, if you are experiencing hardship, place you on Currently Non-Collectible Status ("CNC"). Otherwise, if you ignore this notice, there are no more protections between your assets and the IRS.  The IRS can and will go after you.  

In conclusion, when you receive mail from the IRS: read it and look carefully for any deadlines that the IRS has imposed.  If you don't, you may be in for a much bigger hassle then you orginally thought.  

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

taxgirl® Said it Best: Open Your Mail!

In the process of getting familiar with my Twitter account, I came across a fellow tax attorney named Kelly Phillips (A.K.A taxgirl®) from Philadelphia, PA. While exploring her twitter page and retweeting some of her amusing tweets, I also discovered that she is a blogger for Forbes. One of her blogs, "My Best Tax Advice Ever, Part I: Open Your Mail," hit close to home. 

One of the main reasons deadlines are missed and taxpayers are burned by taxing agencies is because they do not open their mail or refuse certified mail. This reminds me of a client I represented two years ago. He came to us hoping that we would fight his case before a California State taxing agency. After hearing his story, we agreed that he had a great case and had a high chance of winning if he could get the merits of the case heard by a judge. Unfortunately, after further investigation, we discovered that not only did he miss the deadline to file for an appeal (if that was all we could have still had a chance to fight his case by arguing lack of notice) he actually refused notice by not accepting certified mail from this agency. Since the agency had written record of this refusal there was little we could do to fight the liability.   

Fortunately, this taxpayer still had the option of paying his liability in full and filing a claim for refund. Alternatively, if he could not afford to go this route and wanted to pay off the liability, he could still apply for an installment agreement or an Offer in Compromise (OIC) Doubt as to Collectibility  with this agency in order to try to settle his debt for less (please note that in order to qualify for an OIC Doubt as to Collectibility the taxpayer must participate in full financial disclosure and the agency must determine that based on specific guidelines, it would be impossible for the agency to collect the full amount of the liability during the collection period). 

Contrary to popular belief, the IRS is actually easier to deal with than California State agencies. Many taxpayers who miss deadlines with the IRS (i.e. deadline to get into Tax Court) still have other options available to them if they want to continue fighting a liability. For example, they can apply for an audit reconsideration or file a claim for refund (as discussed above). Another option is to apply for an OIC Doubt as to Liability. Unlike the OIC Doubt as to Collectibility, discussed above, in order to qualify for an OIC Doubt as to Liability there must be a legitimate doubt from the viewpoint of both the taxpayer and the IRS that an assessed tax liability is correct. 

In conclusion, please open your mail from the IRS when you receive it. It will make your life a lot easier and cheaper in the long run. Also, check out taxgirl® at http://blogs.forbes.com/kellyphillipserb/.

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