Archive for Appeals & Audit Resolution
The IRS Office of Appeals resolves more than 100,000 tax cases each year. Employees staffed in this function are trained to resolve disputes taking into consideration the hazards of litigation as well as the benefits of efficient tax administration. They are not necessarily trained to advocate on behalf of the United States Government’s best interest as they are to resolve and close files. To that end the Internal Revenue Service updated existing rules on permissible communications between the Office of Appeals staff and pretty much all other parts of the IRS. The updated rules are in Revenue Procedure 2012-18.
The previous rules were issued in October 2000 so it was time that they were revisited. The new rules address ex parte communications, which are communications between the Office of Appeals and other parts of the IRS that take place without the taxpayer or the taxpayer’s representative being given an opportunity to participate in the communication.
“These rules implement a provision in the IRS Restructuring and Reform Act of 1998, aimed at ensuring that the Office of Appeals remains an independent and flexible vehicle for settling audit and collection-related disputes between taxpayers and the IRS. A part of IRS, but independent of the agency’s compliance functions, Appeals serves as one of the checks and balances built into the U.S. system of tax administration.”
In one key change IRS Appeals will no longer participate on issue management teams (IMT) but can be briefed by IMTs, as long as the discussion remains generic rather than case specific. IMTs include representatives from various IRS components, typically Compliance and Counsel, and the IMT meetings usually involve general discussions of how to handle technical issues or procedural matters.
Additionally when there is a breach of the ex parte communication rules, Appeals employees will now ask the affected taxpayer or their representative for input on the appropriate remedy and the appropriate remedy will be determined by a senior management official. The IRS Office of Appeals resolves more than 100,000 tax cases each year.
Many taxpayers have both a dwelling unit and a principal place of residence. Understanding the difference between the two is important for a wide variety of reasons. The file that landed on my desk today involves such a matter. The taxpayer has a dwelling unit in Texas (where there is no state income tax) and a principal place of residence in Colorado (where there is a state income tax). Because the tax payer was afforded bad advice by his previous tax return preparer he now finds himself in quite a mess that requires filing amended tax returns going back 3 tax years. If you are fortunate enough to have both a primary residence and a dwelling unit, make sure that you understand the difference between the two AND properly list your PRIMARY RESIDENCE on your tax returns.
Under Reg. §1.280A-1, a dwelling unit includes a house, apartment, condominium, mobile home, boat or similar property that provides basic living accommodations, such as sleeping space, toilet and cooking facilities. However IRS Reg. §1.121-1(b) states that if a taxpayer alternates between two properties, using each as a residence for successive periods of time, the property that the taxpayer uses the majority of the time during the year ordinarily will be considered the taxpayer’s principal residence.
If you are unsure and state law doesn’t provide clarity on residency requirements the general rule of thumb when dealing with the IRS is to count and document the number of nights spent in each location throughout the duration of the tax year (365 nights total). Which ever location the most nights were spent at can generally speaking for the most part be represented as your principal place of residence.
October 4, 2011
John R. Dundon II
Appeals & Audit Resolution, Basis, IRS Appeal, IRS Audit, IRS Collections, IRS Enforcement, IRS Examination, Tax Court, Tax Guidance & Preparation, Tax Problems & Requests
When you call the IRS I suggest doing it as early in the work day as possible to minimize wait time. Have a pen and pad of paper in hand and ideally be sitting in front of a computer. Write your questions down in advance of picking up the phone and be calm yet alert. Be sure to record on the top of your notes the date and time of the call.
THE VERY FIRST QUESTIONS YOU ALWAYS WANT ANSWERED:
1. Who are you talking to?
2. How is their name spelled?
3. What is their IRS identification number?
Be polite when asking but do know that the person you are talking to is obligated to provide you this minimal information. This is also particularly important because sometimes when defending against allegations it may prove beneficial to request that the actual taped phone conversation be reviewed for accuracy and without this above information the IRS will simply not comply. When the IRS provides documented misinformation they can and sometimes do create a basis for you to seek relief from their allegations.
Remember the person on the other end of the phone is obligated and trained (usually very well) to advocate on behalf of the US government. And this person is skilled at using what I refer to as phone tactics in pursuit of their obligations to their employer which manifests itself in a variety of ways and can cause you to experience a variety of emotions if you let it. Take solace in knowing that politeness and calmness usually prevail.
In the US Tax Court Case Stephen Meeh v. Commissioner - TC Memo 2009-18, the Court noted that the IRS settlement officer had a history of being unavailable and misrepresenting or failing to record the taxpayers’ efforts to contact the officer. The Court was of the opinion that both the tax payer and the IRS are partially at fault, but because the IRS records were so “badly muddled,” the appropriate action was to honor the taxpayers’ request for an installment plan.
Lesson here is to take better notes than your opponent because more often than not it distills down to who ever has the more precise and organized documentation gets a ruling more in their favor, unless of course their is an overt violation of the code.
September 30, 2011
John R. Dundon II
Appeals & Audit Resolution, Cancelled Debt, IRS Appeal, IRS Audit, IRS Collections, IRS Enforcement, IRS Examination, IRS Levy, IRS Lien, IRS Mediation, IRS Penalties, IRS Penalty and Interest Abatement
The IRS as many of you are painfully aware is often looked upon as accusing first without due process requiring the tax payer to shoulder the burden of proof in regards to his or her innocence relevant to the Internal Revenue Code. In other words there is no such concept as ‘innocent until proven guilty’ when it comes to IRS audits. Systematically the IRS conducts correspondence exams routinely requiring tax payers to defend themselves. That is how the United States Treasury rolls, deal with it. Shifting the burden of proof back onto the IRS is almost always an effective means of navigating through the process in route to a favorable resolution. How does one do that?
Under §6201(d) the taxpayer can shift the burden of proof to the IRS if he or she asserts a reasonable dispute with respect to the income reported on an information return like say for example a 1099-C Cancellation of Debt.
According to §7491(a) (1) the burden of proof is switched from the taxpayer’s responsibility to the IRS if the taxpayer submits
factual evidence contrary to the information return.
According to the Treasury Inspector General for Tax Administration (TIGTA) the IRS needs to expand audits to other tax years and tax matters when large dollar amounts are involved in a preexisting audit making it all the more important to know exactly what you are doing when communicating with the IRS. A couple of general rules of conduct are in order. First you want to create the perception that you are working to help the Revenue Agent or Officer ‘close’ your file which is manifested in timely responses and general communication. Second you want to answer the SPECIFIC QUESTION ASKED and nothing more. If the Revenue Officer or Agent asks you what time it is, don’t tell them how to build a watch. This only invites opportunity for further inquiry and probing.
Here’s what the TIGTA Report concluded verbatim and how the IRS responded:
“TIGTA identified three factors that likely contributed to our concerns with expanding audits. First, the IRS strives to keep its audit inventories free of old tax year returns. As a result, tax compliance officers seldom expand an audit to a taxpayer’s prior year return. Second, case file documentation does not indicate that tax compliance officers are taking full advantage of the IRS’s internal sources of information when conducting required filing checks. Third, the IRS’s performance feedback mechanisms are not always taken advantage of to hold tax compliance officers accountable for the quality of their filing checks.
TIGTA recommended that the Director, Exam Policy, Small Business/Self-Employed Division, provide: 1) detailed examples to tax compliance officers on when it would be appropriate to expand audits to prior and/or subsequent year returns, 2) information to tax compliance officers that focuses on using the IRS’s automated information systems to enhance the quality of required filing checks, and 3) additional guidance to first-line managers to improve the feedback provided to tax compliance officers on the quality of required filing checks.
In their response to the report, IRS officials agreed with the recommendations and plan to: 1) provide examples in internal publications that show when it is appropriate to expand audits, 2) conduct a workshop on using IRS automated systems, and 3) improve the feedback provided to tax compliance officers on the quality of their filings checks. Although IRS officials agreed with all three recommendations, they did not agree with the potential monetary benefits associated with the recommendations.
To view the report, including the scope, methodology, and full IRS response, go to:
According to a report filed by the Treasury Inspector General for Tax Administration there has been a 19 % increase of enforcement personnel serving in the Collection and Examination function of the IRS since Fiscal Year 2006. Whereas on average overall IRS staffing increased 4 percent during this same period, from 103,811 employees in Fiscal Year 2006 to 107,622 employees at the end of Fiscal Year 2010. So yes there appears to be a concerted effort to dedicate disproportionate resources to the collection and examination functions inside the IRS.
The Examination function’s recent increase in revenue agents and tax compliance officers resulted in the most tax returns examined over the past five years. The number of tax returns examined increased across the board for individual, corporate, and S Corporation tax returns in Fiscal Year 2010, while the number of partnership examinations decreased. As a direct result of this the number of delinquent tax accounts closed by full payment increased as did the amount collected on delinquent accounts. However, the IRS Collection function received more delinquent accounts than it closed, gross accounts receivable increased, and the number of tax delinquency investigations closed with the filing of a delinquent tax return decreased. In addition, while the number of taxpayers with delinquent accounts and delinquent returns in the Queue decreased, it was offset by an increase in the number of these cases that were shelved or surveyed.
Bottom line is that the situation is going to get worse before it gets better in my humble opinion. Take heed and file/pay your taxes on time to avoid complications. No recommendations were made to the IRS based on this report. To view the report, including the scope and methodology, go to:
Section 6662(a) and (b)(1) imposes a penalty equal to 20 percent of the underpayment of tax due to negligence or intentional disregard of the rules or regulations. If your attitude toward the preparation of your tax returns appears to be cavalier you will definitely be held accountable for the penalty. That is why it is very important to craft each and every response to the IRS with exacting precision.
So if you get audited and your books are a mess the very first thing you must do is GET YOUR FINANCIAL RECORDS IN ORDER BEFORE RESPONDING. There are many software packages that are awesome for maintaining accurate financial records. There are also reputable bookkeepers that can be hired for as little as $20/hour that will quote you a price up front to turn your box of receipts and statements into a quality set of books.
When you demonstrate care and concern and a certain degree of professionalism in maintaining your books AND if you made an honest oversight it is possible to argue for the abatement of the penalty as one part of an overall resolution. 20% penalty adds up quick, trust me.
August 2, 2011
John R. Dundon II
Appeals & Audit Resolution, Back Taxes Owed, Currently Not Collectible, IRS Appeal, IRS Audit, IRS Collections, IRS Enforcement, IRS Examination, IRS Lien, IRS Mediation, IRS Penalties, IRS Penalty and Interest Abatement
Basically the simple answer is file your tax forms with both the US Federal government and applicable state governments. Start by filing the previous 3 years of income tax returns ASAP.
It is possible the IRS may have already filed returns for you. Under Section 6020(b) of the Internal Revenue Code, the IRS may file a Substitute for Return when you do not file a return on your own. These types of returns are prepared at the highest tax rate. You may be eligible for a lower rate if you have dependents or itemized deductions to claim, are eligible for the Earned Income Tax Credit, etc.
The only way to get the maximum benefit is to file a return. To receive credit for your future Social Security benefits from self-employment income, you must ensure that income is filed with the IRS. You only have three years to file and claim a refund of overpaid withholding. If you are due refunds, filing the returns will close your case. Under current law, refunds more than three years old are lost and cannot be applied to other tax due. Penalties and
interest may apply if you owe taxes.
The failure to file penalty is a maximum of 25 percent of the tax due on each return. Penalties and interest can drastically exceed the tax due on returns more than three years old.
Paying your tax debt - Online Payment Agreements are available should you find that you owe. In addition, you can also make an Offer in Compromise. However, you should be aware that all legally required tax returns must be filed in order to be eligible for an OIC.
Note: Refunds less than three years old will be applied to any amounts still owed to the IRS and may be used to satisfy unpaid child support or past due federal debts, such as student loans
