Tag Archive for IRS Collections

IRS Collection Limitations

December 14, 2011 IRS Collections, IRS Enforcement

There are several options available through the IRS to resolve delinquent tax obligations and/or request relief.  One of the many reasons you need to be careful when engaging the IRS in these regards is because many of the programs including offer in compromise, collection due process appeal, and innocent spouse request extend the amount of time the IRS has to collect your delinquent taxes by the equivalent amount of time an application for relief is pending. It is hugely important to make sure the time frame for successful resolution of your tax matter is worth the risk of extending the IRS’ collection time capabilities.

Internal Revenue Code Sec. 6502 sets a limit of ten years from when the IRS puts a liability on its books referred to as the assessment date to pursue collection. This is technically called the Collection Statute Expiration Date (CSED) and will usually make most every IRS collection matter go away.

As stated above the filing of an offer in compromise will extend the statute of limitations on collection by the amount of time an application is pending plus thirty days. At present the IRS is taking at least nine to twelve months to complete an initial investigation of an offer in compromise. If the initial investigation results in rejection, an appeal can be submitted. This appeal process is currently taking twelve to eighteen months, sometimes longer. Generally speaking its best to expect the process to take twelve to twenty four months from the time an offer is submitted to approval (or denial). During this time the statute of limitations on collection is essentially suspended (aka carried over or ‘tolled’) because the IRS cannot levy or seize property during the investigation. Which means in plain english that the action of requesting tax relief automatically gives the IRS longer than the 10 years stipulated by statute to collect your delinquent taxes. The realities of success must be weighed against the risk of extending the collection statute.

The ability to file a collection due process (CDP) appeal is powerful because the IRS usually cannot begin enforcement action to seize property including bank accounts, wages, real and/or personal property until it provides notice and rights of due process. In most cases a CDP appeals hearing can last as long as eighteen months or more. Also a CDP appeal can even give Tax Court jurisdiction to intercede. Tax Court can take up to a year to issue a decision. While a Tax Court petition is pending the collection hold continues, as does the suspension of the collection statute.

Timely filed CDP appeals extend the statute of limitations on collection. This is important becasue a late-filed CDP appeal defined as filed within one year of the date of the Final Notice of Intent to Levy does not necessarily extend the collection statute expiration date but does entitle you to an appeal or ‘equivalent’ hearing as per IRS administrative practice via IRM 5.1.9.3.6 and Treas. Reg 301.6330-1.

Although equivalent hearings are not absolute and are provided on a case-by-case basis, the IRS tends to process a late appeal and provide full appeal rights to the taxpayer’s benefit, including a hold on seizure and levy, while not extending the statute of limitations on collection.  Also Equivalent hearings do not extend the timing rules that make taxes eligible for a bankruptcy discharge. If bankruptcy is being considered, a timely filed CDP will ultimately prolong the time it takes to close a bankruptcy file, while an ‘equivalent’ hearing provides a hold on collection and no suspension of the bankruptcy timing regulations.

Although a CDP appeal presents a situation where late-filing with the Internal Revenue Service can potentially serve towards your advantage, it is important to understand that by late-filing a CDP appeal and requesting an equivalent hearing you lose the right to go to Tax Court to litigate the IRS Appeals’ decision.

Because the IRS will not consider the hazards of litigation in equivalency hearings consideration should be given as to the cooperative nature of the IRS revenue officer involved in the case who may pose many different problems ultimately requiring Tax Court intervention.

The filing of bankruptcy extends the statute of limitations on collection by the time the bankruptcy is pending, plus six months. If the bankruptcy is unsuccessful in eliminating the taxes, the IRS will have more time to collect afterwards. Time is also an essential component of eliminating and discharging taxes in bankruptcy.

Under Internal Revenue Code Sec. 6331(k) the IRS cannot take levy or seizure action while a request for an installment agreement is pending, for thirty days after denial or termination of an installment agreement, or during the time an appeal of a denied or terminated installment agreement is pending. When an installment agreement is in effect and not disputed, the statute of limitations on collection continues to run.

When entering into an installment agreement, the IRS can request that a taxpayer voluntarily sign a waiver extending the collection statute. This is rarely used but nevertheless is policy to request voluntary statute extensions in conjunction with partial-pay installment agreements and when an asset exists that will come into the possession of the taxpayer after the statute expires. AVOID IT!

Being out of the U.S. for a continuous period of more than six months also extends the statute of limitations on collection. This is reported via check box on IRS Form 433A Collection Information Statement for Wage Earners and Self-Employed Individuals.

If the IRS believes you are responsive in providing financial information the time the statute is extended will be generally limited to five years. If you are considered uncooperative and have not acted to resolve a liability, the collection statute will be extended for the duration of any collection potential.

Requests for innocent spouse relief and Taxpayer Assistance Orders both extend the statute of limitations on collection.

There are various ways to find out when the statute of limitation on collection is over:

1. call the IRS and ask for the CSED.

2. analyze IRS account transcripts to determine the assessment date and to add in any extensions of time reflected on the transcripts.

3. review the federal tax lien obtained at a county recorder or clerk’s office without contacting the IRS. A federal tax lien will list the date the IRS statute of limitations on collection begins (assessment), as well as the date thirty days after it would end without consideration for any extensions. Column (d) of the tax lien specifying the date of assessment is the key to determining when the collection statute expires: add ten years to it and you have the end date to the statute of limitations on collection. Be sure to account for possible extensions of the statute from this starting point.

When the statute of limitations on collections expires, IRS transcripts should have the following entry: TC 608, Statute Expiration Date, Clear to Zero. The account would be adjusted with a credit in the amount of the current outstanding balance. The result is an account transcript reflecting a zero balance due serving as testament that your tax debt has come to an end.

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The IRS Collection Process – Publications 594 and 1660

April 3, 2011 Intent To Lien, IRS Collections

IRS Publication 594 (PDF), The IRS Collection Process
IRS Publication 1660 (PDF), Collection Appeal Rights
IRS Collection Actions include:

* Filing a Notice of Federal Tax Lien. The federal tax lien is a legal claim to your property, including property that you acquire after the lien arises. The federal tax lien arises automatically when you fail to pay the taxes you owe within ten days after they send their first notice of taxes owed and demand for payment. The government also may file a Notice of Federal Tax Lien in the public records. The Notice of Federal Tax Lien publicly notifies your creditors that the IRS has a claim against all your property, including property acquired after the Notice of Federal Tax Lien is filed. The filing of a Notice of Federal Tax Lien may appear on your credit report and may harm your credit rating. The IRS may withdraw a Notice of Federal Tax Lien if the IRS determines that
1. The Notice was filed too soon or not according to IRS procedures;
2. You enter into an installment agreement to satisfy the liability
3. Withdrawal will allow you to pay your taxes more quickly
4. Withdrawal is in your best interest, as determined by the National Taxpayer Advocate, and the best interest of the government.
* Serving a Notice of Levy. The IRS also may use a levy to collect taxes such as wages, bank accounts, Social Security benefits, and retirement income. The IRS also may seize property for the purpose of selling the property to satisfy a tax debt. Such property may include your car, boat, or real estate.
* Offsetting a refund to which you are entitled. The IRS will apply future federal tax refunds that you are due, to offset the amount you owe. Any state income tax refunds you are owed also may be applied to your federal tax liability.

If you do not pay your taxes in full when your tax return is filed, you will receive a bill. This bill starts the collection process, which continues until your account is satisfied or until the IRS may no longer legally collect the tax; for example, when the collection period has expired.  The IRS can by statute and often does file a tax return for you if you fail to file one willfully.  It is called a Substitute For Return (SFR).  An SFR with an unsatisfied tax liability starts the collection process rolling. The first notice you receive will be a letter that explains the balance due and demands payment in full. It will include the amount of the tax plus any penalties and interest added to your unpaid balance from the date the tax was due.  If you cannot pay in full, refer to Topic 202, Tax Payment Options, for alternatives available for paying. The unpaid balance is subject to interest compounded daily and a monthly late payment penalty. If you are unable to pay anything because of financial hardship, the IRS may temporarily suspend certain collection action, such as issuing a levy, until your financial condition improves. The IRS may, however, file a Notice of Federal Tax Lien while your account is suspended.

If you are unable to immediately pay your balance in full, the IRS may be able to offer you a monthly installment agreement. To request an installment agreement, use the Online Payment Agreement (OPA) or complete and mail with your bill an Installment Agreement Request,Form 9465 (PDF). Some installment agreements can be established over the telephone. If you do not qualify for an installment agreement under any of the payment options, you may propose an Offer in Compromise (OIC). An OIC is an agreement between a taxpayer and the IRS that resolves the taxpayer’s tax liability by payment of a reduced amount. Refer toTopic 204, Offers in Compromise, for additional information.

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The IRS Collection Process – Publications 594 and 1660

April 2, 2011 IRS Collections

Publication 594 (PDF), The IRS Collection Process
Publication 1660 (PDF), Collection Appeal Rights
IRS Collection Actions include:
  • Filing a Notice of Federal Tax Lien. The federal tax lien is a legal claim to your property, including property that you acquire after the lien arises. The federal tax lien arises automatically when you fail to pay the taxes you owe within ten days after they send their first notice of taxes owed and demand for payment. The government also may file a Notice of Federal Tax Lien in the public records. The Notice of Federal Tax Lien publicly notifies your creditors that the IRS has a claim against all your property, including property acquired after the Notice of Federal Tax Lien is filed. The filing of a Notice of Federal Tax Lien may appear on your credit report and may harm your credit rating. The IRS may withdraw a Notice of Federal Tax Lien if the IRS determines that 
    1. The Notice was filed too soon or not according to IRS procedures; 
    2. You enter into an installment agreement to satisfy the liability 
    3. Withdrawal will allow you to pay your taxes more quickly
    4. Withdrawal is in your best interest, as determined by the National Taxpayer Advocate, and the best interest of the government.
  • Serving a Notice of Levy. The IRS also may use a levy to collect taxes such as wages, bank accounts, Social Security benefits, and retirement income. The IRS also may seize property for the purpose of selling the property to satisfy a tax debt. Such property may include your car, boat, or real estate.
  • Offsetting a refund to which you are entitled. The IRS will apply future federal tax refunds that you are due, to offset the amount you owe. Any state income tax refunds you are owed also may be applied to your federal tax liability.

If you do not pay your taxes in full when your tax return is filed, you will receive a bill. This bill starts the collection process, which continues until your account is satisfied or until the IRS may no longer legally collect the tax; for example, when the collection period has expired.  The IRS can by statute and often does file a tax return for you if you fail to file one willfully.  It is called a Substitute For Return (SFR).  An SFR with an unsatisfied tax liability starts the collection process rolling. The first notice you receive will be a letter that explains the balance due and demands payment in full. It will include the amount of the tax plus any penalties and interest added to your unpaid balance from the date the tax was due.  If you cannot pay in full, refer to Topic 202, Tax Payment Options, for alternatives available for paying. The unpaid balance is subject to interest compounded daily and a monthly late payment penalty. If you are unable to pay anything because of financial hardship, the IRS may temporarily suspend certain collection action, such as issuing a levy, until your financial condition improves. The IRS may, however, file a Notice of Federal Tax Lien while your account is suspended. 


If you are unable to immediately pay your balance in full, the IRS may be able to offer you a monthly installment agreement. To request an installment agreement, use the Online Payment Agreement (OPA) or complete and mail with your bill an Installment Agreement Request,Form 9465 (PDF). Some installment agreements can be established over the telephone. If you do not qualify for an installment agreement under any of the payment options, you may propose an Offer in Compromise (OIC). An OIC is an agreement between a taxpayer and the IRS that resolves the taxpayer’s tax liability by payment of a reduced amount. Refer toTopic 204, Offers in Compromise, for additional information.


John R. Dundon, EA – 720-234-1177 – jddundon@comcast.net – http://prep.1040.com/jd/ – Enrolled with the United States Department of Treasury to Practice before the IRS – Enrolled Agent # 85353. Under contract with the IRS as a Certified Individual Taxpayer Identification Number (ITIN) Acceptance Agent – I am a Federally Authorized Tax Practitioner (USC 31 Section 330 + IRC 7525a.3.A) regulated under US Treasury Cir. 230.
http://prep.1040.com/jd

http://johndundon.taxtutor.com

jddundon@comcast.net
720-234-1177

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IRS Appeals Collection Issues

December 13, 2010 IRS Appeal, IRS Audit, IRS Collections, IRS Enforcement, IRS Examination

The Mission of IRS Appeals is to resolve tax controversies without litigation on a basis which is fair and impartial to both the government and the taxpayer in a manner that will enhance voluntary compliance and public confidence in the integrity and the efficiency of the service.

IRS Appeals is independent within but not from the IRS.  ‘IRS Appeals’ reports directly to the Commissioner of the Internal Revenue Service and is not part of any of the business operating divisions including examination or collection.

The independence of IRS Appeals is rooted in a prohibition on ex parte communications which means that appeals employees can’t talk to other IRS employees from other functions about your case to the extent that those communications would appear to compromise the independence of the appeals employee considering the dispute.

This is detailed in revenue procedure 2000-43 here it is stated that a taxpayer must be offered a chance to participate in any discussions about merits of the case between IRS Compliance and IRS Appeals.

IRS Appeals weighs all the facts of a case and evaluates the hazards of litigation.  A hazard is the uncertainty of the outcome of a case if it were litigated.  There are essentially 2 types: factual hazards based on historical tax court precedent and legal hazards such as not keeping within their own administrative guidelines.

Four kinds of cases come to Collection Appeals.

  1. Collection Due Process (CDP) cases.  That means that the taxpayer’s statutorily entitled to a hearing before an impartial appeals employee after notice of federal tax lien is filed under IRC6320 or after a notice of intent to levy has been issued under IRC6330.  The request must be made within 30 days to have the statutory appeals and if it is made within 30 days, the taxpayer has the right to a judicial review of the determination made by Appeals in the tax court.  CDP cases are evaluated based on procedure, facts and ability to balance the collection needs of the service with the ongoing needs of the taxpayer.  If you do not file an appeal within 30 days of notice and before 365 days, you get an equivalent hearing, which is basically the same handling of the case that you get in collection due process, except you don’t have the judicial review in the tax court.

  2. Collection Appeals Program (CAP).  And this is an administrative appeal. It’s a very short turnaround for a specific action that’s been proposed by collection. In lien and levy cases, after your discussion with the group manager in collections, you can request a CAP appeal within two days.  Also it is important to remember that you have no judicial review of a CAP case.  You can however appeal a CAP determination before the lien is filed.

  3. Offer in Compromise (OIC). Section 301 7122-1 is the binding authority for the IRS when working offers in compromise. Appeals determination is final. There are no hazards of litigations considerations.  Appeals determines the taxpayer’s ability to pay based on what a Reasonable Collection Potential or an RCP.

  4. Trust Fund Recovery Penalties.  Civil penalty asserted against individuals who are responsible and willful in failing to pay withheld employment taxes for businesses. The taxpayer has 60 days from receiving the proposed assertion of the penalty to request the appeal. Appeals will look to the factual and legal arguments with respect to the responsibility and willfulness and will consider hazards of litigation. The taxpayer has other rights such as filing a refund claim and/or getting a judicial review after the ruling.

Alternatives that are available when presented with a balance due by IRS Appeals

  1. Full payment

  2. Installment agreement. A monthly payment agreement to resolve the liability to pay within the remaining collection statute.

  3. Offer-In-Compromise program which is a formal proposal to resolve tax liabilities for less than full payment.  The offer amount in a doubt as to liability offer is based on the reasonable collection potential, the RCP.

  4. Currently not collectible.  This is the determination that the taxpayer does not currently have the means to liquidate the liability.  The taxpayer still owes the money to the IRS but the statute of limitations on collections runs.  The IRS retains the opportunity to reevaluate collect-ability of the debt up until the statute of limitations on collections expires.

Assignment of Cases in IRS Appeals

Centralized offer in compromise work cases will go to appeals campus sites currently in Brookhaven and Memphis.  Collection due process cases worked by the automated collection system go to appeals campus sites in Fresno, Covington, Brookhaven and Memphis.

Post-appeals mediation of certain specific cases is being conducted December 2008 through December 2011 in Atlanta, Chicago, Houston, Cincinnati, Indianapolis, Louisville, Phoenix and San Francisco.

My own personal best generic advice

  1. Never send your request for any kind of appeal directly to the IRS Appeals Office. All CDP requests must be sent to the originating office from where the notice was issued.

  2. Be in reporting and payment compliance with all other tax matters including business entities that you are an officer of BEFORE engaging IRS Appeals or entering an Appeals Hearing.  If you can not get past this hurdle you’re done.

  3. Be prepared for your Appeals Hearing or Conference. This is where you can first make your case with Appeals that some other action, other than a levy or the filing of a notice of a federal tax lien, is more appropriate.

  4. Prepare the 433A or the 433B with all the required supporting documentation, which allows the settlement officer to make an informed determination regarding your requested alternative

  5. Do not dissipate assets.  What this means is do not liquidate an asset and use the proceeds for what may be determined to be either unsecured creditors or matters that did not have priority over the IRS federal tax lien liability with the only exception being to cover ordinary and necessary living expenses.

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More Security needed to protect IRS Automated Collection

June 14, 2010 IRS Collections, Privacy

The Treasury Inspector General for Tax Administration (TIGTA) issued the following report

IMPACT ON TAXPAYERS

The Automated Collection System (ACS) is a telephone contact system used by Internal Revenue Service (IRS) employees to perform critical IRS processes such as collecting tax revenues and helping taxpayers resolve their tax issues. The IRS needs to implement additional security controls to protect the ACS and sensitive taxpayer data. The lack of complete security controls increases the risks that taxpayer data could be stolen or computer operations could be disrupted.

WHY TIGTA DID THE AUDIT

The ACS plays a vital role in the IRS collection program. In Fiscal Year 2008, the ACS contributed to the collection of $4.8 billion (17 percent) of the $27.5 billion collected by the IRS Small Business/Self-Employed and Wage and Investment Divisions. The overall objective of this audit was to determine whether the IRS has implemented access, audit trail, and configuration management controls to secure the ACS.

WHAT TIGTA FOUND

The IRS configured several access controls for the ACS. For example, the IRS configured the ACS to automatically disable or delete user accounts that are inactive and separated key duties among ACS personnel to limit conflicts of interest. In addition, the IRS configured the ACS to automatically lock out users after three unsuccessful logon attempts and implemented a session lockout control on employee workstations to prevent unauthorized users from gaining access to the ACS when the workstations are left unattended.

However, managers were not reviewing their employees’ access privileges and did not always timely remove their employees’ user account when the employee transferred to another IRS function. In addition, 6 of our sampled 109 employees’ system privileges were not restricted to only those privileges needed to perform assigned duties, and managers did not always document their approval of their employees’ access privileges.

The IRS is not capturing all of the required auditable events in ACS audit trails. In addition, the IRS had not developed an overall configuration management plan for the ACS; had not documented and maintained a complete, accurate inventory of the ACS hardware, software, and document configuration items; had not properly documented, tested, and authorized changes to ACS software configuration items; and had not timely corrected high- and medium-risk system vulnerabilities.

WHAT TIGTA RECOMMENDED

TIGTA recommended the Chief Technology Officer: 1) make the IRS’ current efforts to enhance or replace its online user access control system a top priority; 2) instruct the Modernization and Information Technology Services organization to create call site procedures to clarify the capabilities of ACS users’ profiles; 3) set completion dates and prioritize the work needed to complete the high level and ACS configuration management plans; 4) appoint an ACS configuration manager to oversee ACS configuration management activities and protect critical ACS documentation by storing the documents in the required electronic document management system; 5) identify key software configuration items and maintain the items in a secure system to allow efficient monitoring; 6) ensure the IRS’ required change management procedures are followed for all changes to the ACS servers; and 7) establish criteria and completion dates for addressing vulnerabilities found on servers. TIGTA also recommended the Commissioners, Small Business/ Self-Employed and Wage and Investment Divisions, instruct ACS managers to review their employees’ access privileges annually and remove users’ accounts from the ACS when the users transfer to non-ACS functions. Lastly, TIGTA recommended the IRS reinstate the ACS Security Maintenance Report that identifies changes to employees’ access levels.
In their response to the report, IRS officials agreed with most recommendations and stated it has already revised some procedures. The IRS disagreed with the recommendation to appoint an ACS configuration manager and stated it is currently aligning with configuration management procedures to implement corrective actions. TIGTA continues to believe an ACS configuration manager should be appointed and the weaknesses identified in the report could persist without appointment of this responsible official.

READ THE FULL REPORT

To view the report, including the scope, methodology, and full IRS response, go to:

http://www.treas.gov/tigta/auditreports/2010reports/201020028fr.pdf.

John R. Dundon, EA – 720-234-1177

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