Installment Agreements & Suspension of Collection Activity

Installment agreements provide some tax relief if a liability cannot be paid in full. As you may know, IRS procedures prohibit the filing of levies while an installment agreement (IA) is in effect. But did you know that, subject to certain exceptions, no levies may be filed in any of the following situations either?

1. While requests for installment agreements are pending

2. For 30 days after requests for installment agreements are rejected

3. For 30 days after  installment agreements are terminated

4. While an appeal of a default, termination, or rejection is pending or unresolved (See Internal Revenue Manual

What are some of the exceptions, you ask? One is when the taxpayer waives the particular restriction in writing. Another exception is when collection of the tax is in jeopardy (i.e., taxpayer is preparing to leave the country with a suitcase full of cash). And a third exception is when a levy is filed in connection with a tax balance from one or more years not covered by the IA or appeal.

And what qualifies as a “pending” IA? Another good question. A taxpayer must at least provide his identifying information, such as name and social security number, identify the tax period(s) to be covered by the agreement, and propose an amount to be paid. However, an IA will not be deemed “pending” if all back tax returns are not filed or if it is evident that the IA request was submitted solely to delay collections. See Internal Revenue Manual

Gibson Guitar on the Gov’t Chopping Block

Three Gibson guitar factories in Tennessee were raided last week by armed federal marshals. The Justice Department ordered the raid as part of its investigation into the company’s alleged purchase of illegal wood from Madagascar and India. According to Gibson CEO Henry Juszkiewicz, the company has not been charged with anything yet, so they have no legal recourse for the millions of dollars that have already been lost while the government shut down their facilities during the raid. The wood in question is said to have come from trees that are protected under the Lacey Act. Gibson Guitar denies any allegations that the wood was purchased illegally. See full story on NPR.

I don’t like what the government is doing here. I hate to see trees chopped down as much as anyone, much less rare hardwood such as that protected by the Lacey Act. However, what better usage of wood than to make a beautiful instrument that will last for generations and that has the potential to inspire and console. Plus, they’re guitars, not houses. How much wood could it possibly take to build a guitar! It is a simplistic view, I know. But if its true that Gibson is importing illegal wood in violation of the Lacey Act, it’s too bad the government couldn’t just avert their eyes and let this one go.

IRS Has Increased Criminal Investigations and Convictions

According to an August 29, 2011 press release by the Treasury Inspector General for Tax Administration (TIGTA), IRS criminal investigations are up 12.3% and criminal convictions have risen 6.9% since 2009.  These figures include investigations of illegal businesses and income sources, but the Criminal Investigation division of the IRS still spends a majority of its time with “legal source” investigations.

Often a bearer of bad news, the last time I mentioned TIGTA, they had reported a 74% increase in tax lien filings at the IRS.  Of course the government doesn’t see it this way, in fact TIGTA commended the IRS for surpassing its goals and expectations.

Leona Helmsley

On this day in 1989, a federal jury in New York found “hotel queen” Leona Helmsley guilty of income tax evasion.  Helmsley is known for her sharp tongue, difficult personality, and her famous declaration: “only the little people pay taxes.”

Direct Taxation: We Have Come a Long Way

As you can probably tell, I find the historical stuff very interesting. But I know that most people don’t share this sentiment, so I will get back to my tax relief posts soon (after this one).

It is evident from the state of the country, from the habits of the people, from the experience we have had on the point itself, that it is impracticable to raise any very considerable sums by direct taxation. Tax laws have in vain been multiplied; new methods to enforce the collection have in vain been tried; the public expectation has been uniformly disappointed, and the treasuries of the States have remained empty. The popular system of administration inherent in the nature of popular government, coinciding with the real scarcity of money incident to a languid and mutilated state of trade, has hitherto defeated every experiment for extensive collections, and has at length taught the different legislatures the folly of attempting them.

27 November 1787
Federalist No. 12: The Utility of the Union In Respect to Revenue
Alexander Hamilton

IRS Extends OVDI Deadline Due to Hurricane Irene

The deadline for disclosing your offshore accounts under the IRS’ amnesty program has been extended from August 31st to September 9th. Interestingly, the extension applies to everybody, not just those who may be affected by the destruction of Irene. Various forms of tax relief are typically offered to disaster victims and details are typically postedhere. The IRS has not yet updated this page to reflect the recent activity of Hurricane Irene, but keep checking back because information is sure to come. The IRS normally has to assess the situation and determine who should qualify for relief.

You’re Being Audited, But Don’t Panic

The IRS has been offering tax tips all summer long by way of its “Summertime Tax Tips” series. Some topics have been more helpful than others. This is the latest one (my thoughts inserted in blue). Its called “Eight Tips for Taxpayers Who Receive an IRS Notice.” I don’t find it too helpful.

  1. Don’t panic. Many of these letters can be dealt with simply and painlessly. Really?  Don’t panic?  That’s your #1 bit of advice? So, if the notice says that I’m being audited or that I owe, I’m supposed to remain calm?
  2. There are number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return. Yes, there are a number of reasons the IRS sends notices, but most of the time they just want your money.
  3. Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry. In other words, “read the notice carefully, dummy.”
  4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return. “Again, read the notice!
  5. If you agree with the correction to your account, usually no reply is necessary unless a payment is due. “Don’t send us any unnecessary docs.”
  6. If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the lower left part of the notice. Allow at least 30 days for a response.This is actually kind of helpful.
  7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right corner of the notice. Have a copy of your tax return and the correspondence available when you call. In other words, “Only call us as a last resort.”
  8. It’s important that you keep copies of any correspondence with your records. Hopefully you took the advice in tip #1 and didn’t panic and toss your notice in the trash.

Don’t Miss August 31st IRS Webinar

On February 24, 2011, the IRS announced its “Fresh Start Initiative” which consists of changes that are supposed to soften some of the collection practices, and provide at least some tax relief to Americans who are struggling to pay their taxes. So far we know that the IRS has made adjustments to their lien filing procedures, which is supposed to result in fewer lien filings. The IRS is making it easier for small businesses to pay back what they owe through Installment Agreements. And the Streamlined Offer in Compromise should be in full swing by now.

However, several ambiguities are present in the Fresh Start Initiative. And while these changes are supposed to help the struggling taxpayer in theory, we have yet to see the real life impact.

But the IRS speaks again on the matter next week by webinar. Maybe we’ll get a few more details, or examples, or something. If you want to participate, you need to register online here: IRS Live presents: “The Fresh Start Initiative — Help for Struggling Taxpayers.” The webinar will take place Wednesday, August 31st at 2:00pm EST. There will be a panel of speakers, so hopefully that means it’s not a rehash of what the IRS has already revealed about the program.

The Capone Investigation

Everybody knows the most infamous tax evader of all time: Alphonse “Scarface” Capone, the Chicago gangster with  all the highly lucrative and illegal business. But did you know that some of the internal IRS correspondence from the Al Capone investigation are available online? What follows is a sample taken from a 1931 letter written by IRS agents Hodgins, Westrich, and Clagett. Note the sarcastic tone of the letter (it helps if you read it out loud and with a Chicago accent):

Al Capone, a punk hoodlum, came to Chicago from New York about 1920, as a protegé of John Torrio, who, at the time was a lieutenant of Jim Colisimo. The first heard of Capone was as a bouncer in a notoriously tough joint called the “Four Deuces”. In the course of time, Colisimo, following the path of all good gangsters, was “bumped off” and Torrio took control. True to tradition, the guns again began to blaze, but this time the person behind the gun evidently had poor eyesight, and Torrio, instead of going to the cemetery, took a vacation in the hospital.

Normally records such as these would not be available to the public, but the Capone records were released because they have such extraordinary historical significance. According to the IRS, “No other IRS records meet the unique set of circumstances that make the Capone records publicly available.”

For tax relief that doesn’t involve “bumping off” the collector, contact Montgomery & Wetenkamp.