MW Attorneys brings taxpayers the latest and most important tax news coming from the IRS. Stay up to date with all our IRS related posts.

Isaac-related Tax Relief

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Hurricane Isaac has caused an estimated $2 billion worth of damage with at least 13,000 homes and countless other structures damaged in Louisiana alone.  The devastation was enough for the IRS to announce special tax relief for the following affected counties:

  • In Louisiana: Ascension, Jefferson, Lafourche, Livingston, Orleans, Plaquemines, St. Bernard, St. Charles, St. John the Baptist and St. Tammany parishes.
  • In Mississippi: Hancock, Harrison, Jackson and Pearl counties.

What kind of tax relief, you ask?  The IRS basically gives taxpayers and businesses in the affected areas extensions on filing and paying certain taxes that were due on or after August 26, 2012.  For example, somebody living in Jefferson Co., Louisiana who requested a filing extension for their 2011 taxes will no longer have to file by October 15th.  Instead, the new deadline will be January 11, 2013.  And this is regardless of individual circumstances; everyone in the affected counties will be allowed to postpone filing and/or payment.  The other benefit is that the IRS will abate both penalties and interest that would otherwise accrue during the period leading up to January 11th.

It’s actually FEMA that goes out and assesses the damage, and IRS designates disaster areas based on FEMA reports.  There are 14 disaster areas now, but will that list continue to grow?  It may be too early to kiss Isaac goodbye.  A remnant of Isaac is lurking in the Gulf of Mexico that experts say could regenerate into another hurricane if conditions are just right.  Apparently this is what happened with Katrina in 2005.

 

New CAF Unit Fax Numbers

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Practitioners who represent taxpayers before the Internal Revenue Service must have a valid Power of Attorney form (Form 2848) on file in order to access their clients’ confidential tax account information.  You can always mail a F2848, but the quickest and easiest way to file is by fax.  Since tax relief is typically an urgent matter, I always file by fax.  Once the POA has been filed and processed at one of the three IRS “CAF Units,” it can be accessed by various IRS employees throughout the nation.

After October 1, 2012 the old fax numbers at the Ogden and Memphis centers will no longer be functional.

Ogden, UT CAF Unit

  • For all states west of the Mississippi
  • New fax number: (855) 214-7522

Memphis, TN CAF Unit

  • For Louisiana, Arkansas, and all states east of the Mississippi
  • New fax number: (855) 214-7519

Philadelphia, PA CAF Unit

  • For taxpayers residing abroad
  • Fax number remains the same: (267) 941-1017

 

 

IRS’ Plain Language Notices

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As I was looking around on the redesigned IRS website today, I came across the “Understanding your IRS Notice of Letter” page and was reminded how much I like it.  It features a table of IRS notices organized by notice number, and including a short description of the notice content in plain language.  This is a good resource for taxpayers who have no idea what they received in the mail and who just need a tax relief starting point.  And it’s nice that the IRS is making changes to its notices and letters so they are easier to understand, even though the most common phrase on these notices is:

You owe money on your taxes as a result of these changes.

Coincidentally, I did come across a couple notices that seem to suggest that the IRS is looking out for the taxpayer by pointing out tax advantages that were not claimed:

CP08 – You may qualify for the Additional Child Tax Credit and be entitled to some additional money.

CP09 – We’ve sent you this notice because our records indicate you may be eligible for the Earned Income Credit (EIC), but didn’t claim it on your tax return.

But somehow I doubt anybody ever gets this kind of notice!

Upcoming IRS Webinar

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The IRS has gradually revealed some important changes to its tax collection procedures over the last several months under the “Fresh Start” program.  What began as a patchwork of provisions scattered here and there, has now been organized under its own tab on the homepage of the IRS website.   Most of the changes are now in effect, even though they have not made their way into the Internal Revenue Manual yet (see Interim Guidance Memo on changes to Offer in Compromise process).

In an effort to provide further guidance regarding the IRS Fresh Start program, the IRS is offering a free webinar on September 12th.  The webinar is entitled “Payment Alternatives – When You Owe the IRS,” so it is not 100% focused on Fresh Start.  It is supposed to cover Installment Agreements, Currently Not Collectible Status, and Offers in Compromise, hopefully presented through the lense of the Fresh Start program.  One of the bullet points is “Fresh Start enhancements.”

The presenter for this webinar will be Traci Suiter, Lead Public Affairs Specialist of the Small Business / Self-Employed division of the IRS.  Other IRS representatives will participate in a Q&A segment.

Another Fresh Start Gem: State Tax Installment Payments

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Filing an Offer in Compromise (OIC) can be quite an ordeal if you’re not prepared.  If the IRS decides your offer is worth considering, then they will look very carefully at every aspect of your finances, including assets, income, and expenses.   The result of this analysis is your “reasonable collection potential” (RCP) — the single most important factor in determining whether or not your offer is accepted.

When the IRS looks at expenses, they determine which ones can be allowed, and of the expenses that can be allowed, how much can be allowed.  Generally speaking, more/greater expenses result in a lower RCP and a lower offer. 

Formerly:  The IRS did not allow payments made pursuant to a state or local tax installment agreement (IA) in the RCP analysis.  The underlying reasoning for this was that the laws of the federal government trump the laws of state and local governments when it comes to collection of revenue.  The IRS simply ignored the practical realities of the situation.

Currently:  Under the Fresh Start program, the IRS will allow state or local tax installment agreement payments — not all of them all of the time, but compared to the way the IRS used to treat them, this is a step in the right direction and very good news for those in need of tax relief.

Dissipated Asset No Longer the Barrier it Once Was

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Thanks to the IRS’ Fresh Start program, more people meet the criteria for an Offer in Compromise these days than quite possibly ever before. Many of the requirements have been modified in determining a taxpayer’s reasonable collection potential (RCP), one of them being the way the IRS deals with dissipated assets.

Formerly:  A dissipated asset usually consisted of property that was sold or distributions that were taken, sometimes years before the OIC filing date.  If the transaction occured after the tax was assessed and the money was used for anything other than paying down the back tax debt, then an amount equal to what was received would be automatically added to the taxpayer’s reasonable collection potential, even if the money was long gone.  The burden was on the taxpayer to avoid inclusion of a dissipated asset by showing that the funds were spent on the necessities of life and not on a ski boat.

Currently:  Inclusion of dissipated assets in RCP is no longer applicable, unless it can be shown (presumably by the IRS) that the funds were spent on a ski boat or other unnecessary items, or that the funds were intentionally pissed away in an effort to avoid having to pay the IRS.  It now appears that the burden is on the IRS to substantiate their hunches whereas before there was a presumption that the taxpayer was purposefully avoiding payment to the IRS.

Summons More Popular with IRS These Days

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The administrative summons is a legal tool that has historically been used by IRS revenue officers and agents only in extreme cases.  It used to be that when a taxpayer came to me with a summons, I could be fairly certain that they had ignored multiple requests and/or missed multiple deadlines for production of documents.  But things may be changing.

If a taxpayer misses an IRS deadline, he/she can expect the IRS to activate various collection tools like a wage garnishment or bank levy.  But if a taxpayer does not comply with a summons, and the IRS decides to enforce it, then the Justice Department becomes involved in the matter, and he/she could actually face contempt charges.

According to a recent Reuters article, IRS management is encouraging its collections force to use the summons more liberally.  Taxpayers can fight a summons, and statistics show that disputes involving summonses are definitely on the rise.  There were 44 summons-related disputes in 2005 compared to 132 in 2011.  It is the most commonly litigated issue last year.  However, statistics also show that the IRS normally wins.

In order to prevail in a summons dispute, the taxpayer must prove that the information requested by the Service is not relevant, or that the Service did not follow procedure in issuance of the summons.  90 percent of the time, the taxpayer cannot meet this burden of proof.

irs.gov upgrades

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The IRS website is getting another makeover within the next few weeks.  It looks like many of the changes will be cosmetic/visual.  Hopefully the “before” isn’t better than the “after.”

I don’t mean to say that the changes will be entirely superficial.  Sometimes it makes sense to rearrange content that was already there before so visitors can navigate to what they want more quickly.  Anything that enhances access to tax relief information is fine by me.

For example, we will have access to subscription services from the home page.  I get IRS news and updates sent direcly to my email inbox, but I can’t remember how I set that up because it was years ago.  So having the ability to add or modify subscriptions right from the home page seems like a positive change.

Some changes to irs.gov are part of an effort to make the website pages match up better and appear more consistent.  IRS also promises enhanced search capabilities — a very important upgrade from the point of view of a tax attorney, and for a website with such extensive content.

The most interesting change will involve transitioning to an “intent-driven navigation structure.”  I think this means that irs.gov will attempt to understand what you want to see before you ask to see it based on historical nagivation information that it “learns” as you surf.  We’ll see how this works.  It reminds me of Genius Mixes and Smart Playlists in iTunes.  I haven’t been too impressed with technology that predicts what I like.

IRS Art Valuation Questioned

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I assure you I don’t purposely set out looking for stories that make the IRS look ridiculous.  And I don’t purposely look for evidence that the IRS is a blood-thirsty machine set on crushing any hope of tax relief.  These kinds of stories just happen to be much more prevalent than ones that make the IRS look competent and organized.

In 1959 a prominent artist named Robert Rauschenberg created a masterpiece called “Canyon.”  While Rauschenberg was known for incorporating found objects and junk into his art, in “Canyon” he upgraded to an actual stuffed bald eagle that once belonged to Theodore Roosevelt.  Through the years, Rauschenberg’s art attracted the attention of collectors, including New York art dealer, Ileana Sonnabend.  I don’t suppose he ever considered that his imagination would attract the attention of the IRS.

When Sonnabend died, her heirs inherited some very high-end art, including “Canyon,” and were hit with a fat estate tax bill.  Not fat enough for the IRS.  The new owners of “Canyon” valued the piece at $0 based on appraisals from world renowned auction houses.  The piece cannot be sold because of the bald eagle — it would violate federal wildlife protection laws.  But the IRS has billed the heirs for another $29 million based on its own $65 million appraisal of the piece.  The IRS Art Advisory Panel acknowledges that “Canyon” cannot legally be sold, but they “just cringed at the idea of saying that this had zero value. It just didn’t make any sense.”

The Tax Code is the Tip of the Iceberg

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As if the Tax Code weren’t enough, tax attorneys also need to be well-versed in the various sources of “IRS guidance.”  IRS guidance can be broken down into about seven main categories.  It is common for government agencies to provide formal interpretations of code (i.e., guidance), but it is not normal for there to be so many different types of guidance.  However, in the case of the IRS, it is definitely needed, given the length and complexity of our modern Tax Code.

These are the seven most common categories of guidance as described by the IRS:

  1. Regulation
  2. Revenue Ruling
  3. Revenue Procedure
  4. Private Letter Ruling
  5. Technical Advice Memorandum
  6. Notice
  7. Announcement

These are listed in relative order of importance, or authoritative rank.  In other words, one can rely fairly heavily on a regulation or revenue ruling to support his/her position, but an IRS announcement carries less authoritative weight.  A description of each form of IRS guidance can be found on the IRS website.

A possible 8th form of guidance is information found on the IRS website in various formats, such as the FAQ.