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.

Can the IRS Seize your Property Without Notice?

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If you fail to comply with the individual mandate under Obama’s new health care law — if you can’t afford to purchase insurance or you don’t get around to it — you may be responsible for paying a special “tax” that will be enforced by the Internal Revenue Service.  And as I mentioned previously, the only real enforcement tool available to the IRS will be to capture any refund(s) that may be due to you to offset your tax debt.

Of course, if it’s actual taxes that you owe, you probably won’t be so lucky.  The IRS can be quick to issue a levy and seize your property (wages, bank account, and other assets) and there are really only a couple prerequisites.  Number one, the IRS must send you a bill.  And number two, you fail to pay the bill.

However, it is important to know that the IRS notice showing the amount of tax owed doesn’t have to actually be received.  As long as the IRS sends it to the last known address of record, then they are in full compliance with the law.  Also, there are some scenarios in which the IRS is not even required to give notice (listed in IRS Pub 594):

  1. collection of the tax is in jeopardy (i.e., the CSED is almost up)
  2. state tax refund levy
  3. levy served to collect the tax debt from a federal contractor
  4. seizure of unpaid employment taxes

My experience is that most people who owe the IRS know they owe, or at least know there is some kind of problem.  But it is always disturbing when the IRS comes knocking without sending a nastygram to tip the taxpayer off.

"Collection Statute Expiration Dates"

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photo via wastedfood.com

Many of our tax relief clients know from personal experience that the IRS can very persistently chase taxpayers around for years trying to collect what is owed.  But the Statute of Limitations (SOL) prohibits the IRS from pursuing a taxpayer indefinitely.  Once the SOL is up, the tax debt “expires” and the IRS can no longer collect the debt.

The SOL for collection of a back tax debt is 10 years from the date of assessment.  Since each tax period/form is filed and assessed on different dates, each tax period normally has a different expiration date.  In the jargon of IRS Collections, this is called the Collection Statute Expiration Date (CSED).   See IRS Pub 594 for further details.

In a perfect world, a 2008 tax return is filed and assessed in April 2009 and then expires in April 2019.  However, there are a number of events that can toll (or extend) the SOL on a back tax debt:

  • IRS investigation of a request for Installment Agreement
  • IRS investigation of an Offer in Compromise
  • Appeals determination
  • If you live outside the US for a period of 6 months or more
  • Bankruptcy (SOL tolled while the automatic stay is in effect)
  • IRS Collection Due Process hearing
  • Tax Court Proceeding
  • Request for Innocent Spouse Relief

Some of these procedures can last several months, which automatically adds the same number of months to the SOL.  Anytime a taxpayer is considering one of the listed procedures, he/she should also take into account how it will affect the CSEDs.  An experienced tax attorney can help with this important analysis.

Your 2012 and 2013 Federal Tax Returns Are At Risk!

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Today, National Taxpayer Advocate Nina E. Olson reported to Congress the issues that the Taxpayer Advocate Service (TAS) will focus on during the upcoming fiscal year. Olson, expressed particular concern, among other issues, about the taxpayer impact of expired and expiring tax provisions.

“The continual enactment of significant tax law and extender provisions late in the year has led to IRS delays in handling millions of taxpayers’ returns and caused many taxpayers to underclaim benefits because they did not know what the law was … Because of the magnitude of these challenges and the uncertainty about such a large number of important provisions, the 2013 filing season is already at risk. The 2013 filing season is likely to pose problems for many (if not most) taxpayers and the IRS if Congress does not address the many provisions that have already expired or soon will.” Wrote Olson.

You may be asking, “How does this affect me?” Well, if Congress doesn’t act soon you may need to hire an experienced tax attorney to fight for tax relief. As my Federal Income Tax professor repeatedly ordered in law school: “Read on, read on, read on…”.

The following provisions are among the tax provisions that expired at the end of 2011:

  • The so-called “Alternative Minimum Tax patch.” As result, an estimated 27 million more taxpayers are subject to the Alternative Minimum Tax this year.
  • The deduction for state and local sales taxes.  About 11 million taxpayers claimed this deduction last year.
  • The deduction for mortgage insurance premiums.  About four million taxpayers recently claimed this deduction.
  • A provision allowing persons over age 70-1/2 to make tax-free withdrawals from their Individual Retirement Accounts (IRAs) to make charitable contributions.

According to the IRS website, Congress is likely to extend many of these and other expired provisions retroactive to January 1, 2012, but neither taxpayers nor the IRS know for sure what will happen and taxpayers, therefore, cannot make educated tax planning decisions now.

In addition to the provisions that expired at the end of tax year 2011, an even larger number of provisions are set to expire at the end of 2012. Such rules include the Bush-era cuts in marginal tax rates, reduced tax rates on dividends and long-term capital gains, various marriage penalty relief provisions, certain components of the child tax credit, the earned income tax credit, and the adoption credit, and the moratoria on the phase-outs of itemized deductions and personal exemptions.

IRS Promises to Start Showing Whistleblowers Some Love

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photo courtesy of blogs.courant.com

The IRS appreciates getting tips that help them catch people who seek tax relief illegally, but they haven’t done a very good job of showing it over the years.  The relationship between the IRS and whistleblowers has been strained, to say the least.

The IRS Whistleblower Office was established in 2007, and for all we know it was set up in an empty warehouse staffed by crickets.  The Whistleblower Office is notorious for dragging out cases far too long, failing to communicate with whistleblowers to obtain key information, not reaching the correct decision on cases, and not paying out when the decision is favorable for the whistleblower.

However, in a June 20th memorandum, the IRS declared that it would make some concrete improvements to the Whistleblower Program (outlined below).

“Let’s Kiss & Make up”:

  1. Improve communication with whistleblowers by debriefing in most cases
  2. Act on cases in a timely manner
  3. Comprehensive review of Whistleblower Office procedures
  4. Established interim guidelines imposing 90-day deadlines at key stages of the review process

AND, if you happen to be an “external stakeholder,” (whoever that might be) then the IRS says it will be working with you to establish more permanent guidelines.

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IRS Needs Facelift; Should Taxpayers Have to Foot the Bill?

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You already know about the IRS and their search for the ideal marketing firm to help improve their image.  The top PR firms in the nation are salivating over the $15 million contract that is currently on the table.  But should taxpayers have to pay for this sort of thing?  At least one lawmaker believes they should not.

Kansas Senator, Jerry Moran, is seeking to amend a FY 2013 appropriations bill so that the IRS would have to find alternate funding for public relations services.

The IRS would not spend that kind of money if it didn’t think it would improve revenue collection, right?  Some see a correlation between a positive image and voluntary compliance.  Still, in this economy it’s hard to see how some taxpayers are going to find the money to pay their back tax debt simply because the IRS seems like a “nice enough” creditor.  According to Senator Moran, there are other ways to improve the IRS’ image:

As the nation’s tax collector, the IRS already has a relationship with every person in the country. It’s hard to imagine that American taxpayers would be pleased to know the IRS is spending their money on promoting itself and its products. If the IRS genuinely wants to improve its image with Americans, it needs to work with Congress to develop a simpler, fairer tax code.

~  U.S. Senator Jerry Moran (R-Kan.)

DEA and IRS Team up in Medical Pot Asset Seizure

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image via thinkprogress.org

It was not your average bank levy. The Drug Enforcement Administration and the Internal Revenue Service collaborated to seize the bank account of El Camino Wellness Center this week. The government was after more than $800,000 that had been deposited over a period of a few months by El Camino, Sacramento’s largest medical marijuana dispensary. However, according to the Sacramento Bee, the government will only retrieve a fraction of that amount because the money is just not there.

The government raided the pot shop as well as the homes of the owners. They are being investigated for money-laundering and conspiracy to distribute a controlled substance.

Just how does the IRS become involved in the highly controversial medical marijuana industry? Although California has “legalized” marijuana for medical purposes, it is still illegal and considered a controlled substance under federal law. This particular pot shop was set up as a nonprofit organization, but the feds believe that this designation is a sham and the shop is in the business of making boat-loads of money off marijuana sales and then hiding the profits. And failure to report profits usually means failure to pay taxes; that’s how the tax problems emerge.

El Camino is just another casualty in the ongoing tensions between the federal and local governments on the issue of medial marijuana. The feds almost always win.

Cleveland Lady Returns $400k IRS Refund Check

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The IRS recently issued a $400,000 refund check to a little old lady in Cleveland who was supposed to get only $700 back.  Some IRS employee somewhere is getting chewed out and/or fired over this, right?  Actually, probably not.

Everything at the IRS is automated.  It wouldn’t surprise me to learn that this was the result of a computer glitch or identity theft of some kind.  When the computers read the returns and the computers write the checks, it’s hard to place the blame on any one individual.

To avoid any potential tax problems, the taxpayer’s moral compass lead her directly to her local IRS office to return the check, and I can only imagine the fiasco that ensued.  The sources that reported this story say she was required to confirm her identity before the IRS would accept the check or even talk with her about it.  But once she turned it over, I bet it got passed around that office like a hot potato.  I’m sure the managers spent the better half of their work day trying to figure out what to do with it.  And I’m sure all the other employees wasted the rest of their day making jokes or talking about how they might have spent it.

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Abel Maldonado’s Tax Controversy

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image via sunnypatton.com

In California, Abel Maldonado is a familiar name.  He’s the former lieutenant governor and he’s currently running for Senate in the new Central Coast district.  Maldonado is also in the news because of his serious tax problems.

As far as the IRS is concerned, one of the worst things a business owner can do is make personal expenditures out of the business funds and try to write them off as legitimate business expenses.  The only reason anyone would attempt this is to make it appear that the income is lower because, if the income is lower, the tax bill is also lower.

This is at the center of the controversy between the Maldonado family farming business (Agro-Jal) and the Internal Revenue Service.  The IRS has billed them for $3.6 million and Maldonado refuses to pay.  These are some of the expenditures that the government contends had no legitimate business purpose:

  1. renovations to Maldonado’s residences
  2. fundraiser for his campaign for Senate
  3. unspecified catering expenses
  4. personal use of company vehicles
  5. golf club memberships
  6. horses

This certainly does not good for Maldonado’s campaign, even if he has legitimate arguments in tax court — it’s the perception that counts.  But maybe the IRS should give them the horses; seems like a farming expense to me!

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IRS Closing 43 Offices Across the Nation

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image via joyfeldman.com

Yesterday the IRS announced that it would be initiating a massive “office space and rent reduction initiative” that will save taxpayers $17.2 million in rental costs during 2012 and even more the following year.  Employees aren’t being laid off — this isn’t a reduction in staff — it’s all about packing them in tighter by eliminating some offices and consolidating others.

The IRS is quick to point out that this initiative will not result in a decrease in customer service because none of the actual walk-in taxpayer assistance centers are going to be closed.  The IRS anticipates “minimal taxpayer impact.”  Ok, everyone recognizes that “minimal” does not mean “none.”  These press releases are carefully worded, and I think The Commish chose to hedge a little here because of course there is going to be at least some impact on taxpayers and their access to tax relief.

The truth is a vast majority of taxpayers contact the IRS by phone, not via the walk-in offices.  And what happens when you pack employees in like sardines?  Best case scenario is they get a little grumpy.  Interestingly, this office space reduction announcement came just one day after the IRS publicized a slackening of the rules related to the Offer in Compromise program (which will likely result in a moderate to severe increase in OIC filings).  I can’t imagine either of these changes were too popular among IRS personnel (“What!  More work AND less space?!”).  I support the office space consolidation initiative 100%, I’m just skeptical about The Commish and his “minimal taxpayer impact” line.

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IRS Makes Potentially Huge Changes to OIC Program

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The IRS recently announced some historic modifications to the Offer in Compromise (OIC) program which could result in drastic increases in accepted offers.  I say it “could” have this result because the IRS is notorious for not training its personnel to understand their own rules.  Changes such as these take quite a while to trickle down to the rank-and-file IRS employees who handle most collections case.  And sometimes parts are lost or misinterpreted during the trickling process.

By far the most significant change that was announced has to do with the way the IRS calculates a taxpayer’s reasonable collection potential.  Previously this would have included the combined equity in all assets and the future earning capacity projected over 4-5 years following the offer’s acceptance.  It will still include all the equity in assets but now the future income calculation should be multiplied across only 1-2 years.

Some taxpayers have no available income (after paying allowable expenses), and this change will have no impact at all on them.  However, for everyone else, this change may mean the difference between an accepted or a rejected OIC.  If the IRS is serious about implementing these changes, then I think more people will obtain tax relief because more people will meet the criteria for the Offer in Compromise program.  And if other practitioners think like I do, then we should see a big increase in OIC filings, which will mean a backlog of OIC cases and longer delays.  So we’ll have to take the good with the bad on this one.

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