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.

Partial Payment Installment Agreements

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Most IRS installment agreements are set up so that the payments will satisfy the total amount due before the Collection Statute Expiration Date (CSED), affording minimal tax relief to the cash-strapped taxpayer. However, in some situations this is not possible. Sometimes the taxpayer’s financial situation is such that the debt will not be satisfied before the CSED, even if minimum monthly payments are consistently made. This is called a Partial Payment Installment Agreement (PPIA).

For instance, suppose the taxpayer owes $10,000 for tax year 2001 and the financial statement reveals that the highest payment that can be made is $100 per month. If the 2001 liability expires in 36 months, then taxpayer will pay only $3,600 over the life of the statute. Obviously the IRS does not like to enter into these types of arrangements unless absolutely necessary. Here are some of the PPIA prerequisites:

  • All back tax returns filed
  • No equity in assets (or assets liquidated and paid to the IRS prior to PPIA approval)
  • Full Collection Information Statement (IRM 5.14.2)

GAO Releases Report Bashing IRS Whistleblower Office

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The IRS is bound by act of Congress to pay tax whistleblowers up to 30 percent of the revenue collected as a result of information they provide, so long as the amount in dispute is more than $2 million. But the Government Accountability Office (GAO) does not believe the IRS is complying like they should.

Since the Whistleblower Office was established in early 2007, IRS has received over 1,300 whistleblower submissions qualifying for the expanded program, alleging tax noncompliance by more than 9,500 taxpayers. As of May 12, 2011, IRS has paid a small number of awards under the expanded program. . . . As of April 2011, about 66 percent of claims submitted in the first 2 years of the program, fiscal years 2007 and 2008, were still in process.  ~ GAO

Of course, the IRS can’t officially say exactly how much award money has been paid to whistleblowers because it would violate the IRS’s privacy protections. The same protections apparently prevent the IRS from keeping whistleblowers in the loop as far as the status of their claims.

The Whistleblower Office is a mess.  Is it really too surprising though, that the agency charged with collecting revenue has a hard time dishing it back out?  The IRS has buried itself in minutia on these cases to, as they say, “ensure the integrity of the claim.” It’s not collecting data on the amount of time each step in the process takes, and it has failed to establish deadlines and accountability for those working these cases.  If the IRS wants this program to incentivize whistle-blowing and voluntary compliance, then it had better turn things around. If not, the Whistleblower Office is going to quickly make a bad name for itself.

See full report here.

Offer in Compromise: The 24-month Rule

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The IRS has 24 months from the date that anOffer in Compromise is received to make its decision.  If the IRS does not accept, reject, or return the offer within 24 months, then it is deemed accepted  (IRM 5.8.8.6).  According to IRS policy, “The timeliness of case actions in an offer investigation is important not only to ensure the efficiency of the process but also is a key component of taxpayer satisfaction”  (IRM 5.8.1.2).

But lets face it, the Offer in Compromise process can be lengthy and the IRS has never been very good with taxpayer satisfaction.  It routinely takes several months just for the IRS to mark the offer as received and assign it to an Offer Examiner.  And that’s only the beginning of the process.

I have never seen the 24-month mandatory acceptance provision come into play.  Certainly the responsible IRS employee(s) would be disciplined, if not fired, for letting the 24-month period expire.  My problem with the 24-month rule is that it does not have the intended effect.  In fact, it seems like it is quite the opposite.  An astute IRS representative with a caseload he can barely keep up with will probably delay as long as he can, even though the entire process could easily be completed in 30-60 days.

Seizure of Assets II

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Even if the IRS has identified a “won’t pay” situation, there are a number of steps and procedures that must be followed in order to legally and successfully carry out an IRS seizure. Here are some of the pre-seizure considerations:

  1. Verification of the liability. This includes notifying the taxpayer of the liability and making sure he/she understands why the amount is owed.
  2. Consideration of alternative collection methods. Alternative collection methods include Installment Agreement, Offer in Compromise, Levy, etc. Technically the IRS does not need to attempt these methods, just consider them. However, it is standard practice to actually test them out to see if the liability can be satisfied first without resorting to seizure.
  3. Cost / Benefit analysis. The seizure process is an administrative nightmare; the revenue officer must consider the red tape, time investment, and costs of seizure to see if seizure is really in the government’s best interest.
  4. Prohibited seizures. There are a number of scenarios in which the Revenue Code prohibits seizure, such as a seizure conducted on the day the taxpayer has to appear in response to a summons, or seizure of property with insufficient equity to apply to the back tax liability.
IRM 5.10.1

Seizure of Assets

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Our tax relief clients often ask us if they should be worried about the IRS taking their home or other valuable assets.  We have to be careful about the way we answer this question because the IRS certainly has the power and authority to seize assets; they do it all the time.  However, we can often predict the likelihood of seizure based on the taxpayer’s individual circumstances.

For instance, seizures will generally not be conducted where taxpayers “will pay” or “can’t pay.”  The “will pay” situation is typically one in which the taxpayer is making preparations to pay, either by selling assets, obtaining a loan, or negotiating an installment agreement with the IRS.  If the taxpayer is “Currently Not Collectible” or is in the Offer in Compromise process, then these are considered “can’t pay” situations.

On the other hand, seizures will be considered where taxpayers “won’t pay.”  This is the category of taxpayers who repeatedly refuse to file tax returns and who keep piling up tax balances year after year.  It also includes those who rely on frivolous tax arguments or who refuse to cooperate with the IRS.  IRM 5.10.1.6.

Heightened Enforcement of 1099 Compliance

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Politicians are desperately trying to increase revenue without raising taxes.  One way to do this is to beef up enforcement of the tax laws already on the books.  According to the IRS, the best place to focus these efforts is on small businesses and their tax obligations, specifically their 1099 reporting requirements.  The IRS has always had a more difficult time getting money out of the self-employed.

IRS Commissioner, Doug Shulman, recently told a Congressional committee: “the thing you have to remember about the [tax] gap is it’s like a deep shale oil reserve, it’s not money sitting there that’s easily tapped, in many ways we have tapped the easy money… the real answer, the place where we have leverage, is information reporting.”

What this means for the regular taxpayer is that the IRS is going to be furiously ramping up its collection efforts in the coming months.  The government seems eager to pour more money into the IRS.  According to Commissioner Shulman, each 1 percent improvement in compliance will produce an added $20 billion in revenues.  For more details, click here.

Santa has his Naughty List; IRS has PDT Designation

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Given the number of contacts the IRS makes with taxpayers day after day, the number of (how shall we say this) “confrontations” is relatively small. Yet there are always those who hope they can find tax relief through nefarious means, including the use of force. And the IRS has fairly elaborate guidelines for handling situations involving dangerous or aggressive taxpayers, including a special PDT (Potentially Dangerous Taxpayer) classification that may be assigned to an account. See IRM 25.4.1.

IRS field officers are instructed to try to avoid in-person contact with PDTs. But if in-person visits are necessary, then they are supposed to arrange armed escort from TIGTA personnel. Regular Revenue Officers are prohibited from carrying firearms or any other weapons, including pepper spray (IRM 5.1.3.2.1 ).

If the act(s) or behavior(s) in question do not rise to the level of “dangerous,” then there is an intermediate designation known as “CAU” (Caution Upon Contact) with its own set of criteria and procedure.

The burden of an IRS tax debt can be stressful, discouraging, even overwhelming.  However, resorting to threats or violence is never acceptable. Contact Montgomery & Wetenkamp, and let us demonstrate how the pen is mightier than the sword in getting you the tax relief that you deserve.

IRS Mission Statements

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The last time I checked, there was no tax relief division of the IRS.  But the way their mission statements are worded so warm and fuzzy, one might be tempted to think otherwise.  The two primary divisions most taxpayers interact with fall under the Services and Enforcement arm of the IRS:

Wage & Investment Division

The mission of the Wage & Investment Division of the IRS is “to provide top quality service by helping taxpayers understand and comply with applicable tax laws and to protect the public interest by applying the tax law with integrity and fairness to all.”

Small Business / Self-Employed Division

The mission of the Small Business/Self-Employed (SB/SE) Division is “to provide SB/SE customers top-quality service by educating and informing them of their tax obligations, developing educational products and services, and helping them understand and comply with applicable laws, and to protect the public interest by applying the tax law with integrity and fairness to all.”

Note the verbs in these statements.  The IRS is supposed to “help,” “protect,” “educate,” and “inform.”  In my interactions with the IRS over the years, I do not get the sense that they are doing a satisfactory job of meeting these standards.  But it’s an unfair standard to hold them to when, in fact, their true mission is to COLLECT REVENUE.