Post on 09-May-2015
REPRESENTATION TECHNIQUESREPRESENTATION TECHNIQUES
Dennis G. PhillipsDennis G. Phillips
WHAT WE WILL WHAT WE WILL DISCUSSDISCUSS
Audit ProcessAudit Process Audit/Collection TipsAudit/Collection Tips Appeals Appeals CDP 101CDP 101 Statute of LimitationsStatute of Limitations TranscriptsTranscripts
THE AUDIT PROCESSTHE AUDIT PROCESS
The IRS uses a computerized The IRS uses a computerized statistical sampling technique to statistical sampling technique to select tax returns for most audits.select tax returns for most audits.
When a return is selected for an When a return is selected for an audit it is usually subject to an audit it is usually subject to an “office” audit or a “field” audit.“office” audit or a “field” audit.
THE AUDIT PROCESSTHE AUDIT PROCESS
The office audit is conducted in an The office audit is conducted in an Internal Revenue Office and is Internal Revenue Office and is typically for individual taxpayers typically for individual taxpayers with little or no business activities.with little or no business activities.
In a field audit, the IRS agent In a field audit, the IRS agent reviews a taxpayer’s books and reviews a taxpayer’s books and records at the taxpayer’s place of records at the taxpayer’s place of business or the office of the business or the office of the accountant.accountant.
AUDIT TIPSAUDIT TIPS
Conduct yourself courteously and Conduct yourself courteously and professionally showing that you have professionally showing that you have prepared for the auditprepared for the audit
Review the strengths and weaknesses of Review the strengths and weaknesses of your position before the agent arrivesyour position before the agent arrives
Cooperate with the agent and promptly Cooperate with the agent and promptly respond to all requestsrespond to all requests
Establish time tables for completion of Establish time tables for completion of auditaudit
PREPARING FOR EXAMINATIONS
Interview your client before the IRS does
Anticipate what is going to be asked of your client
Try to resolve all issues before the IRS makes assumptions.
DO AND DON’TS WITH DO AND DON’TS WITH AUDITSAUDITS
Don’t impede the audit processDon’t impede the audit process Present your case in a clear and logical Present your case in a clear and logical
mannermanner Don’t argue frivolous issuesDon’t argue frivolous issues Don’t submit fraudulent documentsDon’t submit fraudulent documents
WHAT HAPPENS IF I WHAT HAPPENS IF I DON’T AGREE WITH DON’T AGREE WITH
THE AUDITOR OR THE THE AUDITOR OR THE REVENUE OFFICERREVENUE OFFICER
Every taxpayer has the right to Every taxpayer has the right to appeal the findings of the examiner.appeal the findings of the examiner.
FAST TRACK FAST TRACK SETTLEMENTSETTLEMENT
Usually done prior to issuance of the 30 Usually done prior to issuance of the 30 day letter.day letter.
Form 14017 must be completed by the Form 14017 must be completed by the taxpayer and the IRS (Both must agree)taxpayer and the IRS (Both must agree)
The taxpayer must provide the The taxpayer must provide the examiner with a brief, concise and examiner with a brief, concise and soundly written statement of the facts soundly written statement of the facts along with a statement of their along with a statement of their position. position.
FAST TRACK FAST TRACK SETTLEMENTSETTLEMENT
Appeals officer trained in MediationAppeals officer trained in Mediation Acts as Acts as neutralneutral mediator mediator Assists in a Assists in a neutralneutral location location Works with TP and Compliance Works with TP and Compliance
officerofficer Can settle cases based on hazards Can settle cases based on hazards
of litigationof litigation
FAST TRACK FAST TRACK SETTLEMENTSETTLEMENT
Cases that can be fast tracked are:Cases that can be fast tracked are: Non-docketed cases while in SB/SENon-docketed cases while in SB/SE Fully developed factual and legal casesFully developed factual and legal cases
FAST TRACK FAST TRACK SETTLEMENTSETTLEMENT
Fast Track Excludes:Fast Track Excludes: Most collection casesMost collection cases No-response casesNo-response cases TEFRA casesTEFRA cases Campus and ACS casesCampus and ACS cases Whipsaw issuesWhipsaw issues Frivolous ArgumentsFrivolous Arguments
FAST TRACK FAST TRACK SETTLEMENTSETTLEMENT
The benefits of fast track are:The benefits of fast track are: Hazards can be used to resolve the caseHazards can be used to resolve the case Resolution usually takes about 60 daysResolution usually takes about 60 days Can opt out any timeCan opt out any time Taxpayer retains traditional Appeal Taxpayer retains traditional Appeal
RightsRights
COLLECTION ISSUESCOLLECTION ISSUES
Many taxpayers will be Many taxpayers will be coming to you for coming to you for collection advicecollection advice
You should understand the You should understand the Services policy on Services policy on Collection of unpaid taxes.Collection of unpaid taxes.
COLLECTION CASESCOLLECTION CASES
Correspondence with Collection Correspondence with Collection Division and ACS is very important.Division and ACS is very important.
Strict time framesStrict time frames
The “Tiered” ApproachThe “Tiered” Approach
Collection uses the tiered approach Collection uses the tiered approach for collecting delinquent taxes.for collecting delinquent taxes.
The IRS employee usually makes the The IRS employee usually makes the ultimate decision, not the taxpayer.ultimate decision, not the taxpayer.
TiersTiers
First Tier- Abatement/Adjustment First Tier- Abatement/Adjustment when tax, penalty, or interest when tax, penalty, or interest incorrectincorrect
Second Tier-Full paymentSecond Tier-Full payment Third Tier-Short extensionThird Tier-Short extension Fourth Tier-Installment AgreementFourth Tier-Installment Agreement Offer in compromiseOffer in compromise Currently not collectibleCurrently not collectible
WORKING WITH REVENUE WORKING WITH REVENUE OFFICERSOFFICERS
They have been instructed to collect They have been instructed to collect as much of the tax as possible.as much of the tax as possible.
Don’t jeopardize your reputation by Don’t jeopardize your reputation by providing false information.providing false information.
Some RO’s are hard to work with.Some RO’s are hard to work with. If you cannot communicate If you cannot communicate
effectively with the RO, call their effectively with the RO, call their manager.manager.
WORKING WITH REVENUE WORKING WITH REVENUE OFFICERSOFFICERS
Often, RO’s will give you ideas to Often, RO’s will give you ideas to resolve your case. They may tell you resolve your case. They may tell you that the case appears to qualify for that the case appears to qualify for an Offer in compromise or an an Offer in compromise or an installment agreementinstallment agreement
But remember they will still try to But remember they will still try to collect as much as possible.collect as much as possible.
TAX LIENTAX LIEN
Can be a “secret lien”Can be a “secret lien” Can be public lienCan be public lien Attaches to all property owned by Attaches to all property owned by
the taxpayer.the taxpayer.
Tax LienTax Lien
Can be releasedCan be released If an OIC is acceptedIf an OIC is accepted Bankruptcy dischargeBankruptcy discharge Innocent SpouseInnocent Spouse Paid in fullPaid in full Collection statute expiresCollection statute expires
TAX LEVYTAX LEVY
A levy is a legal seizure of the A levy is a legal seizure of the taxpayer’s property to satisfy a tax taxpayer’s property to satisfy a tax debt debt
A levy attaches funds due to the A levy attaches funds due to the taxpayer from third parties, such astaxpayer from third parties, such as Salary paymentsSalary payments Business receivables or Business receivables or Money in a bank accountMoney in a bank account
COLLECTION DUE COLLECTION DUE PROCESSPROCESS
If a taxpayer received either a If a taxpayer received either a Notice of Federal Tax Lien or a Notice of Federal Tax Lien or a notice of intent to levy, the taxpayer notice of intent to levy, the taxpayer a right to a collection due process a right to a collection due process hearing with Appeals.hearing with Appeals.
COLLECTION DUE COLLECTION DUE PROCESSPROCESS
IRS issues notice of intent to levy and IRS issues notice of intent to levy and right to hearingright to hearing Exceptions:Exceptions:
Jeopardy levyJeopardy levy Levy on state income tax refundLevy on state income tax refund Right to a hearing is after levyRight to a hearing is after levy
Taxpayer must request hearing within Taxpayer must request hearing within 30 days30 days
Request for a HearingRequest for a Hearing
• Must be in writingMust be in writing• Must include:Must include:
Name, address, daytime telephone number, Name, address, daytime telephone number, signature, and datesignature, and date
• Form 12153Form 12153• Suspends collection statuteSuspends collection statute• IRS may not levyIRS may not levy• Right to judicial review of Appeals Right to judicial review of Appeals
determination if requested timelydetermination if requested timely
Equivalent hearingEquivalent hearing
• Late request for hearing (more than 30 Late request for hearing (more than 30 days)days)
• Same issues consideredSame issues considered• No collection suspensionNo collection suspension• IRS may levy, but generally will notIRS may levy, but generally will not• No right to judicial review of Appeals No right to judicial review of Appeals
decisiondecision
Nature of HearingNature of Hearing
InformalInformal By correspondence, telephone, or By correspondence, telephone, or
face-to-face meetingface-to-face meeting With an Appeals or Settlement With an Appeals or Settlement
Officer with no prior involvement Officer with no prior involvement in case (unless waived) in case (unless waived)
What Appeals Considers:What Appeals Considers:The “Big” ThreeThe “Big” Three
1.1. Did IRS follow required Did IRS follow required procedures?procedures?
2.2. Issues the taxpayer raisesIssues the taxpayer raises
3.3. Balancing the need for efficient Balancing the need for efficient tax collection with the taxpayer’s tax collection with the taxpayer’s legitimate concerns re its legitimate concerns re its intrusivenessintrusiveness
Issues the Taxpayer Issues the Taxpayer May RaiseMay Raise
Innocent SpouseInnocent Spouse Challenges to the appropriateness Challenges to the appropriateness
of the proposed collection actionof the proposed collection action Offers of Collection AlternativesOffers of Collection Alternatives
Challenges to the Challenges to the appropriateness of proposed appropriateness of proposed
actionaction
Excludes:Excludes:
Moral, religious, constitutional, Moral, religious, constitutional, conscientious objection, or similar conscientious objection, or similar grounds.grounds.
Challenges to assessment process, Challenges to assessment process, unless separate FOIA request unless separate FOIA request
Collection AlternativesCollection Alternatives
Installment AgreementsInstallment Agreements Offers In CompromiseOffers In Compromise Currently not collectibleCurrently not collectible
Underlying Underlying Liabilities???Liabilities???
Must consider:Must consider: Innocent spouseInnocent spouse Self-assessed returnsSelf-assessed returns Assessments for which no statutory Assessments for which no statutory
notices were issuednotices were issued
Underlying Underlying Liabilities???Liabilities???
Must not consider:Must not consider:
Liabilities for which taxpayer received Liabilities for which taxpayer received statutory notice of deficiency (90-day statutory notice of deficiency (90-day letter)letter)
Other opportunity for Appeals Other opportunity for Appeals considerationconsideration Example: Letter proposing trust fund Example: Letter proposing trust fund
recovery penaltyrecovery penalty
Issues PrecludedIssues Precluded
Issues decided by a court, or raised Issues decided by a court, or raised and considered at a previous CDP and considered at a previous CDP hearing or Appeals conference hearing or Appeals conference regarding this tax liability, andregarding this tax liability, and
The taxpayer participated The taxpayer participated meaningfully in such a hearing or meaningfully in such a hearing or proceeding.proceeding.
Determination LetterDetermination Letter
Includes:Includes: Appeals determination re levy or Appeals determination re levy or
notice of liennotice of lien Consideration of the “Big Three”Consideration of the “Big Three” Explains right to request judicial Explains right to request judicial
review in appropriate court within review in appropriate court within 30 days30 days
Judicial ReviewJudicial Review
Did Appeals abuse Did Appeals abuse its discretion in this its discretion in this
case?case?
APPEALS PROCESSAPPEALS PROCESS
To minimize the cost of litigation in To minimize the cost of litigation in both time and money, the IRS both time and money, the IRS encourages the resolution of tax encourages the resolution of tax disputes through an administrative disputes through an administrative appeals process.appeals process.
The Appeals Office provides the The Appeals Office provides the taxpayer with a final opportunity to taxpayer with a final opportunity to resolve the tax controversy without resolve the tax controversy without litigation.litigation.
APPEALS PROCESSAPPEALS PROCESS
The Appeals Office will review the case and The Appeals Office will review the case and make a determination that is fair and impartial make a determination that is fair and impartial to both the government and the taxpayer.to both the government and the taxpayer.
The meeting with the Appeals Employee is an The meeting with the Appeals Employee is an informal meeting.informal meeting.
The Appeals Office has the authority to settle The Appeals Office has the authority to settle all factual and legal issues raised by exam.all factual and legal issues raised by exam.
Appeals can also settle on the hazards of Appeals can also settle on the hazards of litigation.litigation.
No hazards on an Offer in CompromiseNo hazards on an Offer in Compromise
““DON’TS” IN APPEALSDON’TS” IN APPEALS
Don’t go in unprepared.Don’t go in unprepared. Don’t argue frivolous issues.Don’t argue frivolous issues. Don’t talk down to Appeals OfficerDon’t talk down to Appeals Officer Don’t submit fraudulent documents.Don’t submit fraudulent documents. Don’t try to arbitrarily settle cases Don’t try to arbitrarily settle cases
on a percentage.on a percentage.
Expediting your case Expediting your case through Appealsthrough Appeals
Set realistic target dates.Set realistic target dates. Follow up in writing the target dates Follow up in writing the target dates
discussed.discussed. If the Appeals person is not meeting If the Appeals person is not meeting
agreed upon target dates, then you agreed upon target dates, then you should contact the Appeals Team should contact the Appeals Team Manager.Manager.
EX-PARTE EX-PARTE COMMUNICATIONSCOMMUNICATIONS
Appeals cannot have Appeals cannot have communications with another communications with another Service function without the Service function without the participation of the taxpayer or participation of the taxpayer or taxpayer’s representative.taxpayer’s representative.
Appeals may ask questions that Appeals may ask questions that involve ministerial, administrative or involve ministerial, administrative or procedural matters and do not procedural matters and do not address the substance of the issues.address the substance of the issues.
APPEALS JUDICIAL APPEALS JUDICIAL APPROACH AND CULTURE APPROACH AND CULTURE
(AJAC)(AJAC) In July 2013, the Appeals function In July 2013, the Appeals function
implemented AJACimplemented AJAC AJAC impacts AJAC impacts
New issuesNew issues Docketed casesDocketed cases Offer in compromisesOffer in compromises Collection Due Process casesCollection Due Process cases
AJACAJACNEW ISSUESNEW ISSUES
New issues will not be raised by Appeals
Appeals also will not reopen an issue on which the taxpayer and the Service are in agreement..
AJACAJACCDP CASESCDP CASES
CDP files sent to Appeals should contain sufficient documentation for Appeals to make a determination..
If a CDP file lacks documentation, it cannot be returned to Collection as a premature referral due to statutory requirements
Appeals will either secure the Appeals will either secure the information or will make a information or will make a determination based on information in determination based on information in the file.the file.
AJACAJACCDP CASESCDP CASES
If a taxpayer asks for a collection If a taxpayer asks for a collection alternative and the taxpayer does not alternative and the taxpayer does not qualify for a guaranteed or qualify for a guaranteed or streamlined IAstreamlined IA A Collection Information Statement of 12 A Collection Information Statement of 12
months or less is considered current.months or less is considered current. Appeals will treat a current CIS that
comes with a CDP case will be deemed verified since Collection reviewed it or had an opportunity to review it.
AJACAJACOIC CASESOIC CASES
In a non-CDP OIC case, Appeals will not “re-work” the offer rejected by Collection. Appeals will consider those items in dispute at the time of the rejection
A case will not be returned as a premature referral where Collection did not fully develop certain issues. Weigh Collection’s development of the issue versus information and testimony provided by the taxpayer, and make the decision based upon those factors.
The Appeals hearing officer will not request information or evidence (from any party) solely for the purpose of strengthening the government's case.
AJACAJACOIC CASESOIC CASES
Agreed RCP issues that were previously addressed during the investigation by Collection will not be re-examined by Appeals.
Appeals employees will not attempt to identify and value any additional assets. In addition, Appeals employees should not revise the value of an asset to an amount that is higher than previously determined by Collection.
WHAT’S NEW IN APPEALS
Virtual Service Delivery Quick Look Process
STATUTE OF LIMITATIONS AND
TRANSCRIPT AWARENESS
ASSESSMENT STATUTE
The form 1040 is due three and a half months after the close of a taxable year or fiscal year. The assessment statute is three (3) years from when a return is filed (if filed before the due date, the actual due date for the return begins the due date for the return)
ASSESSMENT STATUTE
The 1120 is due 15th of the third month after the close of the entity’s taxable year or fiscal year. Early and late return provisions apply as with Form 1040; regular statute is three years.
ASSESSMENT STATUTE6 year statute
If taxpayer omits from gross income an amount properly includible in income that is in excess of 25% of the gross income reported on the return, the statute becomes six years IRC Sec. 6501(e)(1)
MISCELLANEOUS STATUTE ISSUES
Delinquent return filed after SFR – three year statute begins upon filing of delinquent return.
Failure to file – no statute IRC 6501(c)(3) False or fraudulent return – no statute
IRC 6501(c)(1) Net Operating Loss – statute of carryback
years, with respect to this issue, is controlled by the statute on the originating year of the NOL
MISCELLANEOUS STATUTE ISSUES
Claims-A refund claim is timely if it is filed within three years from the date on which the original return was filed, or two years from the time the tax was paid (whichever occurs later). If no return is filed, the period for filing a refund claim expires two years from the time the tax was paid. A substitute return prepared by the IRS does not constitute a return filed by the taxpayer for this purpose.
TRUST FUND RECOVERY PENALTY
The IRS has 3 years from the later of the succeeding April 15th or from the date the return was filed to assess the Trust Fund Recovery Penalty against the responsible person. For example, if the corporation files a 941 tax return for the period ended 9/30/12 by 10/31/12, the IRS has until 4/15/2016 to assess the penalty against the responsible person for any unpaid trust fund taxes still outstanding for that quarter.
MISCELLANEOUS STATUTE ISSUES
Notice of Deficiency suspends statute for 90 days (150 days if mailed outside the U.S.) to allow taxpayer to file Tax Court petition. Another 60 days is added to the statute to allow the assessment to be made.
Notice of Deficiency – If a taxpayer agrees during the 90 day period, the 90 day period ends on the date the agreement form is received. The revised statute date is generally the number of days between the notice issuance and the agreement receipt date, plus 60 days, added to the original statute date
Collection Statute Expiration Date - CSED
IRC 6502
Tax may be collected by levy or by a proceeding in court, but only if begun:
--within 10 years of assessment, or
--prior to expiration of any period agreed on with Secretary and taxpayer before the ten years expires.
Suspension & Extension of CSED
Suspension: halts the running of the statute, which
results in extension of general CSED.
Extension: Addition of time at the end of general
10-year period.
Waiver - After 12/31/99:Only with I/ALimited to 5-year extension by policy
6503 Suspensions: (a): Notice of Deficiency (b): Custodia Legis (c): TP outside of US (f): Wrongful levy (h): Bankruptcy
Other suspensions:
IRC 7811(d): Taxpayer Assistance Order
IRC 7508: Military Deferments Certain collection suits IRC 6015(2): Innocent spouse
Involves only 6015(b) and (c). CSED is suspended during period no levy
may be made pursuant to 6015(e)(1)(B).
IRC 6330(e): Collection Due Process
Suspension of CSED for period while hearing is pending, and any appeals.
CSED won’t expire less than 90 days after final determination.
TRANSCRIPTS
Return Transcript includes most of the line items of a tax
return as filed with the IRS. Transcripts are only available for the following returns: Form 1040 series, Form 1065, Form 1120, Form 1120A, Form 1120H, Form 1120L, and Form 1120S.
TRANSCRIPTS
Account Transcript Contains information on the financial
status of the account, such as payments made on the account, penalty assessments, and adjustments made by you or the IRS after the return was filed. Return information is limited to items such as tax liability and estimated tax payments. Account transcripts are available for most returns.
TRANSCRIPTS
Record of Account is a combination of line item
information and later adjustments to the account. Available for the current year and three prior tax years.
TRANSCRIPTS
Individual Master File (IMF)
IMF is the Individual Master File. This file shows all individual returns and transactions that occur on individual returns.
TRANSCRIPTS
Business Master File (BMF)
All tax data and related information pertaining to individual business income taxpayers are posted to the BMF.
TRANSCRIPTS
NON-MASTER FILE (NMF) This is a database that has entries that
cannot be input on the master file. A NMF taxpayer may have several accounts for the same tax period