What Happens in a Collection Appeals Hearing

Scott ReisherReisher: Publication one, taxpayer bill of rights number five reads, “The right to an appeal, an IRS decision, and an independent form.” It goes on to say, “Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and you have the right to receive a written response regarding the Office of Appeals decision. Taxpayers generally have the right to take their case to court.”

Good morning. Let’s find out what happens in collection appeals.

Presentation. All right. Here is our mission statement, “We accomplish our mission statement by listening to both sides, that is the taxpayer in compliance. We consider and evaluate all arguments and available information, and we independently determine the best settlement of the tax dispute.” Appeals serves a critical role in the administration of our nation’s tax laws, and we occupy a unique position within the IRS.

We are independent, and we in appeals talk about being independent we mean appeals is separate from the IRS collection functions that actually examine, or investigate tax filings, or initiate collection actions.

Independent from compliance is one of appeals most core values. It is important to note that our settlement officers do not perform activities that are in the sole purview of compliance, and our independence allows us to provide a fair and impartial review of the case presented to us. Appeals does not continue the development of cases from compliance. The settlement officers are not investigators, or examiners, nor do we assist compliance with developing the government’s position. Last, but certainly not least, settlement officers do not raise any new issues.Slide 3-00:03:41:16

In addition, there are special ex parte rules that limit communication between compliance, and appeals employees. Under the ex parte rules appeals employees, including settlement officers, are prohibited from communicating with compliance employees about -

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the substenance of a case without giving the taxpayer or the representative an opportunity to participate. Here when I mean substenance of the case we’re meaning anything related to the strengths, weaknesses of the facts, issues, or positions in the taxpayer’s case, or the credibility witnesses. Now please note, the ex parte rules permit employees to communicate with compliance without involving a taxpayer representative if the communications are limited to ministerial, administrative, and procedural matters.

In all cases settlement officers will take a quasi-judicial approach to reaching resolution. Settlement officers are obligated to objectively review the facts and the law to draw conclusions for making their determinations. If we are unable to resolve a case, the taxpayer usually retains the right to judicial -review in court, although some exceptions do apply. Remember, taxpayers must decide and request to come to the Office of Appeals. It is not automatic. So, could appeals be the place for you? It certainly is if any of these three bullets apply to you or your clients. Appeals is not going to be the place for you if the correspondence you received from the Internal Revenue Service was a bill or other notice, and there was no mention of appeals. The applicable timeframe to request an appeal has expired, or even better, there is actually no outstanding tax liability.

Collection gets its cases from two sources noted on this slide. For most cases you will complete and mail a request for an appeal to the Internal -

Revenue Service address on the letter explaining your appeal rights. The written request for an appeal must be submitted within a specified timeframe or it cannot be processed. One exception is for the collection appeals program, which I will talk about shortly, where taxpayers with cases originating in the automated collection system may request their appeal over the phone.

Please note that your request should not be mailed directly to the Office of Appeals. This will only delay the process, and some instances actually preclude you and the case from actually being worked. Providing compliance with all of your relevant information will also minimize your actual need to come to

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appeals, so don’t wait just to file an appeal to present information. Waiting could result in a delay, or it be returning to compliance for a consideration of the new information, which will also delay the -resolution of the case.

In appeals, we are committed to these five bullets you see on the screen with the ultimate goal of ensuring that you not only understand the process, but more importantly understand how or why the decision was reached.

So now let’s talk about what are actually your responsibilities. So, we asked that you please list your issues and you positions up front. Don’t try to hold them until you actually talk to the settlement officer. If you have an alternate position, or counter proposal, provide that as early in the process as you can. Listen to our explanation of the process, including the timeframe to resolve your case and provide the information requested by the settlement officer. Ideally, any additional information or documentation that will be helpful to your case should be provided to compliance as I -indicated before, and prior to requesting the appeal as you could resolve the matter, and thus again, not even need to come to appeals. Note, if we get new information we will send it to compliance for review, we will then share compliances comments with you, and we’ll give you an opportunity to respond.

Also, please let us know the best time and contact number to reach you. Privacy and confidentiality rules do limit the type of information appeals employees can leave on the answering machine, or voice mail. As a result, it is important that the settlement officer be able to communicate you with directly when needed.

Now, as for a response time, which is a question we also often get, they do vary depending on the type of case and the time needed to review the file. So, if you have a question about the status of your case, you can contact the office where you sent your actual appeals request, and they can tell you when they forwarded it to the Office of Appeals. If it has been longer than 120 days since you filed your protest, you can contact our customer service contact number, and I will give you that number right now. It’s 559-233-1267. One more time 559-233-1267. There is also specific information on IRS.gov addressing how to do this as well. On average, when a taxpayer requests an appeal it will take approximately 60 days

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from receipt of the protest for a compliance to forward it to appeals to give you some idea.

Let me jump into conference options, which is always something people want to talk about. When we talk about the conference options, conferences with taxpayers, settlement officers – I’m sorry. When we talk about the conference option, settlement officers have many different ways in which we do this. We do this by telephone, in person, and virtually. Not surprising, okay? Most of the cases are resolved by telephone.

However, if a taxpayer case is assigned to a local field office, and you request an in-person conference, we will use our best efforts to schedule the in-person conference on a date and location that is reasonable convenient for both the taxpayer and appeals. Appeals ability to hold the in-person conference in the taxpayer’s preferred location may be limited to a number of factors, and those include regulatory requirements, resource constraints including the availability of appeals technical employees, subject matter expertise, or other workload -related issues, workload related issues.

So, in such instances, though, appeals will identify an alternate location for the in-person conference, or we will offer alternative conferencing methods. Now conversely, campus cases present unique challenges because appeals campus locations presently cannot accommodate an in-person conference. So, for now, what we do is if a taxpayer wants a case assigned and requests it at an in-person conference, but it is assigned to a campus based employee, we use what is called case assistance procedures.

And simply put, assistance means the taxpayer, or you the representative, will meet locally with the settlement officer in the local field office with the campus employee who has responsibility for the case on the phone, or participating through video conferencing. We currently do have a group looking at this closely on how best to expand the availability -of in person conferences for campus cases.

In addition, we have some new news to share with you. Appeals is also working to expand and improve virtual conference options for taxpayers. Recently we began a pilot using what is known as Cisco

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WebEx Meeting Technology with interested taxpayers. WebEx allows taxpayers and appeals employees to conduct online meetings from their computers with video conferencing and screen sharing. The pilot, which began August of 2017 with a limited number of volunteer employees is scheduled to conclude in September of this year in 2018. Look for more information on the potential use of this technology on, again, our Office of Appeals homepage on HYPERLINK "http://www.IRS.gov" www.IRS.gov.

In addition, there’s another type of conference that I want to make you aware of. Appeals may invite compliance to attend the non-settlement discussion portion of the appeals conference with a taxpayer. For a collection cases we sometimes refer them to this as a three-way conference. And to be clear, appeals is not routinely inviting compliance to attend appeals conferences. In some instances, though, a three-way conference could tool for better understanding of the positions in aid in case resolution, and I’ll talk about that a little later as well.

In a conference you can expect that appeals will consider the relevant facts, law, administrative guidance, and in certain cases litigating risks, or the uncertainty of the outcome if the case were litigated. As part of the review the settlement, officers may consider statements and testimony provided by the taxpayer when assessing litigating risks associated with the taxpayer’s testimony. We do focus on whether the taxpayer statements are credible. After we evaluate a case we may try to resolve the case by compromising or settling an issue, however, not all cases can be settled in this manner. Our decision will always depend on the merit of the case.

So, let’s do a knowledge check as I take a swig of water here. Which collection work stream allows a taxpayer to go to tax court? By raise of hands, how many think a collection appeals program will do that? Okay. How many think an offering compromise can go to tax court? How many believe collection due process is your avenue to the tax court? Well, the answer is it is the collection due process is the one that’s going to get you to tax court. But now let me discuss each one of these work streams to give you a little more insight into how -they work.

First, we’ll talk about the collection appeals program, aka, CAP. So, CAP provides an administrative appeal for certain collection

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actions such as seizures, levy’s, liens, rejected, terminated, or modified installment agreements. Collection appeals program is the option for you or your taxpayer if you’re looking for a quick resolution of an administrative or procedural issue. In layman’s terms, it’s an instant replay, or a timeout just to check the legalities.

In a CAP hearing, appeals consideration is strictly limited to whether the action taken or proposed by compliance was appropriate based on the Internal Revenue manual. For example, in a CAP levy case appeals may determine the levy was not appropriate, and as a result, direct – we’ll try that again. In a CAP levy case appeals may determine the levy was not appropriate, and as a result we may direct compliance to release that levy. On the other hand, we may sustain that action as well. Appeals, however, will not consider collection alternatives such as offering an installment agreement in a CAP case. That is not the place to do it. As you see on the slide the form 9423 is the way to request a CAP appeal, and for additional information I will reference publication 1660. Again, that’s publication 1660.

Let’s talk about the next work stream, offering compromise. Just real quickly, an offering compromise is an agreement between a taxpayer and the Internal Revenue Service that settles a tax liability for payment of less than the full amount owed. The IRS is authorized to -compromise a liability on one of three grounds, doubt as to collectability, this is the doubt that the tax liability can be collected in full. You have doubt as to liability, a verifiable doubt as to the amount owed, or to promote effective tax administration. To go a little step deeper, in the doubt as to collectability case the IRS will accept an offering compromise when it is unlikely that the tax liability can be collected in full, and the amount offered reasonably reflects what the IRS could expect to collect from a taxpayer during a specified timeframe.

Conversely, a doubt as to liability offer may be submitted where the taxpayer or you believes there’s a genuine dispute as to the existence or the amount of the correct tax liability under the law. And lastly, the IRS can accept -an offering compromise under the concept of effective tax administration in situations for which collection in full could be achieved, but it would cause the taxpayer either economic hardship, or inequitable treatment. When compliance rejects the offering compromise in the taxpayer’s appeals, the Office of Appeals will only consider the issues

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specifically disputed by the taxpayer.

Again, we will not initiate any search for additional assets other than those in the file, or the documentation provided by the taxpayer. We will accept collections evaluation of all the assets incoming expenses, but we will consider your arguments and documentation that are introduced indicating maybe an asset value should be lowered. It is important to note here that appeals will correct certain errors in an offering compromise appeal even if they are not in dispute.

So let me give you some examples. All right, first is a simple mathematical error on the income expense asset or equity tables. The second one would be where collection fully developed the income expense asset or liability item, but it was not recorded in the correct amount on the income expense or asset equity tables. Another example, if a taxpayer disputes their income and it is either increased or decreased by appeals, we will then adjust accordingly, current taxes as well. And lastly, if there is any correction to a strictly computational error that is made, and it results in the computation showing that a taxpayer can pay the liability in full, then the offer rejection will be sustained absent any effective tax administration conditions.

Appeals cannot offer collection -alternatives such as an installment agreement, or a currently not collectable, aka, hardship determination in situations where we’re just dealing with the rejection of an offering compromise and it is sustained. Although we may discuss these additional options with you, and alternatives, they must be pursued with collection. One notable exception that you’re going to find out shortly is in a collection due process hearing in which case we have to consider alternatives as well. And lastly on the slide, you do see we have a lovely form to actually request an appeal of your offering compromise, and that is the 13711.All right, let’s talk about collection due process, which, by the way, is our biggest work stream on the collection appeals side. So, the purpose of a collection due process hearing is for appeals to review certain collection actions like the imposition of a lien, or a notice of intent to levy -that were taken or purposed by compliance. You can request a collection due process hearing if you receive a collection notice that specifically states that you have a right to a hearing. By law collection due process hearings are conducted by

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an officer employee who has no prior involvement with respect to the unpaid tax. However, if you’re interested you may waive the no prior involvement restriction using the IRS, or the Internal Revenue Service form 14041.

During the conference the settlement officer must consider three big things. One, all the requirements of any applicable law or administrative procedure were followed, relevant issues raised by the taxpayer or authorized representative that you wish to discuss, and the employee will balance the IRS need for efficient tax collection, and the -taxpayers legitimate concern that the collection action be no more intrusive than necessary.

Let me give you some examples to make this a little clearer. So, when we talk about collection alternatives here’s the good news. There’s probably four ones to focus in on. So an alternative to a levy would be such as obviously full payment of a liability. That’s always a good choice. You can request an installment agreement, and there’s many forms of that which I will not get into today. You can request a currently not collectable determination, or an, aka, it’s a hardship determination, or an offering compromise. Those are your big opportunities or alternatives. Although these options may not be necessarily considered as an alternative to a notice of lien filing, you can also discuss them during a lien hearing if needed.

All right, in addition, challenges to the appropriateness of the collection action. So if we have a lien hearing you may -ask for us to determine if the lien filing was appropriate, and more importantly if you qualify for a notice of withdrawal, or other type of lien option. Another example, where applicable you can bring up spousal – spousal defenses. Wow, say that five times quick. In addition, you can challenge whether the amount you owe due, but you can only do so if you did not receive a statutory notice of deficiency, or have not otherwise had the opportunity to dispute the liability already with the Office of Appeals.

In a collection due process case, taxpayers may raise any non-frivolous issues. Frequently you will be asked to provide a collection information statement and supporting documents if a collection alternative is sought. And remember, significant new information provided to appeals may be sent to collection for a review and analysis before we consider the actual -merits. Collection will return the information with their position,

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and then appeals will share it with the taxpayer and/or you as the representative giving you time to both review and comment on the information before we hold the next hearing.

All new offer and compromises submitted as an alternative in a collection due process hearing are initially reviewed by compliance. When a taxpayer submits an offering compromise to appeals, the settlement officer sends that information to the appropriate centralized offering compromise site for processing and they will work it, and then they will investigate and verify the collection information statement submitted by the taxpayers.

When we talk about collection information statements it’s important for you to note that we will accept as verified any collection information statement reviewed, or if they had the opportunity to review it within 12 months of receipt of the -information and appeals, so it’s good for 12 months. Couple of reminders, appeals will avoid ex parte communications, as I talked before, when the information is sent back to compliance. When we do get the new information, which requires verification, we have an actual appeals referral investigation process that we use to send it over to avoid delay. We also may request your participation again in a three way or multiparty discussion and bring all parties.

These discussions are collaborative and can be a more efficient way of resolving your dispute, and here’s a prime example for it. Because the collection due process is module specific, or year specific, why would you want to attend a three-way conference? One of the best reasons why is if the taxpayer has what? Other modules that are not subject to collection due process with compliance, right? You don’t want to work half a case. You want to work the entire case, so that would be an excellent example -where we will try to bring all three parties together to resolve the entire case at once when there is modules in different locations through the service.

Lastly, appeals will not make any recommendation to file a notice of federal tax lien, but we may recommend that the lien not be filed when appropriate. If the taxpayer and appeals cannot agree at the conclusion of a collection due process, appeals will issue what we call a notice of determination, which actually sets forth the case resolution, and this is what the ticket is, and is reviewable by a tax court. Again, to request a collection due process you want to use

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the form 12153. And lastly remember that when you do sell the statute, I mean the collection statute, that’s the 10-year statute, will be suspended during this process.

All right, before we get to our scenarios let me highlight our mediation options for you.

Two of them are presented here. So, for many years in addition to the traditional appeals conference process, appeals has offered voluntary mediation and other forms for early case resolution. Historically we’ve referred to these as alternate dispute resolution programs, with each one having a different name depending on its availability. The key for you to know is that compliance and the taxpayers can choose to mediate their disputes voluntarily if both parties think it will be beneficial.

With mediation, the settlement officer serves as a mediator. We will hold one open session with both parties. Then we will have breakout groups, or shuttle diplomacy to complete negotiations. For a collection, the two of them that are here are presented for your knowledge. We have fast track mediation. This occurs when collection has jurisdiction of the case, meaning it’s still there, they haven’t sent it to us.

The other one is post appeals mediation, and this one occurs after traditional appeals negotiations are unsuccessful. Both are available for offering compromise and trust fund recovery penalty cases only. Not for collection due process. Very specific about that. And it’s important to note that you do retain ability to use traditional appeals if you choose fast track. If you choose fast track you cannot on the backend then ask for a post appeals mediation. Again, there is more information on our website. There’s actually a really cool online self-help tool on IRS.gov to help you understand this.

Let me move over now. We’re going to talk about a couple of scenarios that I think you’ll enjoy to give you and drive home some of these points. So, the first scenario that we’d like to present to illustrate the interaction between employees and the tax representative. We have a self-employed taxpayer.

The balances due are from tax years 2011, ’12, and ’13. ’11 and ’12 insufficient estimated tax payments, and we have an audit assessment for 2013. The

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taxpayer thought about calling IRS, Internal Revenue Service, when he received the collection notice but never got around to it, and of course they placed it on top of all the other bills and went ignored. When he received the final notices to file a lien and take the proposed levy action from a Revenue officer they hired Ms. Jones, and enrolled agent. She secured the pertinent information as needed to establish a plan of action.

In this case we’re going to go real big. Taxpayer owes a million dollars in income tax, has a million dollar judgement from an insurance company, and they’re trying to avoid a garnishment from that insurance company. The taxpayer does not have a bank account. He has a payroll company that deducts his taxes and issues paychecks, and they cash their paychecks at the same bank. Taxpayer owns – has a home with some equity,

a few motorcycles, no liens, and has 300,000 in a 401k account.

The taxpayer is requesting an installment agreement plan, payment plan of 10,000 a month even though the Revenue officer computed that the taxpayer can pay 20,000 per month. They are actually challenging multiple items, equity and real property, value of the motorcycles, disallowance of credit card debt, disallowance of some other expenses for private school tuition, and the monthly amount that they say they can’t afford. The enrolled agent immediately files a CDP request within the required timeframe, which maintains their tax court rights, and sends new information directly to appeals, which requires verification. It is signed to me, the settlement officer, and I issue a substantive contact letter simultaneously to the taxpayer and the rep, and let’s see how this goes.

Good afternoon.

Ann Gilbert: Good afternoon. My client is eager to secure an installment agreement after the disputed issues are resolved, and has a sense of urgency due to a million dollar judgement owed to an insurance company. The taxpayer is trying to avoid a garnishment from that insurance company, and does not have a personal bank account. Let’s discuss the updated collection information statement for the taxpayer’s three business entities that I provided to you. The taxpayer is the 100 percent owner, and his business expenses increased reflecting $2,000 less in net realizable income. I have now provided you with the documentation to substantiate the claim. Please also explain

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how you propose that my client could pay $20,000 per month.

Scott Reisher: All right, sidebar here. Let’s assume that all the updated financials, again, were sent over for their compliance for their analysis. Upon review the Revenue officer verified 1,500 of warranted -expenses for the three businesses. They disallowed the monthly expense for the car. They confirmed it was leased to some other party. They also – the taxpayer did not provide any documentation to contest the equity and the residence, or the motorcycles, therefore the Revenue officer utilized comparable market analysis to determine equity, and looked up the car value on admins.com for simplistic reasons.

All right, as a settlement officer I agree with the reduced income by 1,500 per month based on collections verified business expenses. I have evaluated the disputed monthly private school tuition expense, and the monthly credit card debt. You are requesting a partial pay installment agreement because you are unable to pay the amount in full within the statute of limitations. I cannot allow the conditional expenses under this type of payment plan. Based on your financials, the form 433B and -

form 433A, you will need to submit an initial payment of $775,000, which represents the equity in the 401k, the home, and the motorcycles. I can then setup an installment agreement that you pay $15,000 a month starting on September 1st, 2018.

Ann Gilbert: Well the taxpayer will be 59 and a half years old next year. Can you please give him one year to withdrawal the funds versus depleting now and being subject to a 10 percent early withdrawal penalty?

Scott Reisher: I can see no problem with that. I will draw up that paperwork for a down payment of now $475,000, excluding the 401k equity. You will then be placed in a partial paying installment agreement effective on sept 1st for $15,000. I will increase the installment agreement a year from now to $300,000 to include the equity in the 401k. The installment agreement will then be reduced back down to $15,000 in October of -2019. The financial status of the taxpayer will be reviewed every two years since you agree to a partial payment installment agreement, and there is a charge for a user fee for the installment agreement.

Remember, penalties and interest continue to accrue, and any refunds will be applied to the tax balance. Appeals does not make the determination regarding the filing of additional liens. Liens have been filed on the

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balances – of all the balances except for 2013, so collection may file an additional lien as they deem necessary, and of course the lien will remain until full payment, or until the collection statute expires.

Ann Gilbert: Okay, well I’ll need one week to explain and review the partial payment agreement terms to the taxpayer.

Scott Reisher: Thank you. I will prepare the paperwork. Allow 15 days to return with the down payment. If the taxpayer does not agree because this is a collection due process, I will issue a notice of determination sustaining collection, and the filing of the lien and the proposed levy action,

and the taxpayer will be able to exercise their tax court rights if they file a timely petition with the US tax court.

Ann Gilbert: I understand. I’ll comply with the established deadlines. It’s important that I have an agreement with the IRS prior to the pending of the insurance company garnishment.

Scott Reisher: Great. Let me recap a couple of key points on this scenario. One, what did we ask? The representative and the taxpayer identified specific items in dispute. That’s what we’re looking for. They were challenging asset values, disallowances of expenses, and income determination. Updated financials were submitted. That’s okay, but understanding that they have to be reviewed by compliance. That is not our role. So, we reviewed them, we sent them over, we gave everyone an opportunity to comment, and then we moved forward.

In addition, something else you should be weary of and that you can use is that we had here a down payment, so a lump sum or a down payment is always a good option when you’re trying to -setup an installment agreement with monthly amount. We had a timing event. There are things or things that could get paid off where you could tell us about that we could use to adjust the installment agreement. And then, of course, there was an eventual adjustment of the installment agreement, which is another good factor is that as things get paid off, or things change you can use that in part of your discussion with the settlement officer.

All right, now in the interest of time let’s go to scenario three,

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which is an offer and compromise, which I think you’ll find most entertaining.Slide 16-00:36:37:16So here we have a taxpayer, Sunny Smiles, a self-employed freelance photographer. For many years she had not filed an income tax return while she provided publications of images of animals, plants, and the environment across the globe. Sometimes she signed on with magazines that had great travel benefits and added her significant income, but she spent the money and never made any estimated tax payments.

Eventually the IRS prepared substitute for returns for the taxpayer based on their 1099s, and filed liens on the assessments. These liens proved very inconvenient as the taxpayer decided to settle down, and with her partner to borrow money and become partners in a well-established photography business in their hometown. Desperate to get tax problems resolved and launched in her new career, she had an accounting firm to represent her and submitted an offer and compromise. She was disappointed when the offer was rejected, and so she appealed the rejection. The case is assigned to settlement officer Lincoln, moi, who will discuss the case with their manager

All right, do you have a minute? This offer case I’m working has some unusual aspects I wanted to get your take on.

Ann Gilbert: Sure, I’d be glad to help. What are the issues?

Scott Reisher: The taxpayer is a self-employed photographer who has unpaid federal income taxes as they failed to file tax return for many years.

Even though they made good money in some of those years they have no assets to show, and now they want to buy into an established business, so they hired an accountant who confirmed that they will be able to make steady income. And again, I confirmed that once reviewing the income and expense statements.

Ann Gilbert: Okay, so the taxpayer has no assets, and questionable future income. She does sound like an offer candidate on the surface.

Scott Reisher: I can tell from the file that the offer specialist in compliance rejected the

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offer as not being in the government’s best interest. They pointed to the taxpayer’s history of noncompliance, and counted a substantial amount of her earnings during the last few years as dissipated assets, and has few records, and was unable to provide a good explanation on where the money went.

Ann Gilbert: Well I can understand that analysis. The taxpayer doesn’t have a good compliance history, but does she have a history of making frivolous arguments, or encouraging others to defy the tax system?

Scott Reisher: Nope. She would just like to resolve the outstanding liabilities and comply with future tax obligations.

Ann Gilbert: Oh, but what about the dissipated assets? Were the offer specialist computations reasonable? Is there any indication as to where that money went?

Scott Reisher: Well, the dissipated assets, if you look in the Internal Revenue manual, it will tell you look generally at the last three years including the current year. And I can tell from the file that the offer specialist went back further than that, the specialist wrote that the tax payer intentionally spent her money to avoid paying taxes, and that some of the money was spent while the substitute returns were being prepared and assessed. Also, in their computation of the dissipated assets, they allowed little towards necessary living expenses because the taxpayer presented little documentation of their expenses.

Ann Gilbert: Well does the offer specialist position have merit?

Scott Reisher: Well, during the appeals conference I think the POA, Power of -Attorney, could forward some persuasive arguments for the taxpayers. For example, we know from her 1099s that she spent several years in Spain and Italy, which are expensive places to live. She rents furnished apartments, and has relocation expenses. As a self-employed person, her health insurance is costly. The taxpayer even had some incidence where medical expenses as they broke their collar bone, and they had several other injuries that cost them a bit of time out of pocket. So again, we think there were some good arguments made for it by the Power of Attorney.Based on these factors, I think her necessary living expenses were much higher than the specialist allowed, and because the taxpayer moved frequently she actually may have been unaware that the

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assessments were being made against her, and she wasn’t spending the money to avoid them.

Ann Gilbert: Now did she give you substantial amounts of new information that should be sent back to compliance for review?

Scott Reisher: Not much in the way of new -documents. Just some banking credit card statements and some medical bills, but I believe she provided credible oral testimony about what she spent her money on.

Ann Gilbert: So if you consider this evidence and testimony, and modify the dissipated assets figure, how much is left unexplained?

Scott Reisher: Not that much.

Ann Gilbert: Okay, aside from the dissipated assets, what did the offer specialist come up with for other components of a reasonable collection potential computation?

Scott Reisher: For the most part the file shows that the offer specialist accepted the taxpayer’s figures in terms of income, expenses, and other assets. I think that once they focused on the dissipated assets, and the long period of noncompliance, it became apparent that they were going to reject the offer, so the other components didn’t get much attention.

Ann Gilbert: Well did the taxpayer question any of those figures in her protest?

Scott Reisher: Nope, she just raised the dissipated asset issue. Obviously if she plans on being a -50 percent owner in a photography business, she plans on making money in the future. I would like to go online to see what they actually make and use that to project income. I think that approach would be fair to the taxpayer and government, and would produce a more realistic offer amount.

Ann Gilbert: I understand your impulse, but your approach is not consistent with our policies and procedures and appeals. Our function is try to resolve disputes between the taxpayer and the IRS, so we only look at the disputed issues. We don’t raise new ones. The offer specialist have the opportunity to question any of the figures submitted by the taxpayer, and she shows to focus on the dissipated assets. We have to accept their judgement that the other figures were acceptable as presented. In this case you should only consider the dissipated

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assets, and the offer specialist assertion that the taxpayer’s history weighs against acceptance of an offer.

Scott Reisher: So, are you saying that I’m done analyzing this case?

Ann Gilbert: Basically. You have decided that the taxpayer’s history should not preclude her from an offer, and that the dissipated assets should be valued at a lower amount. You should take the new dissipated asset value, add in the remaining components of the reasonable collection potential as determined by the offer specialist, and you’ll have your new reasonable collection potential figure.

Scott Reisher: So, if the taxpayer raises the offer to that amount, I can recommend acceptance of the offer as that is to collectability?

Ann Gilbert: Exactly.

Scott Reisher: I’m glad I discussed this with you. You reminded me of some very important concepts about how we work cases and appeals. Thank you.

Key points on this example that I want to highlight. Compliance history, it is not something that you cannot overcome. Some tricks, one, get people compliant as quickly as possible. The more years of showing current compliance is definitely weighs something – a factor that will be weighed. Another trick might be if they have small liabilities. Just -

pay them off so you have a break in some of those long bouts of noncompliance history.

Dissipated assets, it’s not something you can overcome. I would advise you to file the IRM and focus on the three years and the current years, and give us an explanation as to what happened to the funds. It is not out of the norm for the settlement officers to adjust a reasonable collection potential in our hearing, or in our discussion with you, so be open to that on all the issues you challenge. And then again, if we do adjust it, what that will result in is that we’ll be looking for you to amend the offer and compromise so we can accept it going forward.

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So hopefully I’ve given you a couple of examples that shed a little more light on collection appeals. Now I would like to close with talking about how you can help your clients.

All right, so I’ve got five things -for you. One, be proactive. Discuss with your client the possible alternative outcomes and specific alternative proposals you want considered. Send any additional documentation to the settlement officer via mail, or actually eFax. Most of the settlement officers have eFax so you can actually send it to them directly, and as soon as you have them.

Make sure that your client has filed all necessary tax returns, and is making current tax deposits and estimated payments. I cannot emphasize that too much. The incurrent is always a key to any type of collection alternative you would like pursued, and make sure the form 2848 does include all relevant tax periods.

Next, we ask that you be prepared. Appeals did not contact you out of the blue. The client had to submit a request to be here, so you should be aware of the issues that you want to raise, and be very familiar -with your client’s financial situation. Be prepared to answer detailed questions, and where applicable be prepared to propose specific alternatives.

Responsive, appeals is not the place to delay resolving the tax liabilities. After your case has been assigned, the settlement officer will conduct an initial review of the case, and issue a letter scheduling the conference and listing the items that we need to make the conference productive. These items should not be submitted right before the hearing, or shortly after. We want them as soon as possible so the settlement officer has time to review them before the conference.

We generally do request – I mean honor requests for reasonable extensions, and those extensions can be for providing information, and if the actual hearing date is not convenient. You can request that it be rescheduled to a more convenient time. As you know, we’re -trying to get your case as quickly as possible, so we just ask for some flexibility there. We also ask that you be realistic. Appeals follows the Internal Revenue manual, the code, et cetera, as well as any other guidance in analyzing the case in implementing collection alternatives. Although we do take a fresh and impartial view of the case and look at each one, and consider

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hazards of litigation, we’re trying to balance the interest of the government and the taxpayers, and we do not have the power to simply do whatever your client wishes.

For example, I cannot, or we cannot issue an installment agreement on a business that is not current with their federal tax deposits. Conversely, if they’re not going to get an installment agreement if they haven’t made their estimated tax payments. As the example showed, if you have conditional expenses that’s not something you can utilize in a partial pay installment agreement. And just -saying that we want this type of alternative or we’ll go to tax court is not the answer we’re looking for here. Understand the type of case that you brought to appeals, and what you cannot – can and cannot do with that type of case. For example, as I said, in a CAP or a collection appeals program with a levy, you might get the levy released, but that’s not going to get you the installment agreement. That will have to be pursued with collection, all right?

I thank you again. Hopefully we’ve given you some insights into the inner workings of collection appeals, and our independent approach to what happens in a collection appeals hearings. I thank you for your time today, and most importantly I thank you for the valuable service you do to the taxpaying public, and we will take questions, or come on up. Thank you all.

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What Happens in a Collection Appeals Hearing-Glossary

Collection Appeals Program CAP- is generally quicker and available for a broader range of collection actions without having to go to Tax Court.

Ex parte rules- rules require Appeals to provide you or your representative with the opportunity to join the conversation.

WebEx Meeting- The IRS Office of Appeals (Appeals) is piloting the use of WebEx software to test its viability for virtual conferencing. Appeals will offer WebEx conferences to select taxpayers and/or representatives who have individual or business cases pending with Appeals. The goal of these conferences is to provide a virtual face-to-face option, improving communication between the parties and assisting in resolution of the tax matters at issue.

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What Happens in a Collection Appeals Hearing-Index

Collection Appeals Program CAP 2, 5, 12, 17

Ex parte rules 1, 8

WebEx Meeting 4

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