2016 IRS Collections Representation Boot Camp

Transcription

1 2016 IRS Collections Representation Boot Camp Presented by: Dan Henn, CPA & Jassen Bowman, EA Sponsors: IRS Program Number: SDQJW-T I Sponsor ID # Before We Get Started For proper CPE tracking, please sign in and out each day. No need to sign in/out for breaks and lunch. Please sign out if you are going to miss a particular session, also. Twitter hashtag: #TaxResolutionTraining Acronyms: Don t hesitate to ask what they mean. Questions: Feel free to ask questions during the presentations. This makes for better learning for everybody. 1

2 IRS Collections Process Overview Jassen Bowman, EA Course Objectives Explain how tax liabilities are created. Understand the IRS collections process Identify the letters in the IRS notice cycle. Understand the ramifications and opportunities of each IRS Collections notice. 2

3 Where Tax Debts Come From Return Filing Assessment SFR SNOD Assessment Examination SNOD Assessment The IRS Collections Cycle Most tax debtors owe for multiple periods. 1040: Annual cycle 941: Quarterly cycle Very high SB/SE enforcement priority Breaking the cycle is the key to resolution. Initial assessment notice is a bill. Letter 1058 Assessment Bill 1 CP-504 Bill 2 NTFL 3

4 Bills Also known as 21-day letter. Pay within 21 days to avoid further P&I. Common notice codes: CP-11: Miscalculations CP-21: Corrections CP-22: Audits Letter 2257C, 3030C: Service Center Balance Due Notice Notice of Federal Tax Lien Federal tax liens are automatic and statutory in all cases, even without 668-Y filing. The 668-Y is the public notice filing. Filed with county/state. Public record. 30 days to Appeal. 4

5 Notice of Intent to Levy CP-504 Provides notice of right to seize state refunds 30 days after 668-Y Taxpayer has 30 days to resolve Final Notice of Intent to Levy Letter 1058 (LT 11) This is the Intent to Levy notice as required by statute 30 days after the CP-504 Levy action may commence 30 days later CDP Appeal rights File CDP ~10 days before due date 5

6 Field Assignment This means Revenue Officers Inventory Delivery System routes cases: ACS SB/SE Field Collection (RO) Other areas (ENTITY) IDS fed from: ACS ASFR TDA TDI IDRS Field Assignment Risk-based collection assignment Amount due Tax type Taxpayer history Resolution history Priority Assignment To FC Delinquent Return Investigations Large Cases FTD Alerts (pyramiding 941 debts) Special compliance initiatives 6

7 Breaking The Cycle Temporary collections holds Get current with FTD/ES payments Stop pyramiding liabilities Get compliant with filing requirements 1040: At least most recent 6 years of returns 941/940: File everything Seek final resolution Conclusion Understanding this cycle is critical to your ability to resolve tax liabilities. I encourage you to explore and enumerate your state collections notice cycle, also. Bedtime Reading: IRM

8 2016 IRS Collections Representation Boot Camp Presented by: Dan Henn, CPA & Jassen Bowman, EA Sponsors: IRS Program Number: SDQJW-T I Sponsor ID # Mechanics of IRS Collections Case Work Jassen Bowman, EA 8

9 Course Description This course will explore the IRS collections process from the taxpayer representative s point of view. Students will learn a systematic structure for approaching the resolution of tax debt cases, starting from the IRS account research and financial analysis necessary to determine eligibility for resolution option, through the resolution process itself and ongoing compliance monitoring best practices. Mechanics of IRS Collections Case Work Mechanics of working IRS cases Investigation of Liability Financial Review/Analysis Resolution Options The IRS side of the process Resolution Appeals Penalty Abatement Monitoring 9

10 IRS Collections Activity In FY million new collections cases 463,000 more new cases than in FY14 Closed 7.1 million collections cases 13.3 million open collections cases Net increase of over 900,000 collections cases over FY14 $137 billion in outstanding tax, penalties, and interest More Collections Activity In 2015 Over 3 million delinquent tax returns Net reduction of 500,000 from FY14 515,247 new tax liens filed 707,768 in ,005 in ,580 in threshold change from $5k to $10k Serial debtors will have smaller liens filed Nearly 1.5 million levies served on third parties Down from 2 million in ,000 Offers in Compromise accepted out of 67,000 applications, collecting $205 million Note that only 0.37% of cases resolved via OIC 10

11 Investigation of Liability TaxPrac/eServices Transcripts Returns SFR 1058 Dates Payments Break out TPI Identity CSED Notices Financial Analysis Think of it like a mortgage application. Form 433-A/B/F Assets Even retirement accounts can be levied. Income Expenses IRS National Standards 11

12 Resolution Pathways Assets Access the equity Loan applications/denials Lien discharge/subordination Disposable income Installment Agreement Maximize allowable expenses Minimize income No assets, no disposable income CNC What about OIC? Assets + Disposable Income x (12 or 24) < Debt Fresh Start changes can be rescinded any time Appeals Large % of cases resolved in Appeals. Defeats purpose of CFF Settlement Officers have more time in service and more extensive authority than an RO. Collections Due Process Appeal Most common: 1058 Often takes months Collection Appeals Program Most common: Actual levies Mandatory review timeframes IA Denials, TFRP Proposals/Assessments, OIC Rejections 12

13 Penalty Abatements After Installment Agreements Reasonable cause criteria Death or serious illness Alcohol/drug issues Destruction of records Criminal activity Reliance on IRS or professional advice Undue economic hardship 941: Ordinary business care & prudence Economy or drop in business no excuse Can t pay the taxes? You can t afford the employee. Account Monitoring Pull updated transcripts to check for: IA payments Pyramiding FTDs Return Filing Advise on compliance 13

14 Other Necessary Services Tax resolution often requires other services: Tax prep Payroll Bookkeeping Write-up work 14

15 2016 IRS Collections Representation Boot Camp Presented by: Dan Henn, CPA & Jassen Bowman, EA Sponsors: IRS Program Number: SDQJW-T I Sponsor ID # Collections Financial Standards For Individuals Dan Henn, CPA & Jassen Bowman, EA 15

16 Course Objectives Understand the purpose and application of IRS Collection Financial Standards. Explain each individual expense category and how to apply them. Understand the purpose of IRS Form 433-A. Complete the Form 433-A Income & Expense Table (IET). Purpose & Application of Collection Financial Standards 16

17 Purpose To determine a taxpayer s ability to repay Scope Differentiates between necessary and unnecessary living expenses Designed around a middle class lifestyle Reviewed quarterly 17

18 Allowance Beyond Standards Standards intended to cover basic living expenses, nothing more. Service may allow for actual expenses in rare situations. Taxpayers living significantly beyond standards will be required to downsize their lifestyle or obtain alternate resolution. Expenses Never Allowed Private school tuition Higher education tuition Tithing Charitable contributions Retirement contributions Payments on unsecured debts 2012: Minimum credit card payments and minimum student loan payments permitted in OIC RCP calculations. Ref: Pub

19 National Standards: Food, Clothing, Health Care, Misc. Lump Sum National Standard Food Housekeeping supplies Clothing and maintenance Personal care products and services Misc (the catch-all) Allowed without questioning actuals One person: $585 Four people: $1,513 Each additional: $378 19

20 Health Care Actual out of pocket costs or Standard amount of $60 or $144 (65 and over) plus Actual health insurance premiums Local Standards: Housing, Utilities, & Transportation 20

21 What s Included Rent or mortgage (PITI) Maintenance Gas, electric, water, garbage Home phone, cell phone, cable TV, and Internet Basis US Census Bureau American Community Survey Bureau of Labor Statistics (income) Most localities were decreased from 2015 allowances. Reminder: Designed to approximate a median income lifestyle. 21

22 Example Exceeding the Housing Standard Most commonly exceeded standard Some taxpayers may think the standard unfair 12-month adjustment period 22

23 Transportation Standards Public transit OR a car, not both Car free and clear? Only operating costs allowed Public transit: $173 per month (nationwide) Ownership Costs: $517/$1,034 This is a 9% reduction from 2015 levels. Operating Costs, West Region: $213/$426 Operating Costs, Seattle Metro: $173/$346 Overview of IRS Form 433-A 23

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25 Section 4: Personal Assets Cash Personal bank accounts Checking Savings Money Market Investments Stocks, bonds, etc. Retirement accounts (IRA, 401k, etc.) Yes, the Service can force retirement account liquidation. Any business entity in which you have a financial interest Section 4: Personal Assets Available credit Credit cards Lines of credit Home equity lines Annuities Life insurance with cash surrender value 25

26 Section 4: Personal Assets Real estate Personal residence Investment properties Vacation homes Partial ownership Inherited Section 4: Personal Assets Vehicles Owned & leased Cars Boats Motorcycles Aircraft ATVs PWCs Trailers 26

27 Section 4: Personal Assets Other Personal Assets Furniture Clothing Art Coins Stamps Comic books Guns Antiques Intangibles: Intellectual property, contracts, mining claims Income/Expense Table 27

28 Form 433-A, Section 5 Often the most important item on 433-A This is where Collection Financial Standards are actually applied Determines IA payment or OIC remaining income for offer amount 28

29 Self-Employed Complete Form 433-A, Section 6 to include all business information, including assets. Section 7 income goes into IET 29

30 Self-Employed Tip Simply submit P&L, Balance Sheet, & Depreciation Report Conclusion Understanding the Collection Financial Standards is important to properly represent collections clients. Proper completion of Form 433-A, and inclusion of necessary documentation, can significantly accelerate the resolution timeframe. Proper 433 documentation is often the most difficult thing to obtain from the client. Mortgage analogy Even when not required, as in Streamline cases, completing a rough draft 433-A allows you to better assist your client. 30

31 2016 IRS Collections Representation Boot Camp Presented by: Dan Henn, CPA & Jassen Bowman, EA Sponsors: IRS Program Number: SDQJW-T I Sponsor ID # Understanding Statutes of Limitations: ASED & CSED Presented by Dan Henn, CPA 31

32 Course Objectives Define ASED and CSED. Understand events that extend the CSED. Understand how to utilize CSED expiration as a resolution option. Know to use ASED extensions as a negotiation tool. Definitions ASED: Assessment Statute Expiration Date The final day by which the government must assess a tax liability against a taxpayer, or forever lose the ability to do so. CSED: Assessment Statute Expiration Date The final day by which the government must assess a tax liability against a taxpayer, or forever lose the ability to do so. 32

33 Statutory Basis Administrative Procedures 33

34 Tolling Events Form

35 2016 IRS Collections Representation Boot Camp Presented by: Dan Henn, CPA & Jassen Bowman, EA Sponsors: IRS Program Number: SDQJW-T I Sponsor ID # Tax Liens: Withdrawal, Subordination, & Discharge Presented by Jassen Bowman, EA 35

36 Course Objectives Explain the difference between lien withdrawal and release Understand conditions for lien withdrawal Understand the process for lien withdrawal Know how and when to utilize the subordination and discharge processes Tax Lien Withdrawal Withdrawal is not a release! 668(Z) vs 10916(c) 36

37 Tax Lien Withdrawal 668(Z), Certificate of Release of Federal Tax Lien: Formal public notice of release of statutory lien under IRC (c), Withdrawal of Notice Of Federal Tax Lien: Only removes adverse impact of the NTFL public notice. Removes NTFL from public record and credit reports, but does NOT release statutory lien against property and rights to property. Withdrawal Conditions 1. Premature filing 2. Resolved via payment agreement 3. To facilitate collection 4. best interest of the taxpayer and the United States (Taxpayer Advocate) Reference: IRC 6323(j) 37

38 Premature Filing 1. Administrative procedures 2. Bankruptcy 3. Combat 4. MFT LLCs 6. Disaster Areas IA Resolutions Lien withdrawal as condition of IA DDIA IMF all BMF income only or OOB $25k or less bal due Full pay in 5 years or by CSED Defaults 38

39 Withdrawal to Facilitate Collection The IRS wants to get paid Liens can occasionally hamper this Lump sum payments Access to credit Ability to operate business Maintain employment Security clearances Securities licenses Withdrawal Requests 39

40 How To File Directly with Revenue Officer for field cases If no RO, file with Advisory Group (formerly Technical Services) serving local area (see Pub. 4235) Can also be filed in Appeals Be prepared to submit supporting documentation Be sure to request 3 rd party notification More info: IRM Lien Subordination Does not release or withdraw the lien! 40

41 Lien Subordination Application Use Form Must describe both the collateral in question and the lender Must cite code section applying under 45 day processing time Lien Subordination Code Sections 6325(d)1 -- IRS gets their share now 6325(d)(2) -- IRS will get more later 6325(d)(3) certain liens on farm property Do not use Form See Pub

42 Lien Discharge Discharges a specific asset from being covered under the lien Certificate of Discharge (COD) issued Lien Discharge Use Form Almost identical to Form Must describe the asset, sale details, and what the IRS is getting out of it Estate Tax Liens require special processing (6325(c)) 42

43 Lien Discharge Code Sections 6325(b)(1) remaining assets = 2x tax debt 6325(b)(2)(A) IRS receives amount equal to their interest in the asset up front 6325(b)(2)(B) value of US interest is $0 6325(b)(3) sale proceeds are escrowed and IRS gets their share 6325(b)(4) 3 rd party bond (buyer) Subordinations/Discharges May require an appraisal Asset specific Driven primarily by the math File directly with Advisory Group 43

44 Conclusion These are tools to facilitate resolution Be sure clients understand purpose Don t be afraid to explore outside the box options that apply these tools 44