Welcome to TaxMama s Place Home of the

Transcription

1 1 Welcome to TaxMama s Place Home of the 10 Steps to Resolving Collection Issues

2 Table of Contents 2 Meet Your Instructors 1. Determine the Statute of Limitations 2. Gather Information 3. Evaluate your options Audit reconsideration Penalty abatement Installment agreement (IA) Currently non-collectible status (CNC) Offer-in-Compromise (OIC) Bankruptcy of tax debt 4. Discuss options with client 5. Determine your strategy 6. Set Plan of Attack 7. Contact IRS & Set the stage 8. Provide documentation 9. Be Prepared to wait & educate your client 10. Re-evaluate & Follow-up Evaluations and Thanks!

3 Who is Eva Rosenberg MBA, EA 3 Eva Rosenberg, EA, Your TaxMama has been teaching Enrolled Agents Exam review courses off and on since developing the program for UCLA Extension over 15 years ago. These days, she s teaching her own course online at Eva has a BA in Accounting and an MBA in International business. Your TaxMama is a TaxWatch columnist for Dow Jones' and author of the ever-popular book, Small Business Taxes Made Easy, published by McGraw-Hill new edition to be published in December As a speaker, TaxMama is popular with both tax professionals and taxpayers. You can find her at and subscribe to her free daily podcast at

4 Who is Tom Buck, CPA 4 Tom Buck, CPA is a published author, tax coach, teacher And mentor. He has been a licensed CPA since 1971 and has been in private practice since Tom was chairman of the Nevada Society of CPAs Taxation Committee. Tom has been representing taxpayers and solving IRS problems ever since the landmark Casino employee cases in The approach Tom takes and that he would like to pass on to you is this: the science of the work is the law and how it should be applied. The art is being able to counter any and all IRS measures which are not supported by law. Does the IRS always follow the rules? Of course not, so part of the art is really in forcing the IRS to obey the law. Of course, having the tenacity of a bulldog is often the critical ingredient. In the final analysis, once you determine what the outcome should be, then you must be ready to take any detours necessary to get your client to the finish line. Tom is a willing and helpful teacher and looks forward to sharing his hard-gained knowledge.

5 Who is Sonya Wilt, EA 5 Sonya Wilt, BS in Management, EA and entrepreneur. A graduate of Upper Iowa University, Fayette, and former student of Eva Rosenberg s Enrolled Agent Review Course, Sonya also has an extensive background in management and accounting, small business consulting, and employee training Sonya s desire to stay on top of the changes in tax law is two-fold: 1) To make sure her investments and entities are taking advantage of every legal tax deduction available with adequate documentation, and 2) 2) To provide our clients with accurate information so they may make solid decisions in both resolving current tax issues and legally protecting their future earnings. Sonya and her partner, Tom Buck, CPA aggressively represent clients before state and federal taxing authorities through audits, appeals and collections.

6 Introduction to Collections Resolution This is a big topic. It involves PEP Precision - Expertise - Precise timing We can t cover it all in two hours that s why we ve produced this series for you. Some concepts will be introduced today - covered later. There are hurdles to doing this well New hurdle from FTC see your Resources page

7 Statue of Limitations Unique benefit in the U.S. Tax Code Federal Taxes expire! Stick head in sand long enough taxes go away. But only if. What has to happen first?

8 Assess Taxes For taxes to expire they must be assessed. To start the clock running, you must 1) You must file a tax return 2) Have IRS file a tax return SFR 3) IRS correction letter adds additional taxes or penalties 4) Audit assessment adds additional taxes and/or penalties

9 Statute Open Forever or To avoid keeping the statute open forever on a year File a tax return. Even if there is no obligation to file file it.

10 Understanding Statue of Limitations 10 Understanding the 10 year statute: CSED Collection Statute Expiration Date Based on original Assessment Date Ask IRS & Verify Tolling events (Tolling = Freeze the Statute) Collection Due Process Consideration of Offer In Compromise + 90 days after close Pending Bankruptcy + 6 months Consideration of Installment Agreement File a Tax Court Petition Essentially anything that prevents collections

11 Gather Information From Client 11 Learn everything you can from the client about their assessment. If due to an audit, perhaps you can fix the audit. If due to a Substitute for Return (SFR) filed by IRS, perhaps you can reduce the assessment by filing a real tax return. If is due to unpaid taxes, with related penalties and interest, perhaps you can reduce the penalties. If due to a spouse s taxes, business, or filing a forged return, perhaps you can correct that, too. Interest is high due to IRS administrative delays, get the interest reduced

12 Gather Information From IRS Avoid surprises If a Revenue Officer is assigned to the case, ask the RO. If not, using Form 4506-T, the Practitioner s Priority Service ( ) or IRS e-services get copies of the client s records for each year in question + the year before and the year after. Account Transcript, which 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 Record of Account, which is a combination of line item information and later adjustments to the account.

13 Know your options 13 Understand the rules and guidelines for each of the following collection resolution options

14 Options: Audit Reconsideration 14 When should you request audit reconsideration? Legitimate Reason Taxpayer did not appear for audit Taxpayer moved and did not receive notification Taxpayer has new or additional information You filed an original return after an Substitute for Return (SFR) Though rarely have to ask for reconsideration You believe IRS has made a computation error Taxpayer disagrees with audit Can be used years after completion of audit Can be used after all deadlines for routine appeals and protests have expired.

15 Options: Audit Reconsideration 15 When may cause denial of audit reconsideration? Denied if: Client signed a closing agreement (Form 906) Client signed a compromise agreement Client signed a Form 870-AD US Tax Court issued Final determination

16 TaxMama s Audit Recon Case Study CZ Clients: Married Filing Jointly Retained Repr.: January 1995 Employment: Real Estate investor, investor History: Always current and incompliance. Tax Preparer handled audit, poorly - twice. Audit assessment = About $300,000 including penalties and Interest RO assigned to case believed me, that the audit assessment was wrong. RO ordered Audit Recon.

17 Tom Buck Case Study 17 Bill S. Clients: Single Retained Repr.: January 2009 Employment: Previously SE, Currently WE History: No returns filed since 2003, Audited in 2001, 2002, & 2003, Audit that resulted in strange activity on the account transcripts Audit for which IRS fails to reproduce the audit report

18 Options: Penalty Abatement 18 When to request Penalty abatement? Legitimate Reasons 1 st Time Offender Drug Rehab Program, Imprisonment, Death Destruction of the taxpayer's records Divorce or court proceeding preventing payment Incorrect advice from a tax professional Bad advice received directly from the IRS (be specific) Make notes Can T/P prove event was beyond their control?

19 Options: Interest Reduction Form Requesting Abatement or Refund of Interest Due to IRS Error or Delay The IRS will abate the interest only if there was an unreasonable error or delay in performing a managerial or ministerial act (defined on this page). The taxpayer cannot have caused any significant aspect of the error or delay. In addition, the interest can be abated only if it relates to taxes for which a notice of deficiency is required. This includes income taxes, generation-skipping transfer taxes, estate and gift taxes, and certain excise taxes. Interest related to employment taxes or other excise taxes cannot be abated. Managerial act. The term managerial act means an administrative act that occurs during the processing of your case involving the temporary or permanent loss of records or the exercise of judgment or discretion relating to management of personnel. A decision regarding the proper application of federal tax law is not a managerial act. See Regulations section for more information. Ministerial act. The term ministerial act means a procedural or mechanical act that does not involve the exercise of judgment or discretion and that occurs during the processing of your case after all prerequisites of the act, such as conferences and review by supervisors, have taken place. A decision regarding the proper application of federal tax law is not a ministerial act. See Regulations section for more information.

20 Options: 120 Day Full Pay 20 Non-published option Can your client full pay or significantly pay down the debt in 120 days?

21 Options: Installment Agreement 21 When to set up an Installment Agreement (IA)? Balance can be paid in full within 3 years Balance can be paid in full within within 5 years Balance can be paid in full before statute expires Essentially, when clients are working, have assets, education and good health IRS will expect to collect the balance due. When there is no way around paying, here s how to get an Installment Agreement, IA, for short.

22 Installment Agreement Fees $ Base fee $ Pay via Electronic funds withdrawal $ Low Income (Form 13844)

23 Guaranteed Installment Agreement Guaranteed installment agreement. Your client cannot be turned down if the tax owed is not more than $10,000 and all three of the following apply. During the past 5 tax years, taxpayers have timely filed all income tax returns and paid any income tax due, and have not entered into an installment agreement for payment of income tax. The IRS determines they cannot pay the tax owed in full when it is due and they give the IRS any information needed to make that determination. The installment agreement is set to pay the full amount within 3 years and taxpayers comply with the tax laws while the agreement is in effect.

24 Online Payment Agreement Balance due $25,000 or less, use the Online Payment Agreement (OPA) Or Form 9465 Installment Agreement Request

25 Installment Agreement Tricks Reduce filing fees by paying automatically Control payment date reduce odds of NSFs Have client alert you if ever they cannot pay

26 Options: Currently Non Collectible 26 Knowing when to use Currently Non Collectible (CNC) CNC only suspends collection activity CNC does not toll statute of limitations Detailed review of client s financial situation

27 Options: Currently Non Collectible 27 Review client status/circumstances Need to gather client info 433-A, 433-B or 433-F No equity in assets Insufficient Income to make any payment without causing hardship Is client in compliance? CNC as a stepping stone

28 Options: Offers In Compromise 28 Taxpayers compliance history is a consideration for nearly all Offers In Compromise (OIC)

29 Options: Offers In Compromise 29 Considerations for using Doubt as to Collectability I have insufficient assets and income to pay the full amount Will halt collection activities, but will not necessarily stop filing of lien(s) Tolling of Statutes

30 Options: Offers In Compromise 30 Qualifying for an Offer In Compromise (OIC) Doubt as to Collectibility Income Equity in Assets IRS takes a very dim view of Dissipated Assets

31 Options: Offers In Compromise 31 Financial Requirements for Doubt as to Collectibility Offer In Compromise (OIC) 20% Down Payment $150 Application Fee Fee Waiver available in case of hardship 656-A IRS takes a very dim view of Dissipated Assets

32 Options: Offers In Compromise 32 Considerations for using Doubt as to Liability 656-L (Separate Form) Can be used to force Audit Reconsideration Collection Information Statement Not Required Application Fee Not Required

33 Options: Offers In Compromise 33 Considerations for using Effective Tax Administration I owe this amount and have sufficient assets to pay the full amount, but due to my exceptional circumstances, requiring full payment would cause and economic hardship and would be unfair and Inequitable Examples: Funds needed to provide for medical care Taxpayer disabled, home has equity but equip for disability, insufficient funds to pay additional house payment More examples at

34 Options: OIC Payment Options 34 Options & Strategies Lump Sum Cash Offer (5 or few installments) Short Term Periodic Payment Offer Deferred Periodic Payment Offer

35 Case Study 35 Shawn & Dana P. Clients: Married Filing Joint Retained Repr.: April 2008 Employment: Shawn self-employed (S-Corp), Dana - homemaker History: Shawn works in family business, filed OIC, IRS attempting to re-value assets, CDP request filed in response to lien, Fast Track Mediation Requested

36 Options: Bankruptcy 36 Bankruptcy or OIC How to help your client decide? Some Considerations: Does your client have additional debt and creditors after them? Timing? Funds available? Other?

37 Case Study 37 Paul & Karen K. Clients: Married Filing Joint Retained Repr.: 2009 Employment: Previously wage earner, now semi-retired/self-employed History: Former government employee, real estate investor legal battle on bad investment, bankruptcy for non IRS debt, then OIC

38 Options: Bankruptcy 38 Circumstances Tax Return Filed at least 24 months Assessed 240 days The due date for filing a tax return was at least three years ago The tax return was not fraudulent

39 Bankruptcy Note If IRS has a lien filed, they may be able to collect funds from the bankruptcy estate if there is money left after earlier secured creditors have collected their reimbursements or based on a formula to share the assets determined by the Bankruptcy Court Judge.

40 Discuss options with client 40 Set forth the options with your client. Discuss the issues: Even if levy is lifted, lien will still be out there Affects on their Credit rating How much information will be public knowledge Affects on their Cash flow Personal Ethics Affect on standing in the community The time frame involved The pros and cons of the alternatives for their lives

41 Educate them Consequences. What happens With their tax refunds If they default on IA or OIC payments If their income increases while paying an OIC If they inherit money along the way If their income dramatically drops during OIC If illness or death occurs If they default on another year s tax obligation or filing.

42 Specific Instructions Once you decide on a strategy, be very, very clear on what needs to be done by your client each step of the way. Information to gather by when Payments to make when Revisions to withholding provide forms Contact you immediately if anything changes or if they get notice

43 Determine your strategy 43 No cookie cutter approach, every client is different This is where you need to know your client, they are living breathing people and situations change Your strategy needs to address both their current situation and at least look at any future indicators of increased income or inheritance You are the expert, but it is the client s life, they should make the decision

44 Set plan of attack Specify the roles A. What will you be doing? B. What will the client be doing? 2. Communicate expectations with client 3. Set deadlines with client 4. Explain that those deadlines rarely apply to IRS

45 Contact IRS & Set the stage Keep the IRS abreast of what is going on 2. Request the time you need to get the job completed, if you are requesting and extensive amount of time, be prepared to back it up (Client having surgery or they ve had a flood, need time to compile records, depends on the strategy/option) 3. Inform the IRS of your clients willingness to resolve the situation (Your client has seen the error of his ways and wants to get resolve the situation or they wouldn t be paying you) 4. Know the rules in case they are not willing work with you.

46 Provide documentation Keep your client on task Rarely does a client get into this situation by accident, like it or not this job involves some babysitting, some clients need one or two reminders, others every week by phone and (make sure you charge accordingly for your time) 1. Do what you say you are going to do If you are going to send the IRS something, send it (get proof), verify receipt if you fax it, call first to let them know it is coming, if you ve mailed something to the SFR unit, contact the Revenue officer and let them know it has been sent

47 Provide documentation If there is a delay, communicate with the IRS immediately, if you are going to miss a deadline, call the agent and request more time 2. Provide the documentation certified mail w/return receipt, Proof you ve sent it! Proof they ve received it! 3. NEVER SEND ORIGINALS OR MAKE SURE YOU HAVE A COPY OF EXACTLY WHAT WAS SENT

48 Hurry up & wait Be prepared to wait They are the government, nothing happens overnight 1. Set expectations with client Explain to your client that while it may take a month to gather all the documents and prepare an offer, the IRS could effectively sit on it for 2 years 1. Be persistent & proactive You don t have to wait too patiently, you can call and check on the status, remember to update your clients even if you ve found nothing out, they will appreciate it.

49 Re-evaluate & Follow-up 49 Re-evaluate & Follow-up Be prepared to make changes Expect the best, plan for the worst And let s look at some strategy summaries

50 Statute Strategies Monitor the Statute the longer an offer stays open, the longer the statute of limitations is open. Either settle the case in your client s favor, Or insist the case be closed. Most tax pros let unsettled cases sit there leaving the statute open endlessly.

51 Payment Strategy Sometimes, the best option is full pay. If so 1) Reduce the balance due if possible a) Audit Recon b) Innocent Spouse c) Penalty Abatement d) Interest reduction due to administrative delays e) Collection Due Process 2) Set up the lowest fee installment agreement with the highest payment that your client can afford, to shorten the payment period. 3) Set up a payment date that will ensure your client always has money in the account on that date. 4) Better yet, help them borrow the money and not be on the hook to IRS at all. Lenders are safer than IRS.

52 Payment Reduction Strategy Indefinite Delay Currently Non-Collectible (discussed in Levy Release class) Wait for the statute to toll Offer in Compromise Bankruptcy

53 10 Steps Summary Determine the Statute of Limitations 2. Gather Information 3. Evaluate your options 4. Discuss options with client 5. Determine your strategy 6. Set Plan of Attack 7. Contact IRS & Set the stage 8. Provide documentation 9. Be Prepared to wait & educate your client 10. Re-evaluate & Follow-up

54 The Practice Series 54 IRS Practice Series: 10 Steps to Release IRS Levies on Paychecks or Bank Accounts Available online IRS Practice Series: 10 Steps to Resolving Collection Issues October 8, 2011 IRS Practice Series: Hands-on Collections Workshop November 1, 2010 IRS Practice Series: 6 Simple Steps to an Offer-in-Compromise: Completing (form 656) December 7, 2010 IRS Practice Series: The Un-agreed Collection Alternatives and Appeals December 10, 2010

55 Resources 55 Audit Reconsideration: CNC reconsideration closing codes: /part5/irm_ html#d0e292 Effective Tax Administration: irm_ html

56 CPE Link 56 Thanks for coming. Remember to give CPE Link your evaluations. Drop by to sign up for other TaxMama classes Return often for two new series, coming soon: International Taxpayer issues dealing with resident aliens and Americans overseas. The Tax Practice Series - Taxpayer representation Collections, Offers In Compromise, other payment alternatives