Overview of Tax Controversy and Procedure Presented by: Deborah S. Kearns Assistant Clinical Professor of Law Albany Law School December 9, 2014 Getting Started Determine stage of tax controversy. Determine if tax liability is correct. What are the procedural rules? What are the substantive rules? What are the ethical rules? Determine alternatives/strategy at each stage. 1
Voluntary Compliance System Return and payment due April 15 th General Overview Compliance tools Congress gave two tools: Ability to inspect books and records Section 7602(a) Substitute for Returns Section 6020(b) Mailbox Rule Returns are generally deemed filed when received. Exception IRC 7502 Mailing date = filing date. Ex. Return is postmarked April 15, 2014 and received by the IRS on April 22, 2014. Deemed filed on April 15, 2014. Ex. If return was on extension and mailed June 1, 2014 and received on June 8, 2014 Filed on date received. 2
Failure to File IRC 6651(a)(1) Penalties The penalty is imposed if the return is not filed by the due date, unless the failure to file is due to reasonable cause and not willful neglect. Rate = 5% of the net tax amount required to be shown on the return for each month (or fraction thereof) that the return is late (maximum = 25%) Failure to pay IRC 6651(a)(2) The penalty is imposed if the tax is not paid by the due date, unless the failure to file is due to reasonable cause and not willful neglect. Rate =.5% of the unpaid tax for each month (up to 25%) Obtaining Taxpayer Information from the IRS First Step: Client and representatives sign form 2848. Form 2848 is faxed to the Internal Revenue Service. Second Step: Obtain Transcripts How? Call the IRS and ask them to fax them to you. Make sure you have the client s POA Make sure you have your CAF number Use eservices What information can you get? Account Transcripts Wage & Income Transcripts Return Transcripts 3
Statutes of Limitation Statutes of Limitation IRS Audit 3 years from date return is considered filed 6 years if more than 25% is omitted No limitation on fraudulent or non-filed returns Collection 10 years from the date the tax is assessed Circumstances that extend the statute Taxpayer waiver (IRS can request for installment agreements) Taxpayer is absent from country for > 6 mos. Bankruptcy extends statute on non-dischargeable taxes for the duration of bankruptcy proceedings + 6 mos. IRC 6503. Taxpayer Assistance Order Appeal of lien or levy (suspended during appeal) Offer in Compromise (duration of evaluation + 30 days) Lawsuit Assessed If filed voluntarily = assessed when filed If SFR not clear 6501(b)(3), 301.6501(b)-1(c) Full Pay Resolution Options Installment Plan Offer in Compromise Currently not Collectible 4
Installment Plan Must have all tax returns filed. Application procedures Less than $50,000 Request using IRS Form 9465 or apply online at http://www.irs.gov More than $50,000 use Form 9465 and Form 433F (Financial Disclosure Statement) IRC 7122 Offer in Compromise (OIC) IRS reduces the amount owed Basis Doubt as to collectability Doubt as to liability Effective tax administration 5
OIC Required Documents Financial Disclosure Statement Proof of financial situation for 3 months prior application Form 433-A (OIC) Collection Information Statement for Wage Earners and Self-Employed Individuals. Pub 1854 Form 433-B Collection Information Statement for Businesses IRS National Financial Collection Standards Offer in Compromise, Form 656 Do Not Forget About New York 6
New Collection Initiative New York s Driver s License Suspension Program A driver license can be suspended when a taxpayer s past-due tax liability exceeds $10,000. N.Y. Tax Law 171-v Useful Websites Internal Revenue Service Taxpayer Advocate Service United States Tax Court New York State Department of Taxation and Finance 7