On-Demand: Dealing with the IRS | Collection Division
- Aug 6, 2019
This webinar will explain how to list prerequisite whenever contacting the IRS, determine who can represent taxpayers., determine how to initially handle the IRS auditor in an audit, review educational resources available to practitioners, discuss the 3 stage of an IRS audit and discuss how to appeal audit results.
Dan Gibson: Thank you, Niky. For those of you that were with us last week during our audit webinar, which by the way was going to be loaded up on the website within the next day or so, if you missed it or you want to... those of you who enjoy the punishment, you can watch it once more again. You go to EisnerAmper, their website, and then search for webinars and it'll get you there.
This week, we're actually going to jump the chasm and the slide that I have here on the presentation right now is a schematic showing on a top side view, what happens on the audit and collection side. We spent time on the audit side last week, which was very important for this week, because as we talked about numerous times, we need to have an assessment on the audit side. Whether it be self-assessment or an assessment through an audit, before the collection guys in the collection division of the IRS can get started. It's very, very important. Without that, the chase cannot begin by the IRS.
Today we're going to do what I call a flyover of the collection division and what they do. I'll try to give you a holistic approach, I'll try to go through what the practitioner, what the taxpayer goes through, what the agents go through. And this really gives you a 30,000 foot view. Over the next couple of months, I'll do more of a deep dive in the collection area.
I have a number of webinars coming up in the next four months. Next month, September 26th, I'm doing a webinar with Lorman Education on liens and levies. It's a two hour presentation. There is a cost involved, but if you go to the Lorman Education website, you could sign up for that webinar. And then with EisnerAmper, I'm doing one hour webinars on October 24th on payment alternatives and collection area on November 21st, offer and compromise, and then on 12/10, doing one on the collection due process hearings.
So hello, everyone. Again, my name is Dan Gibson. I'm a partner here in the New Jersey Office of EisnerAmper. I work in the private business services area, specializing in tax. I have about 35 years of experience in public accounting. And over 30 of those years with the legacy Eisner firm, the legacy Amper firm and now the current EisnerAmper firm. I'm also assisted today by [inaudible 00:03:56]. She is a senior manager here in our PBS group as well, in New Jersey. So let's get started.
This is just another schematic I thought I added this week. I thought you guys would enjoy it. This is one that was sent out by the taxpayer advocates office not too long ago. Someone tried to replicate what the process would look like and make it look something like a subway map, at the taxpayer. I guess they had nothing better else to do. So they put this thing together, as you can see. And this by the way, is not even the entire page. I would've had to shrink it so much you would not see anything.
But what I've done on the next page is just carve out, just the collection piece of this. So you'll see again, a lot of moving parts here in the collection areas. I won't go too deep into any of this stuff today, again, just giving you kind of a flyover view of the collection process with the IRS.
I just wanted to give some acknowledgments, there's a lot to be learned in this area. And these are guys that I've known over the years, I've picked up a lot on websites, so if you google a lot of these folks, you can get some tremendous information. Whether it's on the audit side or whether it's on the collection side, our current IRS Commissioner Charles Rettig, he is a practitioner. Like most of us in this area, has done a lot of work in this area, he is not an ivory tower guy. I think he's just getting his legs getting up and going with the IRS, but I think he's going to do very well.
Larry Lawler with the Association of Tax Practitioners, Eric Green does a great job running an organization called the Tax Rep Network. Dan Pilla runs an organization called Tax Freedom Institute, Jassen Bowman, Tax Marketing Headquarters. Michael Rozbruch more of a marketing guy in the area of tax resolution, but he runs something called Tax and Business Solution Academy. LG Brooks and Steve Klitzner have some really good podcasts out there they've done, very educational. And the last person is someone I came across as a former professor at the University of Houston, has a website up where he actually has a PDF version of a textbook that he used in his class. He's a very informative guy. Some of the hints here, helpful hints as far as dealing in the collection area, especially with notices. And one thing I will emphasize in the area collections as opposed to the area of audits is that you really want to stay on top of things, you really can't ignore notices. You really got to be on top of deadlines, notices, don't ignore anything in this area.
Because if you think we can ignore things, and just let things kind of lie and not do anything about them, you're going to be sadly mistaken, because the agents on the other side doing the work for the IRS, they're not going to sit down and let stuff lay by the wayside. They will act and when they act, it's going to hurt, particularly with your taxpayers.
The other thing is, if you haven't already, take a look at taxpayers bill of rights, they are helpful, in looking through them. And the IRS is very sensitive about those, the bills of rights that they've developed, Congress has blessed. And if you're running into issues, and you see the bill of rights for taxpayers could help you out, by all means, don't be afraid to use those in your arguments.
You've got the practitioner priority line, very helpful. When you're calling in, you get people that are dedicated in dealing with practitioners. It is primarily just a practitioner priority line that I have there and that's all that should be using that.
There's a playbook called the IRM. And if you look at the IRM part five, you're going to come across the section of the IRM, the Internal Revenue Manual, which will deal strictly with collections. Very helpful to look in that and see what the IRS is using, as far as their procedures in this area.
And there's the Taxpayer Advocate, it's a separate office in the IRS that reports directly to the commissioner. So they're very well, obviously, they've got the ear of the most powerful man at the IRS. And again, that can be very helpful, if you're running into a roadblock with other areas for the IRS.
Additional helpful hints when you're preparing for the contact with the IRS, you want to get both sides of the story. Obviously, the first contact you are normally going to get is with the taxpayer themselves, you want to interview the taxpayer, you want to develop all the facts that you can from the taxpayer and start gathering information.
One of the things you're going to have to do is get a power of attorney. You're never going to be able to speak and get enough information from the IRS, without a power of attorney. Or, if you just want to investigate an issue without actually becoming the representative at that point, you can file an 8821, which will just allow you to get information at that point. And if you find out that it's a case that you want to take on, you can always submit a 2848 as well.
You want to know where you're at, as far as the statute of limitations. The statute limitations for collections is 10 years. If you're at the beginning of that 10 years, there are certain things that you may or may not do. And if you're near the end of the 10 years, and the IRS hasn't really done anything with the taxpayer, there's a lot of things that you probably don't want to do. And there's some things that you may want to do, and we're going to go over those things.
If you want to gather financial information, the most important thing in dealing with the IRS is you got to know the numbers, you got to know what the clients' cash flow is on an income standpoint. You got to know what their net assets are, that's the assets versus the liabilities that they have. Those are very important numbers.
The whole process here in dealing with the IRS, in the collection area, a lot of it is all about the numbers. It's not like negotiating an amount that you owe somebody or that somebody owes you and just a normal business situation. It's a very numbers driven process.
And the other thing you want to do is once you've gotten your preliminary discussions with the taxpayer, you want to talk to the IRS and get their side of the story. You want to make sure you're taking notes, you want to make sure that you're not missing some information that you've gotten from the taxpayer, that the IRS may let you know.
Number one is you want to know where the taxpayer is in the process. There is a process from start to finish in a collection case, and you want to know where you're at in that process. You want to know if the IRS has missing any information, any returns, things of that nature. You want to make sure that when you end the call, you always know what the follow up is going to be what the manager, what the expectations are.
Unlike an audit, in most cases, if the agent goes silent, there may be some cause for issues on the audit side, if an auditor goes silent, because maybe it could be an indication that the case is going criminal. But in a lot of cases, the agents go on vacation, they're going on training and they won't tell you that. You may go several months without hearing anything from an auditor, which is okay. Because maybe it sits on somebody's desk and on those rare occasions where it happens in the statute, which is three years for the audit, elapses. Possibly, you can avoid the audit conclusion.
Because as we talked about last week and I'm telling you now, unless the audit is completed and there's an assessment, the IRS really can't do anything at that point until there's an assessment on the audit. On the other hand, on the collections, if you sit back and wait, and you're not initiating contact, and you're not asking about what the next steps are, what the expectations are, if you're just sitting back waiting for the IRS to do something, well, a lot of times, they'll do something, which is not something you want them to do. Like cleaning out your clients' bank account one day, which is something you definitely don't want to have happen.
You want to be able to get the transcripts, review the transcripts from the IRS. Again, you're trying to marry up the story that the taxpayer is giving you to the IRS, and making sure, again, you know where you're at in the whole process. You want to know who you're dealing with at the time in the IRS. If you're dealing with someone at the automated collection service, those personnel are not quite as well trained as the agents that you'll deal with, the revenue officers that are out there, that are specifically charged with looking at specific cases.
So you want to know who you're dealing with there, and their level of sophistication. If you're dealing with a taxpayer advocate, you want to know that person. Also, if it's a settlement officer, if it's a chief counsel, or the lawyers for the IRS, very important to know who you're dealing with. And especially if you're dealing with someone at the criminal investigation division, those are the folks you really want to know, that you're dealing with at that point. So you just want to know what your exposure is, when you're dealing with these folks.
As you're doing your collection work, you have to keep the eye on the prize. Once you get engaged as a practitioner, you want to prevent or you want to release any levies, and levies meaning actions that the IRS is taking stuff, quote, stuff away from your taxpayer. So you want to be able to prevent them from doing that or getting it released, so it's not creating a tremendous burden to them.
You're trying to work out deals with the IRS, and you do what's called, you want to satisfy the balancing act. It's a good thing to bring that up in negotiations with the IRS, because the IRS, particularly if you're dealing with a revenue officer, the IRS wants to get paid. They want to get paid everything and guess what? They want to get paid everything now. In most cases for your taxpayers, they may not have the ability, in most cases, to make those payments. And you're going to have to negotiate some sort of alternative payments plan at that point.
That brings us, okay, it brings us to polling question number one. Who is the current IRS commissioner? A, Charles Rettig, B, John Koskinen, C, Nina Olson and D, Steve Mnuchin.
Moderator: Please remember that in order to receive your CPE certificate, you must remain logged on for at least 50 minutes in response to at least three polling questions.
Dan Gibson: As I spoke about earlier, Charles Rettig is the commissioner, that's the answer to the question. He is the commissioner. I think he's going to make great strides in the IRS. Again, as someone who's been on the front lines as a practitioner, I know the stuff that I've read about him, he's going to be very centered around customer service, upgrading technology, and looking for efficiencies when dealing with the IRS and the pressure practitioner community.
John Koskinen was the previous commissioner. Nina Olson is actually the outgoing taxpayer advocate head that did a phenomenal job, in my opinion anyway, she was very relentless. She was there for a long time, gave a tremendous amount of feedback to the IRS, held no punches when it came to reports that she was putting out for the IRS and their edification to try to make things better. Basically, a royal pain in the you know what for the commissioner, but in a good way. Steve Mnuchin is the current Secretary of Treasury at this point. So those are the players there.
Moderator: Okay, I'm going to close the poll, share the results.
Dan Gibson: Okay, very good. All right, so again, as we talked about, the audit division work that has to be done, it is the starting point. For most cases, most of us are filing a tax return and if we're not, the IRS is filing what's called a substitute for return and typically, we call it SFR, and making assessments off of that.
There's also audit or examinations that are done of the returns. And these are deficiency assessments. The jeopardy and termination alternatives, not something that we're really going to deal with there, that we have dealt with. It's in the IRS' bag of tricks to pull out in those cases where they think they're in jeopardy of possibly the taxpayer skipping the country and things of that nature.
As we talked about before, the assessment is needed for collection purposes. And what you want to do when you're looking at the transcript is look at when the actual assessment has been filed. In many cases, it's not actually the date that they actually received the return. It may be a day, maybe even a week after that, where they actually make the assessment and they file it as it becomes part of the record.
It's critical to know what the statute of limitations are for both audit and collection for audit. It's a three year statute that starts when the return is received. And the collection statute starts and it goes for 10 years upon the assessment of the tax return.
Unfiled returns, there's many taxpayers who think that they can't be assessed if they don't file the returns, that's a no-no. You often have the head in the sand syndrome, or sometimes I call it a head up their you know what, and it doesn't always work. And it really doesn't work if it's over a long period of time, the IRS has enough third party information, they will file substitute for returns for the taxpayer and that allows them then to start going after the taxpayer for collection purposes.
Just remember, if a taxpayer goes long enough where there's a substitute for a return, the substitute for return is not discharged in bankruptcy. If you do have a taxpayer who hasn't filed in a number of years, you can usually correct that by making sure that at least the prior six years have been filed, as well as the current year, and that will normally get them current with the IRS.
But also remember if they have a return that should have been filed three years or more and they start to try to file that return, that return oftentimes, and actually most times, they will not allow unless there's a mistake on the IRS' part, they will not allow any overpayments as a refund or credit. So if people have a refund or credit, many times they're going to lose those amounts.
So a lot of times you'll see clients who they think they're cute. They know that they're overpaid and they won't file their tax returns for several years. And then all of a sudden, you're filing a return for them and they have a big amount that's going to be refunded them. You have to tell them sadly, there's a very slim chance that your returns should have been filed three years ago, very slim chance, you're ever going to see the light of day for the refunds or the credits.
So polling question number two, a return filed as a substitute for a return is not discharged in bankruptcy, true or false?
Moderator: Okay, please remember that in order to receive your CPE certificate, you must remain logged on for at least 50 minutes and respond to at least three polling questions.
Dan Gibson: Just so you're aware in bankruptcy, it's not part of the program that I have here, it's not the focus of it. But keep in mind in bankruptcy you have to have, there's three, two and 240 rule. In order for a return to be discharged, it needed to have been filed three years ago. Also, any returns that were filed late have to be filed at least two years ago. And if you have an audit assessment, an additional assessment, in order to get that dischargeable, it has to have been done at least 240 days prior.
The answer to the question is the SFRs are not dischargeable. Even if you file a return afterwards, there is some disagreement among the circuits. But I wouldn't count on them being dischargeable even after that's the case. But if you have situations like that, obviously, you want to make sure you would engage a bankruptcy attorney.
Moderator: Okay, we are now closing the poll and sharing the results.
Dan Gibson: Good. All righty. So let's just go into, we're looking at initially contacting the taxpayer. E have three main areas that we're concerned, we've got income tax, which will affect the individual return, the business returns, and don't ever forget the state returns. That's something you want to make sure you keep in mind. Payroll tax returns, normally the 941s, the 940s. State tax returns as well in that area.
Watch for the trust funds, meaning those funds that have been collected for the government, on behalf of the government, from the payroll tax returns, normally the employees' portion of the taxes that are being paid on the payroll taxes. Those are items that can be very... the IRS is extremely sensitive about that, and they will go after you with a vengeance with those things.
I know even the states will too. I heard of a practitioner one time, who was in court with the State of Connecticut who had said that the State of Connecticut, they actually think it's almost akin to robbing a bank to take in trust funds. That's that's a bit of a stretch. But you can kind of get a feel for the veracity of the agents that base these trust fund cases.
Also, in the sales and use tax area, it's really only a state issue. But again, you've got trust funds that are out there, monies that you've collected from your customer on behalf of the government to submit to them. If you're not submitting to them, the states will go after you with just as much as vehemence as the federal government will and the payroll taxes.
Again, in the initial contact with a taxpayer, you want to really get a good sense. In most cases, you're going to be getting a phone call from a taxpayer. And you really want to go through and find out, does a follow-up meeting makes sense? Because maybe what's really happened here is someone's gotten all excited, they've gotten a notice, they're not used to it, they've gotten a notice. And maybe it's a notice for a couple hundred dollars, they could easily pay.
And rather than to waste their time and your time with a meeting, you want to kind of get up that information really upfront as best as possible. Maybe try to get the essential information, so you can start putting together power of attorney or the information of the authorization forms. So when you do the meeting, and you need a signature from the taxpayer, it's already ready to go.
You want to get a feel for the taxpayers' estimated net worth, what kind of monthly cash flow that they may have. In the event that they do have a real problem, you want to be able to know, maybe preliminarily, what's my options here? Can I do an installment plan, can I offer a compromise? And knowing those net worth and monthly cash flow information can be a big help.
And you're going to want to have certain items that you're going to want to review prior to any initial face to face meeting with taxpayers. You want to have the tax returns, some more detailed information about their net worth and cash flow. So that when you do have the initial meeting, you want to be able to sit down with the taxpayer, usually a one hour meeting, really get a feel for what the project entails. Whether it is one that's worth pursuing, both from the taxpayer side, as well as yours. You want to see whether or not the taxpayers had any contact with the IRS. You want to get more prohibitive with the net worth cash flow information that you're looking for.
Asking for whatever action the taxpayer has taken or maybe not taken. That's very important. Determine why the taxpayer is in trouble. Directly ask them, how did we get here? Where are we here? Not just looking at what the symptoms is, which is obviously the issue at hand, but how did we get to the point where we're showing the symptoms?
Not unlike when you're dealing with a medical professional, you got to know what's causing this. At some point, obviously, you're going to put a bandaid on the symptoms, but you're going to want to treat the causes at some point. And you're going to want to have the clients really get a grasp as to what the outcome of the case will be. You want to find out what they think they can do, as opposed to what's reality.
The taxpayer may have been listening to a lot of late night TV, thinking that they can get pennies on the dollar. It's an easy thing, get it through and no problem. And based on the information that you've gotten from the meeting, maybe not so much. Really bring the taxpayer down to earth, as far as what we can do from an alternative payment situation.
Also, you want to kind of guide the taxpayer through what I call the road to resolution. Show them from start to finish what needs to be done, as far as getting old returns files, getting current year payments up to date, which have to be done to get anywhere with the IRS in a collection case. You have to file what's called a form 433, which is a financial information form, much like a mortgage application. It's quite a decent amount of information that you have to put on that form and support, in order to support any of these potential resolution alternatives that you want to do. Such as an offer of compromise or an installment plan.
You want to be able to go over the engagement letter. Again, it's both important from the taxpayers' standpoint as well as the practitioner. You want to make sure you have an engagement letter which spells out what you're doing, when you're doing it, how much it's going to cost, and what all the steps are that you're going to go through and what the responsibilities are for both parties.
Once you've gotten past that, you start into what I call the evaluation discovery phase, which is then actually getting the unfiled returns prepared and filed. Getting all the current year's tax payments up to date. As we said, can't do anything without that. If the taxpayer has filed a substitute for a return, in many cases, the substitute returns are normally wrong.
The IRS is taking what I call a conservative position on returns. Usually, if it's on an individual it's single, they give them no dependents, no exemptions. If you're someone who's married, they'll give you a return, married filing is separate. They're looking at 1099s. If you sold stock, in many cases, unless they have the information for the basis, they're going to report the full amount of the sale. So it's really incumbent upon the taxpayers and the practitioners to fix that, and file returns in place of the substituted returns that often will bring the amounts down that are owed.
If you think there's a need for it, making a Freedom of Information Act request, is good to do at this time. Again, you're gathering information, if you can't get all the information from the IRS that you need, good time to get the Freedom of Information Act going. And determine whether or not the liability is correct and proper. You want to be comfortable that, however it landed, as far as the liabilities are with the taxpayer, were they correct, were they proper? If they aren't, then maybe you start thinking about doing an audit reconsideration with the IRS if there's more information that they haven't had before.
When you're contacting the IRS, there's bad things happening, usually the magic words is I want an installment plan. An installment plan, once that started, the IRS if they haven't done any levies at that point, they're supposed to not do them in the process of considering the installment plan. So again, it's extremely important that you be proactive in seeing where the IRS is at this point. You want to get the transcripts, you want to make sure that the POAs are filed.
And if the IRS will tell you and many times they will, if they see other things in years that aren't covered by the power of attorneys that you filed, see if they can give you a hint as to what additional years you should be getting powers of attorney for. You want to know from the IRS' standpoint what the taxpayer has done so far, whether it be from a good side or a bad side. And then you want to know if there's any looming deadlines that are out there. If anything that can be extended to give you some time to get the taxpayer situated and squared away.
You want to generally, after contacting the IRS, particularly for the first time, you want to give them a feeling that things are going to start to become under control. You lay out a plan, we're going to file this, we're going to pay this, we're going to review this, we're going to start filling out the financial information. So we can start to determine what the alternative payment plans are.
So you want to really give them a good sense or a good feeling that you as a practitioner, because they would rather deal with a practitioner, quite frankly, than the taxpayers. Because they know that the practitioners have been through this before and they know the drill. They feel much more comfortable if they see that you're being proactive in what you're doing here.
In the resolution phase, you're actually getting the work done here at this point, you've arranged for the fees for the resolution work that you're doing. And you're working to resolve that issue, whether it be the offer and compromise, installment plan, partial pay installment arrangement. Or, try to get them into a currently not collectible status.
Again, on the initial contact with taxpayers, make sure you have engagement letters, clearly spelling out the work. And making note of the fact that taxpayers, once you're engaged, they should have no contact with the IRS whatsoever. If they do, they should be contacting you immediately. They should be providing you with all notices and not assuming that notices are coming to you, also.
A taxpayer needs to discuss with you all the significant financial events that have happened, that have caused this predicament to arise. And you need to know all that information.
If the case is turning criminal or there's fraud committed and you're feeling that, really none of this applies. I mean, you really should be getting a tax attorney, that does this kind of work involved at this point. It doesn't mean you're out, because you could still work for the attorney and represent the taxpayer. But you really got to make sure that you got that part covered as far as knowing whether or not there's any criminal acts or fraud committed at that point. And again, making sure that both you and the taxpayer know how all the fees are going to be paid, in getting this work done.
So polling question number three, how much experience do you have working with collection matters in the IRS' collection division? A, lot, B, fair amount, C, a little bit, and D, none.
Moderator: And please remember that in order to receive your CPE certificate, you must remain logged on for at least 50 minutes, and respond to at least three of the four polling questions.
Dan Gibson: Just so you know, and I did mention this at the webinar last week, when you're dealing in the collection area, you really need to be what they call enrolled. From the practitioner standpoint, which means that you have to be a CPA, an enrolled agent or an attorney, in order to represent clients before the collection division.
And in dealing in the collection area, it's not tremendously difficult. I mean, obviously, you need to get some experience in this area to get better at it, as with most things. But the key things, as we talked about before, preparing the form 433, which is financial information, that's a must, that's got to be done. It's really very similar to filling out a mortgage application. But in 99 cases out of 100, you got to do it.
You got to be showing constant initiative, making sure that things are moving, that you're not going to wake up one morning and the client is going to call you to say that their bank account has been cleaned out. You have to know what the resolution options are that you have available to you. Those are very important.
And again, I think the most important thing here, particularly when you're first getting involved in a case, is knowing where you're at in the timeline. There's a timeline, an end and a beginning for all collection cases. And you really got to get a good feel for where you're at in that process.
Moderator: Okay, we're going to close the poll and share the results. All right.
Dan Gibson: Okay, so I just wanted to show this slide to you, it's a case inventory from the IRS standpoint. It's a pretty constant number over the last couple years, 14 million plus of unpaid assessment cases, that's just cases themselves. 14 million plus. And the balance that's due on these cases is north of 130 billion. That's with a B, a billion dollars.
The Department of Education's budget is only 65 million. So think about it, you have taxpayers that are out there in total owing more than twice what the Department of Education budget is. So as you can see in the chart here, you got new cases, which are basically replacing closed cases, which isn't really changing anything as far as the open cases in total. As you can see, the total assessment for '16 and '17, well over 130 billion. You had delinquent returns that again, well over 2 million tax returns that hadn't been filed by taxpayers.
I just want to go through the life of a collection case. Again, keeping it at a 30,000 foot view. Step one, we have the tax as it is assessed. Whether it be when you file your return, when the IRS files a return for you or there's an examination, there's an assessment that is done. If that is assessed the taxes are not paid, it goes unpaid, there's a building notice that will go out asking you gently to pay the amount that's owed.
After a couple days, not very long, if it continues to be unpaid, there's what's called a silent lien that arises. This lien attaches to all of the assets current and future. And then shortly after that, the IRS will, what we call, perfect the lien. So I'll cover that in my lien and levy webinar that I do in September.
But basically what you have is, once an amount unpaid and continues to be unpaid, this silent lien arises. Nobody knows about it other than the IRS, but the lien now attaches to all of your assets. And the IRS needs to perfect that lien, meaning they need to be able to go on public notice, they need to file public notice of these liens on your property.
So once they've perfected that lien, right after they perfect that lien within five days, you do have the option to discuss it with the IRS. But if the amount remains unpaid, unless there's an extraordinary reason why they should release the lien, it's really not going to be something they're going to do. So if the amounts stay unpaid, they have what I call the levy letter of campaign that begins.
And again, this starts with a friendly nudge at the beginning. But at the end of the campaign, it could end up with the IRS taking your taxpayers' stuff. The IRS, it's a very powerful collection agency. But unfortunately, I think for taxpayers is they are just too easy to stiff, right? I mean, everybody else has got their hand out at the end of the month, looking to be paid, except for the IRS. But the IRS can overpower most people who you owe money to. But they're just not there and they come in later.
But they start after a few weeks, a few months of not getting paid, they start filing these computer paragraph notices, the CP 14, which is the polite reminder, 501 is a bit of a nudge. 503 is they're cranking it up a little bit more, you can tell by the language. The 504, they're really upset, and they're telling you they're going to seize your state refunds.
After that, you'll get an L1058 that'll come from a revenue officer that's in the case or if you're in automated collections, you get an LT1. These are final notices of intent to levy and notices of a hearing. So you have 30 days at that point, in order to respond to a collection due process hearing. And that 30 days is not extendable.
I think the collection due process in my opinion is really the practitioners' crown jewel. That's where you want to be in a collection case. And I'll tell you in a bit why. Again, you got to make sure that 30 days is honored. If you blow the 30 days, you blow the collection due process, you really give up quite a few rights.
So in this step in the collection due process hearing, you're going to get the collection due process hearing or what's called an equivalent hearing, if you blow that. And again, you have to fill out what's called a form 12153. And it's got to be within 30 days of the final notice of levy. If you blow that, you can within one year do what's called a final notice. Or, if you miss the collection due process, you have one year from the final notice of levy to get what's called an equivalent hearing.
And the CDP hearing is very important, it stops the collections. But keep in mind it does toll the statute of limitations, but it does give you the right to appeal to the Tax Court. Now, the Tax Court is not going to judge whether or not they like the collection alternative, or they won't propose a collection alternative that they think is right. It's really an abuse of discretion judgment. So if they think that the IRS has not evaluated the case well enough to come up with their judgment, then they'll push it back to the appeals office, and have them do a do-over for you.
The equivalent hearing is a collection hearing, which the collections may continue, the IRS has the right to continue collections. But often by statute, by policy, they will not continue the collections. They usually will halt it during the equivalent hearings.
But the nice thing about this is the statute continues. And this is very helpful if you're within the ninth year of a collection statute and trying to make it to the 10th year anniversary, the equivalent hearing is a good thing, because in many cases, these hearings, they don't happen overnight. They may take several months, so it buys you some time as far as getting a hearing before a settlement officer.
The one thing that's not good about the equivalent hearing is the fact that you have no appeals rights. So you are really stuck dealing with just the IRS at that point, you're not able to go to Tax Court. And I will tell you that's very, very important when you're dealing with the settlement officers at the appeals office, to have that leverage to know that their case could potentially be reviewed by the Tax Court, gives them cause to sit up and pay attention to what they're doing.
And you really do want, if you can get your case before a settlement officer, because just by nature, they are a settlement officer. They're someone who's trying to settle a case, as opposed to automated collections or the revenue officer who are really the enforcers, the ones that are just charged with collecting money at that point, and they're not interested, quite frankly, in settling your case.
In the collection due process hearing, it's a meeting in which it can help you slow down the whole collection process, buy you some time, get you the ability to be able to put together all your financial information, so you can propose enforcement actions. Which for the settlement officer, and I found them very reasonable at that level, as far as taking in what information you've given them, and looking at your proposal as far as alternative payments.
I mentioned this before, the form 433, Collection Information Statement, there's several versions of this. FAB, AOIC and BOIC. F is for the automated collections folks and A and B is if you're dealing with a revenue officer. I will tell you that if you give someone at the automated collection service a 433A or B, they will have no idea what to do with it. They may be forced to look at it, because maybe the case has been pushed down to them by appeals or by a settlement officer. But they do not really understand the form.
And it's not that entirely different from the F form. But that's all they've been trained on. So that's why it's very important to know who you're dealing with, and what forms to give them. The AOIC and the BOIC, obviously, those are forms used in the offer and compromise. So you want to know, again, who you're dealing with, so that you can get them the right form.
And as we talked about before, this form is really listing out the assets, the liabilities, you're trying to document what value is there. Because the IRS is looking, what can you liquidate? What's the value? Because if they're going to cut you any sort of a deal, whether it be offering compromise, or an installment agreement, they're going to want to make sure that they've given you something that you should be given, and that you can be paying off.
They also want to know the cash flow. In many cases, they want to have backup for that. You're going to have to give them like three months worth of documentation to prove the income and expense fluctuations during the year.
And if at the end of the day, the taxpayer or the practitioner blows the collection due process hearing, which many of them don't even request it, the amount of taxpayers that actually get to the position where they could request a CDP hearing, only 3% do. There's a lot that do not. So the IRS at this point will start taking your stuff, they'll start garnishing your wages or cleaning out your bank accounts. They'll start requesting payments from your customers.
And this will continue until basically the IRS has grounded the taxpayer into a powder and the taxpayer is then ready to deal with the issues at hand. So some of the things you want to deal with, you want to know where you're at in these instances where you don't have the collection due process hearing to fall back on.
You want to know where you're at as far as the 10 year statute collections. You want to know if there's been any tolling events when you're doing this, whether it be an installment agreement, offer and compromise, things of that nature. Whether the client has been in tax court, or whether they've been out of the country. If there's any liens on the individuals. If there's amounts for individuals, 10,000 or less, there really shouldn't be any liens on that. That goes as well for businesses, so you want to track that also.
Also, if you're in situations where there has been enforcement that's taking place, and there's liens on properties, if individuals get themselves into an installment agreement, where the amounts that are due are $10,000, but less than $50,000, you can get yourself into a six year installment agreement. And by the way, for those that have between $25,000 and $50,000, they need to have a direct debit. Often, you can get those liens taken away at that point.
Also, you can look at the alternatives of trying to raise money. These liens may get in the way. So you have what's called lien discharges and lien subordination. Keep in mind that the liens aren't particular to any particular assets that the taxpayer has, the liens are really, think of them as a blanket. A blanket on all the assets, the ones that they own and the ones they could own in the future during this process.
What you want to do is if you have assets in there that the taxpayers can take out from underneath this blanket, and sell them or maybe refinance them to better their position, to pay the IRS, the IRS normally will listen. They don't normally give you a hard time about that, as long as at the end of the day, they feel like they are going to be taken care of, they normally will approve plans of discharging liens or subordinating liens on particular properties. Again, if they're going to get some benefit out of that, so always keep that in mind.
In the collection enforcement and the levies and seizures, these areas in the levy area where they're actually taking your stuff. If you have a bank account, or a brokerage account, the IRS they have a one-time shot at that. In order for them to get more money, they must continue to actually purposely go after that money.
So in this instance, let's say a bank gets a levy notice, whatever is in the bank, as of that day, is what's going to be paid to the IRS. If money comes in the following day, they don't get that unless the IRS again issues another levy. In bank accounts, you do have a 21 day window, so it does give you the ability to get some time to work with the IRS to try to get that released. And if you're diligent in that area, normally you can do that.
Wages on the other hand, if your wages are garnished, normally that's continuous until the matter has been settled. By the way, that also pertains to Social Security. The IRS normally, 15% of Social Security to try to get payments. So that's the levies.
On the seizures, which are actually the tangible property that's taken away, that's when they go after the cars, they go after the home. Not so easy to do, especially with the home. There's a lot of hoops they have to jump through. So you don't see, that's not a common thing.
But again, the most important thing if you're involved in these situations where the IRS is taking your stuff, you want to be able to make sure you file, make sure you're paid up currently on your taxes for the current year. And you have to say the magic words, I want an installment plan. That normally will help stop at least any further action by the IRS, as far as taking anybody's stuff.
If you blew the CDP, but it's less than a year ago, then you can do the equivalent hearing again, there's not all the things that you'd want to have there, as far as being able to appeal to the tax courts. But it will give you some relief, and it will allow you the time to come up with some collection alternatives.
This is polling question number four. If you had a case with a taxpayer who had not filed tax returns for 15 years, how would you advise them? One, continue not filing, B, file current year returns and future years, C, file the prior six years, current years and future years, D, file the 15 years, current year and future years.
Moderator: Please remember that in order to receive your CPE certificate, you must remain logged on for at least 50 minutes and receive been to at least three out of the four polling questions.
Dan Gibson: So just keep in mind, in a lot of these cases, statute of limitations does not start for either the audit or for the collections until you've actually filed the return. And in most cases, the IRS, if you haven't filed returns for a number of years, you can file the six prior years and the current year. Now obviously if you're trying to work out deals with the IRS, you got to make sure that in the future, you're filing and being compliant as well.
Again, keep in mind we've talked about before, if you have returns that haven't been filed for a number of years, say three years or more or haven't paid the tax on those returns for less than two years, then you got to really be mindful of the fact that there may be cases where you're not going to be able to get a refund or a credit to another tax period, for any overpayment you may have on those unfiled returns.
Moderator: Okay. We're closing the poll, sharing the results.
Dan Gibson: Okay, so I just wanted to go through the summons, in cases where the IRS wants to actually talk to your taxpayer. They may issue a summons and the summons is really, think of a subpoena, it's an administrative power that the IRS doesn't have by statute, but they can summons a taxpayer to come to them with information.
Normally, they send two of these out. And if the taxpayer continues to ignore them, many times what the IRS will do is they'll go to the federal courts and you'll have to go before a federal district judge and try to explain to them why you've been ignoring the IRS. And the failure at that point to comply, could end up leading you to an imprisonment or a fine situation.
Next is an area that I have here called the administrative recourse, we talked about the CDP hearings. We've also talked about the equivalent hearing. One thing that we did not talk about is the collection appeals program. And what this is, this is another program, which is built into the whole collection area, which will help you, it gives you a little bit of time. The IRS, you may find cases where the IRS has completely rejected a payment plan that you've presented to them or rejected one that's already in place, or stopped one that's already in place.
You have the ability to do what's called a collection appeal. And this is really requiring the IRS to act on it quickly, it's usually a five day turnaround. You're supposed to be able to speak to a manager at the IRS in the collection division about your case. And if you're still not satisfied, you're able to go to an appeals officer at that point, to get your case heard.
So again, they have these tools that they're allowing the practitioners and the taxpayers to kind of slow the IRS down a bit, and be able to now address this mess that they've created. And remember, for practitioners, the taxpayers have created this, and to be able to slow the IRS down and kind of fix these under some sort of an orderly fashion. So again, keep these programs and hearings in mind, whenever you're dealing with a collection area and again, it could buy you some time to get things straightened out for your taxpayer.
And the last slide here in this presentation, the various things that are available to the practitioner and the taxpayers, as far as payment alternatives. Full pay, installment agreements, partial payment installment agreements, currently not collectible status, offer and compromise, innocent spouse and bankruptcy.
And just to repeat, there's a series of webinars I'm doing over the next couple of months. And I talked about them at the beginning of the program. And this is just information on the dates, and where you can go as far as getting the registrations for these programs.
Dan Gibson: We got one question over there?
Moderator: Yeah, we have one question, it is how does one move from ACS, which is the automated collection system to being able to talk to someone at the IRS?
Dan Gibson: As far as talking to... Because just so everyone knows, when you're dealing with the ACS, you're dealing with, every time you call, you're dealing with a different person, because they're basically tracking all the information on a database, so that anybody could pick up your case. And it's not as simple as that, because now you're dealing with different personalities, every time you call.
It's unfortunate, I've been in cases where you've had someone who you think you could get something done with, and all of a sudden, for whatever reason, they get disconnected, you get disconnected. Now, you got to start up with someone, but it can be to your advantage, because you're dealing with somebody that's not being such a cooperative agent for you at the ACS. You can also hang up the phone and call back a couple minutes later, and you'll get somebody different. And maybe you'll have better luck there.
But in many cases, the IRS is going to kind of force you into dealing with them at that level, because for them, it's more efficient, right? Because there's not as many trained revenue officers that are out there and what will happen is, if you're trying to get it to a revenue officer, you probably really need to have a very egregious case at that point. Because then, it will be shifted over to a revenue officer.
If you have instances in which you need that face to face meetings with someone, you can press that point with ACS, and see if you can resolve it by having it transferred to a revenue officer, so you can have someone you could actually sit face to face with to go through your issues.
Moderator: Okay, we hope you enjoyed today's webinar, please look out for a follow-up email with a link to the survey and presentation. If you have additional questions about today's topic that you would like addressed, please feel free to email our speaker directly. Thank you for joining our webinar today.
Transcribed by Rev.com
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Daniel Gibson provides accounting, tax planning and consulting services to real estate and services industries and is a member of the AICPA and New Jersey Society of Certified Public Accountants.
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