The Right Tax Resolution

Successful resolution of tax controversies is all about experience and instincts.

When the Internal Revenue Service (“IRS”) conducts an examination and determines to make an assessment, it must issue to the taxpayer 30 days’ written notice of its intent to make the assessment. If the taxpayer appeals the proposed assessment within the 30-day window, the assessment will not become final until the IRS Appeals Office has completed its review of the case. If the taxpayer files a timely petition with the U.S. Tax Court, the assessment does not become final, if at all, until the Tax Court renders its decision on the case. In addition, a taxpayer can gain jurisdiction to litigate a civil tax case in the U.S. District Court or the U.S. Court of Federal Claims by paying at least part of the assessment and then suing for a refund. Though we’ve litigated in all of these courts, we find that litigation of civil tax cases is usually unnecessary. We enjoy an excellent working relationship with the IRS Detroit Appeals Office, and we find that we can successfully resolve most of our civil tax cases there.

Once an assessment is made, and it remains unpaid, a lien arises by operation of law in favor of the IRS in all property interests which the taxpayer then owns or thereafter acquires. The lien remains in effect until the assessment, including penalties and interest, is paid in full, or the collection statute of limitations expires on it. The IRS records written notice of the lien in the Register of Deeds’ office for the county of the taxpayer’s residence, thereby clouding title to the taxpayer’s real property, and impairing the taxpayer’s credit standing. But if the taxpayer arranges with the IRS to pay the assessment within one year, the IRS may refrain from recording the tax lien notice.

If the taxpayer does not enter into an installment agreement satisfactory to the IRS to pay the assessment, the IRS will periodically levy (seize) the taxpayer’s property, until the assessment is paid in full. The IRS prefers levying liquid assets, such as bank and brokerage accounts and wages. In unusual circumstances the IRS levies real property. Before levying, the IRS must issue written notice of its intent to do so to the taxpayer, but the IRS need only issue a notice of intent to levy once as to a given assessment.

When a client comes to us owing a balance to the IRS, we call the IRS and have a hold placed on collection action against the client. Then we secure transcripts of the client’s Federal tax accounts. We analyze the transcripts and determine whether the client has been penalties abatable for “reasonable cause.” Examples include errors in tax returns, or failure to timely file tax returns or pay tax, attributable to malfeasance by the taxpayer’s accountant or attorney, embezzlement perpetrated against the client by an employee, or economic factors beyond the taxpayer’s control. Denial of a request to abate penalties can be appealed to the IRS Appeals Office, often with favorable results.

Once we have satisfied ourselves as to the propriety of the assessment, and if the client is unable to pay the balance in full, we seek to enter the client into an installment agreement with the IRS. This requires gathering financial information on the client and submitting it to the IRS. If the financial information indicates that the client is unable to pay anything to the IRS, the IRS will post the account as “not currently collectible,” and leave the client alone for the time being.

An offer in compromise is rarely in the client’s best interests. The IRS almost always rejects them. The making of an offer in compromise extends the 10-year statute of limitations on collection of an assessment for the pendency of the offer, plus six months. Plus the client is out the fees incurred to prepare and submit the offer. If the IRS determines that an offer is “frivolous,” then the client is subject to a $5,000 penalty, as is the preparer.