How to handle a tax controvery
Our Legal Giude Contents1. Audits Office and Field
3. Collateral Agreements
4. Installment Agreements
5. Appeals (CDP and CAP) Collection Due Process Hearings/Collection Appeals
a. Collection Hearing Due Process Hearings
b. Collection Due Process Hearing Rightso Notice of Collection Due Process Hearing Rights; Request for CDP Hearing Rights; Timelines of The CDP Hearing Request; Levy Action during the Period of the CDP or Equivalent;Things to Present at the Hearing; After the Appeals Determination; Collection Appeals (CAP); Overview of Collection Appeal Rights; After the Appeals of Determination
6. Penalty Abatement
7. Tax Litigation
a. General Tax Case Procedure
b. Small Tax Case Procedure
8. Tax Fraud Defense
CompromisesThis is a situation your financial situation and your ability to pay determines if compromise should be submitted and in what amount. These are referred to as offers in compromise. These can be very valuable. Once a compromise is reached you generally cannot reopen the case. During the compromise negotiations the IRS will usually withhold further collection efforts. First of all there may be doubt as to liability or who is liable; there may be doubt as to collectability or whether or not you can't afford to pay the liability. The taxing authority will accept an offer in compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. All required tax filings must be made even though the tax is not paid before an offer will be considered. An OIC is a legitimate alternative to declaring a case currently not collectible or to a protracted installment agreement. The goal is to achieve collection of what is poten
Collateral AgreementsCollateral agreements allow you an opportunity to pay your tax liability over time. These can be filed simultaneously with the offer in compromise. There are several types of collateral agreements. One of the benefits of a collateral agreement is that you do not have to worry that your income, assets or tax refunds will be subject to Levy or attachment or offset. The only recourse the IRS has against the property is if there is a default in the collateral agreement.
Installments AgreementsInstallment Agreements are arrangements by which the Internal Revenue Service allows taxpayers to pay liabilities over time. During the course of agreements, penalties and interest continue to accrue. Generally, no levies may be served during installment agreements but penalties and interest continue to accrue on unpaid liabilities.
1. Taxpayers with individual income tax liabilities of $10,000 or less (exclusive of penalties and interest) may be guaranteed an IA. Taxpayers with liabilities equal to $25,000 or less may qualify for Streamlined Agreements.
2. There are various methods for making monthly installment agreement payments.
A. Penalties and interest continue to accrue on unpaid liabilities.
B. A notice of federal tax lien may be filed and if a lien was previously filed, it remains on file.
C. There is the possibility of a levy if the agreement is terminated.
D. Current returns for taxes must be filed and current deposits paid to qualify for an agreement.
Administative AppealsIf you have not had a chance to formally challenge your assessment or other collection activity, this is your opportunity. There are two main procedures - one is Collection Due Process and the other is Collection of Appeals Program (CAP). Some Collection actions qualify for appeal under the Collection Appeals Program (CAP) and some qualify under the Collection Due Process (CDP) appeal. These two programs offer different advantages depending on the facts of your case. The Collection Due Process (CDP) hearing rights are available to you after you have received the Notice of Federal Tax Lien or a Notice of Intent to Levy against assets. CDP is also available if you receive a notice of Jeopardy Levy or a notice of Levy on your State Tax refund. The IRS must give you at least 30 days (see the details below) to claim your rights. However, because seizure of assets is imminent, it is imperative that you contact your lawyer right away.
Collection Due ProcessThe Collection Due Process hearing provisions give taxpayers an opportunity for an independent review to ensure that the levy or lien action by Collection is warranted and appropriate. (There is no right to a hearing when child support obligations are being collected.) The IRS will usually contact you or the attorney and propose alternative methods for resolving the case, such as installment agreements and offer in compromise, which should be considered before levy or lien action is initiated. The Internal Revenue Code gives taxpayers the right to request a hearing during the 30-day period that begins on the day after the five-business-day period after the filing of a Notice of Federal Tax Lien or Levy which will be given in person, left at the dwelling or usual place of business, or sent by certified or registered mail. This notice is required only once for the taxable period and unpaid tax which is the subject of the lien or pre-levy filing. A second notice may be required.
Tax Court Appealsa. After Appeals makes its determination in a CDP hearing, you may, within 30 days of the date of the determination letter, petition the Tax Court.
b. To allow time to be notified of any court petitions, Appeals will hold cases subject to Tax Court review for an additional 30 days (60 days after issuance of the Notice of Determination). If you reach an agreement with Appeals and do not wish to go to court, the law firm will use Form 12257, which serves as a summary Notice of Determination, and waives the right to go to court and the suspension of levy action. If you waive the right to judicial review, the determination is final and the case can be returned to collection.
c. If you file an appeal to Tax Court, Appeals updates the CDP tracking system to Stage 8, Tax Court Appeal. Collection can check the status on the CDP tracking system to identify cases where a judicial appeal has been filed or they can call the Appeals office to determine the status of the case.
Small Tax case proceduresSubject to petitioner's election, a case may be an "S" case if it meets the dollar limitations under section 7463(a) and (f) and section 7436(c)(1) as to the amount of the deficiency in dispute. A petitioner may elect small tax case status in any case in which the amount of the deficiency placed in dispute (including any additions to tax, additional amounts and penalties) or claimed overpayment does not exceed: $50,000 for any one taxable year in an income tax case; $50,000 in an estate tax case; $50,000 for any one calendar year in a gift tax case; $50,000 in employment taxes for each calendar quarter involved in a worker classification case under section 743.
Tax FraudTax fraud and tax evasion prosecutions cut wide across all sectors of society including political figures, dentists, judges, lawyers, doctors, accountants, construction workers, real estate moguls, restaurateurs, small businesses, big businesses, and various others. A tax return is not fraudulent either for civil or criminal purposes whether or not there are taxes due unless there is solid evidence of an attempt to evade or defeat the rightful payment of taxes. What is interesting about the law is that the intent to convert someone else's property such as in an embezzlement, illegal gambling or racketeering does not by itself rise to the level of tax fraud without the element "attempt to evade or defeat" the rightful payment of taxes. Most taxpayers get into this arena because you attempted to avoid the payment of taxes. Tax avoidance is the process of taking advantage, by lawful means, of all the opportunities provided by the tax laws to eliminate or reduce a particular tax impact.