Tax Procedure and Collection
An Update
David Lee Rice, J.D., LL.M.
David Lee Rice, APLC
2780 Skypark Drive, Suite 475
Torrance, CA 90505
Telephone: 310-517-8600
Facsimile: 310-517-8606
Website: www.lawrice.com
Email: drice@lawrice.com
TIGTA AND COMPLIANCE TRENDS AS TO
COLLECTION ENFORCEMENT
• Enforcement revenue collected increased $3.2 billion (6%) from 50.2
billion in FY 2012 to $53.3 billion in FY 2013.
• However, enforcement revenue for FY 2013 was less than the
enforcement revenue collected during two of the last fiscal years and
$2.6 billion increase (81%) was due to settlement of litigation and
appeals cases. At the end of the day, the enforcement revenue
attributed to the Collection program was only a 3% increase from
2012.
• Examination portion of enforcement revenue decreased by almost 4%
from the prior year.
Offers and Compromise
Good News – Increased Acceptance
• In 2012 the IRS revised the OIC rules by allowing for more discounts
on the value of assets and liberalizing some of the rules. The
acceptance rate has gone from 38% in 2012 when the new rules
where enacted to 42% in 2013. For example most assets, including
business assets, real estate and investments can be discounted by
20% and retirement accounts can be discounted by 30%. The
changes included:
•
•
•
•
Revising the calculation for the taxpayer’s future income.
Allowing taxpayers to repay student loans.
Allowing taxpayers to pay state and local delinquent taxes.
Expanding the Allowable Living Expense Allowance and amount.
Offers in Compromise
2012 Changes
• The Allowable Living standards have been expanded to include an allowance
for credit card payments, bank fees and other bank charges.
• See SBSE-05-0512-041 for Interim Guidance on OICs.
• See IRM 5.8.5
IRS GIFT TAX AUDITS ON THE RISE
• The IRS estimates that between 60% to 90% of taxpayers that transfer real
property to family owners fail to file and pay gift taxes.
• The IRS has started its Gift Tax Compliance Program by using the “John
Doe” summons.
• A “John Doe” summons (used against Swiss banks) essentially compels that
party to produce the information requested by the IRS. It does not identify
persons with respect to whose tax liability is at issue since the IRS does not
have their names. It is now being issued to State property tax authorizes
and request identification of transferors of property where there was no
consideration or only nominal consideration involved.
• Many States, including California have turned over this information.
• IRS has issued new guidance in this area. See IRM 4.25.1.1.6.2.
CDP Hearings
Counsel Beware
• Apparently IRS Counsel in a number of cases have written the tax
practitioner’s counsel that if they intend to testify what went on at the CDP
hearing to supplement the record, they will have to disqualify themselves.
• CDP hearings are quite informal and should include all correspondence between the
Settlement Officer and the Settlement Officer’s Case Activity Record Print. (That
Print consists of entries that are dated and indicate the time spent, similar to
accountant’s and attorney’s billings sheets.) To often the entries on the Print are
terse and it is difficult at best to glean what transpired. It is probably a good idea to
always send a confirming letter as to what transpired, but that doesn’t mean that
everything is always covered. If you are going to send a letter, do so certified, returnreceipt requested and add a standard paragraph requesting that the agent please
respond with any discrepancies within 30 days of the signed receipt.
CDP Hearing
Counsel Beware (cont.)
• The Tax Court has adopted under its Rule 201(a) the ABA Model Rules
of Professional Conduct. ABA Model Rules Rule 3.7, Lawyer as
Witness provides:
• (a) A lawyer shall not act as an advocate at a trial in which the lawyer is likely
to be a necessary-witness unless:
• (1) the testimony relates to an uncontested issue;
• (2) the testimony relates to the nature and value of legal services rendered in the case;
or
• (3) disqualification of the lawyer would work substantial hardship on the client.
• (b) A lawyer may act as advocate in a trial in which another lawyer in the
lawyer’s firm is likely to be called a witness unless precluded from doing so by
Rule 1.7 or Rule 1.9.
Onyango v. Commissioner, 142 T. C. 24 (2014)
• The court held that if an individual receives a certified mail
notification that he, she or they should have picked up and fails to do
so, they are deemed to have received the notice of deficiency for
purposes of IRC Section 6330(c).
Is a lien still valid if there is a name change?
• Changes of names occur in marriages or corporate reformations.
They key in cases has been whether the error has made it unlikely
that a reasonable searcher of the records would find the notice. If
the error has made the their discovery more difficult, the notices
have been invalidated.
• The
• See: F.P. Baugh v. Little Lake Lumber Co., 297 F.2d 692 (9th Cir. 1961),
cert. denied, 370 U.S. 909 (1962); Haye v. United States, 461 F. Supp.
1168 (C.D. Cal. 1978); United States v. Clark, 81-1 U.S. Tax Cas. (CCH)
¶9406 (S.D. Fla. 1981); United States v. Polk, 822 F.2d 871 (9th Cir.
1987).
Larry F. Anderson v. Comm’r,
T.C. Memo 2013-261
• Shows the importance of maintain CDP rights along with submitting
and OIC.
• In Anderson the Tax Court Determined that the Settlement Officer
(S0) in Appeals did not create a sufficient record regarding the
taxpayer’s health issues and remanded back the case. The Court felt
that the health issues should have been taken into account as special
circumstances.
• Note: If no CDP rights, there would have been no relief.
• The case involved tax crimes and the IRS could have easily rejected
the case outright based on public policy grounds.
Larry F. Anderson v. Comm’r,
T.C. Memo 2013-261 (cont.)
• Treas. Reg. 301.7122-1(c)(3)(ii)(A) provides a “history of
noncompliance with the filing and payment requirements of the
Internal Revenue Code” indicates that acceptance of the offer would
tend to undermine compliance with the tax laws.
Boeri v. U.S., (Cert. denied)
• Mr. Boeri was an Italian citizen who never worked in the U.S. nor was he a
resident of the U.S. He was employed by FE and Verizon for over 30 years
while living in Italy, Brazil, Argentina and the Dominican Republic. He
accepted a buy-out in 2003 and received close to $250,000 in two
payments in March and August of 2004. Verizon withheld approximately
$70,500 in U.S. income tax, social security tax and Medicare tax. In March
2009 Mr. Boreri filed nonresident income tax returns for 2004 seeking a
refund of the taxes.
• The IRS held that the return was not filed timely under Section
6511(b)(2)(A). The court held that he was not entitled to a refund as the
return was not filed timely and also concluded that equitable tolling does
not apply. However, there was a strong dissent, and if you find your client
in a similar situation, look up to see if case law has changed in this area.
PTMA 2013-014
• Do CDP rights arise for a transferee of property from an estate where
there has been an estate tax lien under Section 6234(a)(1) or the “like
lien” set forth in (a)(2)? Chief Counsel has taken the position that the
transferee in not entitled to CDP rights, and the regulations only allow
for CDP notice and hearing for “taxpayers”. Prior guidance did
provide for CDP rights with a “like lien” so there has been a change in
policy.
Julia R. Swords Trust v. Comm’r
142 T.C. No. 19
• In Julia R. Swords Trust, the court declined to apply the federal
substance over from doctrine to recast a transaction reviewed under
Section 6901 for transferee liability. The Court noted that the First,
Second and Fourth Circuits had all rejected the IRS’s position that the
last requirement of Section 6901 requires that a court apply a federal
substance over form determination.
• Section 6901 test was in fact a three-prong test. It requires:
• 1) One party to owes the tax
• 2) another party to be a transferee under Section 6901 and
• 3) an independent state law/equity principal holding the other party liable
for the tax.
Julia R. Swords Trust v. Comm’r (cont.)
• The IRS has yet to successfully argue that the third
requirement necessitates firs a federal “substance” over
form” determination or other federal analysis followed by
the application of the state’s fraudulent conveyance
analysis. Generally state law is not as robust as federal
law in this area, allowing more taxpayers to escape the
fraudulent conveyance laws.
Julia R. Swords Trust v. Comm’r (cont.)
• “Under Federal Law, the Court would have to analyze whether the subject
transactions are recast under Federal law, here primarily the Federal
substance over form doctrine, and then (2) apply State law to the transactions
recast under Federal law. One or more transactions are recast or otherwise
disregarded under the Federal substance over form doctrine where the
transactions taken as a whole show that the transactions are shams or have
no “purpose, substance, or utility apart from their anticipated tax
consequences.’” 142 T.C., No. 19 at page 34. See also Commissioner v. Stern,
357 US 39.
Julia R. Swords Trust v. Comm’r (cont.)
• Note that IRM 34.6.2.3.1 provides that the right of the United States to set aside fraudulent conveyance
is found in federal law and in state law. The Federal Debt Collections Procedure Act (F|DCPA) became
effective in 1991 and is effective for tax debts. However the IRS can use either Federal or State law.
• The federal fraudulent conveyance statute is based upon the Uniform Fraudulent Transfer Act, but it
contains relatively short statutes of limitations, 28 U.S.C. § 3304, generally six years after the transfer
(plus, for intent to defraud, two years after the transfer reasonably should have been discovered).
These statutes of limitation will be troublesome in a tax context because the legislation does not
include any suspension during periods in which a criminal investigation or Tax Court or bankruptcy
litigation is pending. Accordingly, a fraudulent conveyance case brought by the Tax Division will
normally be based on state law, instead of the federal statute. While the federal legislation is the
exclusive remedy for most Government claims, state remedies are still available in aid of collection of
taxes, 28 U.S.C. § 3003(b)(1), and state statutes of limitation do not bind the United States. A state law
statute of limitations extinguishing a claim after a certain period of time likewise is not binding on the
United States
Bergdale v. Comm’r
T.C. Memo 2014-152 (July 30, 2014)
• Bergdale was the sole member of Digital Criterion, LLC. The taxpayer
filed returns showing unpaid FICA and FUTA taxes. The IRS sent the
Bergdale a Notice of Federal Tax Lien Filing and a 6320 for a CDP
hearing.
• On 12/1/2010 the IRS filed a tax lien and on December 20, the IRS
received a Form 12153 from Bergdale.
• On 3/24/2011 Appeals sent a letter requesting a 443-A, Collection
Information Statement or a 443(b) for business . The taxpayer
contended that the lien was invalid and that respondent should not
have rejected a prior OIC. Bergdale filed Forms 433- A and B, but
failed to file a form 656. An appeals conference was held and
Bergdale (cont.)
• an OIC was accepted for $25,000 subject to Bergdale being able to locate
funds.
• Bergdale was unsuccessful in coming up with $25,000 and offered $10,000
by way of $10,000 which was not signed under penalty of perjury and
failed to include form 656, a waiver to allow the Appeals officer to contact
third parties or an install payment of the compromise of $25,000.
• Appeals rejected the $10,000 OIC because it was not properly submitted
and Bergdale petitioned the Tax Court.
• Court found it had jurisdiction, even though no party contested in as a CDP
was filed and prior decisions have already addressed the issue that it is not
necessary to assess the single member LLC separately for employment
taxes.
Bergdale v. Comm’r (cont.)
• The Court held that Bergdale never formally filed an OIC for $10,000
using the proper forms as Bergdale never filed an original form 656.
Bergdale relied on the Johnson v. Comm’r, 136 T.C. (2011) aff’d 502
Fed Appx. 1 (D.C. Cir 2013) and contended it was valid. The Tax Court
noted in the Johnson case, the taxpayer filed a 656 and then filed a
letter amending it. Here Bergdale never filed the 656 and the Court
was justified in rejecting it.
Eichler v. Commissioner
143 T.C. No. 2 (July 23, 2014)
• Chief Judge Michael Thorton held that the IRS can issue a CP 90
Letter, which is a Notice of Intent to Levy and Notice of Your right to a
Fair Hearing. The Court held that §6331(k)(2) bars the IRS from
making a levy while a taxpayer’s offer is being considered but not a
Notice of Levy.
Lacy-Thompson v. Commissioner
T.C. Memo 2014-137 (July 14, 2014)
• You cannot get two bites at the apple.
• The taxpayers signed a Form 870-AD, Offer to Waive Restrictions on
Assessment and Collection of Tax Deficiency and to Accept
Overassesment with respect to a penalty assessment.
• The Court held that the signed form indicated that they had the
opportunity and did in fact accuracy related penalty amount (25%
was abated by Appeals).
• Taxpayers filed a petition to abate the penalties and it was denied
because they had already agreed to the assessment by signing form
870-AD.
United States v. Winsper,
114 AFTR 2d 2014-5218 (W.D. Ky. July 15,
2014)
• D.C. after remand from the Court of Appeals held that the IRS could foreclose on
the personal residence of the taxpayer after analyzing the four factors set forth in
Rodgers v. U.S., 461 U.S. 677 (1983). In this case the husband owed $901,052 in
taxes, interest and penalties and a tax lien had been filed. The U.S. moved to
foreclose on the personal residence of the husband and wife. The government
initially held for the taxpayer. The case was appealed and the appellate court
remanded it back to the trial court to reconsider the 4 factors laid out in Rodgers.
• The Sixth Circuit held that this Court misapplied three of the four Rodgers factors
and that contrary to the Court's previous understanding, "the Rodgers factors do
not address the scope of the government's discretion to foreclose, but, rather,
the district court's discretion not to foreclose." Winsper, 680 F.3d at 489
(emphasis omitted). The Sixth Circuit has emphasized that the Rodgers factors
constitute a balancing test that control the Court's limited discretion.
Winsper (cont.)
• A court should consider to the extent which the Government’s financial interest would be prejudiced if it were
relegated to a forced sale of a partial interest actually liable for the delinquent taxes. Here the court found that if
they sold a partial interest there would be a $71,000 deficit which the trial court on re-examination found to be
substantial. The Sixth Circuit reasoned that neither the lengthy period of time that had elapsed nor the small
percentage of total indebtedness that the forced sale of marital property would satisfy negated the potential
prejudice to the Government of being allowed to foreclose only on Mr. Winsper's partial interest. Winsper, 680 F.3d
at 489-90. This Court previously relied on the discussion in United States v. Reid, 127 F. Supp. 2d 1361 [87 AFTR 2d
2001-429] (S.D. Ga. 2000), regarding the age of the assessment but the Sixth Circuit held that that case is not
analogous here. Id. at 490.
• Finally, the Sixth Circuit held that this Court was mistaken to rely on Reid and consider "the percentage of the debt
that would be satisfied rather than the dollar amount that would be collected." Id. at 490-91. The Circuit Court held
that the percentage of debt to be fulfilled is not important in terms of the potential prejudice to the Government's
financial interests
• The second factor from Rodgers asks "whether the third party with a non-liable separate interest in the property
would, in the normal course of events (leaving aside § 7403 and eminent domain proceedings, of course) have a
legally recognized expectation that that separate property would not be subject to forced sale by the delinquent
taxpayer or his or her creditors." Here the property was held as “tenants in the entirety”, which implies that
neither spouse can sell his or her interest. Taxpayer wins.
Winsper (cont.)
• The third factor from Rodgers asks "whether the third party with a non-liable separate interest in the
property would, in the normal course of events (leaving aside § 7403 and eminent domain
proceedings, of course) have a legally recognized expectation that that separate property would not be
subject to forced sale by the delinquent taxpayer or his or her creditors." The emotional value of
keeping the home for the wife’s sentimental reasons would not weigh in favor of keeping the home
and there was little evidence presented that $71,000 wasn’t sufficient to allow Ms. Winsper to find
another home. Government wins on this factor.
• The fourth Rodgers factor instructs that "a court should consider the relative character and value of the
non-liable and liable interests held in the property." Rodgers, 461 U.S. at 711. If the non-liable third
party has an interest in the property and "that interest is worth 99% of the value of the property, then
there might well be virtually no reason to allow the sale to proceed." Id. The Court previously
concluded that Mrs. Winsper's interest in the property is 50% or more but the Sixth Circuit held that
"any claim that Barbara Winsper might have an interest in the property greater than 50% based on the
likelihood that she will outlive her husband is precluded by this court's decision in Barr ." Winsper, 680
F.3d at 492; see Barr, 617 F.3d at 372. Furthermore, Kentucky law clearly says that tenants in the
entirety have identical property rights and there would be an equal division of the rights even if the
tenancy by the entirety was terminated.
PTMA-2013-02
CRIMINAL RESTITUION AND NOLS
• NOL carrybacks or carryovers to, or other deductions in, a tax period
for which an amount of restitution was ordered and assessed
pursuant to section 6201 (a)(4)(A) reduce a taxpayer's civil tax liability
for that tax period. Such deductions, however, do not in any way
affect the Service's assessment or collection of the amount of
restitution itself. Regardless of the amount of civil tax liability for that
period, the Service must collect the entire amount ordered as
restitution under section 6201 (a)(4)(A).
Revenue Procedure 2003-71
Offer in Compromise – Rejection on Public Policy Grounds
•
An offer in compromise may be rejected if it is in any way detrimental to the IRS’s interests, even if the amounts offered are greater than could be reasonably
collected in any other manner. Rejections under this provision should not be routine and should be fully supported by the facts outlined in the rejection narrative.
Offers rejected under this section require the review and approval of the second level manager; i.e., the Territory Manager for the field or Department Manager for
COIC. Examples include the following that may not be in the best interest of the government:
• The taxpayer’s offer meets processability criteria. However, the taxpayer has an egregious history of past noncompliance, as evidenced by the taxpayer’s
compromising employment taxes, where financial analysis indicates the business does not have the ability to fund the offer and remain current with future
tax obligations and meet the business’ normal operating expenses.
• An offer involving a deferred payment where financial analysis indicates the taxpayer cannot fund the offer and an acceptable explanation as to where the
additional funs may be secured is not provided.
• The taxpayer is the primary responsible party for the related entity, i.e., a corporation, partnership, etc., that is not in compliance with the tax laws.
• The offer is from a business that is insolvent, will remain insolvent and the governments position would be better protected in an insolvency proceeding.
But see IRM 5.8.10.2.2.1 (Consideration of a Potential Bankruptcy Filing on the Calculation of RCP in an OIC investigation).
• The taxpayer does not have the ability to pay the liability via an installment agreement, yet based on the evaluation of the taxpayer’s financial situation, the
amount potentially through a PPIA (partial payment installment obligation) approximates the outstanding balance.
•
In each of the situations, the financial situation should be completed prior to a final determination that a rejection under NIBIG (Not in the best interest of the
Government rejection).
•
The taxpayer should also be given the right to withdraw the offer prior to its submission of the rejection recommendation, advised of the reasons for the rejection
and alternative available to the taxpayer.
•
If the offer is not withdrawn, the rejection letter must provide the taxpayer with appeal rights.
Offers in Compromise
Public Policy Rejection P-5-89
• Policy Statement P-5-89 provides that offers may be rejected on the
basis of public policy if acceptance might in any way be detrimental to
the interests of fair tax administration even though it is shown that
the amount of the offer is greater than that which could be collected
by other means, provided no ETA issues exist.
• Offer acceptance reports are open to public inspection. See IRC §61032(k)(1).
A decision to reject an offer for public policy reasons should be based on the
fact that public reaction to the acceptance could be so negative as to diminish
future voluntary compliance. Decisions to reject offers for this reason should
be rare.
• The matter should be discussed with the taxpayer and his representative and
if appropriate proceed with rejection pursuant to IRM 5.8.7.7.3. The
rejectio0n letter should be in accord with Treas. Reg. 301.71.22-1(f)(5).
Offers in Compromise
Public Policy Rejection (cont.)
• Examples for rejection are:
• The taxpayer has in the past, and continues to openly encourage others to
refuse to comply with the tax laws.
• Indicators exist that the financial benefits of a criminal activity are concealed
or the criminal activity is continuing.
• The taxpayer engaged in a pattern of conduct suggestion intentional
dissipation of assets.
• An offer will not be rejected on public policy grounds solely because:
• It would generate considerable public interest, come of it critical.
• A taxpayer was criminally prosecuted for a tax or non-tax violation.
Ronald Isley v. Commissioner,
141 TC 349
• Ron had been the lead vocalist of the Isley Brothers band which
began back in the 50s. However, as seems to be the case with a lot of
musicians and entertainers, he was forced twice into bankruptcy and
not all of his taxes were discharged and the IRS had been able to
collect a lot of the money owed. After the second bankruptcy, Ron
was convicted for tax evasion for the years 2003, 2004 and 2006. He
was sentenced to 37 months and put on probation for an additional 6
years and as part of his conviction he was ordered to pay his taxes
and timely and truthfully file his returns during the probationary
period. He requested a CDP hearing and Appeals was inclined to
grant the offer until IRS counsel intervened and advised appeals that
no offer could be accepted unless approved by the DOJ.
Ronald Isley v. Comm’r (cont.)
• The relevant statutes are 7122(a) and 6330(c). Treas. Reg. §301.71221(d)(2) provides that “the IRS may not accept for processing any offer
to compromise any liability following reference of a case involving the
DOJ for prosecution or defense.” 6330(c)(2)(A) “permits a taxpayer
at…(a CDP) hearing any relevant issue relating to unpaid tax or the
prosed levy, including…(ii)offers of collection alternatives, which may
include an offer in compromise.”
• The Tax Court concluded that 7122 trumps 6330 and that the DOJ
must approve. There is nothing that prevents Appeals from
negotiating an offer in compromise, but it has to go to the DOJ for
approval. The District Court has already rendered a judgment or it is
before that Court and it is the DOJ that should take responsibility.
Memo Regarding Restitution Payments
SBSE 05-0614-0052 June 24, 2014
• If a taxpayer is convicted of a tax violation or related offense, the court may order the
defendant to comply with certain tax related conditions of probation including payment
of restitution to the IRS. The Firearms Excise Tax Improvement Act of 20109 the FETI
Act”) amended IRC §6201(a)(4) to provide for the assessment and collection of the
amount of restitution ordered in a criminal tax case under Title 26. See also IRM
258.26.1, Criminal Restitution-Based Assessments, which outlines the IRS responsibilities.
• Prior to the amendment the IRS could not assess or taken any administrative action to collect the
restitution.
• As a result of the FETI Act, the amount of restitution can be collected as if it were a tax. However,
the restitution order remains in effect and DOJ retains its authority to collect the tax under Title
18. The FETI Act provides for concurrent authority with the IRS have the ability to collect the
assessment based on the amount ordered as restitution.
• Criminal restitution and civil tax liability are separate and distinct and the assessment of
restitution under 6201(a)(4) is not itself a determination of the actual civil tax liability for the
period for which restitution was ordered, and is assessed only “as if such amount were such tax.”
Although the two are distinct, the Service cannot collect twice as that would be impermissible
double collection. When the Service receives the money it shall apply the amounts received
against the related civil tax liability for the same period.
Memo Regarding Restitution Payments (cont.)
• Advisory will receive notification form CI when there are court ordered IRSrelated conditions of probation and restitution. The advisors will generally
request a Field Service Investigation and eventually the information will be given
to an RO.
• As of June 2, 2014, a new centralized probation and restitution unit in Dallas, TX will be
responsible for probation and restitution Advisory work. The unit may be reached through its
dedicated e-fax number 855-843-3038 and email address, SBSE EEE Dallas Restitution.
• Even though DOJ may also have concurrent responsibility as to the restitution, the IRS is able
to work the case in the same way as other civil tax matters, including filing lien notices, levy,
seizure, installment agreements, offer in compromise and currently not collectible.
• However, then a court order restitution paid to federal as well as nonfederal victims, the IRS
will not pursue enforced collection actions until the nonfederal victims are paid in full. In
those instances, the account ,may be closed as a CNC with a mandatory follow up date based
upon the information given.
• It is important that the IRS coordinate with the DOJ as to the terms of the restitution.
Memo Regarding Restitution Payments (cont.)
• Installment Agreements: The IRS has the ability to use IAs as part of the
restitution based assessment. However, the agreement must provide for full
payment of the restitution-based assessment. IAs for other civil assessments
may be entered into when the agreement will not result in full pay of the
restitution based assessment. The agreement cannot compromise or reduce
the amount of the restitution order by the court. The IA has to comport with
the court’s payment plan. Procedures for issuing IAs are found in IG SBSE 050314-0014 and will be incorporated into IRM 5.14.4.
• Offers in Compromise – Must result in full payment. See IRM 5.8.4.
• Appeals: The taxpayer is entitled to Appeals but may NOT contest the liability.
• Bankruptcy: See IG Memorandum SBSE-05-0114-0005 and IRM 5.9.
Memo Regarding Restitution Payments (cont.)
• Restitution modules may be closed due to CNC, hardship, but not
while on probation or if the RO cannot contact the taxpayer. If
probation is completed and the taxpayer has been released and then
cannot be found, the RO can request that the restitution name be
removed on ICS to allow closure.
Streamlined, Guaranteed and In-Business Express
Installment Agreements. IRM 5.14.5
• Guaranteed agreements provide qualified taxpayers who have a one-time
account delinquency the statutory right to an agreement if their taxes are
$10,000 or less and certain other conditions are met. Streamlined criteria
has two tiers, up to $25,000, and $25,001 - $50,000 and can be used on
income tax liabilities and out of business modules. In-Business Trust Fund
Express installments agreements can be secured without securing financial
information on BMF (Business Master File Account) accounts up to
$25,000. Streamlined installment agreement may be approved for
taxpayers under the following circumstances:
• The aggregate unpaid balance is $50,000 or less.
• Generally divide the unpaid balance by 72, but must be paid by the CESD (Collection
Statute Expiration Date)
Streamlined, Guaranteed and In-Business Express
Installment Agreements. IRM 5.14.5 (cont.)
• The following types of taxpayers qualify for streamlined agreements with
unpaid balance of assessment of $25,000 or less:
• IMF (Individual Master File)
• BMF (income tax only) and
• Out of business BMF (any tax)
• The following taxpayers qualify for streamlined agreements with an
aggregate balance of $25,001 - $50,000:
• IMF
• Out of business sole proprietors.
• A lien determination is not required, but a decision to file an NFTL has been
made document the justification in the case history including the
manager’s concurrence.
Streamlined, Guaranteed and In-Business Express
Installment Agreements. IRM 5.14.5 (cont.)
• As with all IAs, the taxpayer must have filed all returns prior to
entering into the agreements.
• Encourage the taxpayers to bring the account balance below $50,000
(good pointer for practitioners).
• Avoids the need for financial statements
• Qualify for streamlined agreements
• May avoid a tax lien.
• Taxpayers may be granted streamlined agreements even if they can
pay their accounts in full. Discuss interest and penalties with the
taxpayers.
Streamlined, Guaranteed and In-Business Express
Installment Agreements. IRM 5.14.5 (cont.)
• IRS must accept streamlined agreements under IRC 6159(c) from the
following individuals:
•
•
•
•
•
Owe taxes (exclude penalties and interest) of $10,000 or less;
Have filed their returns and paid the tax for the prior 5 years;
Agree to pay the tax within 3 years;
Agree to pay file and pay all taxes during the term of the agreement; and
Have not entered into an installment agreement during the preceding 5 years.
Streamlined, Guaranteed and In-Business Express
Installment Agreements. IRM 5.14.5 (cont.)
• In Business Trust Fund (IBTF) Installment Agreement shall be granted
if:
• The aggregate unpaid assessments is $25,000 or less, which includes tax,
interest and penalties.
• Can be granted where the first payment brings the balance down to the
$25,000 criteria. This must be done prior to granting the express agreement.
• Must be paid in 24 months.
• No financials.
• Must verify filing and payment compliance.
Dixon v. Commissioner, 141 T.C. No. 3
(September 3, 2013) IRS Non. Acq.
• James and Sharon Dixon pleaded guilty to failure to file individual income tax returns and
agreed to pay $61,021 to the IRS. Their accountant later determined they owed an
additional $30,202. The Dixons forwarded both amounts to their company, Tryco Corp.,
with instructions that the amounts should be applied to their individual income tax
liability. The Dixon’s designated the payment against their personal income tax. The IRS
originally agreed and then decided that the amounts should be applied towards
employment taxes, which exceeded $23,000,000. The Tax Court agreed with the
taxpayers and held in a split decision that the IRS abused its discretion by not honoring
the third party designation.
• The IRS said in the AOD 2014-01, that it disagreed “with the Tax Court that employment
tax payments that were not withheld at the source may be designated by an employer to
a specific employee's income tax liability.”
• The IRS contended that under §3402 and §31(a), “an employee may only get a credit for
income taxes withheld at the source. If the income tax is not withheld at the source, a
later payment by the employer of its liability for the tax it should have withheld will not
result in a credit to the employee.”
Hawkins v. Franchise Tax Board
__ F.3d__ (2014 WL 4494845 (9th Cir. No. 11-16276, Sept.
15, 2014)
• The 9th Circuit interpreted “willfully” to require a specific intent on
the part of the debtor to evade taxes, which must be evidenced by
some affirmative act of evasion committed by the debtor. The 3rd, 5th
and 7th Circuits has all held taxpayers to a much harsher rule, in which
“willfully” requires only that the debtor may a voluntary and
conscious choice to use money for non-tax purposes at a time when
the debtor has the means to pay on the tax liability now sought to be
discharged.
• As an example, if a taxpayer lives a lavish lifestyle and spends money
on cars, vacations, jewelry, art, etc., then that is sufficient for a court
to find that there was a willful attempt to evade or defeat tax and
render the tax debt non-dischargeable.
Hawkins v. Commissioner (cont.)
• The court in Hawkins stated that in order to prove “willfulness”,
someone would have to prove a connection between lavish spending
and a specific intent in Mr. Hawkin’s and willfulness required a
specific intent to evade.
• The 9th Circuit looked at the criminal statutes in the IRC to determine
“willfully” and the other circuits look at civil provisions of the IRC such
as 6672.
• Will the Supreme Court decide?