Table of Contents
About This Book
How To Use This Book
Foreword
Acknowledgments
Preface
vii
ix
xi
xiii
xv
Chapter 1 Initial Client Engagement
Topical Index
1.01 Nature of Federal Tax Law
1.02 Role of the Internal Revenue Service
1.02(a) Specific Functions of the Internal Revenue Service
1.03 Organization of the Internal Revenue Service
1.03(a) Examination Process
1.03(b) Collection Process
1.03(c) The Criminal Investigation Division (CID)
1.03(d) Appeals Branch
1.03(e) Area Counsel
1.04 Where Do Tax Clients Come From?
1.05 The Initial Consultation
1.06 Beginning the Engagement—Form 2848
1.07 Rules of Practice
1
1
5
7
7
11
12
14
17
18
18
19
20
23
25
Practice Points
28
Exhibit 1-1 IRS Organization Structure
Exhibit 1-2 Pre-Payment Appeal Process Examination
Exhibit 1-3 Post-Payment Appeal Process Examination/Claims
Exhibit 1-4 The Collection Process
Exhibit 1-5 The Criminal Process
Exhibit 1-6 Filing Form 2848
Exhibit 1-7 Practitioner Hotlines
Exhibit 1-8 IRS E Services
Exhibit 1-9 Initial Client Engagement Checklist
Exhibit 1-10 Ten Ways To Identifying The Problem Client
Exhibit 1-11 Initial Client Representation Letter
Exhibit 1-12 Retainer Agreement
Exhibit 1-13 Conflict Advisory to Client
Exhibit 1-14 Letter to IRS Advising of Representation
Exhibit 1-15 Representation Memorandum To File
Exhibit 1-16 Enforcement Activity by IRS Office of
Professional Responsibility
Exhibit 1-17 IRS Employees
Exhibit 1-18 Circular 230 Procedure
10
13
15
16
17
25
34
35
36
37
38
38
40
41
41
On CD-ROM Only:
xvii
43
44
44
Circular 230
Form 56 Notice Concerning Fiduciary Relationship
Form 2848, Power of Attorney and Declaration of Representative
Form 4506 Request for Copy of Tax Return
Form 4506-T Request for Transcript of Tax Return
Form 8821 Tax Information Authorization
Publication 1 Your Rights as a Taxpayer
Chapter 2 Examination of Returns
Topical Index
2.01 Audit Basics
2.02 Pre-Audit Action by Practitioner
2.03 Conducting the Audit Examination
2.04 Closing the Audit Examination
2.04(a) Statute of Limitations Extension Issues
2.05 Jeopardy and Termination Assessments
2.06 Coordinated Examination Program (CEP)
2.07 Partnership Audit Problems
47
47
51
60
63
68
71
73
74
75
Practice Points
77
Exhibit 2-1 Methods of IRS Audit Selection
Exhibit 2-2 Chance of Audit by Taxpayer Category
Exhibit 2-3 Typical DIF Factors Used in Return Selection
Exhibit 2-4 Examination of Returns Checklist
Exhibit 2-5 Types of IRS Agents
Exhibit 2-6 How To Recognize an Eggshell Audit
Exhibit 2-7 Initial Examination Conference Checklist
Exhibit 2-8 IRS Settlement Forms
Exhibit 2-9 Ten Negotiating Techniques that Work and Ten that Don’t
Exhibit 2-10 Settling Cases at the Examination Stage
Exhibit 2-11 Closing the Examination Checklist
Exhibit 2-12 IRS Audit Notice—Corporation
Exhibit 2-13 IRS Audit Notice—Individual
Exhibit 2-14 Thirty-Day Notice
Exhibit 2-15 Letter 3164—Notice of Third-Party Contact
Exhibit 2-16 IRS Market Segment Papers
Exhibit 2-17 IRS Industry Specialization Papers
Exhibit 2-18 Notice of Tax Due on Federal Tax Return—Individual
Exhibit 2-19 Notice of Tax Due on Federal Tax Return—Business
55
56
59
61
61
62
64
68
69
69
71
81
82
84
87
87
89
92
92
On CD-ROM Only
Audit Technique Guides (ATGs)
Automated Under Reporter Inventory Strategy Database (AUR-ISD)
Form 870 Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and
Acceptance of Overassessment
Form 1902-B Report of Individual Income Tax
xviii
Form 4089 Notice of Deficiency Waiver
Form 4549 Income Tax Examination Changes
Form 4549-CG Income Tax Examination Changes
Form 4549-E Income Tax Discrepancy Adjustments
Form 4564 Information Document Request
Form 5564 Notice of Deficiency
IRS Telephone Assistance
Letter 915 Cover Letter for Examination Report
Letter 937 Cover Letter Response to Power of Attorney
Letter 2205-A Notice of Return Selected for Examination
Letter 3254 (DO) Confirmation of Appointment to Begin Examination Process
Publication 3498 The Examination Process
Chapter 3 Statute of Limitations
95
Topical Index
95
3.01 The Statutes of Limitations in Tax Matters
99
3.02 Statute of Limitations on Assessment
102
3.02(a) Extensions of the Statute of Limitations on Assessment 104
3.03 Statute of Limitations on Collection
106
3.03(a) Effect of Offers in Compromise, Installment Agreements,
and Miscellaneous Actions
107
3.04 Statute of Limitations on Claims for Refund
109
3.05 Statute of Limitations on Assessment of Trust Fund Liability: §6672
112
3.06 Special Rules for Suspension of the Statute
of Limitations—Mitigation
113
3.07 Transferee Liability
114
3.08 Limitations Period for Criminal Prosecution
116
Practice Points
116
Exhibit 3-1
Exhibit 3-2
Exhibit 3-3
Exhibit 3-4
100
123
124
Major Statutes of Limitation
Statute of Limitations Checklist
Suspension of Statute of Limitation Due To Client Action
Letter to Client To Extend
Assessment Statute in Criminal Case
Exhibit 3-5 Letter to Client Regarding Trust Fund Penalty Extension
Exhibit 3-6 Letter to Client To Extend Assessment Statute in Civil Case
Exhibit 3-7 Letter to Client Confirming
No Extension of the Assessment Statute
Exhibit 3-8 Circumstances That Evidence Fraudulent Transfer
Exhibit 3-9 Things That Affect the Assessment Statute of Limitations
Exhibit 3-10 How To Determine the Collection
Statute of Limitations Expiration Date (CSED)
On CD-ROM Only
Form 843 Claim for Refund and Request for Abatement
xix
125
126
127
127
128
128
129
Form 872 Consent To Extend the Time To Assess Tax
Form 872-A Special Consent To Extend the Time to Assess Tax
Form 872-T Notice of Termination of Special Consent To Extend the Time To Assess
Tax
Form 900 Tax Collection Waiver
Form 1040X Amended U.S. Individual Income Tax Return
Form 2750 Waiver Extending Statutory Period for Assessment of Trust Fund Recovery
Penalty
Letter 907(DO) IRS Request for Extension
Publication 1035—Extending the Tax Assessment Period
Chapter 4 Administrative Summons
Topical Index
4.01 Nature of Summons
4.02 Summons Enforcement
4.03 Compliance Considerations
4.04 Defenses to Summons and Right To Quash
131
131
133
136
141
143
Practice Points
146
Exhibit 4-1
Exhibit 4-2
Exhibit 4-3
Exhibit 4-4
149
150
151
152
Administrative Summons Checklist
Practitioner Objections to Summons
Request for Third-Party Contacts
Petition to Quash Summons
On CD-ROM Only
Employee Plans Continuing Professional Education (CPE) Technical Instruction Program
for Fiscal Year 2003 Ch 12(c)—Summons Procedures
Form 2039 Client Summons—Examination Division
Form 2039 Criminal Division Summons
Form 2039 Summons for Handwriting Exemplar
Form 4564 Information Document Request
Form 6540 Handwriting Exemplars
Form 6637 Summons Collection Information Statement
Form 6638 Summons for Income
Form 6639 Financial Records Summons
Form 6863 Request for Expenses Incident to Summons
Form 6882 IDRS-Master File Information Request
Letter 3164: IRS Third Party Contact Letter
Chapter 5 Appeals Branch
Topical Index
5.01 Nature of Appeals Branch
5.02 Protest Filing
5.03 The Appeals Hearing
5.04 Settlement of Cases in Appeals
155
155
157
162
165
168
xx
5.04(a)
5.04(b)
Alternative Dispute Resolution
Collection Due Process Hearings
169
172
Practice Points
176
Exhibit 5-1
Exhibit 5-2
Exhibit 5-3
Exhibit 5-4
Exhibit 5-5
Exhibit 5-6
Exhibit 5-7
Exhibit 5-8
159
160
165
182
183
184
185
188
Cases Handled By Appeals Office
Advantages/Disadvantages of Appeals Hearing
When Not To File a Protest to Appeals
ADR in Appeals
Appeals Branch Checklist
Protest: Income Tax
Protest: §6672 Trust Fund Recovery Penalty
Appeals Protest Transmittal Letter
On CD-ROM Only
Appeals Acknowledgment and Notice of Appeals Hearing
Appeals Office Notification to Taxpayer
Form 870-AD Offer of Waiver of Restrictions on Assessment and Collection of
Deficiency in Tax and Acceptance of Overassessment
Form 906 Closing Agreement on Final Determination Covering Specific Matters
Form 906-c Closing Agreement on Final Determination Covering Specific Matters
Form 9423 Collection Appeal Request
Form 12153: Request for Post-Lien/Pre-Levy Collection Due Process Hearing
Form 12203 Request for Appeals Review
Form 12257-c Summary Notice of Determination, Waiver of Right to Judicial Review of
a Collection Due Process Determination, and Waiver of Suspension of Levy
IRS Letter 913 (RO): Appeals Approval of Settlement
IRS Response to Collection Due Process Hearing Request
IRS Thirty Day Letter
Letter to Client re Collection Due Process Hearing
Model Arbitration Agreement
Notice of Determination Concerning Collection Action(s) Under Section 6320 and-or
6330
Publication 5 Your Appeal Rights
Publication 4167 Introduction to Alternative Dispute Resolution
Request for Collection Due Process Hearing
Chapter 6 Collection Branch
Topical Index
6.01 Nature of Collection
6.02 Service Center Collection Activity
6.03 ACS
6.04 District Office
6.05 Notices and Forms Filing
6.06 Tax Liens
6.07 Tax Levies
189
189
195
197
199
200
204
207
212
xxi
6.08
6.09
6.10
6.11
6.12
6.13
6.14
6.15
6.16
6.17
The Taxpayer’s Advocate Service
Offers in Compromise
6.09(a) Effect of Offer
6.09(b) Acceptance or Rejection of the Offer
6.09(c) How Much To Offer?
6.09(d) So, Should You File?
6.09(e) Collateral Agreements and Post Submission Procedures
Bankruptcy
Principal Residence
Re-Audits
Installment Agreements
Actions To Enjoin IRS
Employment Tax Assessments
Innocent Spouse—Section 6915
Judicial Review of Collection Action
217
218
222
225
226
227
230
231
237
238
238
241
241
243
254
Practice Points
258
Exhibit 6-1 Getting the Offer in Compromise Accepted Checklist
Exhibit 6-2 Applying for Innocent Spouse Relief Checklist
Exhibit 6-3 Collection Due Process Hearing Requests
Exhibit 6-4 Collection Branch Checklist
Exhibit 6-5 The Collection Process
Exhibit 6-6 FAQs for New Offer in Compromise Rules
Exhibit 6-7 Offer in Compromise—Response from IRS
Exhibit 6-8 Application for Certificate of Subordination
Exhibit 6-9 Application for Certificate of Discharge
Exhibit 6-10 Installment Agreements Available
Exhibit 6-11 FAQs for Married Taxpayers
Exhibit 6-12 How To Pay Taxes Electronically
228
245
254
270
271
272
276
277
279
281
282
282
On CD-ROM Only
Form CVL PEN Overpaid Taxes Applied to Other Taxes You Owe
Form 433-A Collection Information Statement for Wage Earners and Self-Employed
Individuals
Form 433-B Collection Information Statement for Businesses
Form 433-D Installment Agreement
Form 433-F Collection Information Statement (Short Form)
Form 656 Offer in Compromise
Form 656-L Offer in Compromise (Doubt as to Liability)
Form 668(W) Notice of Levy on Wages, Salary, and Other Income
Form 668(Y) Notice of Federal Tax Lien
Form 668-A(c) Notice of Levy
Form 668-D Release of Levy/Release of Property from Levy
Form 668-Z Release of Federal Tax Lien
Form 669-A Certificate of Discharge of Property
xxii
Form 669-D Certificate of Subordination of Federal Tax Lien
Form 911 Request for Taxpayer Advocate Service Assistance
Form 2751 Proposed Assessment of Trust Fund Recovery Penalty
Form 4180 IRS Trust Fund Recovery Penalty Interview Form
Form 8857 Request for Innocent Spouse Relief
Form 8919 Uncollected Social Security and Medicare Tax on Wages
Form 12153 Request for a Collection Due Process Hearing
Form 12509 Statement of Disagreement
Letter 726 Notice of Amount Due on Tax Account
Letter 1058 Final Notice of Intent To Levy and Notice of Your Right to a Hearing
Letter 1058 Notice of Intent to Levy and Right to a Hearing
Letter 1153 (DO) Notice of Proposed Trust Fund Recovery Penalty
Letter 2850 Approval of Request To Pay Taxes in Installments
Letter 3172 Notice of Tax Lien Filing and Your Right to Hearing
Letter 3283(DO) IRS Innocent Spouse Determination Letter
Letter—Notice of Determination Concerning Collection Actions
Letter—Taxpayer Advocate Service Acknowledgment Letter
National Standards Food, Clothing and Other Items
Notice 746 Information About Your Notice, Penalty and Interest
Notice CP 89 Annual Installment Agreement Statement
Notice CP 91 Final Notice Before Levy on Social Security Benefits
Notice CP-504 Urgent Collection Notice
Notice CP-523 Notice of Intent To Levy
Notice of Collection Appeals Program
Online Payment Agreement Option (OPA)
Private Debt Collection Program
Publication 594 The IRS Collection Process
Publication 783 How To Apply for Certificate of Discharge of Property from Tax Lien
Publication 784 How To Prepare Application for Certificate of Subordination of Federal
Tax Lien
Publication 1450 How To Request Certificate of Release of Federal Tax Lien
Publication 1660 Collection Appeal Rights
Publication 1854 How To Prepare a Collection Information Statement (433-A)
Publication 4165 Introduction to Collection Due Process Hearings
Chapter 7 Criminal Tax
Topical Index
7.01 Nature of Criminal Investigation Division
7.01(a) Voluntary Disclosure
7.02 Specific Procedure
7.03 Grand Jury Investigations—Alternative IRS Investigation
7.04 Dealing with Special Agents
7.05 Crimes Investigated by the IRS
7.06 Negotiating the Plea Agreement
7.07 Hearings in District Court for Criminal Violation—Plea Hearing
7.08 Sentencing Hearing
xxiii
283
283
287
289
291
293
294
297
300
303
304
7.09
7.10
Defenses to Criminal Violations
SEP
306
307
Practice Points
307
Exhibit 7-1 Voluntary Disclosure Checklist
290
Exhibit 7-2 The Criminal Process
291
Exhibit 7-3 Ten Badges of Criminal Tax Fraud
296
Exhibit 7-4 Title 26 Criminal Penalties and Fines
300
Exhibit 7-5 Sentencing Options by Zone
305
Exhibit 7-6 Criminal Tax Checklist
317
Exhibit 7-7 Criminal Tax Appeals Checklist
318
Exhibit 7-8 Rule 11 Plea Hearing Checklist
319
Exhibit 7-9 Sentencing Hearing Checklist
319
Exhibit 7-10 Kovel-CPA Agreement
320
Exhibit 7-11 Federal Sentencing Guidelines—Offenses Involving Taxation 321
Exhibit 7-12 Request for Conference at U.S. Department of Justice
322
Exhibit 7-13 Memo to Client Regarding Rule 11 Proceeding
323
Exhibit 7-14 Memorandum to Client Regarding Sentencing Hearing
326
Exhibit 7-15 Defense Memorandum
327
Exhibit 7-16 Request for Conference at U.S. Attorney’s Office
330
Exhibit 7-17 Contents of Special Agent’s Report
331
Exhibit 7-18 Request for Conference at District Counsel
332
Exhibit 7-19 Application for Permission To Enter Plea of Guilty
332
Exhibit 7-20 Indications of Consideration of a Criminal Record
339
Exhibit 7-21 Criminal Division Focus
340
On CD-ROM Only
AUSA Letter to Judge Regarding Allocution Questions
District Court Order of Release
District Court Standing Order
District Court Waiver of Indictment
Explanation of the Pre-Sentence Report
Federal Criminal Guidelines Sentencing Table
Federal Criminal Guidelines Worksheets
Form 211 Application for Award for Original Information
Form 3949A Information Referral
Plea Agreement
Probation Report and Presentence Investigation Report
Referral Report for Potential Criminal Fraud Cases
Chapter 8 Tax Court Practice
Topical Index
8.01 Nature of Tax Court
8.02 Admission to Practice
8.03 Petition Filing
341
341
345
349
350
xxiv
8.04
8.05
8.06
8.07
8.08
8.09
8.10
Trial Practice
Small Case Procedure
Motion Practice
Other Areas of Tax Court Jurisdiction
Burden of Proof
Claims for Litigation and Administrative Costs
Appeals
353
359
361
362
366
368
371
Practice Points
371
Exhibit 8-1 Advantages/Disadvantages of U.S. Tax Court
Exhibit 8-2 Cases Only
Exhibit 8-3 Emergency Petition—U.S. Tax Court
Exhibit 8-4 Format for Briefs—Tax Court (Rule 151)
Exhibit 8-5 Tax Forum Comparison
Exhibit 8-6 Selecting the Best Tax Forum
Exhibit 8-7 U.S. Tax Court Checklist
Exhibit 8-8 Entry of Appearance
Exhibit 8-9 Tax Court Petition
Exhibit 8-10 Settlement Agreement and Related Documents
Exhibit 8-11 Request for Production of Documents
Exhibit 8-12 Tax Court Cities
Exhibit 8-13 Answer of Respondent
Exhibit 8-14 Notice Setting Case for Trial
Exhibit 8-15 Standing Pre-Trial Order
Exhibit 8-15 Trial Memorandum
347
349
351
357
377
378
379
380
380
382
386
387
388
390
391
393
On CD-ROM Only
Form 5601 Statutory Notice
Letter 3219 (SC-CG) Notice of Deficiency
Notice of Receipt of Petition
Notice Setting Case for Trial
Tax Court Application for Order to Take Depositions Form 15
Tax Court Attorney Admission Form 18
Tax Court Decision Document
Tax Court Entry of Appearance Form 7
Tax Court Petition for Administrative Costs—Sample
Tax Court Petition Kit
Tax Court Request for Place of Trial
Tax Court Rule 23 Form and Style of Papers Filed in Court
Tax Court Subpoena Form 14
Trial Memorandum Sample
United States Tax Court Fees and Charges
United States Tax Court Telephone Numbers
xxv
Chapter 9 Claims Practice
Topical Index
9.01 Claims Basics
9.02 Statute of Limitations
9.03 The Full/Divisible Payment Rules
9.04 IRS Claims Procedure
9.05 Resort to Courts
9.06 Choice of Judicial Forum
9.07 Claim Look-Alikes
9.08 Tax Payments
395
395
399
383
404
404
406
407
409
410
Practice Points
410
Exhibit 9-1 Claims Procedure
Exhibit 9-2 Suspension of Claims Statute of Limitations
for Disability Under Section 6511(h) Checklist
Exhibit 9-3 Claim Elements Under the Informal Claims Doctrine
Exhibit 9-4 Claims Checklist
Exhibit 9-5 Thirty Day Notice
Exhibit 9-6 Memorandum in Support of Claim for Refund
Exhibit 9-7 Notice of Claim Disallowance
398
401
403
415
416
418
420
On CD-ROM Only
Form 1040X Amended US Individual Tax Return
Form 843 Claim for Refund and Request for Abatement
Form 870-AD Offer to Waive Restrictions on Assessment and Collection of Tax
Deficiency
Form 1045 Application for Tentative Refund
Form 1120-X Amended US Corporate Income Tax Return
Form 1139 Corporation Application for Tentative Refund
Form 1310 Statement of Person Claiming Refund Due a Deceased Taxpayer
Form 2297 Waiver of Statutory Notification of Claim Disallowance
Chapter 10 Obtaining Information and Assistance from the IRS
Topical Index
10.01 Obtaining Background Information
10.02 Filing FOIA Requests
10.03 Obtaining IRS Information Online
10.04 Resolving Taxpayer Problems with the IRS
10.05 IRS Publications
10.06 Local IRS Offices
10.07 Obtaining Private Letter Rulings and Determination Letters
10.08 Tax and Legal Websites
423
423
425
430
432
433
434
435
435
439
Practice Points
440
xxvi
Exhibit 10-1
Exhibit 10-2
Exhibit 10-3
Exhibit 10-4
Exhibit 10-5
Exhibit 10-6
Relative Importance of IRS Tax Authorities
Applying for IRS Rulings
Obtaining Information and Assistance from IRS Checklist
IRS Transaction Codes Used To Interpret IRS Transcripts
Schedule of Typical User Fees
Freedom of Information Act Request to
District Disclosure Officer
426
436
444
444
448
449
On CD-ROM Only
Form 4506 Request for Copy of Tax Return
Form 4505-T Request for Transcript of Tax Return
Form 8717 User Fee for Employee Plan Determination, Opinion, and Advisory Letter
Sample Format For a Letter Ruling Request
Chapter 11 Penalties and Interest
Topical Index
11.01 Accuracy-Related Penalty—Negligence Penalty
11.02 Civil Fraud Penalty
11.03 Innocent Spouse Defense to Penalties
11.04 Substantial Understatement of Tax—Section 6662(b)(2)
11.05 Substantial Valuation Misstatements
11.06 Substantial Estate or Gift Tax Valuation Understatement
11.07 Failure To File Returns
11.08 Failure To Pay Tax
11.09 Estimated Tax Penalty
11.10 Failure To Timely Deposit
11.11 Trust Fund Recovery Penalty
11.12 Defense of Reasonable Cause
11.13 The Penalty Appeal Procedure
11.14 Third Party Penalties
11.15 Interest
11.16 Abatement of Interest
11.17 Miscellaneous
451
451
457
460
462
464
465
466
466
467
469
470
471
477
482
483
487
489
490
Practice Points
493
Exhibit 11-1
Exhibit 11-2
Exhibit 11-3
Exhibit 11-4
Exhibit 11-5
458
463
474
478
Most Often Assessed Penalties
Obtaining Equitable Innocent Spouse Relief §6015(f)
Trust Fund Recovery Penalty Checklist
Does Reasonable Cause Exist?
Penalty Appeal Procedure
Checklist (Post Assessment Prepayment of Penalties)
Exhibit 11-6 Interest Abatement Procedure Checklist
xxvii
483
492
Exhibit 11-7 Memorandum In Support Of Penalty Appeal Form 843
Exhibit 11-8 Penalties Assessed by IRS
Exhibit 11-9 Important Do’s and Don’ts of Circular 230
507
510
510
On CD-ROM Only
Appeals Denial of Request for Abatement of Penalties
FAQs Related to Tax Return Perparer Penalty Notices
Form 843 Claim for Refund and Request for Abatement
Form 843 Claim for Refund and Request for Abatement—Sample
Form 8275 Disclosure Statement
Form 8275-R Regulation Disclosure Statement
How To Apply for Zero Interest Netting
Letter 1153 (DO) Trust Fund Penalty Assessment Notice
Letter 1277 IRS Penalty Appeal Determination Letter
Notice 746 Information About Your Notice, Penalty and Interest
Procedures for Taxpayers To Make Remittances To Stop Running of Interest on
Deficiencies
xxviii