No. 20 Sku 111-C 2020

NEW BOOK!

Scheduled available Sept. 2020

Hard bound or thumb drive ("flash drive")

HARD BOUND $ 150.00

THUMB DRIVE $ 120.00

Alternative title:
Litigation Against The Internal Revenue Service
by
THOMAS DeCARO, Esq.
Of The Maryland Bar

ABOUT THE BOOK

 

  • Available in hard-bound or thumb drive

  • 250 pages

  • Includes case and statutory citations

  • Includes sample litigation documents

  • Available as hard-bound book or thumb drive

  • Est. availability date - Sept. 1 2020

ABOUT THE AUTHOR

Formerly with the IRS litigation department

 

Thomas F. DeCaro Jr.

Thomas DeCaro has been in private practice of law since November 1990, with a concentration on business law; formation, dissolution and sales of businesses; estate planning; general and tax litigation; representation before the Internal Revenue Service (audits, appeals, collection matters).

Between October 1987 and November 1990, he was a Manager for Ernst and Young, a Consulting Tax Practice, located in NW, Washington, DC.

 

Duties included assisting clients with legislative initiatives related to their major tax issues; planning for mergers and acquisitions and reorganizations (including insolvency planning); detailed planning for, and review of sophisticated transactions; representation before the Internal Revenue Service (ruling requests and large audits). Significant business development responsibilities.

As Senior Associate of the Corporate Department for Joseph, Greenwald and Laake, PA, whose office is located in Greenbelt, MD between October 1985 through October 1987, Mr. DeCaro’s duties included estate, tax and business planning for corporation and individual clients; qualified pension plan drafting,

implementation and defense; all phases of probate; federal and state tax litigation, as well as business development; client relations and other general legal practice responsibilities.

Between January 1984 and October 1985, Mr. DeCaro was an in house attorney in the Tax Department for Potomac Electric Power Company located in Washington, DC. His expertise was federal and state tax planning and research; representation in a very large federal audit where excellent results were achieved under difficult conditions. Preparation of submissions to the Board of Directors concerning tax audit settlement and qualified plan matters.

Mr. DeCaro’s duties at Manor Care, Inc. located in Silver Spring, MD February 1982 through January 1985 included Tax planning for corporate mergers and acquisitions. Major accomplishments include favorable completion of large federal audit; also tax planning to implement the complete restructuring of the company.

Between July 1979 and February 1982, Mr. DeCaro Specialized in Tax Law for the Internal Revenue Service. His development of legal positions for the IRS in situations where there was no published precedent and drafting ruling letters earned him an Official Commendation for Labor Relations project resolving EEO complaints

TABLE OF CONTENTS

[subject to revision before publication]

FEDERAL TAX LITIGATION HANDBOOK

LITIGATION AGAINST THE INTERNAL REVENUE SERVICE

A Practitioner’s Guide
 

I. Categories of Nonbankruptcy Litigation Cases - Taxpayer the Plaintiff

A. Refund litigation - issues - statutory references

  1. Submitting the claim. 26 USC § 7405(a) must wait 6 months from the

    date of the claim and file within 2 years from mailing by IRS of notice of disallowance; 2-year period can be waived by notice mailed by taxpayer after the 6 months from claim filing date (note the 6 month period is shortened to 120 days if the claimant is in bankruptcy 11 USC § 505(a)(2))

  2. Right to recovery - 26 USC § 6511 limits the amount of recovery:

    1. If tax was shown on a return required to be filed, the claim

      must be filed 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid

    2. The amount of the credit or refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return

    3. If the claim was not filed within such 3-year period, the amount of the credit or refund shall not exceed the portion of the tax paid during the 2 years immediately preceding the filing of the claim

    4. See the statute for special situations

    5. Bad debt, worthless security claims have a 7 year statute

      from the date when the return was filed giving rise to the

      claim

    6. Net operating loss & capital loss & credit carryback claims

      have a 3 year statute from the loss year subject to the

      special rules in the statute

    7. Foreign tax claims may have a 10 year claims period - see

      the statute

  3. Validity of issues taken on a tax return, an amended return or claim for

    refund (form 843 or informal claim)

  4. Exhaustion of administrative remedies 26 USC §7422

  5. Support for claim - vouchers, appraisals, affidavits - burden of proof

  6. Timing is critical:

    1. Limitations on submitting claims

    2. Limitations on filing suit if claim is denied & managing the

      claims denial process -1-

 

B. Exhaustion of administrative remedies vii. Res judicata, collateral estoppel

C. Responsible Officer 26 USC §6672 - statutory reference

  1. Brief description of the issues - who is individually liable? - yes, it’s all

    over the map

  2. Statute of Limitations on assessment

  3. Exhaustion of Administrative Remedies and Practice Prior to Suit

    1. Notice of proposed assessment and timely protest

    2. Administrative process - hearings, affidavits & other proof

    3. Effect of denial of protest

    4. Claim for refund/abatement & denial as precondition to

      filing suit

      1. Requirements to perfect the claim

      2. Managing the claims process

    5. Managing the collection process during the claim processing period

  4. Treatment of co-responsible parties - beware of conflicts of interest

  5. Defenses

    1. “It wasn’t me”

    2. Impossibility of payment due to government contract issues

    3. Embezzlement as a defense

    4. Lack of knowledge of delinquency - “the bookkeeper or

      partner hid it from me”

    5. General lack of wilfulness

  6. Trying the responsible officer case

    1. Burden of proof - witnesses & documents

    2. Jury considerations

  7. Alternatives to responsible officer litigation

a. Consider the pros/cons of litigation

1.

2.

3.

Avoid any frivolous or weak possibility of winning - burden of proof is high, trier of fact will be confronted with a business owner or high level employee who will be accused of failing to pay a large withholding tax debtl

Prepare a litigation budget; research, fact documentation, discovery budget, outside witnesses and documents, motions practice, trial, post-trial motions, record evaluation for appeal if necessary

Litigation will allow for settlement negotiations - if the case is good but there are some troublesome issues, this would be something to evaluate since you will be talking with DOJ attorneys and not revenue officers about the case

  1. Remember if you lose there is a judgment against your client - starts a new 12-year (20-year?) collection statute; adverse impact on credit report; IRS as judgment creditor has same ability to collect as IRS as tax lien creditor

  2. DOJ is more likely to settle a judgment based on collectability on terms which may be better than an OIC

  3. Unless IRS is dead wrong, you can’t get attorneys’ fees even if you win even under the Equal Access to Justice Act. Depending on the situation, responsible officer litigation fees & costs can run into the 6-figures.

  4. Professional responsibility requires that you stick with the case to the bitter end even if the client runs out of funds. If client didn’t pay the IRS, how can s/he pay you? Make sure you have a solid understanding of the fee payment situation before you enter an appearance.

  1. Consider Offer in Compromise (“OIC”)

    1. Particularly good if client has an outside

      source of funding such as a relative or even

      a vulture lender

    2. May be able to stop collection while OIC is

      being processed

  2. Payment plan - IRS may amortize the debt over the remaining

    period of the collections statute or accept a payment based on the

    ability to pay

  3. Currently not collectable status - IRS may suspend collection if

    there is illness or financial hardship (don’t count on this)

 

D. The anti-injunction act - statutory reference 26 USC §7421

  1. No injunction against assessment or collection of tax

  2. IRS has a lot of power especially in cases where there is a clear error in the

    assessment or the collection process

  3. Critical in responsible officer cases where there is no other way to stop

collection.

iv. Exceptions to anti-injunction act - Standard Nut Margarine Co. of Florida, 284 US 498, 3 USTC ¶878 (1932); Monsky, 297 F.Supp. 943; 68- 2 USTC ¶9644 (D. DC 1968); South Carolina v. Regan, 465 US 367, 84-1 USTC ¶9241 (1984)

E. IRS response to litigation

  1. IRS Response to Litigation - AOD’s, acquiescence, nonacquiescence

  2. Wrongful levy actions 26 USC § 7426

    1. 9-month limitation 26 USC § 6532(c)

    2. Equitable tolling of the 9-month period - conflict: Becton Dickinson and

      Co v. Reinhard A. Wolckenhauer, (2000, CA3) 85 AFTR 2d 2000-1994, 215 F3d 340, 24 EBC 2414, 2000-2 USTC 50542, remg (1998, DC NJ) 82 AFTR 2d 98-7184, 98-2 USTC ¶50879, 24 F Supp 2d 375 (no tolling); Capital Tracing Inc v. U.S., (1995, CA9) 76 AFTR 2d 95-5993, 63 F3d 859, 95-2 USTC ¶50473 (equitable tolling applies)

    3. Standing & venue

      1. Cannot challenge merits of underlying tax assessment

      2. A wrongful levy action by a junior lienholder is barred by

        the doctrine of sovereign immunity, Agristor Credit Corp v. U.S., (1987, DC IL) 60 AFTR 2d 87-5484, 87-2 USTC ¶9471

      3. Alleged taxpayer, i.e. person assessed, cannot bring wrongful levy action even if the levy is allegedly improper; only a third party claiming title has standing

      4. Must have title to property

      5. Conflict regarding standing of holders of a security interest;

        Whittaker Corp v. U.S., (1970, DC MI) 27 AFTR 2d 71-342, 71-1 USTC ¶9123 (no standing); Citizens Bank & Trust Co of Maryland v. U.S., (1972, DC MD) 30 AFTR 2d 72-5693, 344 F Supp 866, 72-2 USTC ¶9717 (security interest confers standing)

      6. Government retains right of offset for debts owed to another agency. Lyle, Ewing v. Commodity Credit Corp, (1996, CA10) 78 AFTR 2d 96-7623, 97-1 USTC ¶50119

      7. Venue is where the property is located

    4. Suspension of collection limitations statute during pendency of wrongful

      levy (up to the value of the amount wrongfully levied) 26 USC § 6503(f);

      Reg § 301.6503(f)-1(a)

    5. IRS agents are immune from wrongful levy damages unless they are

      abusive. Dubaich, Bruno v. Scearce, (1979, CA9) 45 AFTR 2d 80-1803

 

II.  Categories of Nonbankruptcy Litigation Cases - 

          Taxpayer the Defendant

  1. Reducing a tax assessment to judgment 26 USC § 6502; IRM 5.1.19.3.2.2; note that filing the suit tolls the collection statute

    1. Suit must be filed prior to expiration of the collection statute

    2. Collection statute is extended for OICs (time offer is pending plus 30 days,

      provided that if an appeal from denial was filed, the statute is extended for the appeal period plus 30 days); Collection Due Process pending (date submitted until date resolved, minimum of 90 days) 26 USC § 6330; date bankruptcy filed until case closed and taxpayer’s assets are no longer subject to bankruptcy court jurisdiction, plus 6 months (26 USC § 6503(h)(2))

    3. IRS is limited to collecting amount assessed as a condition of probation or release in a criminal tax case during the 10-year statute period see IRM 5.1.19.3

    4. Presence in a combat zone extends the collection statute, as does military deferment where applicable IRM 5.1.19.3.9

    5. The IRS can request an extension of the collection statute

    6. The statute is extended while an installment request is pending (including

      appeals from a denied agreement) plus 30 days

    7. Collection is suspended while an innocent spouse request is being

      processed (unless collection is jeopardized)

    8. Filing certain claims may suspend the collection statute. See IRM

      5.1.19.3.6(2)

    9. If the taxpayer is out of the country for 6 continuous months the collection

      statute is suspended until the taxpayer is in the US for 6 months (subject to

      adjustment for “cooperative” taxpayers)

    10. A wrongful lien can extend the collection statute, see 26 USC § 6503(f)(2)

    11. Submission of a taxpayer assistance order request on Form 911 suspends

      the collection statute while the request is pending 26 USC § 7811(d)

  2. IRS assessment is presumed correct and taxpayer bears the burden of proof in all respects in challenging the assessment

  3. If a judgment is entered, apply to DOJ to compromise the judgment

  4. Erroneous refunds - IRS can sue to recover an erroneous refund; statute of limitations under 26 USC § 7405(b) is 2 years from the date of the refund, except 5 years if induced by fraud

 

Bankruptcy Code § 505, determination of dischargeability, valuation of liens
tax court - deficiencies, innocent spouse, jeopardy termination
getting sued by IRS - nominee transferee reducing tax claims to judgment erroneous refunds 7405(b) 2 years except 5 years if induced by fraud

-6-

© MORGAN D. KING 2016-2020 Technical web advisor Douglas Morrison

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