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Morgan King's

 

Library of Taxpayers' Rights & Remedies

For Dealing with Delinquent Taxes & Tax Collection Emergencies

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Although it may often seem as though the Internal Revenue Service is a big, blind, deaf and all-powerful bully against which the lonely taxpayer has little defense, in fact there are many rights and defenses available to taxpayers experiencing seemingly unsolvable delinquent tax problems or other controversies with the IRS or state tax collection agencies.

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What follows is an encyclopedia of taxpayers' legal rights and remedies in connection with delinquent taxes, with the most common situations listed and brief descriptions of the nature of each. Here, in what we call the Tax Rights Reading Room, there is not enough space to give each topic an exhaustive explanation. But there should be enough here to point taxpayers, and tax professionals as well, in the right direction.

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This web site is organized this way: On this page you will find the Table of Contents, and below the Table are the topic summaries. You may skip the Table of Contents and simply scroll down to browse the topic summaries for the various topics. The topic summaries provide "in-a-nutshell" explanations of the problems or remedies discussed. At the end of each topic you will find a button to read more on the topic. Clicking on that button will take you to a more thorough treatment of the topic.

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A brief discussion of each legal remedy, and how it may benefit the taxpayer, follows:

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INTRODUCTION

 

Many a taxpayer suffers from the emotional stress and financial upheaval caused by delinquent tax debts. Fortunately, in a great many cases there are legal remedies for such situations, and quite often there is a remedy that allows the taxpayer to get rid of the tax debt and obtain a financial "fresh start." If the taxpayer has a great deal of equity in valuable real or personal property, it may be difficult to erase past tax debts without giving up some of that wealth. But for the vast majority of middle-class Americans who have relatively little equity in property, it is often possible to escape the tax debt with no loss of assets or income.

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In any event, a taxpayer with unpayable old tax debts is certainly well advised to explore whether any of the legal remedies may be the perfect solution for his or her problem. And, consultation with a tax expert about those solutions is always a good idea. After all ... talking to a tax expert may cost a few dollars, but delay or avoidance may cost you everything!

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There are typically four problems facing the taxpayer who owes, or is alleged to owe, delinquent taxes for past years. These are, how to convince the IRS the taxes are not owed; how to make the tax liabilities go away; how to stop tax collection levies or other seizures; how to get rid of tax liens.

Associated with those four issues may be a host of other ramifications, problems, or solutions. The taxpayer has eight options available, any one or several of which may offer a remedy to the problem.

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Briefly, the options are:

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1. Pay the taxes in a lump sum
2. Wait out the statute of limitations
3. Challenge the liability
4. Do an installment plan
5. Do an offer-in-compromise
6. Seek non-collectible status
7. Discharge the taxes in bankruptcy
8. Seek protection from abusive collection

 

Below is a discussion of the most frequently available ways of solving delinquent tax problems.

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TABLE OF CONTENTS

 

I. DEALING WITH DELINQUENT TAXES


TOPICS

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II. TAX COLLECTION INTERVENTION


TOPICS

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III. SPOUSAL DEFENSES


TOPICS

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IV. OTHER PROBLEMS & REMEDIES


TOPICS

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V. OBTAINING TAXPAYER'S IRS RECORDS


TOPICS

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VI. SUING THE IRS


TOPICS

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[Under construction]

  • Generally

  • Violation of statute or law (wrongful levy, etc.)

  • Violation of Fair Debt Collection Act

  • Suit for refund

  • Violation of bankruptcy discharge

  • Other grounds for suit

 

VII. OTHER ISSUES


TOPICS

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RETURN TO TOP | RETURN TO TABLE OF CONTENTS

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A Guide to the Taxpayer's Rights & Remedies
For Handling Delinquent Taxes And
Tax Collection Emergencies

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I. DEALING WITH DELINQUENT TAXES

 

Many a taxpayer suffers from the emotional stress and financial upheaval caused by delinquent tax debts. Fortunately, in a great many cases there are legal remedies for such situations, and quite often there is a remedy that allows the taxpayer to get rid of the tax debt and obtain a financial "fresh start." If the taxpayer has a great deal of equity in valuable real or personal property, it may be difficult to erase past tax debts without giving up some of that wealth. But for the vast majority of middle-class Americans who have relatively little equity in property, it is often possible to escape the tax debt with no loss of assets or income.

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In any event, a taxpayer with unpayable old tax debts is certainly well advised to explore whether any of the legal remedies may be the perfect solution for his or her problem. And, consultation with a tax expert about those solutions is always a good idea. After all ... talking to a tax expert may cost a few dollars, but delay or avoidance may cost you everything!

​

There are typically four problems facing the taxpayer who owes, or is alleged to owe, delinquent taxes for past years. These are, how to convince the IRS the taxes are not owed; how to make the tax liabilities go away; how to stop tax collection levies or other seizures; how to get rid of tax liens.

​

Associated with those four issues may be a host of other ramifications, problems, or solutions. The taxpayer has eight options available, any one or several of which may offer a remedy to the problem.

​

Briefly, the options are:

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1. Pay the taxes in a lump sum
2. Wait out the statute of limitations
3. Challenge the liability
4. Do an installment plan
5. Do an offer-in-compromise
6. Seek non-collectible status
7. Discharge the taxes in bankruptcy
8. Seek protection from abusive collection

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Below is a discussion of the most frequently available ways of solving delinquent tax problems.

 

1. Pay off the liability in a lump sum

 

Paying the liability in full is, of course, an obvious option. However, it is equally obvious that had the taxpayer the sufficient means to pay the tax he or she probably would have done so, and would not be exploring other remedies or visiting the office of a tax professional for help.

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The most frequent reason a taxpayer cannot pay the liability is not enough money. In fact, many taxpayers would dearly love to pay the tax, and they often have the money to do so, but they don't have enough money to pay the interest and penalties that have accrued over a period of time.

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Some taxpayers haven't paid the liability because they believe they should not be liable for the tax. For example, a taxpayer who has not file a tax return may have been assessed a bigger tax than he or she would have had the return been filed. Perhaps the taxpayer is unable to file the return because the records have been lost or destroyed. Or, the taxpayer may believe he or she was not a "responsible officer" for a corporation's payroll taxes, or a spouse was an "innocent spouse" and should not be required to pay the taxes incurred due to the other spouse's incompetence or dishonesty. Thus those taxpayers object to the assessment, and seek to challenge it somehow.

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A few lucky ones admit they owe the taxes and can get the money. They may borrow it, or perhaps have obtained the benefit of a windfall enabling them to pay the tax.

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The more typical situation, however, is the taxpayer who either disputes the assessment, or can't pay it. For those taxpayers, the first option, paying the tax, is not a feasible option.

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KEY BENEFITS:

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Paying off the liability in a lump sum ends the problem. The longer the liability remains unpaid, the more interest and interest on the interest accrue. Paying it saves the costs of paying a professional to haggle over it, and avoids the necessity to use other, perhaps less desirable remedies such as bankruptcy or litigating the liability.

MORE: about paying off the liability

LAWYERS' REFERENCES:

FORMS:

 

 

2. The Statute of Limitations

 

  • Assessment - Three years from date return is filed

  • Collection - Ten years from date of assessment

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In most cases the IRS does not have an unlimited amount of time to assess or collect a tax. In a nutshell, the IRS must assess a tax within three years of the taxpayer filing a tax return, and must collect it within ten years after the assessment. These periods of time may be tolled, or extended, by certain events.

The statute of limitations of the enforceability of a tax lien is the same as for the collection of the tax, i.e., ten years from date of assessment.

KEY BENEFITS:

MORE: about IRS statutes of limitations

LAWYERS' REFERENCES: IRS MANUAL

FORMS:

 

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3. Challenge the liability

 

Taxpayers frequently have legal defense to tax debts. There is a variety of situations in which such a legal defense is more likely to appear. The taxpayer may intuitively feel that he or she should not be assessed a certain tax liability. However, it usually takes an experienced tax professional, such as a lawyer or enrolled agent, to properly identify and take advantage of legal defenses. We discuss a few of the most common defenses, below.

 

4. File the tax returns

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It is not uncommon for a taxpayer to receive a notice of intent to assess taxes for a year for which he or she neglected to file a return. The IRS often obtain income information on the taxpayer from sources other than the tax return. With that information the IRS will prepare and file a blank substitute for return, and then soon after assess income taxes based on the information. However, it is also common for the information to be incorrect or fail to reflect exemptions and deductions available to the taxpayer. In those situations, the simplest solution is to file the tax return and thereby provide the IRS with the correct income and expense information. In most cases, the IRS will adjust its proposed assessment to reflect the data provided by the taxpayer on the return, even if the return is late. Of course, the IRS has three years from the date of filing the return to conduct an audit and, if justification is found, assess additional taxes

 

 

5. Responsible officer liability

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A person who has or supervises employees and who is supposed to withhold federal income taxes may be personally liable for those taxes if they are not withheld or paid, and if the person qualifies as a liable person. Such a person is often referred to as a "responsible person" or "responsible officer."

Internal Revenue Code § 6672 authorizes assessment of liability against a person if the right circumstances exist. That section provides that -

Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.

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A person who is operating a business as a sole proprietorship is easily found to be personally liable for unpaid payroll taxes. However, if the company is a corporation and the individual is merely an employee or officer of the corporation, such individual may have defenses to personal liability. This is because, in order to assess an individual for a corporate payroll tax liability, the IRS must prove two things; that the individual was authorized to collect and pay the taxes, and that the individual deliberately failed to do so. In many cases this is not easy.

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KEY BENEFITS:

MORE: about responsible officer liability

LAWYERS' REFERENCES:

FORMS:

Link to IRS Manual

 

6. Audit appeal

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Out of the clear blue you receive a notice of deficiency or a notice of proposed assessment. This document notifies you that the tax collector intends to sock you for a big additional tax you didn't know you owed. Or, perhaps you were expecting it, but you don't think it's fair or correct.

These notices give you so many days to file an appeal or object to the proposed tax. If you miss your deadline for filing the appeal or objection, the only way you'll get out of the problem is to pay it, reduce it with an offer-in-compromise, or erase it in a bankruptcy.

If you decide to appeal or object, you're wise to consult first with an enrolled agent, tax attorney, or bankruptcy attorney first. And, in many cases you're much better off employing such a professional to stand between you and the tax collector!

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KEY BENEFITS:

MORE: about your audit rights

LAWYERS' REFERENCES:

FORMS:

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7. Innocent spouse defenses

 

 

8. Suit to obtain civil judgment

 

 

9. Fraudulent transfer / nominee lien

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10. Installment agreements

 

Installment Agreements are arrangements whereby the Internal Revenue Service allows taxpayers to pay liabilities over time. Only agreements that provide for full payment of liabilities may be granted. During the course of payments, penalty and interest continue to accrue. No levies may be served while an installment agreement is in effect. The taxpayer may have up to three years to pay the liability. The installment agreement is IRS Form 433-D.

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KEY BENEFITS:

Once an installment agreement is entered into, the IRS is barred from collection activity. And, typically collection is halted while the agreement is being negotiated, if the taxpayer is acting in good faith.

MORE: about INSTALLMENT AGREEMENTS

LAWYERS' REFERENCES:

The full IRS procedure and policy on installment agreements may be found at the IRM, Installment Agreement Handbook. The IRC reference to installment agreements is IRC § 6159. IRS procedure for defaulted installment agreements. The IRS checklist for Compliance and Customer Service Managers. Guaranteed installment agreements and completing Form 433-D.

FORMS:

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Request for installment agreement, IRS Form 9465.

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Online request for payment plan

 

 

11. Offer-In-Compromise

 

In a nutshell, an offer is made for a settlement of the claim by submitting IRS Form 656, with personal financial statement IR Form 433-A. A taxpayer in business for himself must also attach IRS Form 433-B. The offer of settlement may be made on the ground that the taxpayer does not have the financial ability to pay the full liability, or there is doubt about the taxpayer's legal liability to pay the claim, or where under the circumstances it would be unfair to force the taxpayer to pay the claim.

KEY BENEFITS:

A key benefit of making an offer using this method is that the IRC requires that all tax collection activity stop while the offer is being considered by the IRS. The average settlement nationwide is 15 cents on the dollar.

MORE: about Offer-In-Compromise

LAWYERS' REFERENCES:

Application fee ($150 with submission of Form 656)

Beginning November 1, 2003, a $150 application fee or Form 656-A, "Income Certification for Offer in Compromise Application Fee" must be submitted with the Form 656. The $150 fee is required unless the offer is based solely on doubt as to liability, or the taxpayer's total monthly income falls at or below income levels based on the Department of Health and Human Services poverty guidelines. Taxpayers who claim the poverty guideline exception must certify their eligibility using Form 656-A. The poverty guideline exception applies only to individuals.

Summary of OIC

IRS OIC Handbook

Code of Regulations

IRS OIC Expense standards (Collection Standards)

Where to File

FORMS: IRS Form 656 | Form 433-A | IRS Form 433-B

Appealing the rejection of an offer

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7. BANKRUPTCY

 

In many cases taxes, interest and penalties may be discharged in a Chapter 7 bankruptcy, or paid out over a three-to-five year court approved payment plan (based on the taxpayer's ability to pay) in a Chapter 13 bankruptcy. "Discharge" means to erase ... in other words, you will never have to pay the discharged taxes. In some cases not all of one's income taxes may be discharged.

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The very instant your bankruptcy petition is filed the tax collector (yes ... even the IRS!) must cease all collection activities. A kind of an invisible shield called the "automatic stay" surrounds you. No levy, lien, seizure, lockup or harassment to pay is allowed. Your bank account, paycheck, car and other assets are protected. The degree of protection varies according to each individual's particular circumstances.

Discharging income taxes in bankruptcy is tricky, and many bankruptcy lawyers do not know how to do it.

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KEY BENEFITS:

A key benefit to either Chapter of bankruptcy is that it immediately halts all tax collection activity. And, it usually erases all or a large portion of delinquent taxes.

More about Discharging Taxes

LAWYERS' REFERENCES

IRS Bankruptcy Handbook

IRS Publication 908

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8. TAX COLLECTION INTERVENTION

 

The IRS Explains The Collection Process

Fair Debt Collection Act

The Internal Revenue Code, at § IRC 6304, requires the IRS to comply with certain sections of the Fair Debt Collection Practices Act (FDCPA). These deal with:

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  • contacts regarding unpaid tax, and

  • harassment and abuse of taxpayers.

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This law applies to contacts with all taxpayers, including corporations and partnerships. Violations of IRC 6304 could subject the IRS to civil action (IRC 7433) by the taxpayer.

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Specifically, the statute prohibits the following kinds of behaviour:

A. the use or threat of use of violence or other criminal means to harm the physical person, reputation, or property of any person,

B. the use of obscene or profane language to abuse the hearer or reader,

C. causing a telephone to ring or engaging any person in telephone conversation with the intent to annoy, abuse or harass any person at the called number,

D. placing telephone calls without meaningful disclosure of the caller's identity, except as similar to rules in Section 804 of the FDCPA.

Contacting Taxpayers

1. Some contacts require the taxpayer's consent, first. These include:

A. contacting the taxpayer at any unusual time or place, or a time or place an employee knows or should know, is inconvenient to the taxpayer,

B. contacting the taxpayer at work, if there is reason to believe the employer does not allow this,

C. directly contacting a taxpayer who has a known, authorized representative or one that can be readily identified.

Exceptions:

D. If the representative does not respond in a reasonable time, they can be bypassed. See Section 1.10 of this chapter. Also the taxpayer can be contacted directly if the representative consents to the employee's direct contact.

E. If the contact is authorized by a court.

Employees can generally assume that it is convenient to contact the taxpayer after 8:00 a.m. and before 9:00 p.m. local time at the taxpayer's location, unless there is reason to know otherwise.

Awareness that the Taxpayer has a Representative

1. An IRS employee is considered to know about the representative if the taxpayer says there is one. This can be written or oral. If the taxpayer is represented:

A. ask for a written power of attorney or disclosure authorization form,

or

B. ask the taxpayer to provide the name and address of the representative

2. There may be doubt whether a person still represents the taxpayer or an issue is covered. If so contact the representative and ask.

CAUTION:

If the IRS employee does not have the power of attorney or some other written authorization, the representative may be contacted, but no more can be disclosed than what is authorized in IRC 6103(k)(6).

Promoting Public Confidence

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It is IRS policy not to use methods which are threatening or harassing to the public. See Policy Statement P-1-1. IRC 6304 prohibits employees from harassing, oppressing, or abusing any person in connection with the collection of any unpaid tax. "The Secretary may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of any unpaid tax."

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EXCEPTION:

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If the telephone call is only for the purpose of acquiring location information about the taxpayer, the employee cannot:

E. tell any third party that they are an employee of the IRS, or

F. provide their title (R/O, TE, etc.) to the third party unless , that information is requested by the third party. "Location information" is defined as the taxpayer's place of abode and phone number at such place, or place of employment.

KEY BENEFITS:

MORE: about Fair Debt Collection

LAWYERS' REFERENCES:

Full text, Federal Fair Debt Collection Practices Act: Public Law 104-208, 110 Stat. 3009 (Sept. 30, 1996)

Full text of statute 15 U.S.C. § 1692

Exempt amounts in tax levy

FORMS

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The IRS Restructuring & Reform Act of 1998

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The Internal Revenue Service Restructuring and Reform Act of 1998 is a major piece of legislation overhauling the way the IRS governs itself and the way in which the IRS interacts with taxpayers.

KEY BENEFITS:

The R&R Act codified important new protections for taxpayers. Collected together these new rights are sometimes called The Taxpayers' Bill of Rights III. Among these are, the right to appeal proposed tax levies or recent tax liens; the right to sue the IRS for damages for violation of taxpayer rights; extends the attorney-client confidentiality privilege to include federally authorized tax practitioners (called "enrolled agents"); expands grounds for "innocent spouse" relief; expands the offer-in-compromise program; and other enhanced protections for taxpayers.

MORE: about

LAWYERS' REFERENCES:

Congressional testimony re the R&R Act ("Uncle Fed's Tax Board")

IRS link: Complete Text of R&R Act

Summary of Taxpayers' Rights under the R&R Act

Short explanation of R&R Act by Douglas A. Fleming

IRS Collection Procedures under the R&R Act

Taxpayer Bill of Rights III (based on the R&R Act)

Exempt amounts in tax levy

FORMS

IRS Form 12153 request for due process hearing

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Due Process Hearings

 

In any situation where the IRS is about to levy on a bank account, attach a paycheck, file a lien, or take other tax collection action, the taxpayer has the right to request a hearing by an independent IRS appeals officer. This hearing is called a "due process" hearing.

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At least 30 days prior to performing the threatened collection action the revenue officer must give the taxpayer notice of his or her right to a hearing. If the taxpayer does not make the request within the 30 days of date of the NOTICE OF INTENT TO LEVY the right to the hearing is waived (note, if you wait until you receive the actual Notice of Levy, it is too late to request a due process hearing; however, you can still "appeal" the collection. See below). "Timely mailed constitutes timely filed if the taxpayer's request for a CDP hearing is correctly addressed to the IRS office listed in the CDP hearing notice or if that address is not known, to the Area Director serving the location of the taxpayer's residence or principal place of business." IRM § 5.1.9.3.2 (Part 5, Chapter 1, Sec. 9 "Collection Appeal Rights."

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The request is initiated by filing IRS Form 12153, "Request For A Collection Due Process Hearing." Pursuant to Internal Revenue Manual § [5.1] 9.1, "The taxpayer is asked to file the request for the hearing with the employee or function initiating the action. Cases assigned to the Collection Field function will have the assigned revenue officer's name and address listed on the Collection Due Process (CDP) hearing notice."

If adverse to the taxpayer, the decision of the appeals officer may be appealed to the U.S. Tax Court or other court of competent jurisdiction. This process potentially may tie up the collection activities for months or years.

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The things that the appeals officer may consider include a broad range of issues, including illegal collection techniques, abusive assessments or collection actions, the taxpayer's liability and legal defenses to liability, and alternatives to collection, such as installment plans and offers-in-compromise.

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KEY BENEFITS: A key benefit to filing for a due process hearing is that all collection activity must cease, unless the IRS has good reason to believe the taxpayer may be attempting to transfer or conceal assets. And, anything illegal or unjust about the lien or levy will be reviewed by a neutral arbiter.

Needless to say, in most cases it will be prudent for the taxpayer to be represented by legal counsel at the hearing.

 

1. LEVY DUE PROCESS HEARING

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The IRS begins the process of levying on the taxpayer's funds by sending a warning. There are typically three warning letters. The first two are sent out from the Service Center and are referred to as "CP 504." The letters "CP" mean computer paragraph. Both of these are entitled "Final Notice of Intent To Levy." The first one is sometimes called the "soft" CP 504, and the second is the "hard." notice. Either of these triggers a 30-day period in which to file a request for a due process hearing. The third letter is form 1058 and comes from the revenue officer, once the Service Center has assigned it for collection. This letter also triggers a 30-day request period. "Timely mailed constitutes timely filed if the taxpayer's request for a CDP hearing is correctly addressed to the IRS office listed in the CDP hearing notice or if that address is not known, to the Area Director serving the location of the taxpayer's residence or principal place of business." IRM § 5.1.9.3.2 (Part 5, Chapter 1, Sec. 9 "Collection Appeal Rights."

The request is supposed to be sent to the address from which the notice came. Accordingly, where the taxpayer receives a notice of intent to levy coming from the respective service center, the request for hearing should be sent to that address, certified. Similarly, if the letter comes from the revenue officer the request should be sent there.

 

2. LIEN DUE PROCESS HEARING

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The taxpayer has the right to request a "due process" hearing to contest the validity of a tax lien. The request for the hearing must be made within 30 days following the notice of the filing of the lien. Note that unlike the notice of levy, which gives the taxpayer the right to request the hearing before the levy actually takes effect, the opportunity to request a hearing for a lien follows the actual filing of the lien. "Timely mailed constitutes timely filed if the taxpayer's request for a CDP hearing is correctly addressed to the IRS office listed in the CDP hearing notice or if that address is not known, to the Area Director serving the location of the taxpayer's residence or principal place of business." IRM § 5.1.9.3.2 (Part 5, Chapter 1, Sec. 9 "Collection Appeal Rights."

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IMPORTANT: Submitting the request for due process hearing form must be carefully done:

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  • The exact type of tax and exact tax periods must be indicated on the form

  • Before the IRS can accomodate the taxpayer at the due process hearing the taxpayer must be in compliance (i.e., have all tax returns filed).

  • The attorney's power-of-attorney must precisely reflect the types of tax forms, type of tax, and the precise tax periods at issue.

  • Any irregularities in the request will be used by the IRS to deny the taxpayer's remedies at the hearing

  • The IRS will attempt to conduct the hearing by telephone. You may insist on a face-to-face hearing.

 

KEY BENEFITS:

MORE: about Due Process hearings

LAWYERS' REFERENCES:

IRM § 5.1.9 Collection Appeal Rights

IRM Manual section on requesting due-process hearing

26 U.S.C. § 6320 (hearing after notice of lien) and § 6330 (notice of levy): Collection. 26 U.S.C. § 6301 et seq.

FORMS

IRS Form 12153 Fill-in Request for due process hearing

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3. EQUIVALENCY HEARINGS

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If the request for a due process hearing is untimely (not filed within 30 days of the notice of intent to levy or file a lien) the taxpayer may still file a collection "appeal," or request an "equivalency" hearing (collection appeals process, or "CAP"). However, in both cases continued collection activity is within the discretion of the IRS, and there is no appeal to court if the taxpayer does not like the ruling.

KEY BENEFITS:

MORE: about equivalency hearings

LAWYERS' REFERENCES:

IRM § 5.1.9.3.5, Collection Appeal Rights, Part 5, Chapter 1, Section 9.

FORMS

 

NON-COLLECTIBLE STATUS

 

The IRS may designate your account as "Currently not collectible," designated as Collection Status Code 530. This is sometimes referred to as the account being "53'd." This means the IRS is convinced that collection against you is not possible without creating an undue hardship, or is simply not collectible at all, and so all collection efforts are stopped until there is a change of circumstances allowing collection to resume. For further information about this remedy, visit the Internal Revenue Manual.

KEY BENEFITS:

MORE: about non-collectible status

LAWYERS' REFERENCES: INTERNAL REVENUE MANUAL

TO REQUEST NON-COLLECTIBLE STATUS 800-829-7650

Economic hardship

FORMS: COLLECTION INFORMATION FORM 433-F

REQUEST FOR TAXPAYER ASSISTANCE ORDER FORM 911

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Taxpayer's Advocates' Office

 

Pursuant to IRC § 7811 an independent office called the Office of the Taxpayer Advocate is empowered to conduct a fast investigation of a tax collection problem, including abusive or unfair tax collection, and if necessary issue an order for the IRS collection officer to cease collection activities, such as levy or wage garnishment. And, the taxpayer advocate may order the return of seized assets.

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The Advocate may issue such an order if, in the view of the Advocate, "the taxpayer is suffering or about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered by the (revenue officer)."

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Factors that the Taxpayer Advocate will consider include:

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  • Whether or not there is an immediate threat of adverse action;

  • Whether there has been a delay of more than 30 days in resolving the taxpayer's account problems;

  • Whether the taxpayer will have to pay significant costs (including legal fees) if relief is not granted; or

  • Whether the taxpayer will suffer irreparable injury, or a long-term adverse impact, if relief is not granted.

 

[IRC § 7811(a)]

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The help of the Taxpayer Advocate is initiated by the filing of IRS Form 911, Request For Taxpayer's Assistance Order. The form may be faxed to one of the various offices of the Taxpayer's Advocate, or Taxpayer's Assistance offices, located around the country. The taxpayer may have his attorney initiate such action, in which case the attorney will require the taxpayer's signature on a Power of Attorney permitting the IRS to discuss the matter with the attorney.

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In clear-cut cases of abusive collection this remedy may work quite well. One downside is that the reaction time of the Taxpayer's Advocate may not be fast enough to stop a pending seizure, levy or lockup. The request for the order is first screened by an IRS employee, then turned over for managerial review, then assigned to a case worker, who will contact the relevant revenue officer. All of this may take from a couple of days to a week or more.

KEY BENEFITS:

The advantage is that it is relatively inexpensive in terms of legal fees.

MORE: about the Taxpayer Advocate Service

LAWYERS' REFERENCES:

The national phone number, and local phone numbers and fax numbers of offices of the Taxpayers' Advocate may be downloaded from IRS Publication 1546

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Violation of bankruptcy stay

 

If you are in bankruptcy you have very good protection from tax collection by either the IRS or a state tax agency. This is because of the restraining order called the "automatic stay" that arises the moment one files bankruptcy. This protection prevents any kind of effort to collect the tax. Levies on a paycheck or bank account that have been filed must be dismissed.

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If the taxes are dischargeable in bankruptcy, once the bankruptcy is over and the taxpayer has received a discharge, the taxes are erased and cannot be collected in the future. If the taxing entity filed a tax lien before the start of the bankruptcy, the lien will survive, but only on existing assets, not future income or property.

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If the taxing entity attempts to collect the tax during the bankruptcy, or attempts to collect a discharged tax after the bankruptcy, the Bankruptcy Court is empowered to severely sanction the taxing entity for violating the taxpayer's automatic or permanent stay.

The taxing entity is, however, entitled to continue other activities such as investigations and audits, as long as they do not involve attempts to collect the tax.

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IRC § 7433 provides that, in the event of negligent or willful violation of the automatic stay or the permanent discharge, the aggrieved debtor/taxpayer may sue in civil court [§ 7433(b)] for actual damages, costs of litigation, and additional statutory damages [§ 7433(e)(1)]: "If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service willfully violates any provision of section 362 (relating to automatic stay) or 524 (relating to effect of discharge) of title 11, United States Code (or any successor provision), or any regulation promulgated under such provision, such taxpayer may petition the bankruptcy court to recover damages against the United States."

REFERENCES: Judicial Proceedings, 26 U.S.C. § 7401 et seq.

KEY BENEFITS

 

File Chapter 13 petition

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Make an Offer-In-Compromise

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Apply for an installment agreement

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No levy on § 6334 property

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No levy on § 6323 property

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No levy on retirement plan until pay-status

 

No sale of home without egregious circumstances

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3. SPOUSAL DEFENSES

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Is the taxpayer liable for spouse's taxes?

Community property states

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Imputed liability

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Innocent spouse defenses

 

Versions of innocent spouse defense

 

Injured spouse

 

Separate liability

KEY BENEFITS

MORE: about innocent spouses

LAWYERS' REFERENCES:

Brochure: IRS Publication 971 - Innocent Spouse

Innocent spouse pursuant to Cal. Revenue and Taxation Code Sections are:

1. 18533(b): Relief from Additional Tax

2. 18533(c): Relief by Allocation of Liability

3. 18533(f): Equitable Relief

4. 18534: Relief from Community Income

5. 19006(b): Relief by Court Order

6. 19006(c): Relief from Return Tax

 

2383 Processing Request for Innocent Spouse Relief

 

All calls regarding Innocent Spouse relief should be transferred to the Innocent Spouse Program at (916) 845-7072.

FORMS: FORM 8857 Request For Innocent Spouse Relief

WHERE TO MAIL INNOCENT SPOUSE CLAIMS (10/16/2007)

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The processing of Forms 8857 Request for Innocent Spouse Relief (And Separation of Liability and Equitable Relief) has been centralized at the Cincinnati Compliance Campus located in Covington, Kentucky. Completed Forms 8857, should be mailed directly to:

IRS-Stop 840-F
Innocent Spouse
PO Box 120053
Covington, KY 41012

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Mailing completed Forms 8857 to any other office will greatly increase the length of time to process the request.

 

The bankruptcy co-debtor stay

 

Transmutation and other property agreements

 

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MORE: about transmutation agreements

LAWYERS' REFERENCES:

FORMS:

 

4. OTHER PROBLEMS & REMEDIES

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Unfiled tax returns

 

 IRS Assistance

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Penalty abatement

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KEY BENEFITS

MORE: about penalty abatement

LAWYERS' REFERENCES:

IRS Handbook

FORMS:

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Petition to Tax Court

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Remedies for liens

 

KEY BENEFITS

MORE: about LIENS & LEVIES

LAWYERS' REFERENCES:

IRS Handbook

FORMS:

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Fraudulent transfers and nominee liens

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Abusive trusts

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Summons

 

LAWYER'S REFERENCE

IRM ENFORCEMENT OF SUMMONS

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Tax Crimes

 

CRIMINAL PROSECUTION FOR VIOLATIONS OF THE FEDERAL TAX LAWS

 

Are you in danger of going to prison?

 

In most cases taxpayers with delinquent tax liabilities will not be subject to criminal charges under the Tax Code. In the vast majority of cases a delinquent taxpayer will not realistically face incarceration in prison, particularly where the errant taxpayer takes the initiative to resolve the problem. Thus, in those cases the sooner the taxpayer contacts a Tax Help Lawyer the better.

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However, in some egregious cases the U.S. Department of Justice will initiate criminal charges which may result in a prison sentence.

The examination division or collections division of the IRS may recommend a criminal investigation with the IRS Criminal Investigation Division (CID). The CID has the option of forwarding the case to the Justice Department, or letting it "slide." Many lower division recommendations to the CID for criminal prosecution do not result in actual criminal charges.

However, once an investigation is initiated or criminal charges made the situation is potentially very serious; the accused taxpayer is well advised to contact a local The Tax Help Lawyer immediately.

There are basically five acts which may constitute a crime under the Tax Code. These are -

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1. Making a false statement to the IRS or a Justice Department officer.

2. Failure to file tax returns (i.e. failure to report income)

3. Willful attempt to evade or defeat tax or tax assessment

4. Filing a fraudulent tax return

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Note that IT IS NOT A CRIME to fail to pay the taxes; debtors' prison was done away with in this country long ago. But failure to file the return may result in criminal charges. Therefore even if the taxpayer cannot pay the taxes it is a good idea to at least file the tax return.

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What is tax evasion?

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There are basically two kinds of tax evasion. One is where the taxpayer attempts to evade the proper assessment of tax by hiding income, making fraudulent transfers of income or assets, or claiming dummy deductions or expenses. Failure to report income by failing to file the returns, or filing false returns are forms of tax evasion. The IRS takes this kind of evasion very seriously. The other kind is where the taxpayer has honestly and fully reported all income, and filed honest tax returns, but is trying prevent the IRS from collecting the tax. In that situation the taxpayer may, for example, try to conceal the location of his income or assets so that the IRS can't seize them. He may deposit his paycheck in a bank account under someone else's name, for example, or purchase property in someone else's name. Or, he may transfer title to his house to a relative, etc. Although this kind of conduct can arouse the ire of the IRS, it is more common and typically less serious, depending on the degree of the evasion.

In either case, if the taxpayer comes forward (comes in "out of the cold") and voluntarily reenters the "system," that is, comes back into "compliance" with the tax laws, it is rare for the Government to undertake to seek any criminal sanctions. An errant taxpayer can often gracefully come back into compliance through the offer-in-compromise process, or a Chapter 13 court approved payment plan.

Tax crimes are investigated and prosecuted by the Criminal Investigation Division ("CID"). You may visit the CID web site.

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Inspector General

 

The IRS Restructuring & Reform Act of 1998 created the independent Office of the Treasury Inspector General for Tax Administration ("OTIGTA").

If you believe you are being harassed or abused by an IRS tax collector, consider filing a complaint with the Treasury Inspector General for Tax Administration. This is office is completely independent of the Internal Revenue Service, and oversees criminal, wasteful or abusive conduct on the part of any IRS employee.

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REPORTING FRAUD, WASTE & ABUSE

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If you are aware of fraud, waste, mismanagement, and abuse in the IRS

programs and operations, report it to the OTIGTA's Hotline! This includes abuse or illegal activity by an IRS revenue officer or other IRS employee.

What kinds of things should you report?

Mismanagement or violations of law, rules, or regulations by the IRS employees or contractors. Mismanagement or violations of law, rules, or regulations by the OTIGTA employees or contractors.

Confidentiality

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Your complaint will be kept confidential if it is received on the phone, through the mail, or in person. We cannot guarantee confidentiality if you send your complaint by e-mail (online submission).

Retaliation

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Laws protect you from reprisals (any action taken against you because you filed this complaint).

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TELEPHONE HOTLINE

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to report tax collection abuse or illegal activity

1 (800) 366-4484

FAX (703) 812-1724

ADDRESS:

Treasury Inspector General For Tax Administration
Hotline
P.O. Box 589
Ben Franklin Station
Washington, D.C. 20044

 

KEY BENEFITS

MORE: about the inspector general

LAWYERS' REFERENCES:

FORMS:

 

Taxpayers' Bill of Rights

 

KEY BENEFITS

MORE: about taxpayers' rights

LAWYERS' REFERENCES:

IRS Summary of Taxpayers' Rights

IRS Taxpayers' Rights Training Manual

FORMS:

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5. OBTAINING TAXPAYER'S IRS RECORDS

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Obtaining taxpayer's transcripts

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Freedom Of Information Act - FOIA

 

For the taxpayer's IRS files there are basically three statutory schemes that provide ways to obtain the files. These are the Freedom of Information Act; (FOIA), the Privacy Act, and IRC § 6103 et seq., "Confidentiality and disclosure of returns and return information."

The Freedom of Information Act (FOIA) is a fairly simple way to obtain a copy of the taxpayer's files and documents held by the IRS. This is ordinarily accomplished with a letter, or if the taxpayer is represented by a professional a letter together with a signed power-of-attorney. The fundamental purpose of the FOIA is to provide citizens a method to obtain general information and documents from the U.S. Government, which makes it the method with the broadest sweep. "The Freedom of Information Act establishes the right to know what government is doing." It was not devised primarily to help individuals obtain personal records about themselves, but case law has established solidly the right of a citizen to use FOIA for that purpose.

The Privacy Act was devised to permit a citizen to obtain information about him or herself, why the government is collecting it, who has access to the information, and governs prohibitions on government disclosure of personal information.

Internal Revenue Code § 6103, "Confidentiality and disclosure of returns and return information," is a detailed statutory scheme designed specifically to provide taxpayer's a way to access documents and information contained in their respective personal tax files.

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KEY BENEFITS

MORE: about obtaining tax documents.

LAWYERS' REFERENCES:

FOIA Help Center

FOIA Addresses

Full Text of FOIA statute

IRS FOIA Procedure

FORMS:

 

Discovery

 

6. SUING THE IRS

 

Abusive tax collection

 

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6.1 Generally

6.2 Violation of law or regulation

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The IRS Reform & Restructuring Act of 1998 ("RAR") enhanced the taxpayer's right to sue the IRS for unlawful or abusive tax collection. The Act added IRC § 7433 which provides the taxpayer the right to sue the IRS (actually, the United States Government) where a revenue officer or other IRS employee "... recklessly or intentionally disregards any provisions or any regulation." Damages for actual economic harm caused by the act or acts, including the cost of litigation, may be awarded up to $1,000,000.

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Section 3102 of the RAR added mere "negligence" as an additional ground for suit, with damages up to $100,000. The burden of proving negligence is much lower than proving reckless or intentional disregard of law or violation of the bankruptcy stay or discharge.

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The taxpayer must exhaust administrative remedies before bringing suit, and must show that he or she took reasonable steps to limit or reduce the actual damages. The suit must be filed within two years after the revenue officer's unlawful act, and is filed in the United States District Court having proper venue.

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Note that this lawsuit must be against the United States Government, not the IRS or any individual revenue officer, unless the revenue officer violated the taxpayer's constitutional rights not merely a statute or law.

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There is a number of other reasons why a taxpayer may wish to sue the IRS, including such things as violation of a bankruptcy discharge, suit to quiet title, suit for unauthorized disclosure of confidential tax information, and etc. Click on "More about suing the IRS" to learn about them.

KEY BENEFITS

MORE: about

LAWYERS' REFERENCES:

 

FORMS:

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Suit For Refund

The taxpayer may pay the liability and then bring a "refund" action in federal district court for the amount of the claimed overpayment.

KEY BENEFITS

MORE: about Suing the IRS

LAWYERS' REFERENCES:

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26 U.S.C. § 7422 (IRC Chapter 76)

 

FORMS:

 

7. OTHER TOPICS

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Tax fraud scams

"If it sounds too good to be true, it probably is!" Seek expert advice before you subscribe to any scheme that offers instant wealth or exemption from your obligation as a United States Citizen to pay taxes.  Buying into a tax evasion scheme can be very costly.

MORE

 

 

Fraudulent trusts

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While there is no hard and fast definition of abusive tax shelter arrangements, typically they are promoted by the promise of tax benefits with no meaningful change in the taxpayer's control over or benefit from the taxpayer's income or assets. The promised benefits may include reduction or elimination of income subject to tax; deductions for personal expenses paid by the trust or other entity; depreciation deductions of an owner's personal expenses paid by the trust or other entity; depreciation deductions of an owner's personal residence and furnishings; a stepped-up basis for property transferred to the trust or other entity; the reduction or elimination of self-employment taxes; and the reduction or elimination of gift and estate taxes. These promised benefits are inconsistent with the tax rules.

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MORE

 

 

Invalid tax protest arguments

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This responds to some of the more common frivolous "legal" arguments made by individuals and groups who oppose compliance with the federal tax laws. These arguments are grouped under six general categories, with variations within each category.

Each contention is briefly explained, followed by a discussion of the legal authority that rejects the contention. A final section explains the penalties that the courts may impose on those who pursue tax cases on frivolous grounds.

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