REPRESENTATION TECHNIQUESREPRESENTATION TECHNIQUES

Dennis G. PhillipsDennis G. Phillips

WHAT WE WILL WHAT WE WILL DISCUSSDISCUSS

Audit ProcessAudit Process Audit/Collection TipsAudit/Collection Tips Appeals Appeals CDP 101CDP 101 Statute of LimitationsStatute of Limitations TranscriptsTranscripts

THE AUDIT PROCESSTHE AUDIT PROCESS

The IRS uses a computerized The IRS uses a computerized statistical sampling technique to statistical sampling technique to select tax returns for most audits.select tax returns for most audits.

When a return is selected for an When a return is selected for an audit it is usually subject to an audit it is usually subject to an “office” audit or a “field” audit.“office” audit or a “field” audit.

THE AUDIT PROCESSTHE AUDIT PROCESS

The office audit is conducted in an The office audit is conducted in an Internal Revenue Office and is Internal Revenue Office and is typically for individual taxpayers typically for individual taxpayers with little or no business activities.with little or no business activities.

In a field audit, the IRS agent In a field audit, the IRS agent reviews a taxpayer’s books and reviews a taxpayer’s books and records at the taxpayer’s place of records at the taxpayer’s place of business or the office of the business or the office of the accountant.accountant.

AUDIT TIPSAUDIT TIPS

Conduct yourself courteously and Conduct yourself courteously and professionally showing that you have professionally showing that you have prepared for the auditprepared for the audit

Review the strengths and weaknesses of Review the strengths and weaknesses of your position before the agent arrivesyour position before the agent arrives

Cooperate with the agent and promptly Cooperate with the agent and promptly respond to all requestsrespond to all requests

Establish time tables for completion of Establish time tables for completion of auditaudit

PREPARING FOR EXAMINATIONS

Interview your client before the IRS does

Anticipate what is going to be asked of your client

Try to resolve all issues before the IRS makes assumptions.

DO AND DON’TS WITH DO AND DON’TS WITH AUDITSAUDITS

Don’t impede the audit processDon’t impede the audit process Present your case in a clear and logical Present your case in a clear and logical

mannermanner Don’t argue frivolous issuesDon’t argue frivolous issues Don’t submit fraudulent documentsDon’t submit fraudulent documents

WHAT HAPPENS IF I WHAT HAPPENS IF I DON’T AGREE WITH DON’T AGREE WITH

THE AUDITOR OR THE THE AUDITOR OR THE REVENUE OFFICERREVENUE OFFICER

Every taxpayer has the right to Every taxpayer has the right to appeal the findings of the examiner.appeal the findings of the examiner.

FAST TRACK FAST TRACK SETTLEMENTSETTLEMENT

Usually done prior to issuance of the 30 Usually done prior to issuance of the 30 day letter.day letter.

Form 14017 must be completed by the Form 14017 must be completed by the taxpayer and the IRS (Both must agree)taxpayer and the IRS (Both must agree)

The taxpayer must provide the The taxpayer must provide the examiner with a brief, concise and examiner with a brief, concise and soundly written statement of the facts soundly written statement of the facts along with a statement of their along with a statement of their position. position.

FAST TRACK FAST TRACK SETTLEMENTSETTLEMENT

Appeals officer trained in MediationAppeals officer trained in Mediation Acts as Acts as neutralneutral mediator mediator Assists in a Assists in a neutralneutral location location Works with TP and Compliance Works with TP and Compliance

officerofficer Can settle cases based on hazards Can settle cases based on hazards

of litigationof litigation

FAST TRACK FAST TRACK SETTLEMENTSETTLEMENT

Cases that can be fast tracked are:Cases that can be fast tracked are: Non-docketed cases while in SB/SENon-docketed cases while in SB/SE Fully developed factual and legal casesFully developed factual and legal cases

FAST TRACK FAST TRACK SETTLEMENTSETTLEMENT

Fast Track Excludes:Fast Track Excludes: Most collection casesMost collection cases No-response casesNo-response cases TEFRA casesTEFRA cases Campus and ACS casesCampus and ACS cases Whipsaw issuesWhipsaw issues Frivolous ArgumentsFrivolous Arguments

FAST TRACK FAST TRACK SETTLEMENTSETTLEMENT

The benefits of fast track are:The benefits of fast track are: Hazards can be used to resolve the caseHazards can be used to resolve the case Resolution usually takes about 60 daysResolution usually takes about 60 days Can opt out any timeCan opt out any time Taxpayer retains traditional Appeal Taxpayer retains traditional Appeal

RightsRights

COLLECTION ISSUESCOLLECTION ISSUES

Many taxpayers will be Many taxpayers will be coming to you for coming to you for collection advicecollection advice

You should understand the You should understand the Services policy on Services policy on Collection of unpaid taxes.Collection of unpaid taxes.

COLLECTION CASESCOLLECTION CASES

Correspondence with Collection Correspondence with Collection Division and ACS is very important.Division and ACS is very important.

Strict time framesStrict time frames

The “Tiered” ApproachThe “Tiered” Approach

Collection uses the tiered approach Collection uses the tiered approach for collecting delinquent taxes.for collecting delinquent taxes.

The IRS employee usually makes the The IRS employee usually makes the ultimate decision, not the taxpayer.ultimate decision, not the taxpayer.

TiersTiers

First Tier- Abatement/Adjustment First Tier- Abatement/Adjustment when tax, penalty, or interest when tax, penalty, or interest incorrectincorrect

Second Tier-Full paymentSecond Tier-Full payment Third Tier-Short extensionThird Tier-Short extension Fourth Tier-Installment AgreementFourth Tier-Installment Agreement Offer in compromiseOffer in compromise Currently not collectibleCurrently not collectible

WORKING WITH REVENUE WORKING WITH REVENUE OFFICERSOFFICERS

They have been instructed to collect They have been instructed to collect as much of the tax as possible.as much of the tax as possible.

Don’t jeopardize your reputation by Don’t jeopardize your reputation by providing false information.providing false information.

Some RO’s are hard to work with.Some RO’s are hard to work with. If you cannot communicate If you cannot communicate

effectively with the RO, call their effectively with the RO, call their manager.manager.

WORKING WITH REVENUE WORKING WITH REVENUE OFFICERSOFFICERS

Often, RO’s will give you ideas to Often, RO’s will give you ideas to resolve your case. They may tell you resolve your case. They may tell you that the case appears to qualify for that the case appears to qualify for an Offer in compromise or an an Offer in compromise or an installment agreementinstallment agreement

But remember they will still try to But remember they will still try to collect as much as possible.collect as much as possible.

TAX LIENTAX LIEN

Can be a “secret lien”Can be a “secret lien” Can be public lienCan be public lien Attaches to all property owned by Attaches to all property owned by

the taxpayer.the taxpayer.

Tax LienTax Lien

Can be releasedCan be released If an OIC is acceptedIf an OIC is accepted Bankruptcy dischargeBankruptcy discharge Innocent SpouseInnocent Spouse Paid in fullPaid in full Collection statute expiresCollection statute expires

TAX LEVYTAX LEVY

A levy is a legal seizure of the A levy is a legal seizure of the taxpayer’s property to satisfy a tax taxpayer’s property to satisfy a tax debt debt

A levy attaches funds due to the A levy attaches funds due to the taxpayer from third parties, such astaxpayer from third parties, such as Salary paymentsSalary payments Business receivables or Business receivables or Money in a bank accountMoney in a bank account

COLLECTION DUE COLLECTION DUE PROCESSPROCESS

If a taxpayer received either a If a taxpayer received either a Notice of Federal Tax Lien or a Notice of Federal Tax Lien or a notice of intent to levy, the taxpayer notice of intent to levy, the taxpayer a right to a collection due process a right to a collection due process hearing with Appeals.hearing with Appeals.

COLLECTION DUE COLLECTION DUE PROCESSPROCESS

IRS issues notice of intent to levy and IRS issues notice of intent to levy and right to hearingright to hearing Exceptions:Exceptions:

Jeopardy levyJeopardy levy Levy on state income tax refundLevy on state income tax refund Right to a hearing is after levyRight to a hearing is after levy

Taxpayer must request hearing within Taxpayer must request hearing within 30 days30 days

Request for a HearingRequest for a Hearing

• Must be in writingMust be in writing• Must include:Must include:

Name, address, daytime telephone number, Name, address, daytime telephone number, signature, and datesignature, and date

• Form 12153Form 12153• Suspends collection statuteSuspends collection statute• IRS may not levyIRS may not levy• Right to judicial review of Appeals Right to judicial review of Appeals

determination if requested timelydetermination if requested timely

Equivalent hearingEquivalent hearing

• Late request for hearing (more than 30 Late request for hearing (more than 30 days)days)

• Same issues consideredSame issues considered• No collection suspensionNo collection suspension• IRS may levy, but generally will notIRS may levy, but generally will not• No right to judicial review of Appeals No right to judicial review of Appeals

decisiondecision

Nature of HearingNature of Hearing

InformalInformal By correspondence, telephone, or By correspondence, telephone, or

face-to-face meetingface-to-face meeting With an Appeals or Settlement With an Appeals or Settlement

Officer with no prior involvement Officer with no prior involvement in case (unless waived) in case (unless waived)

What Appeals Considers:What Appeals Considers:The “Big” ThreeThe “Big” Three

1.1. Did IRS follow required Did IRS follow required procedures?procedures?

2.2. Issues the taxpayer raisesIssues the taxpayer raises

3.3. Balancing the need for efficient Balancing the need for efficient tax collection with the taxpayer’s tax collection with the taxpayer’s legitimate concerns re its legitimate concerns re its intrusivenessintrusiveness

Issues the Taxpayer Issues the Taxpayer May RaiseMay Raise

Innocent SpouseInnocent Spouse Challenges to the appropriateness Challenges to the appropriateness

of the proposed collection actionof the proposed collection action Offers of Collection AlternativesOffers of Collection Alternatives

Challenges to the Challenges to the appropriateness of proposed appropriateness of proposed

actionaction

Excludes:Excludes:

Moral, religious, constitutional, Moral, religious, constitutional, conscientious objection, or similar conscientious objection, or similar grounds.grounds.

Challenges to assessment process, Challenges to assessment process, unless separate FOIA request unless separate FOIA request

Collection AlternativesCollection Alternatives

Installment AgreementsInstallment Agreements Offers In CompromiseOffers In Compromise Currently not collectibleCurrently not collectible

Underlying Underlying Liabilities???Liabilities???

Must consider:Must consider: Innocent spouseInnocent spouse Self-assessed returnsSelf-assessed returns Assessments for which no statutory Assessments for which no statutory

notices were issuednotices were issued

Underlying Underlying Liabilities???Liabilities???

Must not consider:Must not consider:

Liabilities for which taxpayer received Liabilities for which taxpayer received statutory notice of deficiency (90-day statutory notice of deficiency (90-day letter)letter)

Other opportunity for Appeals Other opportunity for Appeals considerationconsideration Example: Letter proposing trust fund Example: Letter proposing trust fund

recovery penaltyrecovery penalty

Issues PrecludedIssues Precluded

Issues decided by a court, or raised Issues decided by a court, or raised and considered at a previous CDP and considered at a previous CDP hearing or Appeals conference hearing or Appeals conference regarding this tax liability, andregarding this tax liability, and

The taxpayer participated The taxpayer participated meaningfully in such a hearing or meaningfully in such a hearing or proceeding.proceeding.

Determination LetterDetermination Letter

Includes:Includes: Appeals determination re levy or Appeals determination re levy or

notice of liennotice of lien Consideration of the “Big Three”Consideration of the “Big Three” Explains right to request judicial Explains right to request judicial

review in appropriate court within review in appropriate court within 30 days30 days

Judicial ReviewJudicial Review

Did Appeals abuse Did Appeals abuse its discretion in this its discretion in this

case?case?

APPEALS PROCESSAPPEALS PROCESS

To minimize the cost of litigation in To minimize the cost of litigation in both time and money, the IRS both time and money, the IRS encourages the resolution of tax encourages the resolution of tax disputes through an administrative disputes through an administrative appeals process.appeals process.

The Appeals Office provides the The Appeals Office provides the taxpayer with a final opportunity to taxpayer with a final opportunity to resolve the tax controversy without resolve the tax controversy without litigation.litigation.

APPEALS PROCESSAPPEALS PROCESS

The Appeals Office will review the case and The Appeals Office will review the case and make a determination that is fair and impartial make a determination that is fair and impartial to both the government and the taxpayer.to both the government and the taxpayer.

The meeting with the Appeals Employee is an The meeting with the Appeals Employee is an informal meeting.informal meeting.

The Appeals Office has the authority to settle The Appeals Office has the authority to settle all factual and legal issues raised by exam.all factual and legal issues raised by exam.

Appeals can also settle on the hazards of Appeals can also settle on the hazards of litigation.litigation.

No hazards on an Offer in CompromiseNo hazards on an Offer in Compromise

““DON’TS” IN APPEALSDON’TS” IN APPEALS

Don’t go in unprepared.Don’t go in unprepared. Don’t argue frivolous issues.Don’t argue frivolous issues. Don’t talk down to Appeals OfficerDon’t talk down to Appeals Officer Don’t submit fraudulent documents.Don’t submit fraudulent documents. Don’t try to arbitrarily settle cases Don’t try to arbitrarily settle cases

on a percentage.on a percentage.

Expediting your case Expediting your case through Appealsthrough Appeals

Set realistic target dates.Set realistic target dates. Follow up in writing the target dates Follow up in writing the target dates

discussed.discussed. If the Appeals person is not meeting If the Appeals person is not meeting

agreed upon target dates, then you agreed upon target dates, then you should contact the Appeals Team should contact the Appeals Team Manager.Manager.

EX-PARTE EX-PARTE COMMUNICATIONSCOMMUNICATIONS

Appeals cannot have Appeals cannot have communications with another communications with another Service function without the Service function without the participation of the taxpayer or participation of the taxpayer or taxpayer’s representative.taxpayer’s representative.

Appeals may ask questions that Appeals may ask questions that involve ministerial, administrative or involve ministerial, administrative or procedural matters and do not procedural matters and do not address the substance of the issues.address the substance of the issues.

APPEALS JUDICIAL APPEALS JUDICIAL APPROACH AND CULTURE APPROACH AND CULTURE

(AJAC)(AJAC) In July 2013, the Appeals function In July 2013, the Appeals function

implemented AJACimplemented AJAC AJAC impacts AJAC impacts

New issuesNew issues Docketed casesDocketed cases Offer in compromisesOffer in compromises Collection Due Process casesCollection Due Process cases

AJACAJACNEW ISSUESNEW ISSUES

New issues will not be raised by Appeals

Appeals also will not reopen an issue on which the taxpayer and the Service are in agreement..

AJACAJACCDP CASESCDP CASES

CDP files sent to Appeals should contain sufficient documentation for Appeals to make a determination..

If a CDP file lacks documentation, it cannot be returned to Collection as a premature referral due to statutory requirements

Appeals will either secure the Appeals will either secure the information or will make a information or will make a determination based on information in determination based on information in the file.the file.

AJACAJACCDP CASESCDP CASES

If a taxpayer asks for a collection If a taxpayer asks for a collection alternative and the taxpayer does not alternative and the taxpayer does not qualify for a guaranteed or qualify for a guaranteed or streamlined IAstreamlined IA A Collection Information Statement of 12 A Collection Information Statement of 12

months or less is considered current.months or less is considered current. Appeals will treat a current CIS that

comes with a CDP case will be deemed verified since Collection reviewed it or had an opportunity to review it.

AJACAJACOIC CASESOIC CASES

In a non-CDP OIC case, Appeals will not “re-work” the offer rejected by Collection. Appeals will consider those items in dispute at the time of the rejection

A case will not be returned as a premature referral where Collection did not fully develop certain issues. Weigh Collection’s development of the issue versus information and testimony provided by the taxpayer, and make the decision based upon those factors.

The Appeals hearing officer will not request information or evidence (from any party) solely for the purpose of strengthening the government's case.

AJACAJACOIC CASESOIC CASES

Agreed RCP issues that were previously addressed during the investigation by Collection will not be re-examined by Appeals.

Appeals employees will not attempt to identify and value any additional assets. In addition, Appeals employees should not revise the value of an asset to an amount that is higher than previously determined by Collection.

WHAT’S NEW IN APPEALS

Virtual Service Delivery Quick Look Process

STATUTE OF LIMITATIONS AND

TRANSCRIPT AWARENESS

ASSESSMENT STATUTE

The form 1040 is due three and a half months after the close of a taxable year or fiscal year. The assessment statute is three (3) years from when a return is filed (if filed before the due date, the actual due date for the return begins the due date for the return)

ASSESSMENT STATUTE

The 1120 is due 15th of the third month after the close of the entity’s taxable year or fiscal year. Early and late return provisions apply as with Form 1040; regular statute is three years.

ASSESSMENT STATUTE6 year statute

If taxpayer omits from gross income an amount properly includible in income that is in excess of 25% of the gross income reported on the return, the statute becomes six years IRC Sec. 6501(e)(1)

MISCELLANEOUS STATUTE ISSUES

Delinquent return filed after SFR – three year statute begins upon filing of delinquent return.

Failure to file – no statute IRC 6501(c)(3) False or fraudulent return – no statute

IRC 6501(c)(1) Net Operating Loss – statute of carryback

years, with respect to this issue, is controlled by the statute on the originating year of the NOL

MISCELLANEOUS STATUTE ISSUES

Claims-A refund claim is timely if it is filed within three years from the date on which the original return was filed, or two years from the time the tax was paid (whichever occurs later). If no return is filed, the period for filing a refund claim expires two years from the time the tax was paid. A substitute return prepared by the IRS does not constitute a return filed by the taxpayer for this purpose.

TRUST FUND RECOVERY PENALTY

The IRS has 3 years from the later of the succeeding April 15th or from the date the return was filed to assess the Trust Fund Recovery Penalty against the responsible person. For example, if the corporation files a 941 tax return for the period ended 9/30/12 by 10/31/12, the IRS has until 4/15/2016 to assess the penalty against the responsible person for any unpaid trust fund taxes still outstanding for that quarter.

MISCELLANEOUS STATUTE ISSUES

Notice of Deficiency suspends statute for 90 days (150 days if mailed outside the U.S.) to allow taxpayer to file Tax Court petition. Another 60 days is added to the statute to allow the assessment to be made.

Notice of Deficiency – If a taxpayer agrees during the 90 day period, the 90 day period ends on the date the agreement form is received. The revised statute date is generally the number of days between the notice issuance and the agreement receipt date, plus 60 days, added to the original statute date

Collection Statute Expiration Date - CSED

IRC 6502

Tax may be collected by levy or by a proceeding in court, but only if begun:

--within 10 years of assessment, or

--prior to expiration of any period agreed on with Secretary and taxpayer before the ten years expires.

Suspension & Extension of CSED

Suspension: halts the running of the statute, which

results in extension of general CSED.

Extension: Addition of time at the end of general

10-year period.

Waiver - After 12/31/99:Only with I/ALimited to 5-year extension by policy

6503 Suspensions: (a): Notice of Deficiency (b): Custodia Legis (c): TP outside of US (f): Wrongful levy (h): Bankruptcy

Other suspensions:

IRC 7811(d): Taxpayer Assistance Order

IRC 7508: Military Deferments Certain collection suits IRC 6015(2): Innocent spouse

Involves only 6015(b) and (c). CSED is suspended during period no levy

may be made pursuant to 6015(e)(1)(B).

IRC 6330(e): Collection Due Process

Suspension of CSED for period while hearing is pending, and any appeals.

CSED won’t expire less than 90 days after final determination.

TRANSCRIPTS

Return Transcript includes most of the line items of a tax

return as filed with the IRS. Transcripts are only available for the following returns: Form 1040 series, Form 1065, Form 1120, Form 1120A, Form 1120H, Form 1120L, and Form 1120S.

TRANSCRIPTS

Account Transcript Contains information on the financial

status of the account, such as payments made on the account, penalty assessments, and adjustments made by you or the IRS after the return was filed. Return information is limited to items such as tax liability and estimated tax payments. Account transcripts are available for most returns.

TRANSCRIPTS

Record of Account  is a combination of line item

information and later adjustments to the account. Available for the current year and three prior tax years.

TRANSCRIPTS

Individual Master File (IMF)

IMF is the Individual Master File.  This file shows all individual returns and transactions that occur on individual returns.

TRANSCRIPTS

Business Master File (BMF)

All tax data and related information pertaining to individual business income taxpayers are posted to the BMF.

TRANSCRIPTS

NON-MASTER FILE (NMF) This is a database that has entries that

cannot be input on the master file. A NMF taxpayer may have several accounts for the same tax period