The Ultimate IRS Collection Workshop · 2020-06-23 · QUICK BREAK We will resume the program in a...

Presented by:

The Ultimate IRS Collection Workshop

Eric L. Green, Esq.

From Billing Notice to Offer Acceptance Letter

2The Ultimate IRS Collection Workshop

There will be 16 attendance check words

Please write these down

You will need them at the end when you click on the link and go get the certificate

CPE


Stick to our schedule

10 Minute breaks at the top of each hour

Go to the restroom and refill your coffee (or drink of choice)

Schedule

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QUICK BREAK

We will resume the program in a moment.


Agenda

• The Current State of IRS Collection

• The Tax Collection Process

• Collection Appeals

• Collection Alternatives


Why Collection is HOT and Getting Hotter…

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Non‐Filers

More than 7 million (Before COVID‐19)


IRS Collection Process

• Assessment of the tax

• 10‐Year Collection Statute

• Billing Notices

• Threat to levy and right to a hearing

• Appeals (CDP, Equivalent, CAP)

• Resolution


Step #1: Tax Compliance

• All returns filed that are due as of this date

• Current tax period payments being made

a) Proper withholding

b) Estimated tax payments

c) Payroll tax deposits

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Inside Secret

• What is compliance for tax returns?

• Last 6 years – IRM 1.2.14.1.18


IRS Collection Process: Assessment

• The IRS will assess the tax when the return is received and processed or it creates a “substitute for return” (SFR) for the taxpayer

• Pull transcripts to determine the exact date of assessment


Goal?

• Taxpayer should voluntarily file their own return

• Otherwise IRS will do it for them

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IRS Collection Process: 10-Year Statute

• Pursuant to IRC §6502 the IRS has 10 years to collect a tax debt

• The 10‐year statute begins upon the date of assessment, not the date of filing

• There are a number of actions that will toll, or suspend, the collection statute


IRS Collection Process: 10-Year Statute

• Taxpayer files bankruptcy—IRC §6503(h)• The time for a bankruptcy plus six months!

• Filing of a Collection Due Process hearing request—Regulation §301.6330‐1(g)

• Filing of an Offer in Compromise—Regulation §301.7122‐1(i)

• Pending Installment Agreement — IRC §6331(i)(5)


Transcripts

• This is why we pull transcripts

• How much time remains will drive the decision on how to resolve the tax debt

• Need to review the Transcripts for things the taxpayer has done that may have tolled (extended) the statute

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16Offer‐in‐Compromise Master Class

Pull Transcripts

17Offer‐in‐Compromise Master Class

Calculate the CSED Dates


Billing Notice — CP 501

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Threat to Levy — CP-504


CP-90


IRS Collection Process: Final Notice and Right to a Hearing

• Final Notice includes Form 12153

• Taxpayer has 30‐days to request a hearing

• You MUST file the request

• If the 30‐day window is missed, file for an equivalent hearing

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Form 12153


IRS Collection Process: Appeals: CDP

• 1998 IRS Restructuring and Reform Act created appeal rights for Collection Cases and gave the United States Tax Court authority to hear collection appeals

• The IRS is required to give the taxpayer 30 days to request an appeal prior to levying

• This appeal is referred to as Collection Due Process Appeal, or CDP



• If the Form 12153 is filed within 30 days requesting a CDP hearing, the case will be forwarded to Appeals

• All collection action will cease for that tax period, unless the taxpayer continues to pyramid liabilities

• If the taxpayer continues to incur new tax liabilities, Appeals may grant tax collection division the authority to continue enforced collection activity

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• Appeals will contact the taxpayer with a letter confirming they have the case and requesting information

• Knowing the Appeal was requested, the taxpayer should be preparing the Collection Information Statement (Forms 433) in advance of the hearing



• The hearing is usually by phone, though the representative can request a face‐to‐face meeting

• No guarantee IRS will grant the in‐person request


IRS Collection Process: Appeals: Equivalent Hearings

• If the taxpayer failed to request a CDP hearing, they have up until one year to request an equivalent hearing

• With an equivalent hearing thereis no requirement the IRS ceaselevy action

• There is no right to judicial review in the Tax Court

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IRS Collection Process: Appeals: CAP

• IRS created a procedural appeal process called the Collection Appeal Process, or CAP

• A CAP appeal can be requested whenever a levy or lien is threatened by the collection division

• This is a procedural review to make sure the collection division has followed procedure

• It allows a taxpayer to get their case in front of an appeals officer


IRS Collection Tools: Levies

• The seizure of a taxpayer’s property

• Generally issued when a taxpayer has either failed to respond to IRS requests or failed to provide the collection division information


Two types of Levy

• Regular Levy (bank, vendors)

• Continuing (wages or routinely paid commissions)

~ IRS allows standard deduction divided by the pay periods and

takes the amount above that

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Avoiding/Dealing with a Levy

Do what taxpayer should have done!

• Compliance

• Call IRS

• Propose a resolution


Find out how much was taken before calling

Request a release of the funds (may do this the first time)

If not, ask for a partial release if necessary to pay bills

Remember…


IRS Collection Tools: Liens

• Pursuant to IRC §6321, a lien arises automatically whenever demand for payment is made and the taxpayer fails to pay

• No other action is required of the IRS

• IRS may file a Notice of Federal Tax Lien

• Though the lien arises without any further IRS action, the IRS filed the Notice to inform third‐party creditors of the IRS lien on the taxpayer’s assets to protect its (the IRS’s) interest

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IRS Collection Tools: Liens

• IRC §6320 grants the taxpayer the right to a hearing to contest the filing of a notice of federal tax lien

• Pursuant to IRC §6322 the lien will continue in force until the tax is either paid, compromised, or the 10‐year collection statute expires


Discharge (sell out from under the lien)

Withdrawal (statute expired and bank is an idiot)

Subordination (house that burned down)

Tax Liens


The IRS just wants the equity it could get if it seized

Release: IRS is getting whatever it’s interest is

Subordination: it get the IRS cash or improves collection

Withdrawal: under 25K in a direct debit IA which full pays in 60 months or less (IRM 5.12.9.3.2.1)

Inside Secret to Liens

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The Fixing America’s Surface Transportation Act

• The FAST act funds America’s highways

• Added provisions for IRS collection

• Requires IRS to use private debt collectors

• Allows IRS to have passports suspended


Passport Denial/Revocation

• The IRS to inform the United States Secretary of State of those taxpayers who owe “seriously delinquent taxes,”

• Defined as those taxpayers who owe more than $50,000 in back taxes

• State Department may revoke the passports of those taxpayers owing back taxes or deny the issuance of a passport to taxpayers applying for one that owes back taxes


Passport Denial/Revocation

A taxpayer will not have his or her passport suspended/revoked if they are:

• Paying the tax through an I/A

• Involved in an Offer‐in‐Compromise

• Has filed a request for a Collection Due Process hearing

• Has filed for innocent spouse relief

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Passport Renewal Blocked


Private Debt Collectors

The Act Amends IRC § 6306 to require that the IRS use private debt collectors to try and collect “inactive receivables” (ie. back tax debts) that meet the following requirements:

• The debt has been removed from the current case inventory or the taxpayer cannot be located;

• More than one‐third of the collection statute has elapsed and the case has not been assigned to an IRS collection employee, or

• More than 365 days have passed without interaction with the taxpayer or a representative for furthering the collection of the back tax debt.



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Private Debt Collection

IRC § 6306 already allowed the IRS to use private debt collectors

Failed miserably

The National Taxpayer Advocate noted in her report to Congress that in 2004 when cases were sent to private debt collectors, debt resolution increased initially, then the numbers dropping off sharply thereafter



Private Debt Collectors make calls and collect the easy debts

They have no power to take collection action

Inevitably the hard debts are all transferred back to the IRS

This time around, IRS gets to keep 25% of what PDC’s collect for new hiring


Serious Concerns

• Scam artists

• Information in the hands of private debt collectors

• Suspended passports for those overseas

• No administrative challenge

• Issues reported (suggestion loans against credit cards)

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The Impact on Collection

• The FAST Act changes our approach to collection

• CNC may no longer be the safe place it once was

• We may need to take a more aggressive approach to resolving our clients back tax debts


Resolving an Outstanding Debt

Installment Agreement Uncollectable

Offer-in-Compromise Bankruptcy


The Client

• Free Consultation?

• Consult Fee?

• Flat Fee v. Hourly?

• Form 2848

• Retainer agreement

• Retainer ($)

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Initial Considerations

• Statute of Limitations

• Compliance

• Financial Analysis

• RCP

• Easier Solution? CNC or Bankruptcy?


Collection Statute Expiration Date (“CSED”)

• How much time is left on the statute?

• Pull Transcripts (the tale of Ron)

• Are there assets? (beware DOJ)


Is the Taxpayer in “Compliance”?

What’s compliance?

#1 issue with collection clients

Returns – now all outstanding years

Current payments

Educating the client

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Analysis

• Are they an Offer candidate or not?

• This is why we charge for consultations

• Taxpayer will get benefit just from the meeting


Process

• Consultation

• Retained

• Obtain the financial information/documentation

• Pull transcripts

• Draft documents

• Contact IRS and file Offer

• Appeal if denied


Reasonable Collection Potential

• Gross monthly income

• Allowable expenses

• Determine future income

• Net equity in assets (QSV)

• FI + NE = RCP

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Financial Guidelines

Gross monthly income

Allowable v. actual

expenses

Why most offers/IA

requests are denied


Resolving a Federal Tax Debt: Installment Agreements

• There are three types of Installment Agreements

1 •Streamlined

2 •Regular

3 •Partial-Pay


Resolving a Federal Tax Debt: CNC

What is Currently Not Collectable, or “CNC,” status?

How CNC status is determined?

When should you seek CNC status?

Time to file an Offer?

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Food, Clothing & Misc. (national std)


Housing (local by county)


Transportation

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Transportation – Operating Regions


Out of Pocket Health Care Costs


Practitioner Secret

1-year rule & 6-year rules: IRM 5.14.1.4.1 (not if a partial pay)

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Financial Guidelines


Offer in Compromise

Three types of Offers:

Doubt as to liability

Doubt as to collectability

Effective Tax Administration


Doubt as to Liability

Challenging the underlying liability

Challenging the underlying liability

Not about ability to pay but if the

taxpayer can prove they do not owe the

money

Not about ability to pay but if the

taxpayer can prove they do not owe the

money

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Effective Tax Administration Offers

An ETA offer is an Offer where the taxpayer could full-pay the liability but where, for public policy reasons, the IRS should agree to accept less than the full-amount

Very rarely given

All ETA Offers are reviewed in Washington, DC


Doubt as to Collectability Most common Offer

Based upon the taxpayers inability to full pay the liability

It’s a request or the government to accept less than the full amount owed because of the taxpayer’s financial situation


Offer in Compromise

Lump Sum • Paid in 5 or fewer payments

Deferred

• Paid in more than 5 but less than 24 monthly payments

• Payments must be made starting when the OIC is filed

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Offer in Compromise $205 application fee

20% deposit with a lump sum offered

Monthly payments with deferred offers start when the offer is filed and continue until accepted or rejected


OIC Analysis

• No OIC if can be full paid via an installment agreement

• Income averaging

• Dissipated assets


Practitioner Secret

Additional $200 a month for operating an older vehicle

IRM 5.8.5.20.3.5

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OIC Analysis

• Future income collateral agreement

• Low‐income?

• Qualified investments


Low-Income Certification (656 Page 2)


Way to Look at an OIC

• Government seizes all the assets

• Sells at 80% quick sale value

• Pays off any loan ahead of its lien

• Whatever is left is included in the offer

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Way to Look at an OIC

• Future income

• 12 months for lump sum offers, 24 months for deferred offers)

• If future income available will full pay within the CSED, no offer!


Taxes in general are not dischargeable unless they meet one of several exceptions

MUST review transcripts

Market to bankruptcy attorneys!

Automatic stay applies to IRS

Bankruptcy


Taxes are dischargeable if they meet the following criteria:

1. Income Tax (not a trust tax – sales, payroll, excise)

2. Tax year is three years old (3‐year rule)

3. If the return is late filed it is on file for at least two‐years (2‐year rule)

4. Any addition to the tax on the return is at least 240 days old (audit or amended return)

5. No fraud (civil or criminal)

Remember Tax Liens survive the bankruptcy if attached to real estate!

Dischargeable in Bankruptcy

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Chapter 11 and 13 are repayment plans

Must pay over 60 months from DATE OF FILING

Can strip penalties off

Force an IA on an otherwise unwilling IRS

Consider a “Chapter 20” (a 7 followed by a 13) for dealing with the non‐dischargeable taxes

Restructuring Through Bankruptcy


CASE STUDIES


The Non‐Filer

The Tax Levy

The House Sale

Collection Options: Which to Choose?

Cases

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Arrives with his spouse

Self‐Employed

Has not filed tax returns since 2012

#1: The Non‐Filer


Last 6 years, federal and state

a. Wage & Earning Reports

b. Intentional (potential criminal)

c. State Voluntary Disclosure Program?

Complete a 433‐A and calculate the RCP

a. MFS vs MFJ (separate property state)

b. State Returns first (state income tax)

c. Shopping to adjust RCP?

The Non‐Filer: Steps


How many years must be filed (6 federal, state?)

The RCP: better off MFJ or MFS

Is there an improvement in the RCP if we file the state first and set up the state IA

Shopping: Health Insurance, New Car Payment, Disability Insurance, Term Life Insurance, Rent a nice place (within standard)

The Non‐Filer: Decisions

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Taxpayer arrives and she is extremely upset

The IRS levied her back account and swept the account

This came out of the blue and is a complete shock

She owes them just over $60,000 but does not understand why they wont give her more time

Has tried calling but cant be bothered to wait for hours

#2 – The Tax Levy


Client’s Copy

The Levy


1. Retainer, POA, Call IRS and Request Levy Release

2. Compliance

3. RCP Calculation

4. Streamlined, CNC, Offer

The Levy: Steps

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Client calls

They need to sell their home – they can’t afford it

Only the wife is responsible for the tax debt (it was hers before they got married)

Own the home jointly with about $240,000 of equity

She owes the IRS $300,000

Case Study #3 – House Sale


Submit the Form 14135

Propose 50% of the equity, or $122,000, for IRS

IRS asks for some back‐up documents

Calculated payoff, with interest and closing costs, is $104,672

Lien Release


14135

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IRS Response – Request for Documents


Payoff Calculated and Sent


Release Sent After Payment

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Phone rings

Mark owes $445,000 for 2018 to the IRS but its wrong

They picked up a 1099 twice

He needs us to get this fixed

Corrected it will reduce the liability to $48,000

Case Study #4: How to Select an Option


Before you grab your cape and dash to the rescue, think

What is the end‐game?

Will Mark just pay the $48,000 when its corrected?

Analysis of the Case


Retained ($)

POA

Transcripts/CSED

RCP

What we need to do:

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Case 1 ‐Mark’s RCP is:

a. $275,000 in equity in his home

b. Monthly income available is $3,000

Case 2 ‐Mark’s RCP is:

a. $0 equity in assets

b. Monthly income available is $1,000

What if…


Mark will be able to full‐pay

If we have to pay, we want to pay the least amount

Fight the 1099 issue and get it corrected

Get Mark into a streamlined IA (no financial disclosures, roughly $48,000/100 months (+ interest) = $500/mo

Case #1


Mark Cannot full‐pay at the $445,000

He can full‐pay if its $48,000

Leave the liability alone

File an OIC ‐ $12,000 ($1,0000 a month x 12 months)

Case #2

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Questions

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The Ultimate IRS Collection Workshop · 2020-06-23 · QUICK BREAK We will resume the program in a...

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Transcript of The Ultimate IRS Collection Workshop · 2020-06-23 · QUICK BREAK We will resume the program in a...