Did an IRS employee give you advice? Should you take it?

Below are two statements, neither one offensive and hardly shocking:

• IRS employees represent the government. They do not represent taxpayers.
• IRS auditors and revenue officers should not give legal advice to people they don’t represent. Taxpayers have a fundamental right to hire a tax professional to represent them.

Still, many times we are told by our clients about things IRS employees tell them — things in our opinion that should not have been said. Like:

• “Don’t hire a tax attorney, because they can’t do anything for you.”
• “You owe what you owe. All you can do is get an installment agreement.”
• “You can’t file bankruptcy to discharge a tax debt.”

And then there is what sparked this article –  a pattern of statements we are told by our Offshore tax clients about what IRS employees (before they hired us) have told them in particular, some very big mistakes our clients could have made if they believed what an IRS employee was telling them. 

Some introduction. There is an IRS Offshore Voluntary Disclosure Initiative. When using this Offshore Amnesty,  your penalty rate is based upon your state of mind. If you intentionally evaded taxes, your penalty rate is the standard 27.5% of your highest account balance of any unreported account. If, however, you didn’t know about the law, or you made a innocent or even negligent mistake, you can argue for lower penalties. Doing this is called “opting-out” of the standard Offshore Penalty. 

What we are hearing reports of, is taxpayers in the OVDI who made innocent mistakes are being told by OVDI examiners that they shouldn’t opt-out and just agree to the higher 27.5% penalty that would be appropriate to those who engaging in intentional tax evasion. 

And worse, some of these OVDI applicants probably believe the OVDI Examiner.

Why do OVDI examiners (and other IRS employees) give advice when they shouldn’t?

This is what we I observe.

IRS employees have huge caseload. And are given more case each day. And more procedures to follow, they have more pressure to close out more and more cases.

So the thing  — the IRS employees do not care about justice for you. But on the other hand — they really don’t care about seeing you stuck with a high bill. They are actually indifferent to what ultimately happens to you. They are thinking of themselves! (Of course, we all do, and IRS employees are human as well).  And the most important thing they can do to help themselves is to clear their case load ASAP.  This is one of the biggest criteria, if not the biggest, the IRS uses to judge those suitable for promotions (and demotions). IRS employees are NOT judged based upon how much money they assess or collect; not how miserable they can make taxpayers; not how fair and judicious they perform, but rather, how quickly they can process cases that are assigned to them.

So we Attorneys, you know —by fighting for taxpayers’ rights to due process, well, all we do is slow cases down. While we like to think we helped the IRS employees by performing a thorough examination and consideration of the myriad facets of a case and legal remedies available,  I suspect the truth is that most IRS agents and examiners wish we would just go away. We are an obstacle to their desired efficiency.

You must have this perspective when considering the merit of legal advice an IRS employee is giving you. Because what they really could be saying isn’t something that is in your best interest. But rather, what they really mean is, “Please do it this way I want you to. I have a performance evaluation coming up and I need to clear more cases even though the IRS has imposed more demands on me.”