What are IRS allowable expenses?

When you owe back taxes to the IRS, and don’t dispute the bill, and you can’t pay in full, the most critical aspect of your case is — how much can you afford to pay back? In order to determine the amount you can afford to pay, one half of the calculation is your income and assets you have available to pay. The other half is determining what expenses the IRS will allow. A taxpayer who owes money to the IRS will able able to allowed necessary expenses, may be allowed conditional expenses, and may even be allowed miscellaneous expenses.  To illustrate the point, a US tax court case demonstrates that just because something is necessary to a taxpayer, does not mean that that IRS will feel the same way.

In George Thompson v. Commissioner, the taxpayer claimed two expenses should be “allowed expenses.” One was his monthly  tithe (or donation) to his church, the other, his college expenses for his children.  Thus reducing the amount he would ultimately pay back the IRS through a partial payment installment agreement. So on his Form 433a, he included both expenses, and wanted the IRS to reduce his monthly payment by the amount of these expenses. 

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How to prepare for an IRS Audit Appeal

By David G. Parent, Esq.

In a previous blog we answered the question What is an IRS audit appeal. I said:

It is your right to appeal the work of the auditor after he has examined your financial information and has issued his report. In his report he details the additional amounts owed as well as the penalties and interest. The report also asks that you sign indicating your approval.

So what is the best way to challenge the auditor’s conclusion. How do we prepare for the appeal? In this article, I will explain the process that the our ex-IRS agents and tax attorneys at our firm prepare for an IRS audit appeal. 

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How to avoid an Offer in Compromise Appeal by winning the first round

BY: MICHELLE L. PALMERI

 The IRS appeals office is always available to get a second chance to see if an Offer in Compromise can get accepted. We have had tremendous success with IRS appeals. But you know what is even better? Not having to go to appeals in the first place because you got your Offer accepted by the offer examining unit! In this article I will discuss the essential strategies to making sure that your Offer in Compromise can be accepted — without having to resort to IRS offer in Compromise appeals.

If your offer in compromise package does not have at least this amount of documentation, you’re not really giving the Offer Examiner enough information to rule in your favor. You could lose the first round and even the appeal if you don’t document your financial picture properly.

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IRS Tax Audit Appeals: Common concerns & questions

By David G. Parent, Esq.

What is an IRS audit appeal?

It is your right to appeal the work of the auditor after he has complete a tax audit, or “examined” your financial information and has issued his report. 

What is an IRS auditor report?

It is report that details the additional amounts owed as well as the penalties and interest. The report also asks that you sign indicating your approval.

 What if I don’t agree with the Auditor’s Report?

That is where your right to appeal begins. In fact, the auditor will provide you with forms and information explaining your appeal rights. 

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BY: MICHELLE L. PALMERI

What to do when you can’t make your IRS installment agreement payment on time

If you are in an Installment Agreement with the IRS and find yourself unable to make your payments, if you act quickly enough, you may be able to get the IRS to reinstate your Installment Agreement. But before you do so, you must ask yourself a question: Can you honestly afford this repayment? If you have to miss a payment, if you skipped a payment, if your payments are late, there is a good reason: the payment is too high and needs to be renegotiated. 

If you are struggling too hard to make your monthly IRS installment agreement payments, either you need to change, the IRS needs to change, or both.

In this article I will discuss the top seven reasons why taxpayers get into IRS Installment Agreements that they can’t afford.

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Before the Internal Revenue Service (IRS) can take any ‘enforced collection action’ — what most people refer to garnishments or levies of wages and bank accounts, first, the IRS must mail out a letter to a taxpayer called a Final Notice of Intent to Levy. (Notice CP 90)

Who does it applies to?

If you owe the IRS back taxes, there is a series of letters that IRS sends out. This letters have technical names: First, a CP501, which is as friendly as IRS notices get. If the bill remains unpaid, then a CP503 warning that collection action could take place. If the bill is still unpaid or no arrangements have been made to settle the tax debt, then IRS will send a CP504, which is a “Notice of Intent To Levy.”

The CP504 compared to a Final Notice of Intent to Levy

Confusing matters, is that the CP504 is not a Final Notice of Intent to Levy. While the IRS can intercept state refunds at this point, they can not take any other actions. So often, a CP504 will lull a taxpayer into a false feeling of safety. After all, they think, a levy notice was issued and the IRS must not been ale to find anything to levy.

NOTE: If you dispute your tax bill, you may be able to get the IRS agree to lower it, using something called Audit Reconsideration.

How is a Final Notice of Intent to levy sent?

A Final Notice of Intent to Levy is sent certified mail.  Because many taxpayers aren’t home at the time the mail carrier arrives, they have to go to the post office to claim it. Of course, many do not, after all, who is terrible enthused about receiving certified mail from the IRS?

Regardless, even if the letter is never claimed, it is still valid. Taxpayers mistakenly assume that there must be a court hearing before the IRS can being levying and garnishing. This is not true. The Final Notice of Intent to Levy is the final notice a taxpayer receives before their world will likely turn upside down.

What does a Final Notice of Intent to Levy Do?

A Final Notice of Intent to Levy is the notice a taxpayer is given that they have 30 days to a right to claim something known as a Collection Due Process hearing. At this hearing, a taxpayer should present something called a “proposed collection alternative,” or raise issues why they don’t owe the tax, that is, claim innocent spouse relief, or an audit reconsideration. To put it more clearly, a taxpayer can dispute the ability to pay the debt, and/or dispute the validity of the debt.

IRS appeals officers tend to be the best and brightest of the IRS and very grounded in reality and very aware of the incredible detailed Internal Revenue Manual. They are experts at tax research and usually work methodical. Because of their high level of competence, taxpayers have the right to have a tax attorney or other tax professional represent them at the hearing.

It is important that the collection due process hearing be treated as a legal proceeding. The reason is that if a taxpayer can not find a reasonable solution at the hearing, the taxpayer has a right to take the case to tax court. Most cases fail in tax court because the taxpayer failed to create a record or actually show up at the hearing. They wind up being dismissed because taxpayers did not know how to follow the rules.

What if you missed the 30 day deadline?

If you miss the 30-day deadline to file a Collection Due Process hearing, you have a year from the date of the Final Notice of Intent to Levy to file something called an “Equivalency Hearing.” An Equivalency Hearing is just like a Collection Due Process hearing, with one major difference. There is not right to tax court.

If an Equivalency Hearing is requested, typically the IRS will not levy or garnish, but are allowed to do so

What if you miss the 1-year deadline to file an Equivalence hearing?

You may still request a levy to be released provided it is creating a hardship or by submitting a collection alternative such as an Offer in Compromise, an Installment Agreement or Request for hardship status.  You may also be able to file bankruptcy to wipe out old tax debts, despite what some tax resolution companies claim.

Conclusion: Do NOT be afraid

A Final Notice of Intent to Levy should not be treated as something to be afraid of. But rather, an opportunity.  It triggers valuable appeal rights that can result in an optimum tax resolution without any levies or garnishments. The key is to pick it up and respond quickly.  Yet because of the complexities of various programs, it is best to be represented by a tax professional who specializes in tax resolution who can properly present the most favorable aspects of your particular situation.

Collection Due Process Hearing Updates

The 5th Circuit has just recently upheld the tax court in Dalton v. Commissioner. I see three essential lessons in play.

But first, you might be asking, is a Collection Due Process Hearing?

 A collection due process hearing is where a taxpayer gets to appeal a tax collection technique or an assessment with the IRS office of Appeals. The IRS appeals office is independent from the rest of the IRS and its stated purpose, as part of the 1998 tax reform act, is to make sure the IRS is acting fairly.

The right to collection due process hearing is triggered after a Final Notice of Intent to Levy, a Notice of a Federal Tax Lien and after a deficiency notice. If a taxpayer fails to appeal or appeals improperly there is no right to tax court — as a taxpayer must exhaust all administrative remedies available.

Lesson 1: Follow your own orders.

In this case, the taxpayers created trust to protect assets, primarily a home.  The taxpayers got behind on tax obligations. They moved back into the trust property, and even refinanced the property — in their own name. They claimed the IRS could not touch this property. That is, the IRS could not seize it or claim it as their assets, simply they no longer possessed title to the property.

At the Collection Due Process hearing, the appeals officer disagreed. Reasoning that if they taxpayer’s truly lost control over the house, they would not have treated the house as their own. The appeals officers treated the house as a dissipated or existing assets and rejected their offer in compromise claiming he had the discretion to do so. The 5th Circuit agreed.

Lesson 2: Are you sure you want to go to tax court?

It’s easy to Monday-morning-quarterback the decision to take this matter to tax court. I am sure there were great reasons the Dalton’s tax attorney, Ralph A. Dyer. Esq., had to file a  tax court petition (NOTE: There are certainly court opinions out there that do not make me look good — the truth does not always get reported accurately to say the least). But there are significant downsides, not just the time and expense, that were most likely discussed. 

You see, the problem with tax court is that the 10 years the IRS has to collect on a debt  is ‘tolled’ or stopped while the tax court case is pending. For example, in the case, the taxes were assessed on August 11 and September 29, 1997. So if the taxpayers did nothing, the tax debts would have been wiped out by September 29, 2007. That is, they would have owed nothing to the IRS.

However, the taxpayer did three notable things that stopped this 10-year period from running. First, they filed an offer in compromise. Then they filed a request for a Collection Due Process Hearing. Lastly, they filed a tax court petition.  All three of these filings tolled the statute of limitations.

So it is quite possible when we add up all the time the statute of limitations was tolled, there still may be 8 years left the IRS has to collect. That’s right, a debt that could have been gone in 2007, may stick around until 2020!

Again, I am not saying it was wrong to gamble at tax court (and subsequent appeal to 5th circuit). I am just pointing out the inherent risk going to tax court, a risk that they may have been well-aware of.

Lesson 3: The Offer in Compromise may not be the optimum solution for the taxpayers/The Offer in Compromise may be in the IRS’ advantage. 

Most people automatically think of the offer in compromise as the solution to a tax debt. But there are two other collection alternatives that could help out the taxpayers by stopping levies and seizure and still allow the 10-year clock to run. The first is a partial payment installment agreement. If a partial payment installment agreement is made, the taxpayers will pay an nominal amount each month until the statute expires or they come into money to full pay the obligation And in this case, it is likely the IRS would grant this — after all, the IRS isn’t looking to seize their house. Their just not willing to treat it as something with zero value to the taxpayers’ negotiation purposes. Or if the taxpayers have no disposable income (which is likely — based upon the fact that Mr. Dalton is disabled) the IRS could just them them into Non-collectable status.

And ironically, instead of paying the $5000.00 they offered, the entire tax debt could expire without the IRS ever collecting a dime. It could have totally been in the IRS’ best interest to get the sure $5000.00 than maybe wait another 8 years and get nothing.

That is certainly a reasonable position, unfortunately for the taxpayers, it was not the winning position.

NOTE: Because this is employment tax trust fund debt, they cannot file bankruptcy to discharge the debt, unlike personal 1040 tax debts.

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