Transcript Working with the IRS Chapter Twelve Organization of IRS  IRS Oversight Board (RRA’98) President appoints  Six members from private sector, staggered 5-year terms  Commissioner.

Working with the IRS
Chapter Twelve
Organization of IRS

IRS Oversight Board (RRA’98)
President appoints
 Six members from private sector, staggered
5-year terms
 Commissioner is standing member
 NTEU (IRS employee union) appoints one
standing member
 Recommends to President candidates for
Commissioner

Organization of IRS (cont’d)

IRS Oversight Board (cont’d)
Develops long term strategy
 Reviews and approves mission, strategic
plans, annual budget request
 As name implies, oversight of IRS
 No authority to affect tax policy of intervene
into IRS personnel or procurement matters

Organization of IRS (cont’d)

Commissioner
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Political appointment
5-year term
Member of IRS Oversight Board
Chief Counsel – also reports directly to Treasury, also
a political appointment
Deputy Commissioner
Criminal Investigation
National Taxpayer Advocate
Appeals
Shared Services
IRS Mission Statement
Provide America’s taxpayers top quality
service by helping them understand
and meet their tax responsibilities and
by applying the tax law with integrity
and fairness to all
IRS Organization (cont’d)

Chief Counsel
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Political appointment
Commissioner’s lawyer - agency’s highest
ranking legal advisor
Reports to the Commissioner in.re.
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Enforcement and administration of the tax laws
Litigates disputed tax issues cases not
otherwise resolvable
IRS Organization (cont’d)
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Chief Counsel (cont’d)
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Writes
Regs
 Proposed legislation
 Tax Treaties
 Executive orders
 Revenue Rulings
 Private Letter Rulings
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Etc.
IRS Organization (cont’d)
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Deputy Commissioner
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Operating Divisions
Large and Mid-Size Business – D.C. ($$)
 Small Business/Self-Employed – Atlanta ($$)
 Wage and Investment Income – D.C. ($$)
 Exempt-Organization and Government Entities –
D.C. ($$)
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IRS Organization (cont’d)
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Note: The following no longer exist
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Regional offices / Regional Commissioner
District offices – District Director
Taxpayer Advocate
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National Taxpayer Advocate
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Taxpayer intervention system
Local Taxpayer Advocates
Taxpayer Bill of Rights
Form 911 - Taxpayer Assistance Order (TAO)
On page 391, last paragraph under Taxpayer
Rights re. “confidentiality privilege,”
Taxpayer Bill of Rights
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Taxpayers guaranteed certain rights
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A recording of any administrative proceeding, after a
10-day request notice
Transcript of administrative proceeding interview (at
TP’s expense)
An explanation of IRS position on any administrative
matter it initiates
May be represented by attorney, CPA, or other
person permitted to practice before IRS
Etc.
SEC. 7525. CONFIDENTIALITY
PRIVILEGES

7525(a)(1) GENERAL RULE.--With respect to
tax advice, the same common law protections of
confidentiality which apply to a communication
between a taxpayer and an attorney shall also
apply to a communication between a taxpayer
and any federally authorized tax practitioner to
the extent the communication would be
considered a privileged communication if it were
between a taxpayer and an attorney.
SEC. 7525. CONFIDENTIALITY
PRIVILEGES (cont’d)
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7525(a)(2) LIMITATIONS.--Paragraph (1)
may only be asserted in-(A) any noncriminal tax matter before the
Internal Revenue Service; and
(B) any noncriminal tax proceeding in
Federal court brought by or against the
United States.
SEC. 7525. CONFIDENTIALITY
PRIVILEGES (cont’d)

7525(a)(3)(A) FEDERALLY AUTHORIZED
TAX PRACTITIONER.--The term
"federally authorized tax practitioner"
means any individual who is authorized
under Federal law to practice before the
Internal Revenue Service if such practice
is subject to Federal regulation under
section 330 of title 31, United States
Code.
SEC. 7525. CONFIDENTIALITY
PRIVILEGES (cont’d)

7525(a)(3)(B) TAX ADVICE.--The term
"tax advice" means advice given by an
individual with respect to a matter which is
within the scope of the individual's
authority to practice described in
subparagraph (A).
SEC. 7525. CONFIDENTIALITY
PRIVILEGES (cont’d)
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7525(b) SECTION NOT TO APPLY TO
COMMUNICATIONS REGARDING
CORPORATE TAX SHELTERS.-The privilege under subsection (a) shall not
apply to any written communication between a
federally authorized tax practitioner and a
director, shareholder, officer, or employee,
agent, or representative of a corporation in
connection with the promotion of the direct or
indirect participation of such corporation in any
tax shelter (as defined in section
6662(d)(2)(C)(iii) ).
Tax Practitioner Confidentiality
Privilege
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RRA’98
Extends attorney-client confidentiality
privilege in tax matters to non-attorney’s
authorized to practice before the IRS
May be asserted only in noncriminal
proceedings
Tax Practitioner Confidientality
Privilege (cont’d)
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Confidentiality Privilege does not
extend to:
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Preparation of tax returns
Giving accounting or business advice
Tax accrual workpapers
Be aware of it, use it with discretion
Returns / Examination Division
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Preliminary Review of Filed Returns
Handled from service centers
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Mathematical errors
Not an examination
 “Deficiency procedure” not required
 No administrative remedy
 IRC §6213(b)(1)
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Unallowable items
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Same as above
Exam – Slight Diversion
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The “IRM” (Internal Revenue Manual)
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Each Operating Division has one
Exam’s is Part IV
 Collection is Part V
 Appeals’ is Part VIII
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Be familiar with it
It is published, and is on IRS’s website – irs.gov
 It tells examiner’s how to conduct certain types of
audits
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The IRM
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Preparing for an IRS Audit
Handbook [4.2]3.2.1 “IRC §7521(c) states that
an examiner cannot require a taxpayer to
accompany an authorized representative to an
examination interview in the absence of an
administrative summons. However, the
taxpayer’s voluntary presence at the interview
can be requested through the representative as
a means to expedite the examination process.”
The IRM
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Handbook [4.2]3.2.1.4 2. “IRC §7602 allows
examiners to obtain testimony from third parties
who can provide relevant information to
determine the correct liability for a taxpayer.
“3. Caution should be taken to not disclose any
tax information of a confidential nature when
contacts are made with third parties.”
Preparing for an IRS Audit
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Handbook [4.2]3.3.5 “1. An examiner
may consider inspecting the taxpayer’s
residence. Due to privacy issues and the
intrusiveness of such inspections, their
use should be limited. The purpose …
includes (but is not limited to):
 B. Determining the taxpayer’s
financial status.”
Preparing for an IRS Audit
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Handbook [4.2]3.3 1. “The physical
observation of the taxpayer’s operation, or
tour of business site, is an integral part of
the examination process.
Preparing for an IRS Audit
Examination Techniques
Handbook 4.3.2 Examination Collectibility
Handbook 4.3.21 Exam Offer-in-Compromise
Handbook 4.3.3 Excise Tax
Handbook 4.4.3 Retail Industry
Handbook 104.6 Employment Tax
Handbook 104.3 AIMS/Processing Handbook
Handbook 104.7 Financial Products and
Transactions Handbook
Preparing for an IRS Audit AntiMoney Laundering
Handbook §4.3.4 Anti-Money Laundering
Handbook, Chapter 26, Role of the
Examiner:
Sub§11.4.1 Review Currency and Banking
Retrieval System (CBRS) for cash activity
(Forms 8300 filed for cash deposits of
$10,000 or more)
Preparing for an IRS Audit
Anti-Money Laundering (Cont’d)
Sub§11.4.3 1. Examiner should inspect
cash receipts and sales journals, bank
statements, and deposit slips to verify:
A. Cash receipts of more than $10,000.
B. Consecutive or related transactions
which total more that $10,000.
Preparing for an IRS Audit
Anti Money Laundering (Cont’d)
Sub§11.4.3 2. The examiner should be alert to
identify transactions that attempt to avoid the
reporting requirements of IRC §6050I (Form
8300 requirements) by
A.
(combining cash and non-cash to appear to
avoid filing requirements)
B.
(structuring a single transaction into multiple
transactions).
Market Segment
Specialization
Program
(MSSP)
MSSP – Pizza Restaurants
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“Because pizza restaurants are basically
cash businesses, the potential for
skimming exists. The type of entities
discussed in this guide are the family
owned mom and pop types of
establishments.”
(Not chains or
franchises)
MSSP – Pizza Restaurants
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“Overall, documentation of income and
expenses in this industry has been found
to be lacking. … cash register tapes are
not retained and income is not deposited
intact. There is generally little or no
documentation to verify gross receipts……
Purchases are often paid in cash …
invoices are not kept. Employees are
often paid in cash ……”
MSSP - Ministers
(Totally changing gears)
MSSP
Ministers
MSSP - Ministers
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Although overall potential examination
issues are prevalent, the guidelines
consist more of a recitation of those
potential issues resulting from the law
applicable to ministers that differ from
other individual taxpayers.
MSSP - Attorneys
(Changing gears again)
MSSP
Attorneys
MSSP - Attorneys
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Purposes:
 “2. To increase voluntary compliance in
an area in which compliance was poor.”
MSSP - Attorneys
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Attorney-Client Privilege
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Attorneys may refuse to provide any documents
which contain client’s name. This can include a client
list, general ledger, client ledger cards, cancelled
checks, and client trust accounts.
Osterhoudt v. U.S., 722 f.2d 591 (9th Cir. 1983):
“Thus, the general rule is that disclosure of client
identity is not an infringement of the attorney-client
privilege.
Preparing for an IRS Audit MSSP
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Example of other MSSP Papers:
Architect
Artists and Art Galleries
Auto Body and Repair
Bail Bond
Bars and Restaurants
Child Care Providers
Preparing for an IRS Audit MSSP
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Drywallers
Garment Contractors
Lawsuit Awards and Settlements
Mortuaries
Retail Liquor
Taxicabs
Veterinary Medicine
MSSP
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The MSSP papers also are all available
online, on IRS’s web page: irs.gov
Exam
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Selection of returns for audit
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Discriminant function (DIF)
National Research Program, formerly
Taxpayer Compliance Measurement Program
(TCMP) (“outlawed” by Congress)
Informant
Economic Reality (also outlawed by
Congress)
Exam – selection of returns
(cont’d)
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Tax shelters
Cash operations
Abnormal deductions
Exam
Audits –
> Correspondence examinations
> Office examination (generally being
discontinued)
> Field examinations
(Dealing with the Internal Revenue
Agent)
Audits (cont’d)
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Conclusion of Audit
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Discussion of adjustments
Make sure the RA clearly explains the proposed
adjustments and you understand
 Don’t be reluctant to request a meeting with the
Agent’s Manager if necessary – this is an
acceptable procedure
 Thirty-day letter / “Preliminary Notice” (also called
a Revenue Agent’s Report (RAR)
 Administrative procedure – not statutory
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Audits (cont’d)
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Options
1. Agree
 2. File a protest (w/in 30days, or request
extension), request administrative appeal
 3. Ignore, bypass Appeals, accept “Deficiency
Procedure”
 Then
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Default SND, pay tax
Default SND, pay tax, file suit in DC or CFC
Petition Tax Court – w/in 90-Days (§6213) – NOT
THREE MONTHS
Audits (cont’d)
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Appeals Protests
May be made orally or simple written request
if tax and penalties are under $2,500 per year
 Otherwise, must be in writing
 If proposed tax and penalties are over
$10,000, protest must be formal, setting out
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Specific facts,
Applicable law, and/or
Other authority, in support of position
Audits (cont’d)
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Remember, can request a hearing with
TC’s Small Case Division if the deficiency
and penalty (not interest) does not exceed
$50,000 (per year). TP can appear pro se.
(Ceiling amount is statutory, but is
increased occasionally by Congress)
The Appeals Process
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Reasons to take advantage of Appeals
Process
Very high rate of agreement
 May be able to obtain a favorable
“settlement,” or at least an acceptable one
 The judicial process is next
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Very important – if ultimately litigated, will only be
able to obtain recovery of litigation costs if: (next
slide)
Appeals Process
Recovery of Litigation Costs
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Requirements for recovery of litigation
costs (IRC §7430):
Petitioner has exhausted administrative
remedies
 Petitioner substantially prevails in litigation
 Government cannot prove its position was
substantially justified
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The Appeals Process
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The Appeals Conference
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Evidence
Law
Strengths, weaknesses, precedents, reliability
Hazards of Litigation
Objective – if litigated, who will win this issue?
Intermediate settlement
The Appeals Process
 In
the absence of agreement
here, Appeals will initiate the
Deficiency Procedure
 And then - the judicial
process
Appeals Process (cont’d)
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Deficiency Procedure – Again, this is The
Ninety-Day Letter – be aware, this is the
Statutory Notice of Deficiency
Options – NOTE: Options are the same as
before, except now you have exhausted your
administrative remedies
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Agree
Ignore – default the SND, pay tax
Ignore – default the SND, pay tax, file suit in DC of
CFC
Petition Tax Court
Assessment of Tax
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Verify proper assessment
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Timely?
Assessment Official Authority?
Amount correct?
The Collection Process
If you think the amount being collected is
incorrect
 Discuss with Revenue Officer, then don’t
be reluctant to request meeting with RO’s
Manager
 Most Collection matters now may be
appealed administratively
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Collection (cont’d)
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Administrative Appeals:
> Liens on property
> Levies of wages or bank account
> Seizures or property
Collection
Liens
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A legal claim to your property as security
for tax debt
Notice of Federal Tax Lien may be filed
after
Tax is assessed
 Notice of Demand for Payment (a bill) has
been sent, AND
 You have not paid the debt w/in 10 days
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Liens (cont’d)
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Lien notice publicly notifies all creditors
that IRS has claim against all your
property, including property acquired after
the filing
Lien attaches to all your property
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House
Car
Property rights (accounts receivable, etc)
Liens (cont’d)
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Appeal
IRS must notify you w/in 5 business days after
filing of a lien
 You may ask for review by RO’s Manager
 You must file request for Appeal w/in 30 days
of notice

Liens (cont’d)
Issues for discussion on appeal are limited:
> Taxes all paid before lien
> Tax assessed and lien filed while in
bankruptcy subject to automatic stay
> Procedural error in assessment
> Statute for collection has expired
> Discuss collection options
> Spousal defences
Liens (cont’d)
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Release of the Notice of Federal Tax Lien
will be (should be) issued
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Within 30 days after the debt is satisfied, or
Within 30 days after IRS accepts a bond you
submit guaranteeing payment of the debt
TP will have to pay state and/or other
jurisdictional fees
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will be added to amount owed
Collection
Levies
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Levy – a legal seizure of property to
satisfy a tax debt
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Distinguished from lien in that property is
actually taken
Property subject – car, boat, house, etc., or
Property owned by TP but held by someone
else (wages, retirement account, bank
account, licenses, CSV of life insurance, etc.
Levies (cont’d)
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Levy may take place after
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Tax is assessed and Notice and Demand for
Payment sent
Tax not paid, and
Final Notice of Intent to Levy and Notice of
Right to Hearing
+ 30 days
Levies (cont’d)

Topics for discussion on appeal is same
as for Liens.
Levies (cont’d)
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Levy on a bank account
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The bank must hold the money for 21 days to
give TP a chance to make other
arrangements
After 21 days, the bank must send the money
to IRS
Levies (cont’d)
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Release of Levy will be when/if
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Debt is paid
Collection statute expired before levy was
filed
Installment agreement approved, unless levy
is included
Expense of selling the property would be
more than the tax debt
Levies (cont’d)
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Property will be released when/if
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Amount of government’s interest in property is
paid
New escrow agreement
Acceptable bond
Acceptable agreement for paying tax
Expense of selling the property is more than
debt
Levies (cont’d)
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Sale of Seized Property
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IRS must wait 60 days, during which
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TP may ask that it be sold w/in 60 days
Public Notice will be posted (local newspaper, flyer, etc.)
Original of Notice to TP
After the Notice is placed, IRS must wait 10 days
before sale (unless property is perishable)
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IRS will compute a minimum bid price (generally 80% of
forced sale value)
You may appeal the minimum bid price
Levies (cont’d)
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Proceeds of the sale

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If less than the tax bill and expenses of levy
and sale, you will still have to pay the unpaid
tax
If more than the tax bill and expenses, surplus
will be refunded
Levies (cont’d)
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Real Estate
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TP may redeem real estate w/in 180 days of
the sale
Must pay purchaser the amount paid for the
property, plus interest at 20% annually
(interest on the funds paid to the government
by the purchaser)
Levies (cont’d)
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Property that cannot be seized:
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School books, certain clothing
Personal and household effects, up to $6,250
Tools of trade, up to $3,125
Unemployment benefits
Certain annuity and pension benefits
Certain disability payments
Levies - Property that Cannot be
Seized (cont’d)
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Salary, wages, or income included in a
judgment for court-ordered child support
Certain public assistance payments
Minimum weekly exemption for wages, salary,
and other income
Collection (cont’d)

Opportunities for Relief
Installment Agreement
 Offer in Compromise
 Temporary Delay in Collection Process
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Installment Agreement
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< $10,000 - Automatic upon request
> $10,000 – more troublesome, but is doable
Will be an up front user fee (now $43)
Interest and penalties will continue
Beware – if miss payment, will be interest on
interest
May be better to attempt loan at bank or by CC,
if available
Installment Agreement

Note: If under threat of levy, upon
application for installment, cannot levy
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While request for installment agreement is
being considered
While appeal of rejection of installment
agreement is being evaluated
For 30 days after rejection
While installment agreement is in effect
(assuming payments are current)
Offer in Compromise

May apply to
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Taxes
Interest
Penalties
Additions to tax
Offer in Compromise (cont’d)

Grounds for an offer

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Doubt as to liability (similar to establishing liability
amount under Exam or Appeals processes)
Doubt as to collectibility (does TP have ability to pay)
“promote effective tax administration” (assessed tax is
correct, but TP under economic hardship or other
special circumstance)
Temporary Delay in Collection

Temporary delay because of inability to
pay currently


Be aware that interest/penalties will continue
During the delay, IRS may file a Notice of
Federal Tax Lien to “protect the government’s
interest in your assets
Trust Fund Recovery Penalty
§6672
Also commonly known as


100% Penalty
§6672 Penalty
§6672 Penalty (cont’d)



Trust Fund Taxes – taxes withheld and held for
employees until employer makes a federal tax
deposit of them
Trust Fund Recovery Penalty – 100% of the
trust fund taxes not paid over to government
Responsible person – person responsible for
paying over the trust fund taxes to the
government
§6672 Penalty
Responsible Person (cont’d)


If IRS determines you are the Responsible
Person, they will issue you a Notice and
Demand for Payment
Party determined responsible has 60 days
to appeal
§6672 Penalty
Responsible Person (cont’d)
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Officer or employee of the company
Member or employee of a partnership
Corporate director or shareholder
Member of board of trustees of a nonprofit
organization
Another person having authority and
control over funds to direct their
disbursement
§6672 Penalty
Responsible Person (cont’d)


Responsible Person – willfully fails to
collect or pay trust fund taxes.
Willfulness –

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Must have known about the unpaid taxes
Must have used the funds for other purposes
Questions?