Offers in Compromise Strategies: Using OICs to Challenge...

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Offers in Compromise Strategies: Using OICs to Challenge

Assessments and Request Reconsideration of Tax Bills

TUESDAY, JUNE 27, 2017, 1:00-2:50 pm Eastern

FOR LIVE PROGRAM ONLY

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June 27, 2017

Offers in Compromise Strategies

Benjamin J. Peeler, J.D., CPA, LL.M., Partner

Eide Bailly, Utah

[email protected]

A.J. Gross, CPA, EA, President and Founder

ALG Tax Solutions, Howell, Mich.

[email protected]

Howard S. Levy

Voorhees & Levy, Cincinnati

[email protected]




Notice

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY

THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY

OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT

MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR

RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons,

without limitation, the tax treatment or tax structure, or both, of any transaction

described in the associated materials we provide to you, including, but not limited to,

any tax opinions, memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that are

subject to change. Applicability of the information to specific situations should be

determined through consultation with your tax adviser.

www.eidebai l ly.com www.eidebai l ly.com www.ALGTaxSolutions.com

June 2017

A.J. Gross, CPA, EA

Benjamin J. Peeler, J.D., C.P.A., LL.M

Howard S. Levy, J.D. LL.M.

Tax Controversy

Offers in Compromise

http://howardlevyirslawyer.com/

www.eidebai l ly.com www.eidebai l ly.com

Mastering the IRS Offer-In-Compromise program

Navigating the IRS Offer-In-Compromise (OIC)

procedures

www.ALGTaxSolutions.com http://howardlevyirslawyer.com/

6

www.eidebai l ly.com www.eidebai l ly.com www.ALGTaxSolutions.com http://howardlevyirslawyer.com/

Learning objectives

• Identify the three types of Offers-In-Compromise (OIC)

• Examine the Doubt as to Liability (DATL) OIC criteria

• Examine the DATL OIC Standards of review

• Develop OIC strategies

• Understand filing and documentation requirements 7


Doubt as to Collectability OIC (DATC)

• Components of Collectability • IRM 5.8.4.3.1

• Future Income • Income less allowable expenses times12, 24, or # of months left on CSEDs

• CSED can be a major factor

• Equity in Assets • Not just physical assets

• IRM section 5.8.5.15 allows exclusion of income-producing assets

• IRM section 5.8.5.18 IRS may include dissipated assets

• Amount Collectable from Third Parties • Ex. Transferee assessment, nominee lien, or suit to set aside a fraudulent

conveyance

• Assets/Income Beyond the Reach of the Government • Equity in assets located outside the country

8


Effective Tax Administration (ETA) OIC

• Doesn’t Qualify for DATC OIC or DATL OIC • DATC with Special Circumstances

• Economic Hardship IRM Section 5.8.11.2.1 • Unable to pay reasonable basic living expenses

• For individuals only

• ETA allows for more deviation from national standard

• Age, employment status, dependents, and extraordinary circumstances

• Public Policy/ Equitable Considerations IRM Section 5.8.11.2.2 • Show that full payment would undermine confidence that tax laws being

administered fairly and in an equitable manner

• Compromise Would Not Undermine Compliance with Tax Laws IRM Section 5.8.11.2.3

9


Effective Tax Administration (ETA) OIC

• Examples of ETA OIC based on hardship • There are sufficient assets to pay the tax liability. The taxpayer provides

full time care and assistance to a dependent child, who has a serious long-term illness.

• Taxpayer is retired with a retirement account that can pay the tax liability.

• Taxpayer’s monthly income less allowable expense is not sufficient to enter into an installment agreement. The taxpayer owns a modest house that is specially equipped to accommodate the taxpayer’s disability. There is sufficient equity to pay the tax liability.

• Examples of ETA OIC based on Public Policy/Equitable Considerations

• Taxpayer has money in a qualified IRA account. The taxpayer would like to move the money to a new IRA account. The taxpayer is not familiar with the rollover rules and wants it avoid penalties. The taxpayer submits an email inquiry to the IRS at its web page and is told the IRS must be transferred within 90 days.

• Taxpayer uses a payroll service provider. Payroll service payroll provider missed tax deposits. The IRS may accept an ETA OIC of a diligent taxpayer while a uninvolved taxpayer will not.

10


Doubt as to Liability OIC (DATL)

Dispute the existence or amount of a taxpayer’s correct liability.

IRM Section - 4.18.2.2

• Conducted in a similar manner to an audit reconsideration

• IRS maintains separate file from any previous examination

• A statutory right, IRS required to examine and respond

• Automatically accepted if no response within 24 months

• Denial letter sufficient to satisfy the statute

• Determined by evaluating the supporting evidence and circumstances

• Cannot be used for adjudicated liabilities

• Cannot submit DATL OIC combined w/ DATC or ETA OICs

• Cannot not be rejected solely because IRS cannot locate the taxpayer's return or return information

• Avoid financial disclosure unlike DATC or ETA

• No filing fee 11


DATL OIC

Like an audit reconsideration, IRS evaluates hazards of litigation and extent of doubt created in OIC. It is necessary to submit comprehensive documentation and information that explains the taxpayers’ position, including the following:

• Supporting documents, evidence, affidavits, etc. to supports claims

• A comprehensive summary of legal position w/ an analysis of the risk to the IRS

• Additional records unavailable at the time of an audit

• Corrected penalty and interest calculations

• Cancelled checks proving payments that were not credited properly

• Court case, revenue ruling, and other legal authority that supports position

13


DATL OIC

Alternative to Tax Court

• Missed deadline for petitioning Tax Court = judicial remedies require full payment of tax and filing a claim for refund before District Court filing

• DATL OIC = can be submitted without paying the tax and filing claim for refund (unpaid tax)(end around statue of limitations problems)

• Can also be appealed when an unfavorable result received, and if submitted via CDP Hearing, it can be appealed to the U.S. Tax Court (unless prior opportunity) and Chief Counsel can sometimes help

14


DATL OIC

• DATL OIC Income Tax assessment example scenario

• A taxpayer was represented during audit, but the representative fell ill and taxpayer missed Tax Court petition filing date. Tax was assessed and the IRS began collection action. Taxpayer had difficult time recovering documents from now deceased representative. DATL OIC is filed with RO for $1 submitting all available documents. While the OIC is pending assignment taxpayer sought FOIA to gather previously submitted documents. IRS reduces some of the adjustments, but taxpayer has to Appeal some of the remaining adjustments and new issues raised by examiner (assigned to the same examiner).

15


DATL OIC

You can also contest the legitimacy of:

• Trust Fund Recovery Penalty (TFRP) assessments IRM Section 5.8.4.22.1

• Willful and responsible parties

• IRS often attempts to asses anyone with check signing authority

• Under Fifth Circuit precedent, check signing authority alone can indicate someone is a responsible person. Howard v. United States, 711 F.2d 729 (5th Cir. 1983).

• FOIA request for 4180 (TFRP investigation) file

• Before DATL OIC will be investigated, the trust fund portion of the taxes must be paid, the TFRP must be assessed against all responsible/willful persons, a determination made by an RO to not assert due to collectability or dollar criteria, or the trust fund package forwarded for assessment.

• Personal Liability for Excise Tax (PLET) assessments

• Assessments made on individual taxpayers for withheld excise taxes.

16


DATL OIC

• DATL OIC TFRP assessment example scenario

• A bookkeeper was hired by a corporation to perform normal bookkeeping duties and other routine tasks related to these duties. The business accrued payroll taxes and the IRS interviewed the corporate officers and the bookkeeper during their 4180 investigation. The Revenue Officer made a determination that the bookkeeper was a willful and responsible individual; however, despite the bookkeeper’s ability to sign checks and her responsibility to keep company records and handle payroll, she never exercised any independent judgment as to which creditors to pay before others. The bookkeeper essentially followed instructions from the corporate officers and had no authority to pay any bills, including the IRS, unless directed to do so. The bookkeeper had no ownership interest in the corporation and was not involved in hiring, nor firing. If the bookkeeper missed the opportunity to appeal the assessment or was unsuccessful, a DATL OIC should be considered.

17


DATL OIC

• You can submit a DATL on Combined Annual

Wage Reporting (CAWR) penalties

• Example:

If the IRS denies abatement of civil penalty submit

DATL and reference IRS Legal Memorandum ILM

199411 (6/23/1994), which concluded that there is

no time limit to correct the W2 forms or to file an

abatement claim for a CAWR assessment.

18


DATL Standards of Review

The judicial standard of review is considerably more lenient

• Tax Court can review ETA and DATC OICs in limited circumstances, i.e, during a CDP Hearing for abuse of discretion

• For DATL standard of review is de novo

• IRS’ actions and determinations can be reviewed from the beginning

• Sego v. Commissioner, 114 T.C. 604, 610 (2000)

• Goza v.Commissioner, 114 T.C. 176, 181-182 (2000)

19


Filing and documentation requirements

• DATL • Form 656-L

• No filing fee

• Must include comprehensive information and documentation that shows how the correct tax amounts were derived and to support their position. (i.e., do all the work for the auditor ahead of time)

• DATC • Form 656 OIC and Form 433A/Form 433B

• Filing fee ($186) and down-payment *maybe be waived

• ETA • Form 656 OIC

• Filing fee ($186)

20


OIC Strategies

• Know Your Collection Statute Expiration Date

(CSED) Before Filing the OIC

• CSED is 10 years, beginning when the IRS place the liability on

their books (assessment).

• Call IRS Tax Practitioner Line, 1-866-860-4259 for IRS internal

date calculation.

• Secure account transcripts to verify – IRS makes errors in their

calculations.

• Tolling events include bankruptcy, collection appeals, innocent

spouse claims, offer in compromise

22


OIC Strategies

OIC tolls collection statute date from:

• 1.The date the IRS accepts OIC for processing

and while it’s pending until,

• 2.The rejection of the offer and 30 days after.

• 3. If appealed, during the appeal, and 30 days

after.

23


OIC Strategies

• IRS Has Two Years to Accept or Reject Offer

Internal Revenue Code Section 7122(f), Deemed

acceptance of offer not rejected within certain

period

“Any offer-in-compromise submitted under this

section shall be deemed to be accepted by the

Secretary if such offer is not rejected by the Secretary

before the date which is 24 months after the date of

the submission of such offer.”

24


OIC Strategies

• Working OICs Direct in Appeals via

Collection Due Process Hearings Tired of dealing with Centralized Offer in Compromise?

• OIC is a valid collection alternative in a CDP

Hearing.

• CDPs provide face-to-face conferences – yes, you

can actually meet with the IRS rep handling the OIC.

• A timely CDP provides Tax Court appeal rights, you

can have an OIC reviewed by the Tax Court.

• Equivalent Hearings – filing your appeal late.

25


OIC Strategies

• Consider Other Collection Resolution

Options and Your Client’s Needs Why does your client want to compromise tax liabilities?

Consider the following:

• Degree of IRS enforcement – Quiet or active?

• Client’s age and dependents

• Need for release of tax lien

• Future increase in income

• CSED

• Alternative options

26


OIC Strategies

• Bankruptcy as Leverage to Reduce

the Value of an OIC IRM 5.8.10.2.2, Offers in Compromise Before

Bankruptcy

“When a taxpayer or representative states…that a

bankruptcy petition will be filed if the taxpayer’s offer is

not accepted, the offer examiner must determine whether

the potential for a bankruptcy filing actually exists and the

impact the possible bankruptcy filing may have on the

collection of the outstanding tax liability

27


DTAL Example

• Corporation filed S Corporation tax returns

• Shareholders reported S Corporation income on personal income tax returns

• IRS accepted S Corporation tax returns as filed

• S Corporation tax returns selected for audit

• No record of Form 2553 filed

• Auditor assessed C Corporation tax returns

• Filed DTAL for $1 • Based case on the IRS not notifying the taxpayer of rejected S-election within 6

months of first filed 1120S return.

28


DTAL Example

• Taxpayer was pitched an abusive tax avoidance scheme by seemingly qualified tax professionals who arranged the entire transaction, including preparation of the returns and provided a convincing opinion letter.

• Years later the promoters were involved in a injunction audit and hired a related law firm to represent all the taxpayers in summons enforcement and their own audits.

• These lawyers did not do much to defend the taxpayer and as a result taxes and severe fraud penalties were assessed by default.

• When the tax bills came due the taxpayer sought help.

• With the tax still unpaid an offer was made through CDP paying the portion of tax that resulted from the ATAT transaction, but disputing obvious incorrect tax and the penalties.

• Settlement Officer at first refused to hear penalty issues (missed 30 day deadline) and requests were made for Appeals Officer to hear penalty portion.

• Where there was no prior Appeal IRM provides for the penalty Appeal in CDP under IRM 20.1.2.2.7.5.1

29


OIC Example

• Strong OIC filed with declining business income because of IRS

liens.

• OIC was held up because of Errors in OIC payment recording (IRS

simply recorded the payment incorrectly).

• OIC was assigned soon after to a specialist (bottom of pile).

• Upset the client because timing delay and client on his own began

calling her everyday.

• Then the client (on his own) began calling the manager

complaining that they were taking too long.

• OIC was rejected despite its strength “because it was not in the

best interests of the government” based on a double counting of

the same net income from the business (bank statements and

income statement).

• Now the OIC had to be Appealed. 30


OIC Example

• OIC submitted in CDP but referred back to RO to consider the

collection information statement documentation

• This seems to be happening more often because of AJAC

• IRS Chief Counsel is worn out over CDP motions for summary

judgement and trials that accomplish nothing

• Requested that CC find a new RO to consider the offer for

efficiency

31


Benjamin J. Peeler Partner, Tax Controversy and Procedure

• Benjamin J. Peeler , J.D., CPA, LL.M.

Partner, Tax Controversy and Procedure 801.456.5476 | [email protected] Knowledge and Experience More than 17 years of tax experience specializing in federal tax, controversy and procedure. Works with clients in the controversy areas relating to income tax, estate and gift tax, property tax, employment

tax and other various tax matters. Represents cli ents before the IRS in examination, Appeals, collection, penalty abatement, audit reconsideration,

interest abatement and interest netting. Represented the IRS before the United States Tax Court in large and specially designated tax cases, and in

litigation before the federal district court as a special assistant to the United States Attorney. Worked as an attorney for the IRS Office of Chief Counsel. Also, led and instructed groups of attorneys,

revenue agents and revenue officers through various procedures. Leads Eide Bailly's IRS Practices & Procedures as a federal tax, controversy and procedure specialist. Member of Eide Bailly’s National T ax Office team; committed to helping clients stay informed about tax news,

developments and trends.

Professional Memberships AICPA UACPA

Designations & Licensures Texas Bar, member Certified Public Accountant, Texas California Bar, member

Education LL. M., Taxation – Golden Gate University School of Law Juris Doctor – University of California, Hastings College of the Law, San Francisco Bachelor of Science, Accounting – University of Utah

32



A.J. Gross

A.J. Gross is the President and Founder of ALG Tax Solutions. He started the company with

the goal of helping individuals and businesses get through stressful tax problems and

handle their problems with the IRS or state once and for all.

A.J. is both a Certified Public Accountant (C.P.A.) and Enrolled Agent (E.A.). Since

beginning his career in tax resolution, A.J. has assisted hundreds of clients in resolving their

tax issues. His unique combination of skills, discipline and persistence has given him an

advantage in problem solving and negotiation skills. His drive to solve complex financial

problems and to customize workable tax solutions will result in you receiving the best

options for solving your tax problem.

A.J. earned his Masters of Business Administration (M.B.A.) and Bachelor of Science in

Electrical Engineering, both with honors, at Michigan State University. Before becoming

interested in tax resolution, he worked at at Motorola/Freescale Semiconductor as an

Advanced Powertrain Account Manager managing an $80 million automotive powertrain

account. A.J.’s unique ability to analyze customer needs enabled a “full-solution” approach

to product development. He was responsible for multimillion dollar negotiations, supporting

customers’ needs with products designed for companies such as Ford, GM, Chrysler, and

Honda.

A.J. Gross and wife Naomi live with their three children in Haslett, MI. A.J.’s busy schedule

with his children includes soccer games, basketball games, swim meets, school events, etc.

A.J., himself, plays as a hard-charging point guard in a highly competitive church basketball

league. He brings the same passion to his profession, driving to deliver the best quality

service, tailored to the needs of each ALG Tax Solutions client. 33

A.J. Gross

ALG Tax Solutions

855-648-2943

[email protected]



Howard S. Levy

Howard Levy is a former IRS trial attorney with over 20 years of experience representing

individuals and companies facing tax controversies. Howard's expertise centers on IRS

collection and examination problems, tax court litigation, IRS trust fund investigations, IRS

referrals to the Department of Justice, and the use of bankruptcy as a method of resolving

IRS problems.

Howard is an active contributor to the National Association of Enrolled Agents, writing yearly

articles for the EA Journal and teaching courses at the National Tax Practice Institute

(NTPI). Howard has been interviewed and quoted in The Wall Street Journal, New York

Times, USA Today and NPR radio about the IRS and tax problems.

Based in Cincinnati, Ohio, Howard is a partner in law firm of Voorhees & Levy, LLC. Howard

earned his bachelor's degree in finance from The Ohio State University, law degree from

Northern Kentucky University and Masters in Tax Law (LL.M) from Boston University. You

can stay continually updated about the IRS from Howard’s blog,

www.howardlevyirslawyer.com/blog

34

Howard S. Levy

Voorhees & Levy, LLC

11159 Kenwood Road

Cincinnati, Ohio 45242

Telephone: 513.489.2555

Facsimile: 513.489.2556

Email:

[email protected]

www.howardlevyirslawyer.com


http://www.howardlevyirslawyer.com/blog


http://www.howardlevyirslawyer.com/

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