Welcome to TaxMama’s Place Home of thetaxmama.com/wp-content/uploads/tax-practice/tax... ·...
Transcript of Welcome to TaxMama’s Place Home of thetaxmama.com/wp-content/uploads/tax-practice/tax... ·...
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
1
10 Steps to Resolving Collection Issues
Welcome to TaxMama’s Place Home of the
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
2Table of ContentsMeet Your Instructors
1. Determine the Statute of Limitations2. Gather Information3. Evaluate your options
• Audit reconsideration • Penalty abatement • Installment agreement (IA)• Currently non-collectible status (CNC)• Offer-in-Compromise (OIC) • Bankruptcy of tax debt
4. Discuss options with client5. Determine your strategy 6. Set Plan of Attack7. Contact IRS & Set the stage 8. Provide documentation9. Be Prepared to wait & educate your client10. Re-evaluate & Follow-up
Evaluations and Thanks!
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
3Who is Eva Rosenberg MBA, EA
Eva Rosenberg, EA, Your TaxMama® has been teaching Enrolled Agents Exam review courses off and on since developing the program for UCLA Extension over 15 years ago. These days, she’s teaching her own course online at www.irsexams.com Eva has a BA in Accounting and an MBA in International business. Your TaxMama® is a TaxWatch columnist for Dow Jones' www.MartketWatch.com and author of the ever-popular book, Small Business Taxes Made Easy, published by McGraw-Hill – new edition to be published in December 2010.As a speaker, TaxMama® is popular with both tax professionals and taxpayers. You can find her at www.TaxMama.com and subscribe to her free daily podcast at www.TaxQuips.com
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
4Who is Tom Buck, CPA
Tom Buck, CPA is a published author, tax coach, teacher And mentor. He has been a licensed CPA since 1971 and has been in private practice since 1982.
Tom was chairman of the Nevada Society of CPAs Taxation Committee. Tom has been representing taxpayers and solving IRS problems ever since the landmark Casino employee cases in 1982.
The approach Tom takes and that he would like to pass on to you is this:the “science” of the work is the law and how it should be applied. The “art” is being able to counter any and all IRS measures which are not supported by law. Does the IRS always follow the rules? Of course not, so part of the “art” is really in forcing the IRS to obey the law. Of course, having the tenacity of a bulldog is often the critical ingredient. In the final analysis, once you determine what the outcome should be, then you must be ready to take any detours necessary to get your client to the finish line.
Tom is a willing and helpful teacher and looks forward to sharing his hard-gained knowledge.
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
5Who is Sonya Wilt, EA
Sonya Wilt, BS in Management, EA and entrepreneur. A graduate of Upper Iowa University, Fayette, and former student of Eva Rosenberg’s Enrolled Agent Review Course, Sonya also has an extensive background in management and accounting, small business consulting, and employee training
Sonya’s desire to stay on top of the changes in tax law is two-fold: 1) To make sure her investments and entities are taking advantage of
every legal tax deduction available with adequate documentation, and…
2) 2) To provide our clients with accurate information so they may make solid decisions in both resolving current tax issues and legally protecting their future earnings.
Sonya and her partner, Tom Buck, CPA aggressively represent clients before state and federal taxing authorities through audits, appeals and collections.
Introduction to Collections Resolution
This is a big topic.
It involves PEP – Precision - Expertise - Precise timing
We can’t cover it all in two hours – that’s why we’ve produced this series for you.
Some concepts will be introduced today - covered later. There are hurdles to doing this well…
New hurdle from FTC – see your Resources page
Statue of Limitations
Unique benefit in the U.S. Tax Code
Federal Taxes expire!
Stick head in sand long enough – taxes go away. But only if….
What has to happen first?
Assess Taxes
For taxes to expire – they must be assessed. To start the clock running, you must1) You must file a tax return2) Have IRS file a tax return – SFR3) IRS correction letter adds additional taxes or
penalties4) Audit assessment adds additional taxes and/or
penalties
Statute Open Forever or…
To avoid keeping the statute open forever on a year –
• File a tax return.• Even if there is no obligation to file – file it.
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
10Understanding Statue of Limitations
Understanding the 10 year statute:• CSED – Collection Statute Expiration Date
Based on original Assessment Date• Ask IRS & Verify• Tolling events (Tolling = Freeze the Statute)
•Collection Due Process•Consideration of Offer In Compromise + 90 days – after close•Pending Bankruptcy + 6 months•Consideration of Installment Agreement•File a Tax Court Petition•Essentially anything that prevents collections
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
11Gather Information From Client
Learn everything you can from the client about their assessment.
• If due to an audit, perhaps you can fix the audit.
• If due to a Substitute for Return (SFR) filed by IRS, perhaps you can
reduce the assessment by filing a real tax return.
• If is due to unpaid taxes, with related penalties and interest, perhaps you
can reduce the penalties.
• If due to a spouse’s taxes, business, or filing a forged return, perhaps
you can correct that, too.
• Interest is high due to IRS administrative delays, get the interest reduced
Gather Information From IRS
Avoid surprises – • If a Revenue Officer is assigned to the case, ask the RO. • If not, using Form 4506-T, the Practitioner’s Priority Service (866-
860-4259) or IRS e-services get copies of the client’s records for each year in question + the year before and the year after.
Account Transcript, which contains information on the financial status of the account, such as payments made on the account, penalty assessments, and adjustments made by you or the IRS after the return was filed. Return information is limited to items such as tax liability and estimated tax payments. Account transcripts are available for most returns
Record of Account, which is a combination of line item information and later adjustments to the account.
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
13Know your options
Understand the rules and guidelines
for each of the following
collection resolution options
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
14Options: Audit Reconsideration
When should you request audit reconsideration?Legitimate Reason
• Taxpayer did not appear for audit• Taxpayer moved and did not receive notification• Taxpayer has new or additional information• You filed an original return after an Substitute for Return (SFR)
– Though rarely have to ask for reconsideration• You believe IRS has made a computation error• Taxpayer disagrees with auditCan be used years after completion of auditCan be used after all deadlines for routine appeals and
protests have expired.
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
15Options: Audit Reconsideration
When may cause denial of audit reconsideration?Denied if:
• Client signed a closing agreement (Form 906)• Client signed a compromise agreement• Client signed a Form 870-AD• US Tax Court issued Final determination
TaxMama’s Audit Recon Case Study
CZClients: Married Filing JointlyRetained Repr.: January 1995Employment: Real Estate investor, investor• History: Always current and incompliance. • Tax Preparer handled audit, poorly - twice.• Audit assessment = About $300,000 including penalties
and Interest• RO assigned to case believed me, that the audit
assessment was wrong. RO ordered Audit Recon.
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
17Tom Buck Case Study
Bill S.Clients: SingleRetained Repr.: January 2009Employment: Previously SE, Currently WE
• History: No returns filed since 2003, Audited in 2001, 2002, & 2003, Audit that resulted in strange activity on the account transcripts
• Audit for which IRS fails to reproduce the audit report
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
18Options: Penalty Abatement
When to request Penalty abatement?Legitimate Reasons
• 1st Time Offender• Drug Rehab Program, Imprisonment, Death • Destruction of the taxpayer's records• Divorce or court proceeding preventing payment• Incorrect advice from a tax professional • Bad advice received directly from the IRS (be specific)
– Make notes• Can T/P prove event was beyond their control?
Options: Interest Reduction
Form 843 - Requesting Abatement or Refund of Interest Due to IRS Error or Delayhttp://www.irs.gov/instructions/i843/ch02.html#d0e195 The IRS will abate the interest only if there was an unreasonable error or delay in performing
a managerial or ministerial act (defined on this page). The taxpayer cannot have caused any significant aspect of the error or delay. In addition, the interest can be abated only if it relates to taxes for which a notice of deficiency is required. This includes income taxes, generation-skipping transfer taxes, estate and gift taxes, and certain excise taxes. Interest related to employment taxes or other excise taxes cannot be abated.
Managerial act. The term “managerial act” means an administrative act that occurs during the processing of your case involving the temporary or permanent loss of records or the exercise of judgment or discretion relating to management of personnel. A decision regarding the proper application of federal tax law is not a managerial act. See Regulations section 301.6404-2 for more information.
Ministerial act. The term “ministerial act” means a procedural or mechanical act that does not involve the exercise of judgment or discretion and that occurs during the processing of your case after all prerequisites of the act, such as conferences and review by supervisors, have taken place. A decision regarding the proper application of federal tax law is not a ministerial act. See Regulations section 301.6404-2 for more information.
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
20Options: 120 Day Full Pay
Non-published optionCan your client full pay or significantly pay down the debt in 120 days?
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
21Options: Installment Agreement
When to set up an Installment Agreement (IA)?• Balance can be paid in full within 3 years• Balance can be paid in full within within 5 years• Balance can be paid in full before statute expires
Essentially, when clients are working, have assets, education and good health – IRS will expect to collect the balance due.
When there is no way around paying, here’s how to get an Installment Agreement, IA, for short.
Installment Agreement Fees
$105.00 – Base fee$ 52.00 – Pay via Electronic funds withdrawal$ 43.00 – Low Income (Form 13844)
Guaranteed Installment Agreement
Guaranteed installment agreement.
Your client cannot be turned down if the tax owed is not more than $10,000 and all three of the following apply.
• During the past 5 tax years, taxpayers have timely filed all income tax returns and paid any income tax due, and have not entered into an installment agreement for payment of income tax.
• The IRS determines they cannot pay the tax owed in full when it is due and they give the IRS any information needed to make that determination.
• The installment agreement is set to pay the full amount within 3 years and taxpayers comply with the tax laws while the agreement is in effect.
Online Payment Agreement
Balance due $25,000 or less , use the Online Payment Agreement (OPA) Or Form 9465 – Installment Agreement Request
Installment Agreement Tricks
• Reduce filing fees by paying automatically• Control payment date – reduce odds of NSFs• Have client alert you if ever they cannot pay
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
26Options: Currently Non Collectible
Knowing when to use Currently Non Collectible (CNC)…• CNC only suspends collection activity• CNC does not toll statute of limitations• Detailed review of client’s financial situation
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
27Options: Currently Non Collectible
Review client status/circumstances• Need to gather client info
433-A, 433-B or 433-F• No equity in assets• Insufficient Income to make any payment
without causing hardship• Is client in compliance?• CNC as a stepping stone
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
28Options: Offers In Compromise
Taxpayers compliance history is a consideration for nearly all Offers In Compromise (OIC)
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
29Options: Offers In Compromise
Considerations for using Doubt as to Collectability“I have insufficient assets and income to
pay the full amount”• Will halt collection activities, but will not
necessarily stop filing of lien(s)• Tolling of Statutes
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
30Options: Offers In Compromise
Qualifying for an Offer In Compromise (OIC)Doubt as to Collectibility
• Income
• Equity in Assets
IRS takes a very dim view of Dissipated Assets
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
31Options: Offers In Compromise
Financial Requirements for Doubt as to Collectibility Offer In Compromise (OIC)• 20% Down Payment• $150 Application Fee
Fee Waiver available in case of hardship 656-A
IRS takes a very dim view of Dissipated Assets
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
32Options: Offers In Compromise
Considerations for using Doubt as to Liability• 656-L (Separate Form)• Can be used to force Audit Reconsideration• Collection Information Statement Not Required• Application Fee Not Required
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
33Options: Offers In Compromise
Considerations for using Effective Tax Administration“I owe this amount and have sufficient assets to pay the full
amount, but due to my exceptional circumstances, requiring full payment would cause and economic hardship and would be unfair and Inequitable”
Examples:• Funds needed to provide for medical care• Taxpayer disabled, home has equity but equip for disability,
insufficient funds to pay additional house paymentMore examples at www.irs.gov/irm/part5/irm_05-008-011.html
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
34Options: OIC Payment Options
Options & Strategies
•Lump Sum Cash Offer (5 or few installments)
•Short Term Periodic Payment Offer
•Deferred Periodic Payment Offer
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
35Case Study
Shawn & Dana P.Clients: Married Filing JointRetained Repr.: April 2008Employment: Shawn self-employed (S-Corp),
Dana - homemaker
History: Shawn works in family business, filed OIC, IRS attempting to re-value assets, CDP request filed in response to lien, Fast Track Mediation Requested
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
36Options: Bankruptcy
Bankruptcy or OIC – How to help your client decide?
Some Considerations:• Does your client have additional debt and creditors after
them?
• Timing?
• Funds available?
• Other?
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
37Case Study
Paul & Karen K.Clients: Married Filing JointRetained Repr.: 2009Employment: Previously wage earner, now
semi-retired/self-employed
History: Former government employee, real estate investor legal battle on bad investment, bankruptcy for non IRS debt, then OIC
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
38Options: Bankruptcy
Circumstances• Tax Return Filed at least 24 months
• Assessed 240 days
• The due date for filing a tax return was at least three
years ago
• The tax return was not fraudulent
Bankruptcy Note
If IRS has a lien filed, they may be able to collect funds from the bankruptcy estate if there is money left after earlier secured creditors have collected their reimbursements – or based on a formula to share the assets determined by the Bankruptcy Court Judge.
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
40Discuss options with client
Set forth the options with your client. Discuss the issues:
• Even if levy is lifted, lien will still be out there
• Affects on their Credit rating
• How much information will be public knowledge
• Affects on their Cash flow
• Personal Ethics
• Affect on standing in the community
• The time frame involved
• The pros and cons of the alternatives – for their lives
Educate them
Consequences. What happens…
• With their tax refunds• If they default on IA or OIC payments• If their income increases while paying an OIC• If they inherit money along the way• If their income dramatically drops during OIC• If illness or death occurs• If they default on another year’s tax obligation or filing.
Specific Instructions
Once you decide on a strategy, be very, very clear on what needs to be done by your client each step of the way.
• Information to gather – by when• Payments to make – when• Revisions to withholding – provide forms• Contact you immediately if anything changes or
if they get notice
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
43Determine your strategy
No cookie cutter approach, every client is different
This is where you need to know your client, they are living
breathing people and situations change
Your strategy needs to address both their current situation and
at least look at any future indicators of increased income or
inheritance
You are the expert, but it is the client’s life, they should make
the decision
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
44Set plan of attack
1. Specify the roles
A. What will you be doing?
B. What will the client be doing?
2. Communicate expectations with client
3. Set deadlines with client
4. Explain that those deadlines rarely apply to IRS
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
45Contact IRS & Set the stage
1. Keep the IRS abreast of what is going on 2. Request the time you need to get the job completed, if
you are requesting and extensive amount of time, be prepared to back it up (Client having surgery or they’ve had a flood, need time to compile records, depends on the strategy/option)
3. Inform the IRS of your clients “willingness” to resolve the situation (Your client has seen the error of his ways and wants to get resolve the situation or they wouldn’t be paying you)
4. Know the rules in case they are not willing work with you.
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
46Provide documentation
1. Keep your client on taskRarely does a client get into this situation by accident, like it or not this job involves some babysitting, some clients need one or two reminders, others every week by phone and e-mail (make sure you charge accordingly for your time)
1. Do what you say you are going to doIf you are going to send the IRS something, send it (get proof), verify receipt if you fax it, call first to let them know it is coming, if you’ve mailed something to the SFR unit, contact the Revenue officer and let them know it has been sent
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
47Provide documentation
1. If there is a delay, communicate with the IRS immediately, if you are going to miss a deadline, call the agent and request more time
2. Provide the documentation certified mail w/return receipt, Proof you’ve sent it! Proof they’ve received it!
3. NEVER SEND ORIGINALS OR MAKE SURE YOU HAVE A COPY OF EXACTLY WHAT WAS SENT
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
48Hurry up & wait
1. Be prepared to waitThey are the government, nothing happens overnight
1. Set expectations with clientExplain to your client that while it may take a month to gather all the documents and prepare an offer, the IRS could effectively sit on it for 2 years
1. Be persistent & proactiveYou don’t have to wait too patiently, you can call and check on the status, remember to update your clients even if you’ve found nothing out, they will appreciate it.
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
49Re-evaluate & Follow-up
Re-evaluate & Follow-up
Be prepared to make changes
Expect the best, plan for the worst
And let’s look at some strategy summaries
Statute Strategies
Monitor the Statute – the longer an offer stays open, the longer the statute of limitations is open.
Either settle the case in your client’s favor, Or insist the case be closed. Most tax pros let unsettled cases sit there –
leaving the statute open endlessly.
Payment Strategy
Sometimes, the best option is full pay. If so1) Reduce the balance due if possible
a) Audit Reconb) Innocent Spousec) Penalty Abatementd) Interest reduction due to administrative delayse) Collection Due Process
2) Set up the lowest fee installment agreement with the highest payment that your client can afford, to shorten the payment period.
3) Set up a payment date that will ensure your client always has money in the account on that date.
4) Better yet, help them borrow the money and not be on the hook to IRS at all. Lenders are safer than IRS.
Payment Reduction Strategy
• Indefinite Delay – Currently Non-Collectible (discussed in Levy Release class)
• Wait for the statute to toll• Offer in Compromise• Bankruptcy
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
5310 Steps Summary
1. Determine the Statute of Limitations2. Gather Information3. Evaluate your options4. Discuss options with client5. Determine your strategy 6. Set Plan of Attack7. Contact IRS & Set the stage 8. Provide documentation9. Be Prepared to wait & educate your client10. Re-evaluate & Follow-up
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
54The Practice Series
IRS Practice Series: 10 Steps to Release IRS Levies on Paychecks or Bank Accounts Available online
IRS Practice Series: 10 Steps to Resolving Collection Issues October 8, 2011
IRS Practice Series: Hands-on Collections Workshop November 1, 2010
IRS Practice Series: 6 Simple Steps to an Offer-in-Compromise: Completing (form 656) December 7, 2010
IRS Practice Series: The Un-agreed Collection Alternatives and AppealsDecember 10, 2010
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
55Resources
Audit Reconsideration: http://www.irs.gov/pub/irs-pdf/p3598.pdf
CNC reconsideration closing codes: http://www.irs.gov/irm/part5/irm_05-016-001.html#d0e292
Effective Tax Administration: http://www.irs.gov/irm/part5/irm_05-008-011.html
08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series
56CPE Link
Thanks for coming.
Remember to give CPE Link your evaluations.
Drop by to sign up for other TaxMama classes – http://www.cpelink.com/teamtaxmama
Return often for two new series, coming soon: International Taxpayer issues – dealing with resident aliens
and Americans overseas.The Tax Practice Series - Taxpayer representation –
Collections, Offers In Compromise, other payment alternatives