How to Deal with Difficult IRS Agents
When an IRS auditor is conducting a review or examination
An IRS agent conducting the audit might make a claim of impropriety that they can’t back up despite being provided evidence to the contrary. The IRS agent then may also threaten that things are going to get worse if the claim of impropriety isn’t conceded by the taxpayer. At this point, your IRS tax defense attorney should be speaking with an IRS supervisor. At this point your tax lawyer will also fax over his/her position, why the auditor is being unreasonable, and the facts we have presented to back-up that claim.
This doesn’t always work. Sometimes, the IRS supervisor will take the side of their agent conducting the audit. If this happens, your IRS defense lawyer will talk to you about terminating the audit and asking the IRS agent to send the 30 day letter so the matter can be appealed (make sure the taxpayer’s position/offered evidence is submitted in writing to show to the IRS appeals officer).
When an IRS Appeals Officer is being unreasonable - Consider a Qualified Offer
A qualified offer is a written offer made by the taxpayer to the IRS during the Qualified Offer Period that: (i) acknowledges the specific taxpayer liability; (ii) indicates that the offer is a qualified offer under IRC Sec 7430(g); and (iii) the qualified offer remains open until the offer is rejected by the IRS, a trial date begins, or 90 days after the qualified offer is made (whichever comes first).
Essentially, you are putting in the exact dollar amount you believe the IRS is actually owed (compared to what they think that the taxpayer owes). It forces the IRS to take a much closer look at the taxpayer’s position and really examine their arguments for merit. Of course, if the taxpayer’s argument lacks merit, the mere filing of a qualified offer isn’t going to change the IRS’s position.
The Qualified Offer Period starts on the date of the proposed deficiency (allowing you an opportunity for administrative review with the IRS Office of Appeals) and ends 30 days before the trial is set to begin.
Using the qualified offer tool properly allows the taxpayer to recover their reasonable costs and hourly attorneys fees (subject to a statutory hourly-rate cap).
If the IRS accepts the qualified offer, the case is done and the taxpayer only owes what was set forth in the qualified offer. That amount then goes to IRS collections.
Dealing with unreasonably difficult IRS collections
The folks over at the IRS handing collections matters are referred to as “revenue officers.”
Must timely file for a collections due process (CDP) (for more tax resolution possibilities). When CDP request goes in, collections stops. But older collections cases (where CDP period has ended), don’t have this option with equivalency hearings (collections doesn’t stop).
If still in one year period, get an equivalency hearing.
If intent to levy notice has been issues, request a hearing, and present a proposal (offer and compromise, deemed uncollectible, etc...).
Vinateiri v. Commissioner, 133 TC No. 16 (Dec 21, 2009) says an IRS levy must be released if it would cause the taxpayer to be unable to cover what the IRS deems as “allowable expenses.” Sometimes a revenue officer needs to be reminded of this case.
Can also file IRS Form 911 with the taxpayer advocate and explain why the client is uncollectible and that the revenue officer is still pursuing.
Collections Appeals Program (CAP appeal):
Anytime, during the collections period, the IRS appears to be doing something inappropriate. To utilize the Collections Appeal Program, after speaking to the revenue officer's supervisor, and assuming the revenue officer is just being unreasonable and refusing to consider evidence that taxpayer, through their IRS tax lawyer, has presented, then fax over IRS Form 9423 to initiate a CAP appeal.
Other IRS Collections Defense Options
Offer in Compromise
Filing an Offer in compromise (which stops the IRS collections process, leaves the revenue officer and is kicked over the the central offer in compromise unit) but only do so if it has a chance of being accepted.
File for Bankruptcy
There is a lot of leverage with the IRS if bankruptcy is a tool you are willing to use (note, if the IRS files a Substitute for Return (SFR) on behalf of the taxpayer, it will not be dischargeable in bankruptcy, so always voluntarily file your own tax returns).
Automatic Stay stops the IRS collections/levy process.
There are certain IRS liens that can be discharged if its an income tax lien that is over 3 years old (with a filed return or one on record for at least 2 years if the taxpayer filed late), any other assessment (either from an audit or amended return, which are over 240 days old), and no fraud or a trust fund tax; then the amount can potentially be discharged in Bankruptcy.
All penalties, even on non-dischargeable taxes, are treated as unsecured creditors, and are therefore dischargeable.
For the amount of owed taxes that are not dischargeable in bankruptcy, bankruptcy court can, nevertheless, force a payment plan that the IRS must accept in Chapter 11 or Chapter 13.
Compare bankruptcy tax relief to First Time Abatement for penalties.