All kinds of penalties are being assessed by the Internal Revenue Service (IRS) against taxpayers, and more can be expected in the future. In 1954 there were 13 penalties in the Internal Revenue Code, and now there are more than 150. Taxpayers should not overlook the opportunity to request the IRS to abate penalties. The IRS abates many penalties for reasonable cause.
Once the IRS makes an assessment against a taxpayer, the taxpayer will receive several notices before the IRS takes enforced collection action.
This is the notice that is required before the IRS can levy and seize a taxpayer’s assets.
Some form of response should be sent with respect to these notices. The response, along with a copy of the notice, should be sent by certified mail, return receipt requested, using the envelope provided by the IRS. The purpose in sending a response is so that it will show that the taxpayer is concerned about the taxes and is not ignoring them.
When a tax return has been selected for office examination, generally the examination of the return will be conducted at the office of the IRS. Normally a taxpayer will find an office examination has begun when he or she has received a letter or telephone call from the IRS informing him of such examination and that the IRS wants further records and information. Returns selected for office examination present issues which require some analysis and judgment in addition to verification of records.
There is a wealth of information available from the IRS that is not generally made available to the public. Most of this information can be obtained by asking. This information includes files the IRS assembles about a taxpayer, and various training manuals used by the IRS to train its employees. In addition to training given to its employees, the IRS, like most professional organizations, conducts continuing education on an annual basis for its various divisions. Most of the training manuals and annual training materials are available to the practitioner pursuant to the Freedom of Information Act (FOIA).
Many people end up owing the IRS for many reasons and there are various options to resolve your tax debt. Some of the options include an offer in compromise, installment agreement, or currently non-collectible status.
What is an Offer in Compromise?
An offer is when a taxpayer and the Internal Revenue Service settle a taxpayer’s tax liabilities for less than the full amount owed.
What is the Statute of Limitations?
The Internal Revenue Code limits the time in which the government may assess tax. There are two civil statutes of limitations. The first is the period during which the IRS can assess an additional tax liability (including penalties and interest). The second is the period during which the IRS can collect a tax that has been assessed. The criminal statute of limitations is the period during which the IRS can criminally prosecute. Generally, as to tax crimes, the criminal statute of limitations is six years. (Section 6531)
The application of the statute of limitations can be very confusing and individual facts may determine how the statute of limitations is computed. Also, certain actions suspend the statute of limitations.
An assessment results when the liability of a taxpayer is recorded in the office of the Secretary of the Treasury. The assessment establishes the right of the IRS to collect the tax. No lien or levy can be made without an assessment. Assessments are authorized by the Internal Code.
There is a general misconception about what the IRS can and cannot do. Owing money to the IRS is not like owing any other creditor. The IRS is one of only a few creditors who can seize and sell your home even though state law may prohibit other creditors from doing the same.
Dealing with the IRS can be confusing, time-consuming and risky for someone who is not familiar with IRS procedures. Most taxpayers are not very successful in handling their own affairs with the IRS. The primary reason is the procedures of the IRS are extremely complicated, and most taxpayers do not understand how to protect themselves. In addition, some taxpayers become too emotionally involved which reduces their effectiveness in dealing with the IRS. However, no taxpayer should be afraid to CHALLENGE THE IRS. Although most taxpayers have a great fear of the IRS, they know little about how it works and the IRS benefits from this ignorance.
Once a taxpayer overpays a tax, it is necessary to file a claim for refund before any action can be undertaken to seek a refund of such tax from the government. The purpose of the claim for refund is to place the IRS on notice of an alleged overpayment. A taxpayer cannot require the IRS to make a credit or refund without filing the claim. In addition, a claim for refund is a prerequisite for suing in the U.S. District Court or the U.S. Court of Federal Claims. It also protects the overpayment of taxes if the statute of limitations expires. Claims for refund take many forms, but most typically are Forms 1040X and 1120X, amended returns for individual and corporate income taxes. Refund of other taxes requires regular forms which should be marked “amended” and show an overpayment. The courts have recognized many forms of claims for refund, including informal letters from taxpayers to the IRS. Form 843 should be used when filing claims for refunds for any taxes other than income taxes.
The preparing and filing of a claim for refund should be handled with care. Only one taxable period and one type of tax should be set forth on any claim. The claim may cover several different issues for the same taxable period and type of tax. The claim must be in writing under the penalties of perjury, and each and every ground upon which the taxpayer relies must be set forth in detail, plus sufficient facts to place the IRS on notice as to the taxpayer’s claim. The claim should demand the dollar amount sought as a refund, plus any other amounts which are legally refundable – including interest. In addition, the claim must be signed by the person who signed the return or, if a corporate return, by an officer of the corporation. To file a claim for refund there must have been an overpayment of tax, which could include:
Field examinations involve returns with more complex issues, thereby requiring examination by someone more knowledgeable in the field of accounting and the Internal Revenue laws. Field examinations are conducted by Revenue Agents and are normally performed at the taxpayer’s place of business where the Revenue Agent can examine the taxpayer’s books and records and decide on the taxpayer’s correct taxable income and correct tax liability. The Revenue Agent is supposed to make an appointment with the taxpayer at a time and place that will be convenient for the taxpayer. The arrangement of the time and place can be done by telephone; however, the telephone contact cannot be used to verify items appearing on the income tax return.