Dealing with the IRS can be a dangerous labyrinth for the untrained taxpayer or their non-tax advisors. In a recent Federal court case, E. John Rewwer, et al. v. United States, the taxpayers filed the wrong form claiming a refund and both the IRS and the DOJ Tax Division cried foul and tried to dismiss their case.  Fortunately, the court found that the taxpayer’s filing met the “informal refund claim” requirements and denied the government’s motion.

The taxpayers received an unfavorable audit determination increasing their tax liabilities for 2007, 2008 and 2009.  All amounts were paid and the taxpayers then filed IRS Form 843 (Claim for Refund and Request for Abatement) for all three years. The taxpayer’s attorney, not the taxpayers, signed the requests for refund but didn’t include IRS Form 2848 (Power of Attorney). The IRS allowed the 2008 claim but then denied the 2007 and 2009 claims, so the taxpayers appealed within the IRS.  A taxpayer generally has two years from the date of the determination to file a refund suit in federal district court.  The taxpayers didn’t hear from IRS Appeals, and the two years was expiring, so they filed their refund suit.

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.

3D illustration of a rubber stamp with the word compromise printed on a brown paper with the text party one and twoOnce the IRS makes an assessment against a taxpayer, the taxpayer will receive several notices before the IRS takes enforced collection action.

Notice of Intent to Levy

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.

Give and Take Compromise text on paper with pencilMany 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.

IRS tax auditor man with a stern or mean expressionThere 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.

Tax forms, close up

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:

Safely mailing an application for ballot for 2020 election at a  drive-up mailbox at the US Post OfficeDeadlines are important in legal matters, especially when it relates to tax issues.  There are estimated tax deadlines, tax return filing deadlines, and a host of deadlines if a return is audited and any adjustments are challenged. Once you get to court in a tax dispute – more deadlines. Anytime a taxpayer misses a deadline they usually lose some portion, if not all, of the rights associated with that deadline. Imagine, however, that a taxpayer attempts to meet the deadline by mailing a document that the IRS claims they never received.

Midsection of tax auditor examining documents with magnifying glass at table in officeField 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.

silhouette of young designer team standing with a white blank screen laptop and notebook in hands while discussing/talking about them new project with the modern office as background.While dealing with the IRS generally involves submitting documents or legal authority to support a client’s position, in most cases the element of negotiating is present.  Negotiating becomes particularly important in dealing with the IRS where documentation may not exist, or the law is in the gray area.  Most practitioners will find that when dealing with the Examination Division, Appeals Office, and Collection Division, negotiating skills and techniques are helpful in resolving issues in favor of the client.

Almost everything is negotiable–even when dealing with the IRS.  Negotiating face to face with someone is generally more effective than negotiating over the telephone.  Accordingly, it is good policy to always arrange a meeting with the representative of the IRS.

In all levels of negotiations there is no substitute for preparation.  This includes knowing the facts of your case, the Internal Revenue Code, the Regulations, Internal Revenue Rulings and Procedures, the Internal Revenue Manual, Circular 230 and other ethical requirements.  Also, you should have a network of other professionals with whom you can discuss your case.

The following are general negotiating tips which, if followed, should give you a greater chance of success in dealing with the IRS: