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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law

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idr, audit, Chicago Tax AttorneysThis is one of the more often-asked tax controversy questions.  I’ll  just state the obvious first: simply ignoring the IRS is never going to get you the result you want. The chances of the agency forgetting about you or letting your case "slip through the cracks" is about …nil.

But, let's look at the actual IRS audit process to more fully answer this question:

The Audit Information-Gathering Process

  1. Your return is reviewed, and one or more "red flags" regarding it pop up (or, very rarely, it's chosen for a "random audit" which goes in deep and potentially takes apart your  whole return).
  2. The agent conducting the review determines which documents you (should) possess, that would most effectively answer the questions they have or substantiate the subject deduction claimed.
  3. The agent creates an Informal Document Request (IDR) that asks you (or a third party such as a tax preparer) to provide the documents, or to instead provide a valid reason why those documents are being withheld.
  4. If you don't respond to the IDR in time, the agent will consider sending an administrative Summons, compelling you to appear before him with the documents and submit to an interview.
  5. You can attempt to have the Summons legally "quashed" by filing a motion in federal district court (a very difficult maneuver; only 6 cases out of 117 in 2013 ended without a complete victory on the IRS' part).  You will need to present one or more  compelling reasons why the Summons was issued in error or for an illegal purpose.
  6. If you don't respond to the Summons in time, the agent directs the case to an IRS lawyer, who will decide whether or not to ask the Department of Justice to  enforce the Summons. If they don't, the audit will proceed anyway, the agent typically obtaining the documents he wants from third parties (banks, customers, etc…).

In short, it's rarely to your benefit to ignore an IDR – and it can definitely put you on the agent's bad side, which obviously is not a good thing. If the agent does decide to issue a Summons, its best to consult a professional to determine the scope of your response.

IRS audits can be a scary thing and it is important to have all your ducks in a row in order to emerge from the process successfully, or at least minimize the potential damage At Chicago-Kent Tax Clinic, we offer low-cost audit representation from professionals with in-depth experience working both for the IRS and in private practice. For a free consultation with one of our skilled Chicago tax lawyers, contact our office today at 312-906-5041.

interest abatement, tax penalties, Chicago Tax AttorneysSo you've been unable to pay your taxes for a legitimate reason, and your taxes have accrued both interest and penalties because of the delay. I wrote last week about how to get the penalties abated for various types of 'reasonable cause’. Today, I’ll talk about getting the interest abated. In short: it probably ain't gonna happen.

Internal Revenue Manual Section 20.2.7.1 explicitly contains this warning in bold: "reasonable cause is never the basis for abating interest". In other words, it doesn't matter if you were evacuated from the hospital (where you were recovering from a stroke) due to a bomb threat and emotionally devastated because your mother passed away a day earlier and you're dead broke and need every cent you have to feed your three children and your financial advisor told you not to worry about it; you still owe the interest from your late payment. There's not even an option under the law for an IRS agent to have pity on you - the interest is due no matter what.  Why?  Its all bout the "time value of money", Congress’ justification for requiring interest accruals on all outstanding tax debts.  The idea is that you have had the government’s money all along, since the due date, and it could have been earning interest in the bank…

Unless…

Nevertheless,  there are six very limited circumstances in which the IRS is given the statutory authority to abate the interest on an account, as follows:

  1. The interest itself was assessed illegally or in error;
  2. The interest accrued as a result of "unreasonable error or delay" on the part of an IRS officer;
  3. The interest accrued on an erroneous refund;
  4. The interest accrued on a deficiency that the IRS didn't identify within its own time limits (generally speaking, 12 months);
  5. The taxpayer is living in a Federally-acknowledged disaster area;
  6. The taxpayeis participating in an active war zone.

"In Error"

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abatement, penalty abatement, Chicago Tax LawyersThe IRS, naturally, does not like to remove a penalty it has assessed. No matter how unfair these penalties may seem, you will still have to put in some work to get a civil penalty abatement to stick. That said, there are a fair number of reasonable causes upon which you can base a compelling argument:

Ordinary Business Care and Prudence

This category of abatement justification simply means "you did your best to pay your taxes, but couldn't for reasons beyond your control." Generally speaking, if you're not already a regular and conscientious taxpayer, you will not get the IRS to agree to this basis for abatement. But if you really did do everything in your power, and you've been compliant with your filing and payments for the past several years, you may be able to convince them that they should eliminate the penalty…this time.

Death, Serious Illness, or Unavoidable Absence

The "medical causes prevented me from paying" argument, if it's provable and true, is probably the most successful form of abatement request. It applies to individuals exactly like you'd expect, but it can also apply to businesses and institutions if there's only one person in charge of taxes, and if the businesses exercised 'ordinary business care and prudence' to try to get the taxes paid anyway and failed.

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