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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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litigation hazard, tax appeals, Chicago Tax Attorneys"A fair and impartial resolution is one which reflects on an issue-by-issue basis the probable result in event of litigation, or one which reflects mutual concessions for the purpose of settlement based on relative strength of the opposing positions where there is substantial uncertainty of the result in event of litigation." - Internal Revenue Manual section When you've sent a Letter of Appeal to the IRS asking for an administrative review of a decision that was made by the Examination function regarding your tax dispute, the IRS assigns an Appeals Officer to determine of there is a possibility for settling the issue. The mission of the Appeals Officer is to resolve your case in a way that:

  • Avoids litigation;
  • Is "fair and impartial";
  • Will encourage voluntary compliance;
  • Represents the integrity and efficiency of the IRS.

Because the Appeals Officer's mission explicitly includes the objective of avoiding litigation, they'll generally begin the discussion by going over the various ways in which you could settle out-of-court by reaching a compromise that fully embraces any hazards to the government of litigating the issue.

Hazards of Litigation Defined 

What the Appeals Officer is actually determining is a quantitative analysis of:

  • The likelihood that, if the case goes to Tax Court on the liability issues, what are the chances the government will prevail, and what are the chances that the taxpayer will prevail.
  • The cost of litigation to the government is simply not an issue.

Application of the Hazards of Litigation Standard


tax court, lien notice, Illinois Tax AttorneyYou didn't pay your taxes, and now your credit score is suffering enormously because the IRS put a tax lien on your assets. What's worse, you've agreed to a monthly installment plan - you'll pay off your debt bit by bit, and you're okay with that - but they haven't withdrawn the lien notice, and your poor credit is preventing you from purchasing a car, refinancing your home, buying furniture on extended time from the Room Place…  What can you do?

Well, you can try to take them to tax court and insist that the judge order the IRS to withdraw the lien notice…but for many people in this installment payment situation, that's not a particularly useful thing to do, and perhaps a complete waste of your time.

When Is the IRS Required To Withdraw a Lien Notice?

I often tell my clients that the hardest thing to do in this business is get the IRS to withdraw their notice of tax lien after its been filed.  The reason why it is so difficult is because the IRS is neither statutorily required, nor do they have any particular incentive, to withdraw the lien since it is the mechanism by which the IRS protects its priority status to the tax debt.  In other words, the tax lien is not about relations between the IRS and the taxpayer, its about the relationship between the IRS and potential third party lenders. In the installment agreement context, there is really only one sure way to get the tax lien withdrawn:  qualifying for the IRS "Fresh Start" program.  Here are the IRS rules for eligibility:

  • you agree to allow the IRS to direct-debit your installment payments from a bank account;
  • your total aggregate debt is $25,000 or less;
  • your agreement pays off the debt in full within 60 months;
  • you're compliant with all other filing and payment requirements;
  • you’ve made three consecutive payments via direct-debit; and
  • you submit a request in writing seeking the withdrawal.

The only other way to get the IRS to withdraw the tax lien, besides lump sum full payment or Offer in Compromise, is to make a case to the IRS that withdrawal is in the government’s interest, or is causing extreme economic hardship – both arguments that have historically been granted very rarely by the agency.

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