Blog
WE ARE NOW PREPARING 2019 INDIVIDUAL AND CORPORATE TAX RETURNS
565 West Adams Street, Suite 600, Chicago, IL 60661
Youtube WeChat Facebook Twitter
Search
The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law

312-906-5041

Talk to a lawyer now.

Subscribe to this list via RSS Blog posts tagged in tax law

Posted on in IRS

Chicago tax attorney IRSLate this past Friday afternoon, I received a disturbing telephone call from a long-time client. There were two IRS Revenue Officers at his home, wanting to talk to him about his delinquent tax liabilities.

I was incensed. Why was I not contacted? I have a valid power of attorney on file, and had not previously been contacted by these officers, or anyone else from the IRS regarding this.

I insisted on speaking with one of the agents, who was relatively cordial (according to my client, his menacing attitude changed dramatically after he told him he was calling his lawyer). The Revenue Officer’s explanation? I needed to update my power of attorney, “to cover through 2020 or 2025.” What?

I happen to know that this client had no unpaid tax liability for the most recent filed year. That was, simply put, some hot bullcrap.

Earlier last week, I was myself visited by two Revenue Officers at my office regarding a client – completely unannounced, drop-in. I spoke to them briefly, and strongly suggested that next time they should make an appointment with me, and I would be more than happy to discuss these matters with them for as long as they needed my attention. That’s my job.

...

Posted on in Tax Rants

Many clients have been contacting me these past several weeks and asking what my take is on the IRS after the change in administration.   Will enforcement activities decrease as a result of the new president’s own rancor for the agency?  Or will the Service instead react like the intelligence community, digging in its collective heels and strengthening its entrenched bureaucracy, perhaps even resurrecting the more draconian tactics of past times?

The answer I have been offering to my clients is both frustrating and disturbing:  I really have no idea.   And I do not think anyone really does know what to expect.  Playing a wait-and-see game makes substantive tax planning difficult, and tax controversy representation even more challenging. 

If the new President, with a supporting Congress, follow through on advertised tax reform proposals, the overall rates will be lowered, saving money for middle and upper income taxpayers.  And if the Affordable Care Act is repealed (Obamacare), so goes the 3.8% surtax on investment income.  While it is uncertain if these changes will happen at all, it is even more unclear now whether they would become effective for the 2017 or the 2018 tax year, making the deferral-of-income strategy a difficult recommendation to counsel at this point.

clock, statute of limitations, Chicago Tax AttorneysIt recently came to your attention that you made a mistake on the tax return you filed a couple of years ago.  Do you still need to worry about it?  And if so, for how much longer?  What if you discovered this tax controversy because the IRS sent you a letter pointing out your mistake and telling you that you now owe them more money then you believed at the time?

Without the Letter

If the IRS hasn't alerted you to a problem with your taxes, they must "assess" any additional tax within 3 years from either the due date of the return or the date the return was actually filed (if filed late). There are two exceptions:

  • If the error involves an omission of 25% or more of the gross income reported on the return, they get 3 additional years.
  • If the IRS can prove that you filed a false tax return, a fraudulent tax return, or failed to file any return at all.  In such cases, the statute of limitations goes out the window and they can come after you at any time (i.e., no statute of limitations period on making an additional assessment).

With the Letter

If you've received a letter from the IRS telling you that you owe more taxes for a particular year, this generally means you have already been assessed , so you are now dealing with the "collection" statute of limitations.  

...

fatca, reasonable cause, Chicago Tax LawyersThe Foreign Account Tax Compliance Act (FATCA) requires every taxpayer with certain amounts of money in a foreign bank account or foreign investment vehicle to report that money to the Internal Revenue Service (IRS) each year. The deadline for filing your Foreign Bank Account Report (FBAR) for 2015 will be June 30th, 2016. If you file late, the penalties for doing so can be severe; especially if it is determined that you did so "willfully."

For most people, however, filing late is not a matter of willfulness; it's a matter of unfortunate circumstance. The IRS recognizes this, and as such they have created what is known as the "Reasonable Cause" Exception IRM 4.26.16.4.3.1 (07-01-2008). Under the "Reasonable Cause" Exception, someone that shows a good faith effort to file in a timely fashion can ask to have their circumstances examined by the IRS to determine whether or not they exercised what the IRS calls "ordinary business care and prudence" in meeting their obligation to file. If they did, and they failed through no fault of their own, they can have their penalties abated.

What is "Reasonable Cause"?  

Unfortunately, there is no hard-and-fast answer to the question of what exactly constitutes "Reasonable Cause." The IRS will examine your specific situation, including the precise events that led to you missing the deadline and your general background to help define what "ordinary business care" would look like for you as an individual. They will, in particular, inquire about:

  • Why you failed to file your FBAR on time;
  • What exact circumstances you consider 'beyond your control' that contributed to your failure to file on time;
  • How many times you have failed to keep up with your tax burdens in recent history; and
  • How long it took you to become compliant the last time you fell behind on your obligations to the IRS.

Ignorance of the Law

...

tax help, LITC, Chicago Tax LawyersLow Income Taxpayer Clinic (LITC) is exactly what it sounds like; a place where people with IRS disputes who cannot afford a private tax lawyer's fees can go to get the help they need for no charge. If they qualify, these taxpayers can get assistance with IRS (and related state) audits, appeals, collections and tax litigation. LITCs are also frequently resourced for taxpayers who speak little to no English, and in some locations for those who communicate primarily or exclusively through sign language.

Who Pays For LITCs?

The Federal Government provides a matching grant (up to $100,000) for each dollar spent by the LITC in its normal operations.  The grant is administered by the Taxpayer Advocate Service of the IRS.

Can You Use The Services of a Low Income Taxpayer Clinic?

Basically, you have to have an active dispute with the IRS, and have gross household income below the annually-established threshold.  This threshold is specifically set at 250% of the government established poverty level. Currently, this means:

...

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"

...

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.

...

installment, IRS, Illinois Tax Law AttorneysMany people, for fairly obvious reasons, are simply unable to pay the IRS everything they owe in one lump sum and need another tax relief option. It's just not reasonable to expect someone to pay tens of thousands of dollars at once; even Wall Street tycoons don't normally keep that much cash sitting around. So the IRS offers the option of monthly payments, or "installment agreements" as a way of repaying your tax debt over time.

There are basically three variations on the IRS installment concept: Guaranteed, Streamlined and Discretionary agreements.

Guaranteed Installment Agreements: The Easiest Option

If you don't owe the IRS too much, and you can make a reasonable monthly payment, you probably qualify for a Guaranteed Installment Agreement. To qualify, all of the following must be true:

  • Your total IRS debt (not including penalties and interest) is less than $10,000;
  • The debt can be paid off in three years or less of equal monthly installments; and
  • You have no unfiled tax returns.

The big reason you want a Guaranteed agreement if you are eligible: you do not have to submit the invasive financial disclosure statement to the IRS. In addition, in most cases the IRS will not file a Notice of Federal tax lien on your assets. A tax lien can mess up your credit and have the IRS on your back for years to come, so you want to avoid this outcome if at all possible.

...
Back to Top