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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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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to a monthly installment plan - you'll pay off your debt bit by bit, and you're okay with that - but they haven't withdrawn the lien notice, and your poor credit is preventing you from purchasing a car, refinancing your home, buying furniture on extended time from the Room Place… 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 In the installment agreement context, there is really only one sure way to get the tax lien withdrawn:  qualifying for the IRS "Fresh Start" program.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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installments, Illinois tax debt, Chicago Tax AttorneysIf you have a tax controversy with the State of Illinois and owe more than you are able to pay, you can apply for an installment payment plan through the State's website. The Illinois Department of Revenue is significantly less transparent about its processes than the IRS, and it accepts significantly fewer installment payment plan requests.

Filing Your Installment Payment Request

The form you need in order to petition for an installment plan is Form CPP-1. If you owe more than $5,000, you will also have to fill out either Form EG-13-I (for an individual), or Form EG-13-B (for a business).

What Happens Next?

Well, that's the frustrating part…it can be difficult to say for sure. Someone in the Illinois Department of Revenue office looks over your request, and he or she decides whether or not they are going to work with you. There is no publicly-available information about precisely how that decision is made, but we do know there are certain factors that will cause the state to refuse your request:
  • If the Illinois Department of Revenue decides you can actually pay the full amount, it will require you to do so;
  • If the Department decides you could pay the full amount if you secured a loan for that amount, it will require you to do so (essentially a payment plan, but you pay a bank rather than the State, and Illinois gets its money up front);
  • If the Department decides you can't really be trusted to pay installments, it may honor your request and put a lien on your property and assets that it has the right to exercise if you don't make every payment on time and in full. This can wreak havoc on your financial reputation;
  • If your request is, in any way, improperly drafted, the Department may return it to you and ask for further information, or it may simply deny it out-of-hand; or
  • If the Department decides your word is good enough, it might just honor your request without a lien…but even if it does, the Department reserves the right to add a lien to the arrangement at any time, for any reason, as it sees fit.

How to Maximize Your Chances of Acceptance

Because the precise mechanisms of the decision-making process are not fully known, the best advice available is fairly basic. First, offer as large of a down payment as you can afford (this is good practice in the long run anyway, as interest still accrues on any remaining balance as you make payments) – 20 percent or more is recommended. Second, make your payments as large as you can tolerate, but do not exceed a 24-month arrangement. The closer to your pain point you get, the more likely the Department is to recognize an honest effort and be willing to work with you.  And if an installment arrangement with the State fails, consider filing an offer in compromise… For further information on State of Illinois installment agreements or any other IRS or Illinois tax issue, contact one of the skilled Chicago tax lawyers at Chicago-Kent Tax Clinic. To schedule a free consultation, call our office today at 312-906-5041.

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.

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OIC, Offer in Compromise, Chicago Tax LawyersAn Offer in Compromise (OIC) is essentially a proposal to the IRS asking them to accept less than what you owe. Along with the required OIC forms, you should also submit evidence demonstrating that your offer is the most the IRS can expect to collect from you within a reasonable amount of time. When you submit an OIC, there are three possible results:

  1. Acceptance: You win! They've decided your offer is reasonable given your circumstances. This is…let's just say…"pretty rare" unless you know exactly what you're doing. Historically, offer acceptance has hovered around the 10-20 percent rate;
  2. Rejection: You lose! They've decided your offer isn't good enough; or
  3. Return: You failed! There are a number of reasons you could get a return of your offer.

If Your Offer is Rejected

This seems like pretty bad news, and it's also by far the most common result of an Offer in Compromise. There was a short time recently when OICs seemed to be a bit easier to get through the system. However–due to recent budget cuts and internal policy considerations–the IRS is getting even more (and some would say cynically) "difficult" to convince.

Rejection of an offer comes two ways:

  1. The IRS concludes that there is a "full ability to pay"; or
  2. The IRS comes back with a counter-offer of a higher, acceptable amount to compromise the debt.

Is there a path forward from here if you disagree with either these alternatives? Absolutely; there is an internal appeals process in place. Within 30 days of getting the rejection notice, you can file an appeal in which you clarify precisely why the IRS should have accepted your OIC and what specific errors in analysis they made. We regularly help clients with filing appeals for both types of rejections.

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It has recently been reported that the massive, 1.2 billion dollar IRS budget cut has resulted in an employee hiring freeze, job reductions, threatened worker furloughs and an overall drop in taxpayer services, as well as the number of new IRS audits reaching historical lows.  The question of the hour, though, is whether this is something that will play out favorably for taxpayers, or will it work to their detriment?

The initial, and perhaps simplistic, analysis is that less audits means less chance of a taxpayer getting caught understating his liabilities.  Less repo men means less tax levies and other enforced collection activities against taxpayers who have past due balances.  Less employees means less harassment.  less phone calls, less site visits, less personalized attention.

All true.

But the examination and collection machine will certainly not stop.  Existing IRS employees will be forced to do more with less, and will no doubt experience more stress doing it.  Morale that plunged in October of 2013 when the federal government shut down and IRS employees were sent home from work for a week will pale when compared to the new depths it could reach as the effects of the cutbacks trickle down to the agents charged with enforcing the revenue laws in a more intense, resource-deprived environment.

Over the last several months our clinic has absolutely experienced a marked increase in Holtsville Examiner’s hostility to offers in compromise, less flexibility in Revenue Officer’s willingness to accommodate short term financial hardships, and significantly more scrutiny of IRS Chief Counsel docket attorney settlements by their managers.  Am I merely stitching together isolated cases to form a pattern that doesn’t really exist, connecting random dots to elucidate trends only in my overly-sensitive mind?  Or is this all the harbinger of worse things to come, the byproduct of severe budget pruning and the attendant manifest of tumbling employee esteem?

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After a short but welcome honeymoon period during which the IRS absolutely reversed its decades-long historical resistance to granting offers, it now appears as if the agency has returned to its old ways, making offer in compromise again the most difficult alternative for a taxpayer to resolve his or her un-payable debts.

There is simply no doubt that Examiners of Offer in Compromise, and their Appeals Officer counterparts conducting Collection Due Process hearings, have adopted a more reductive, across-the-board scrutiny of offer proposals over the past several months in order to discourage taxpayers from pursuing them.  Here are just a few of the most obvious examples:

  1. Summary "returns" of offers – without appeal rights - when the OIC processing clerk unilaterally determines that the taxpayer is "not in compliance" due to insufficient estimated tax payments made for the current tax year.
  2. For cases in a specific Revenue Officer’s jurisdiction, field determinations that the offers are being submitted "for delay purposes", again resulting in summary returns of the offers, without any appeal rights.  And yeah, the IRS keeps the filing fee and 20% deposit.
  3. Offer Examiners disregarding the 12 month-multiple (and bank account/vehicle exemption offsets) when they determine that the taxpayer could "full-pay" over the remaining months left on the 10-year collection statute – an approach blatantly inconsistent with Offer in Compromise forms and instructions.

It’s hard to conclude that the IRS is employing these draconian measures for any reason other than that the examiners are being told by management that too many offers are being granted, too easily.  Whether this constitutes deliberate, justified enforcement policies, based on frustration with the never-ending flow of submissions by offer mills (many of which admittedly reek of frivolity), or perhaps a targeted response to the specific tactics adopted by those "tax debt relief" firms, there is no doubt that the IRS is making life harder for deserving taxpayers who seek the fresh start promised by the offer in compromise program.

To be sure, we are still getting most offers granted on behalf of our clients.  But the environment has become much less inviting, and we often spend significant time persuading offer examiners to not arbitrarily prejudge the taxpayer and his or her unique situation.  The unintended consequence of these policies is that, when a taxpayer is represented by a knowledgeable, committed tax attorney, there is more, rather than less, managerial involvement and overall time spent on the offer processing.   Clearly, not what the IRS wants or needs at this point.

Posted on in Tax Rants

The IRS Appeals Division has, by design, historically played the role of the so-called "independent" settlement arm of the IRS – the intermediary within the Service that retains the authority and primary function of resolving disputes between taxpayers and the aggressive auditors who often seek to exact unjustified, overstated additional taxes from them.

Over the years, this system has occasionally worked well for some taxpayers.   Assigned "conferees" (as they used to be called) served as a reliable check on certain vindictive, out-of-control Examiners, resulting in agreed additional tax assessments that were generally much more realistic and significantly less than the additional taxes initially proposed by the over-zealous auditors.

But for many taxpayers, the system didn’t, and doesn’t, work so well.

Appeals Officers charged with settlement authority over a specific case have lots of discretion, and discretion always allows for abuse.  For example, the criteria by which these internal settlers propose issue resolution – "the hazards of litigation" - does not lend itself to objective, exacting or uniformly-applied standards.   The idiosyncratic differences among Appeals Officer personalities frequently yield drastically disparate proposed settlements for taxpayers with identical issues.  Consistency and predictability are sorely lacking.   And while this sometimes plays to the benefit of a particular type of taxpayer, i.e., one armed with a persuasive, knowledgeable tax controversy representative, many times a taxpayer gets an unfair proposal or no deal at all, and doesn’t even know it.

This past September, the IRS implemented the Appeals Judicial Approach and Culture ("AJAC") project.  The general idea is to make the Appeals Division appear more judge-like and less an extension of the IRS Examination branch, a common perception and associated complaint leveled by taxpayers and some representatives.    An analysis of whether the particular procedural changes made by AJAC will have the desired impact on taxpayer perception is beyond the scope of this post, and is premature in any event, it being only a few months since the effective date of the new procedures.   However, the question of whether an IRS employee can ever be "independent" enough to fairly resolve a dispute between his or her employer and a taxpayer is, in my opinion, obvious.   Unless you have a truly neutral arbiter, like a U.S. Tax Court Judge, reviewing the opposing arguments and making the disputed factual determinations, I do not believe you can possibly have a fair system for resolving disputes. Either by perception, or in actual practice.

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This rant is a little different, a True-False quiz to test your knowledge and perceptions of the Internal Revenue Service:

1. The IRS is an unresponsive, bloated bureaucracy that often treats similarly-situated taxpayers differently. True or False?

Historically, one of the absolutely legitimate complaints leveled against the IRS was its inability to internally coordinate discretionary decision-making, with the result that specific agency employees across the country would deal with similarly-situated taxpayers in radically divergent ways, resulting in not only the appearance, but a reality, of arbitrary and even discriminatory determinations.

In fact, this was one of the major conclusions reached by the consulting firm hired to examine the various allegations made against the IRS after the famed senate hearings of 1997 and 1998, which ultimately led to the restructuring of the IRS and the significant (third) Taxpayer Bill of Rights legislation passed by Congress in 1998.

But have things changed? In my opinion, not too much. Examiners proposing adjustments to tax returns, Revenue Officers considering which assets to levy, Appeals Officers attempting to resolve disputes without litigation, and Chief Counsel attorneys trying cases in the U.S Tax Court all seem to lack a consistent approach to handling taxpayers who fail to concede their positions. Much is left to subjective determinations and individual judgements which may or may not be exercised in an even-handed, objectively similar manner.

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