A few years back, National Taxpayer Advocate Nina Olson released her annual report to Congress listing the 10 tax issues most litigated in the federal courts. Of the 923 cases involving those issues, taxpayers prevailed in whole, or in part, in 132, or roughly 14 percent. Taxpayers who were represented by counsel did somewhat better—they won 20 percent, or 54 of 265 cases; pro se taxpayers prevailed in 12 percent, or 78 of 658 cases. So, why is it so hard for taxpayers to beat the IRS in court? Here are, in my opinion, the five most influential reasons, in no particular order:

1. The IRS only litigates "winning" cases. Rarely, if ever, will the IRS try a case in court in which it does not believe that it has an overwhelming chance of winning. The reason for this has to rest on the fact that court decisions are public, and widely disseminated; a loss serves to undermine compliance/deterrence policies, and encourages taxpayers to further challenge the IRS.

2. The attorneys who represent the IRS have a superior knowledge of Tax Court procedures, and use that knowledge to their tactical advantage. Even seasoned civil litigators aren’t normally familiar with the unique procedures of the U.S. Tax Court, where 98% of all disputes against the IRS are tried. The stipulation process, reliance on post-trial briefs, limited discovery rules, and specialized role of expert witnesses are just a few examples of procedures that are peculiar to Tax Court practice.

3. The IRS has superior resources, and does not make litigating decisions based on economics. If the IRS maintains a position that it believes will have a significant impact on future taxpayer compliance, it can and will spend as much money as it needs in order to secure witness testimony and "expert" opinions, and to subpoena necessary - even duplicative - documentary evidence. Moreover, it can assign numerous agents, technical advisors and attorneys to litigate a position it feels is important, without incurring an additional expense - more worker bees is just a reallocation of a fixed labor cost.

4. Taxpayers frequently advance weak or irrelevant arguments in Court, including equitable positions. The Tax Court is a legislatively-created court with no powers to do what is "right" or what is "fair". It has to apply the tax laws as written by Congress. Taxpayers almost always fail to realize that sympathetic - even unfair - situations do not necessarily result in rulings in their favor.

After sixteen official days of government shutdown, the non-essential federal civil servants, including most every IRS employee, returned to work last Thursday. While their two-week paid vacation provided us practitioners a bit of relief from the barrage of telephone calls and unilaterally-scheduled appointments and deadlines, the accrued work will now prove a daunting challenge to both sides. Fortunately, our first day at the clinic with the IRS back to work remained quiet; presumably, all the furlough-ees were going through their towering stacks of accumulated mail and telephone messages, and meeting with managers to strategize the make-up plan. First order of business? Fill the paper in the damn fax machines, ok?

It would certainly be a more creative challenge for me to rant the other side of this mess: how the government shutdown was actually a good thing for the country and that the principles supported by the hardline brinksmanship justify the suffering and global embarrassment, as well as the estimated cost to our economy of $24 billion. But even as an academic exercise, I just can’t do it. The whole incident was a shameful time for our country, and I have joined the passionate chorus of disillusioned citizens wanting to throw them all out of office – I am now pretty certain I cannot vote for any congressional incumbent. Could the silver lining of all this be the rise of a real third party, strong enough to check and balance the existing powers that be? Oh, we can only hope...

As we return to relative normalcy, I am happy to report that the Chicago Kent College of Law Tax Clinic has never been stronger in its mission – to provide the highest quality aggressive and ethical legal representation for reasonable, predictable fees. One principle we emphasize and re-emphasize to our students is that no one benefits – not the client, not the government, not us – if we promise an outcome that is simply unlikely. Our clinic will never sell an Offer in Compromise service to a client that has little or no chance of succeeding. Our clinic will never litigate a case with meritless legal positions. We fail our clients and our profession when we raise or indulge expectations that are not realistic. Its bad business, and its bad lawyering, and we will never engage in such practices.

A couple of exciting things to tell you about before I close out the rant for this month:

On Friday, November 15, 2013, we will be hosting a free seminar at the law school for the benefit of enrolled agents, return preparers and accountants. Meeting the Challenge: Tax Dispute Resolution for Non-Lawyers will focus on what specific strategies and techniques tax professionals can utilize on their own, without resorting to legal counsel. Joining me for the presentation will be IRS Chief Counsel attorney John Comeau and Illinois Department of Revenue Board of Appeals senior member Alan Marcus. With these two speakers, you are guaranteed a lively and provocative discussion. The seminar begins at 9:00 am (check-in at 8:30) and pre- registration is required: if you would like to join us, please email our staff attorney Nisa, at sni@kentlaw.iit.edu, or call our secretary, Carole, at 312-906-5213.

It was a tough summer for our friends at the IRS. Still reeling from the much-criticized audit program focusing on conservative tax exempt groups, two sequestration-required furlough days, and the scandal stemming from a discovery that several IRS employees were using their government-issued credit cards to purchase pornography, wine and kazoos, morale remains low throughout all divisions and functions of the Service. According to a former colleague of mine at the IRS Chief Counsel Office, the mood oscillates between indifferent resignation and outright anger directed at the senior executives and congressional representatives responsible for the current state of affairs. Recently it was reported that IRS Chief Danny Werfel wanted to cancel all cash bonuses payable to IRS employees at the end of this fiscal year.

Life has never been easy for the Tax Collector. Revenue Officers deal every day with taxpayers who run the gamut from serial liars trying to hide assets to unemployed debtors who can’t pay the rent, let alone make their monthly installment payments to the Service. Auditors consistently encounter unethical representatives who stonewall, delay and even misrepresent in order to get their clients an advantage or break that justifies their excessive fees. And it has always been politically beneficial for our elected representatives to scapegoat the IRS and its bloated bureaucracy, relying heavily on the agency’s inability to defend itself publicly in particular cases because of the comprehensive anti-disclosure laws passed by those same representatives.

But, in the twenty-five years I have been practicing tax controversy law, I have never observed a more disenchanted civil service. This is absolutely not a good thing. Not for the agency. Not for representatives. And especially not for taxpayers.

An unhappy, victimized government employee does not perform his duties with the even-handed and objective perspective we demand from him. An IRS clerk who suffers occupational criticism and humiliation when she purchase groceries, attends her child’s school play, or joins her neighbors for a barbecue does not return to work wanting to do the right thing for taxpayers.

So, as we begin the new season, can we try and have just a little empathy and understanding for our friends at the IRS, doing a very difficult job, during a very difficult time? A little positivity will benefit all of us.

This month’s rant will, for some of you, constitute a disappointment of sorts. No ragging on the Service or venting frustrations with our elected representatives. No indulgent or pious perspectives on misguided agency policies. No practical strategies on how to navigate the bloated bureaucracy. Just some positivity and gratitude for the often under-recognized warriors of the Tax Clinic.

Each semester, between 10 and 12 second or third year law students sign up for an internship with the Tax Clinic, a for-credit class offered as part of the larger clinical program here at Chicago-Kent College of Law. As supervising professor, it has been my pleasure for the past thirteen years to teach and provide guidance to, as well as strategize, commiserate and laugh with, what has consistently turned out to be a remarkably dedicated group of individuals. Without exception, each student that has participated in the Tax Clinic over the years has added value and contributed insight, perspective and judgment to our client representation. Hopefully, each student has also realized improvement to his or her lawyer skills and assistance with the development of his or her professional identity.

Most of the time, of course, it takes much longer for us to serve a client with student participation. This is not unique to us, but rather is the very nature of a teaching clinic. Frequently, we draft and re-draft, revise and edit, correct and improve, way beyond what is either necessary or economically efficient. But that’s kind of the point. Only through the pursuit of the absolute best work product, including the most comprehensive research, and preparation of the highest quality written argument, will we set the standards of professionalism that each of us - student and teacher alike - must strive for. Aggressive and ethical practice must exist within this framework, where the process of quality representation is more important than any particular result.

While our clients certainly benefit from this pursuit of excellence, the biggest winners are my staff attorney, Nisa, and myself. The enthusiasm, commitment and variety of experience each student brings to our practice creates an incubation of fresh ideas and constant infusion of energy that keeps us powerfully motivated to do our best. We remain especially grateful for this continuing opportunity.

The Tax Clinic’s summer semester begins May 28.

What started out as the most significant advancement in taxpayer rights in the history of the IRS has, I am sorry to say, turned into a huge disappointment, maybe even a charade.

After the IRS was skewered in the now famous 1998 congressional hearings led by Delaware Senator William Roth, the agency was restructured, re-organized, and - so we were led to believe - re-invented into a "customer-friendly" institution, concerned more with educating taxpayers to their obligations than squeezing out every last dollar of tax from them. At the same time, Congress passed the third Taxpayer Bill of Rights (TBOR III) which, among many provisions that simply codified existing IRS policies, actually included some serious procedural changes designed to level the playing field. One of these was the creation of the Collection Due Process (CDP) system, whereby the IRS is required to provide an opportunity to taxpayers to administratively appeal a proposed levy action BEFORE it happens. If timely filed, a taxpayer has the ability to take his or her disagreement over the proposed taking to the Appeals Division, a part of the IRS independent of the collection function, to work out an alternative to having the taxpayer’s property forcibly seized to satisfy his or her tax debts. While this process plays out, all collection activities are "frozen".

Historically, the Appeals Division had devoted most of its resources to resolving liability (pre-assessment) disputes. In other words, Appeals’ primary mission had always been to settle Examination cases and avoid litigation before the Tax Court over how much taxpayers owed the IRS. But Collection Due Process changed all that, and now at least half - perhaps more - of the Appeals Division’s resources are devoted towards attempting to resolve collection (post-assessment) disputes with taxpayers.

At first, the program seemed like a godsend. No more surprise bank account seizures, intimidating, threatening Revenue Officers, or IRS repo men driving off vehicles in the middle of the night. And while it remains a benefit of the program that the IRS must provide ample notice of - and an opportunity to appeal - proposed levy actions, what we have been noticing over the last few years is a growing trend on the part of Appeals Officers to do nothing more than mindlessly sustain Collection division decisions. Unlike their role in liability disputes, it appears more and more as if Appeals Officers are simply an extension of the Collection function, rigorously investigating taxpayer assets and self-righteously scrutinizing their living expenses in an effort to get every possible dollar in the U.S. Treasury cash register, with little concern for the practical, financial exigencies of taxpayers. What has happened to the so-called "independent" review of Revenue Officer decisions? Our recent experiences in the Tax Clinic have found most Appeals Officers actually less flexible than the Collection function, often demanding more from our clients in terms of document production, financial disclosure, and - most significantly - rigid installment or offer payment terms.

What accounts for this disturbing trend? Its hard to say, though no doubt it is a management call. Perhaps the "emasculation" of Revenue Officers by severely limiting their most potent weapon - the power to seize property - has influenced a re- thinking of the CDP Appeals Officer’s role. The problem with this, however, is that the CDP program is a statutory creation - from Congress - intended to provide a measure of protection against arbitrary and oppressive agency decision-making. But current implementation has become the very antithesis to the legislative policy underlying the CDP rights.

With the impending automatic budget cuts looming, I cannot help but be reminded of the several threatened government furloughs that impacted me directly during my time working at the IRS. It seemed like every September it was the same old story - scheduled layoffs for all "non-essential" employees, which included basically all of us at the Chief Counsel Office in Chicago. But then, like a snow day that didn’t materialize, Congress stepped in at the last moment with some sort of temporary budget fix that would ensure no interruption in government services.

One year - I think it was 1996 - it actually happened. The District Counsel gathered us 40 attorneys in the large conference room and told us not to report for duty on Monday; the federal government was - really - being shutdown. I looked around at my fellow civil servants and the knowing smile passed over us all, we knew what had to be done to celebrate the impending day(s) off without pay - a party at Steve’s. There’s one in every crowd...

Monday came, and the keg was delivered at 10:00 am. Forty drunken attorneys and paralegals toasting the breakdown of our bureaucracy, playing bridge inside Steve’s tiny condo and croquet outside in the pouring rain, planning a Whirleyball tournament for Tuesday.

But the vacation was short-lived. We were informed Monday evening that the furlough was over, a mere 24 hours later, and we were going to be paid retroactively for the day off. Tuesday, back to work as normal. Bittersweet, to be sure. But a great story to tell my Clinic students about life at the IRS.

So, I’m not sure whether to pray for a sequestration fix, or an impasse for my friends at the IRS. Couldn’t they really use a break from the drudgery right about now?

Even the most cynical amongst us knew this was going to happen. As the new year turned, Congress finally got its act together and passed an omnibus bill to prevent the country from going over the fiscal cliff. Confirming most of what both astute and mediocre tax professionals were advising their clients before year’s end ("well, it’s a pretty safe bet that taxes won’t go down"), most all significant tax breaks were extended, social security taxes increased, and the wealthiest Americans will indeed be subjected to a higher tax rate. But, the automatic federal spending cuts - the other half of the fiscal cliff threat - were only deferred, until March. So, we have this continuing drama to entertain and inform us well into 2013...

Here is a brief overview of the major provisions that many of us care about:

Non-Tax Items

one-year extension of emergency unemployment insurance

one-year extension of certain agricultural programs (i.e., preventing the $8/gallon bottle of milk)

As I write this, our government remains deadlocked over measures that will resolve the so-called "fiscal cliff". At the same time, the aftermath of Hurricane Sandy and the Sandy Hook elementary school shootings, among so many other tragedies of nature and human doing, remind us that there are even more important things in this life than the imminence of increased taxes. Like supportive family, good friends, aesthetic experiences, and meaningful work.

No IRS ranting or preaching this month, just our best wishes for a happy, healthy and peaceful 2013, and our sincere gratitude for making 2012 such an amazing year for the Chicago Kent College of Law Tax Clinic. Thank you.

Please be aware that the recommendations, suggestions and guidance provided on this website is informational only, and is not intended as, nor does it constitute, legal advice to be relied upon for your particular situation. Nothing written on this site should be a substitute for the specific advice of a competent professional.

Please also note that all original content on this website is solely the property of The Short Chicago Tax Lawyer, Ltd., and copyright protection is hereby claimed for all such content, including the domain names theshortchicagotaxlawyer.com and thecktaxclinic.com.