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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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Posted on in Uncategorized

Sometimes, when I am discussing IRS strategies with potential clients, I am asked "Can I do this myself?" And sometimes, my response is: "Absolutely, you can do this yourself. Let me tell you how...".

Many of my colleagues might not want me spreading this around, but for sure there are lots of resolutions that taxpayers can implement themselves without any real risks: filing delinquent returns that reflect minimal or no liabilities; establishing guaranteed or "streamlined" installment agreements when no financial statement is required; responding to simple correspondence examination inquiries for missing schedules, computation errors or substantiation, and the like.

But more often than not, I am reminded of that memorable line from comedian Chris Rock - "Just because you can do it, doesn’t mean you should do it".

I mean, lots of people can change the oil in their car, but it’s not worth the time or the mess to do it themselves. (Ok, maybe not me, but lots of people can work on their cars...)

And you can certainly exercise at the fitness club by yourself, with positive results. But how much more successful and disciplined are you when you have a personal trainer establishing a plan and providing motivation?

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I have recently noticed a disturbing trend with IRS Collections, and I don’t think it is merely a product of my paranoid imagination. It certainly appears to me the enforced collection process - specifically, the issuance of levy notices and Notices of Federal Tax Lien - has become increasingly automated, automatic, and aggravatingly inhuman.

When I left the IRS and first started representing taxpayers 12 years ago, my experience with collections was that, even for relatively small dollar cases, there was almost always some personal involvement with an ACS clerk or Revenue Officer before the levy process was actually initiated. Sure, there were lots of threats and intimidating form letters detailing what the IRS could do if the taxpayer failed to respond within thirty days, but I always found that an intervening phone call would slow the process down, resulting in ample time for negotiation before the draconian wage garnishment or bank account levy would actually take place. And it rarely did, because even the most bullheaded Revenue Officer was amenable to some sort of resolution other than levy, supposedly the tool of last resort. I remember an old school Revenue Officer that used to speak to my Tax Procedures class every semester reciting the (then) IRS unwritten policy that the only reason they issue a levy is to "get the taxpayer’s attention".

But this does not seem to be the approach anymore. Time and time again, I find that, amidst negotiations with IRS Collections regarding alternatives to enforced collection efforts, my clients are being levied and receiving Notices of Federal Tax Liens. Often, these actions have been taken by a different office within the IRS then the one with which I have been dealing - with both myself and the Revenue Officer surprised by the action. Wasn’t part of the reason for the massive restructuring of the IRS in 1998 to address this bureaucratic nightmare of one hand not knowing what the other one was doing? And yet, insofar as IRS collections is concerned, it appears as of the problem has gotten worse.

I have been thinking about the reasons why this might be happening, but have no firm understanding. Increased volume of collection cases? Personnel and job duty changes with the Collection branch resulting from the 1998 restructuring? The emasculation of Revenue Officers by the Collection Due Process system, effectively stripping them of all enforcement powers other than the ability to file a Notice of Federal Tax Lien? An unannounced change in IRS policy to de-emphasize cooperation and negotiation in favor of strong-arm tactics that ensure dollars flowing into the Treasury cash register?

I guess it matters less why this is happening than what strategies we can adopt to address the situation. At the Tax Clinic, I continue to tell my students that the best way to address collection issues is to get involved as early in the process as you can. Not always possible with some clients, but it is certainly the ideal. As soon as you get that first collection letter (the Notice and Demand for payment), contact the IRS. While historically there may have been some efficiencies realized by waiting for the Final Notice of Intent to Levy to be issued before intervening on behalf of a client, given the now rapid progression of events that can transpire - sometimes without warning - I believe that a waiting game is, generally speaking, a poor strategy. Moreover, you must be aware that levies on social security aren’t subject to the Collection Due Process (CDP) procedures at all - the IRS merely has to send a Form CP-91 giving thirty days notice before it will levy 15% of the check. And no CDP means no Tax Court review of the IRS action.

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Posted on in Uncategorized

Even seasoned civil litigators are sometimes baffled by the United States Tax Court’s unique procedures and policies. And if you are representing yourself, you have to know that it’s nothing like you see on television. Not even if you watched the entire Casey Anthony trial (have you ever seen a tax dispute on Court TV?).

The overwhelming majority of taxpayer disputes against the IRS are litigated in the federal Tax Court. Why? Compared with the U.S. District Court and the U.S. Court of Claims, it’s the only judicial forum that does not require you to pay the amount the IRS says you owe before having the opportunity to challenge the determination in front of a judge. So, it is the primary go-to locale if you cannot settle things administratively with the IRS.

Here are a few of the unique characteristics you need to be aware of if you are considering filing a petition and facing off against the IRS in the Tax Court:

No juries, no drama. In the Tax Court, all rulings and decisions are made by the judge assigned to the case. Dramatic, emotional arguments are normally a waste of time. Your case will be better served by being polite and efficient, and avoiding the temptation to personalize your dispute against the IRS agents or attorneys. One of the biggest mistakes taxpayers representing themselves make is to argue that the IRS is selectively discriminating against them, or that the tax laws are unconstitutional; those types of arguments will almost always fail, and will likely only serve to irritate the judge. Argue your version of the facts to the judge, and apply the law in a common sense, dispassionate manner.

Moreover, you should know that the Tax Court is not a court of "equity" (fairness), which means that the judge must apply the tax laws as they were written by Congress, regardless of how harsh the result might be in a particular case.

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I may typically be one of the last persons on the planet to defend the IRS, but I feel compelled to address a recurring comment I hear from many of my clients: It’s a complaint that is articulated in various ways, but the essence of it is this: the IRS is out to get me.

I worked as an attorney for the IRS for the first twelve years of my career. I have supervised an academic tax clinic for the past twelve years. During that time I have come into contact with hundreds - perhaps thousands - of Revenue Agents, Revenue Officers, collection clerks, criminal agents, Appeals Officers, managers, directors, Taxpayer Advocates and, of course, IRS attorneys. I have had more than my share of knock-down, dragged-out fights with them, particularly since I have been in private practice. And yeah, some of these IRS employees are indeed horrible workers; lazy, narrow-minded, suspicious, inflexible stereotypical civil servants taking advantage of secure jobs with minimal oversight.

But it has been my experience that the overwhelming majority of IRS employees, from the National Taxpayer Advocate and the current Commissioner (both of whom I have met on more than one occasion), to the first-line GS-5 clerks who field Automated Collection System telephone calls, are conscientious, dedicated employees, who consistently want to do the right thing for taxpayers. And they often have to do their jobs amidst rigid policies and Internal Revenue Manual guidelines that restrict their discretion, resulting in decisions that are unrealistic and unfair to individual taxpayers in many cases.

Actually, I have only met one employee, in all my years of experience, who I can genuinely say was "out to get" a taxpayer. And this guy - a now-deceased Revenue Officer who actually seemed to be out to get all taxpayers - was, I believe, an anomaly; an exceptional meglomaniac, who the IRS itself disciplined many many times for his irrational behavior.

So, and here’s the point of this, it is very, very unlikely that your revenue agent or revenue officer really cares about your case personally, or in any way has prejudged you or your situation. It is very, very unlikely that the agent or officer is making any decisions that aren’t guided by entrenched and approved bureaucratic policies that would be made identically to all taxpayers with similar circumstances. But this should be both comforting and liberating to you. Because it means that, within the parameters of the law and the scope of the discretion that does exist, we can always find ways of resolving your dispute. Understanding the IRS employee’s true mindset is the key. Dispassionately presented arguments and alternatives always maximize your chances for success, but these can only be formulated and persuasively presented if you don’t make up stories about the IRS Agent not liking you, or selecting you out particularly for discriminatory or especially harsh treatment. Its not likely the truth, and only serves to distract you and undermine successful negotiation and resolution.

...

Ok, I’m not naming names (Tax Masters, Tax Blasters, Tax Aggressors, Tax Slayers, Tax Busters, Tax Eaters, the Tax Guru....), but you know who I am talking about. With promises of settling your IRS debt for pennies on a dollar, they sound like your knight in shining armor, here to rescue you from the overwhelming power of the tyrannical IRS for a one-time fee of $4000 - and it doesn’t matter how much you owe, or how much you own, or how much you currently earn. Sounds pretty good, doesn’t it?

Here’s five reasons why you should hire a competent tax attorney instead of one of these firms:

REASON # 1: The Offer Mills are rarely honest about your chances for success. Most everyone employed by these firms are sales force - not lawyers, accountants, or even paralegals. They work from a script. Their job is to sell you a service. They are frequently unrealistic about how difficult it is for most everyone to qualify for an Offer in Compromise. They raise your expectations so that they can collect their fee.

Reason # 2: The Offer Mills generally charge too much. For the type and amount of services provided (completing some forms for you, submitting them to the IRS), you are probably paying way too much. If you are in discussions with the Sales Force, ask them if they will supplement and negotiate the Offer when the IRS actually considers it, six months after submission. Ask them if they will prepare delinquent tax returns, a necessary prerequisite to the IRS even processing your Offer. Ask them if they will administratively appeal the Offer if it is rejected by the first-line reviewer. Ask them if they will negotiate a different Collection alternative if the Offer is rejected because you are deemed to be able to "fully pay". Ask them if they will remove the levy from your wages, or withdraw the lien. And ask them how much that will all cost you, in addition to preparing the Offer in Compromise forms for submission to the IRS.

Reason # 3: Your Offer will be just like everyone else’s. And that’s not a good thing. The Offer Mills are volume-dealers. They take a cookie-cutter approach to preparing Offers. They don’t take the time to personalize the Offer, to emphasize your special circumstances, to provide legal authorities to substantiate your position - that would take way too long, and they cannot maximize profits doing business that way.

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Posted on in Uncategorized

With apologies to country songwriter Harlan Howard*, I want to share some thoughts about what, I believe, generally makes for a good professional relationship, especially in the context of tax controversy representation.

Perhaps its obvious, but any tax professional that promises specific results, like how much money he can save you by submitting an Offer in Compromise with the IRS to reduce your tax debts, or what result he will achieve for you in Tax Court litigation, is not to be trusted. Even after a thorough exploration of all the relevant facts, and a similarly exhaustive analysis of all the controlling laws and applicable policies, there is simply no way to predict with certainty how the IRS or a Tax Court judge will resolve a particular dispute. There are just too many factors.

In the collection arena, most every significant decision made by the IRS is discretionary. Whether to accept an installment agreement that is outside the "streamlined" criteria, for example, will be based on a balancing of considerations, both policy-driven, and situational. Not only do different IRS employees have different ideas about what constitutes an "economic hardship", different geographical offices of the IRS continue to display decision-making patterns that are internally inconsistent and, in some instances, arbitrary. And while we all must maintain a positive, realistic appreciation for the integrity of our tax collection civil servants, it certainly does appear at times that individual Collection managers, Appeals Officers and even IRS Counsel attorneys apply their governing policies somewhat selectively, perhaps even discriminatorily.

So, given the unpredictability of such a system, what makes a good representative, and how does a good representative deal with these uncertainties to your benefit?

First, and most important, a good representative is someone who tells you the truth, even if it hurts. You never benefit from distorted or intentional optimism. Even the best tax specialists cannot achieve some results for everybody. LIke all areas of life, if it sounds too good to be true, it probably isn’t.

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You just got a "certified" letter from the IRS (Final Notice of Intent to Levy/ Notice of Federal Tax Lien). You knew this was coming. A big balance due on your 2011 tax return, which you couldn’t pay on April 15. But you sent the return in anyway. You aren’t hiding anything, you just don’t have the money to pay.

But now it seems serious. The letter says your "immediate action is required", or your property will be "levied", "Federal tax liens" will be filed, general mayhem will ensue.

And the letter reminds you about another debt you owe to the IRS, for 2009, which you have been ignoring, hoping it would go away. Fantasizing, perhaps, that the IRS would forget about you, lose you in it’s massive bureaucracy or intentionally shift its attention to bigger debtors, those that owe ten times your debt.

But that’s not really likely to happen. The IRS will not forget about you. You are in the system and, unless you contact them, at some point - maybe sooner, maybe a bit later - you will receive an even more threatening notice - "Urgent. Contact us now. Your property will be seized to satisfy your IRS debt".

What can you do? What should you do?

...

Posted on in Uncategorized

Many business owners in America believe there is something intrinsically suspicious or wrong with dealing in cash (i.e., paying their employees’ wages, purchasing supplies, receiving large currency bills for services rendered, etc...). However, and though it may raise suspicions of tax evasive conduct on the part of the Internal Revenue Service (the government agency responsible for collecting federal taxes), the truth is there is nothing illegal about using cash, and there are many legitimate reasons for accepting and making payments in cash. And some businesses - restaurants, for example - are by their very nature cash-intensive operations.

With this in mind, we offer the following guidelines to make sure you can defend yourself against inquiring federal tax collectors:

  1. Keep written records. For both cash received, and cash paid out, you should maintain contemporaneous written records of each specific payment received or made, including the date of the payment, the source or recipient of the payment, and the reason/purpose for the payment. These records should be organized into income and expense categories, at least on a monthly basis (preferably weekly), and will form the basis for your business accounting and tax compliance system.
  2. Deposit cash into a bank account. Besides the obvious safety risk of carrying around or maintaining large amounts of cash on hand, bank accounts provide an additional written record of cash payments and receipts, and serve to deflect suspicious Internal Revenue Service agents from making inappropriate inquiries into your business activities. Transparency is the key! Also, its always best to have a separate, dedicated bank account for your business, and to not commingle (mix in) your personal expenses with your business receipts.
  3. Fulfill your payroll obligations. If you have employees, and you pay them in cash, make sure you carefully comply with your federal (and state of Illinois) payroll tax reporting and payment obligations. If you have a large number of employees, you may want to hire a payroll company - for a fee - to perform this service for you, but if you have a relatively small number of employees (under 10), your accountant or tax lawyer can advise you and you can do this yourself. The important point is to ensure that your employees provide you with a valid social security number so that you can protect yourself from government penalties!
  4. If the government contacts you... Do not panic. Deal with the Internal Revenue Service or the Illinois Department of Revenue calmly, respectfully, and cooperatively. But do not answer specific questions or turn over any records without first getting yourself organized and consulting with a professional so that you fully understand what the government is requesting, why it is being requested from you, and what the possible consequences of the request might be. Remember - not every government contact results in you owing the government additional taxes. In fact, if skillfully handled, many government inquiries result in no changes to your tax returns at all!

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.

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