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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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Chicago Tax Attorneys Answering Your FAQs

chicago tax attorney

Frequently Asked Questions About Tax Law

1. How long will it take to get the IRS back taxes problem behind me?

For "pure" collection matters (you don't dispute the underlying debt, you just cannot pay it), resolution time depends on a number of factors, including the particular plan being implemented (i.e., Installment agreement, Offer in Compromise, liability challenge), the current IRS workload/backlog/processing time, whether the case is currently assigned to a Revenue Officer, and where in the procedural process that case resides. For our part, we spring to action immediately, filing the power of attorney, contacting the IRS, collecting the necessary financial information from you, performing our evaluation, and providing you with our recommended course of action. If we receive all the necessary information from you without a significant delay, we typically get our strategy proposed or submitted within a few weeks or sooner. This may take a bit longer if we need to prepare complex or reconstructed tax returns for you. The entire IRS Offer in Compromise review process is currently running between 6 months to a year, depending on the complexity of the offer and whether there is one or more entities involved.

For other tasks, such as penalty abatement requests, innocent spouse claims, and Tax Court litigation, there are simply too many variables to provide a general response. Please feel free to contact us with your specific situation, and we will do our best to give you an accurate estimate of submission, processing, and resolution time.

2. How much it will cost me for the legal services?

We believe our fees are significantly lower than comparable professionals, and we generally charge a flat fee for our services so that you know exactly how much our representation will cost you. And those fees are frequently less than half what you would end up paying traditional law firms or internet-based offer mills for comparable or inferior services. Factors that increase the base flat fee include an assigned Revenue Officer, a levy in place or imminent, one or more businesses involved, the need to prepare complex or reconstructed tax returns, related state matters, and/or Tax Court litigation, because of the substantially greater attorney time involved. However, at the Tax Practice, you always know how much the services will cost you at the outset – there are no hidden or surprise fees, and we strive for a fair and certain price that will "get you on the other side" of the problem. If you arrange an in-person consultation, we will happily review our flat fee pricing structure with you.

3. What should I do when my tax return is audited?

First, respond to the IRS audit letter – don't ignore it.

If you are undergoing a "correspondence audit", review the letter to determine what the IRS is really looking at on your tax return – large charitable contributions? - deductions on your Schedule C creating an operating loss? - rental properties? - unreported income? You don't want to provide more documentation or information to the IRS than what is specifically solicited or absolutely necessary.

If you believe you have the materials to substantiate the items that the IRS is apparently challenging, you should consider cooperating and providing those documents and supporting explanations in an organized, responsive, and timely manner. Obviously, this is a general rule with many exceptions, and you should really consult with a tax controversy professional before undertaking this yourself. It is very important to understand where the IRS is going with its inquiries, and whether the items on your return are completely defensible or if you have exposure. If you are unsure, I urge you to consult with an experienced professional.

Also know that, just because the auditor doesn't agree with you or accept your supporting materials, its not necessarily the end of the line. If there is a good-faith factual or legal dispute, you have administrative appeal rights!

If you are undergoing an office or field audit, make sure you arrange a time for the initial face-to-face meeting that not only accommodates your schedule, but also allows you enough time to prepare. This first meeting is crucial – you will be interviewed extensively regarding your background, income-producing activities, and financial record-keeping. I always recommend that you do not attend these initial IRS audit meetings without representation; it is so important that someone is present who knows what the IRS can, and cannot, ask you.

4. Am I an offer candidate?

Offers in Compromise based on "Doubt as to Collectibility" are reviewed based on the following formula:

minimum offer amount ($) = net value of assets plus (*)monthly income - allowable expenses

* multiple of 12, 24, or average number of months remaining on the collection statute of limitations for the years involved.

The two trickiest parts of the analysis and evaluation are which multiple the IRS will use, and what constitutes an "allowable" expense. Note that the formula has little to do with your actual budget or financial reality; it is an artificial mechanism employed to in part equalize treatment of taxpayers across the country, and ensure that the IRS is paid with any available funds and before any subordinate creditors.

Whether you are an offer candidate depends on the presentation of this information to the IRS, and appealing to its discretion where that exists (and not arguing points where there is no room for the IRS to give). But you can do a rough computation and get a sense if you fall within the parameters by plugging in your asset, income and expense information. For example, if you have $100,000 in your IRA, and you only owe the IRS $25,000, you are probably not an offer candidate, at least under straight "collectability" grounds.

Nevertheless, you might be a candidate under "Efficient Tax Administration" or special circumstances grounds. This is when it really makes sense to consult with a tax controversy professional who can evaluate your unique situation, and provide, hopefully, candid advice on the strength of your candidacy.

5. Why was my offer in compromise rejected?

The IRS "rejects" offers primarily because the Officer Examiner has determined that the taxpayer has the "full ability to pay", based on his or her review and analysis of the financial data provided by the taxpayer and according to the IRS-established formula and criteria.. The conclusion of a full ability to pay, in turn, could be based on the taxpayer's equity in assets, or future net income flow – monthly income less allowable expenses. Note that the IRS' determination of allowable expenses is in some ways very rigid; for example, how much the IRS allows a taxpayer for groceries and personal items is a "plug-in" number based on the number of persons residing in the household. It is quite difficult to get the IRS to deviate from this set amount, which was recently lowered. For other expenses, it is up to the taxpayer or his representative to make a convincing presentation that they should be integrated into the formula, or increased to approach economic reality.

Offers are also sometimes rejected under the vague "not in the interests of the government" basis, a ground that is bureaucratic-speak for against internal policy or simply recognizes that the granting of offers is, statutorily, completely within the discretion of the IRS. Examples of offers rejected on this basis include taxpayers that are notorious (i.e., public officials and celebrities), and taxpayers whose unpaid liabilities are composed solely of fraud or return preparer penalties.

IRS rejections have the benefit of being appealable, allowing first a review by the Offer Examiner's Manager and then, if not resolved, on to the IRS Appeals Division for re-consideration.

Rejection is also the alternative to a taxpayer's refusal to accept the "increased offer" (counter-offer) proposed by the Offer Examiner after his or her review.

6. Why was my offer in compromise returned?

The IRS "returns" offers for several reasons, the most common of which is that the taxpayer is not currently in compliance with his or her return filing or current year payment obligations. This means that not all tax returns have been filed and/or the taxpayer does not have sufficient tax withholdings (through salary reductions or estimated tax payments) paid into the system for the current tax year. Current compliance is an absolute pre-requisite to offer consideration. And definitely be aware that the IRS rarely allows a taxpayer to add-in to the pending offer a new year's unpaid tax liability beyond those included in the offer when it was submitted. Offers are routinely returned when a taxpayer is undergoing an audit.

Other reasons the IRS will return the offer to a taxpayer include offers that are deemed to be filed for "delay" purposes only, the taxpayer's failure to provide requested information, and for a dishonored payment – see the Internal Revenue Manual, part 5, section 8.7.2. Failure to provide requested information is frequently a timing issue – the taxpayer doesn't intentionally ignore the request, he is waiting to get the information from a third party (accountant, bank, broker) and it cannot be obtained within the limited time frame granted by the IRS for submission.

Returned offers are not appealable. And the IRS will keep the filing fee (currently $186) and the 20% required deposit, applying them both to the tax balances.

7. How can I get my tax lien released?

There are several ways to get a tax lien released or withdrawn: 1) If the IRS grants an offer in compromise, and the taxpayer pays the agreed amount, the account is considered paid in full and the lien is "released"; 2) If the taxpayer provides a "bond" to the IRS in the amount of the unpaid tax, penalties and interest (perhaps while he or she is disputing the underlying liability), the IRS will release the lien; 3) If the ten-year statute of limitations on collection expires (and not otherwise extended), the lien is automatically "self-released"; 4) a specific piece of property to which the federal tax lien attached may be "discharged" from the lien, as when a residence is being sold and the IRS is being paid out of the proceeds allowing the taxpayer to pass clear title to the property; 5) a tax lien may be "withdrawn" by the IRS if the notice was filed prematurely or the IRS did not follow its own administrative procedures; 6) a tax lien may be withdrawn if withdrawal "would be in the best interests of the taxpayer and the government" or it will help the taxpayer pay the balance due; and 7) a tax lien may be withdrawn pursuant to the "Fresh Start Program" – when the total liability owing the IRS is $25,000 or less, and the balance is paid in 60 months or less by electronic bank direct debits.

8. How can I get my wage levy released?

Hard to do, but not impossible. The basic plan is to contact the IRS (Automated Collection Unit or assigned Revenue Officer) and have an alternative method for addressing payment of the liabilities, i.e., a plan to fully pay by selling assets or borrowing funds from a third party, or by entering into an IRS-approved installment agreement. In some cases, the Revenue Officer will release the levy if you can establish to his or her satisfaction that the levy is causing an extreme economic hardship, though this will have to be documented and presented through a financial statement with supporting materials. Sometimes contacting the local Taxpayer Advocate for intervention might be a successful route for release, though the presentation of economic hardship still needs to be made.

Filing a good faith Offer in Compromise before the levy is issued will, in most all cases, trigger a collection hold and prevent the garnishment while the offer works its way through the system for consideration.

Because there is so much discretion on the part of the IRS with regard to levy releases, this is one area where it really helps to engage a professional with experience negotiating with the Service personnel.

9. My bank account was seized by the IRS – can I get the money back?

Perhaps. But it depends on how quickly you act on this.

For bank levies, the account is frozen on the date the levy notice is received, and the institution has to turn over the funds to the IRS twenty days later. This gives you a window of time to contact the IRS Automated Collection Unit or assigned Revenue Officer with a full payment, installment plan, or other alternative for addressing the debts. Or, you could contact your local IRS Taxpayer Advocate, to intervene on the basis of economic hardship, which you would have to prove with specific documentation (such as a utility bill indicating your electricity or telephone will be cut-off without immediate payment and you have no other funds besides what is in the frozen bank account).

So much discretion on the part of the IRS makes this a prime area where you would likely benefit from the assistance of a professional tax controversy attorney who has experience directly negotiating with the Service personnel.

10. I owe back taxes -will the IRS take my house?

Possible, but not likely. Since 1998, when the law changed, the IRS must request (through the U.S. Department of Justice) that a federal district court issue a notice of seizure of a taxpayer's primary residence. This doesn't happen too often, the exceptions being notorious taxpayers (politicians, celebrities and other newsmakers), and when the unpaid liabilities are really huge. However, note that a court order is not needed for seizure or levy of any other taxpayer assets!

11. I haven't filed taxes in more than ten years; will I go to jail?

Possible, but not likely. It really depends on the degree of "willfulness" present in your avoidance behavior. In other words, are you a procrastinator, or beset by financial or medical issues? Or have you set up an offshore account to hide the income you have been receiving? Without question, the aggregate amount of taxes you ultimately owe has a lot to do with the IRS' decision to pursue a non-filer criminally rather than merely civilly. The government rarely (though not never) prosecutes for willful non-filing when there are no taxes due.

I believe the best strategy is to bite the bullet and get your delinquent taxes prepared, so that you know what you are dealing with. Getting yourself back into the system, with a plan for addressing the historical liabilities, is the dual objective; being proactive will take away the element of surprise and the anxiety associated with the uncertainty of IRS actions.

12. The IRS prepared tax returns on my behalf but they didn't give me any of my deductions; can I file corrected returns to replace those prepared by the IRS?

Sure you can. However, be aware that you will not be able to get the benefit of any overpayments made for tax years the due date for which (or any payments made in connection with) is more than two years prior to the filing. You can nevertheless bring down assessments based on the IRS-prepared "substitute" returns to $0, if that is truly more reflective of your correct tax due. You just can't get the refund if you wait too long. You should be aware that the returns will likely be reviewed and, perhaps, subject to a full-scale audit.

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