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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law

312-906-5041

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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.  

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summons, IRS appointment, Chicago Tax LawyersIt is rarely a good idea to ignore IRS audit correspondence "inviting" you to an examination of your tax return. If the Service sends you a letter unilaterally scheduling a meeting for an office audit, confirm (or reschedule) the appointment, get professional help to prepare you, and show up.  Perhaps the only time you might want to second-guess the audit participation, is after you and your representative conclude that there are potential criminal implications, which justify a strategy of silence.  But this is certainly not the norm. What if the time for the scheduled first meeting has come and gone, and you didn’t go, out of fear, lack of preparation, or simple inadvertence?

IRS Responses to Examination "No-Shows"

Normally, the IRS will send a second letter, allowing for a rescheduling of the appointment.  But, anticipating another "no-show", the Service will generally take two simultaneous steps:  First, the auditor will start examining the return without you – securing records from third party sources (i.e., bank accounts, customer records, etc…); and 2) you may very well receive an administrative "summons" requiring your attendance at a compelled interview (and also demanding that you bring with you to the interview certain identified documents).

Failure to Obey an IRS Summons

When you fail to obey the summons, it's not the IRS that ultimately forces your compliance - it's a federal district court.  If you fail to appear in response to the summons, the IRS will typically seek the assistance of the Department of Justice to "enforce" the summons, by obtaining an order from the court. If you have a good reason for not complying, you can present your defense to the court in response to the government’s motion to enforce the summons. Or, you can be more proactive and on your own file a "Motion to Quash" the summons with the district court, seeking a ruling that the IRS has exceeded its authority in asking you for particular records or seeking your submission to an interview. Unfortunately, there are not a lot of good reasons for failing to obey the summons. As long as the IRS has complied with the statutory procedural steps in issuing the summons, and so long as the information being sought is relevant, for a legitimate purpose, and not already in the government’s possession, you are pretty much stuck. You do have the legal right to attempt to quash a summons initiated by the IRS, but that's a failure-wrought legal avenue that you probably shouldn't attempt. Failure to comply with the Court order could subject you to an order finding you in contempt of court; i.e., possible time in the federal lock-up.

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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

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innocent spouse, tax law, Chicago Tax AttorneyYour ex-husband, either accidentally or deliberately, failed to report income and the IRS caught it.  Now, you have a letter demanding that you owe the Service several thousand dollars in tax, penalties and interest, even though you had no income of your own that year and have since divorced the bum.  Is there any relief for spouses who had nothing to do with the issue that has now blown into a full-fledged tax controversy?  Perhaps.

Joint-and-Several Liability

When you file a joint tax return with your spouse, each one of you is "jointly and severally" liable for any understatement or underpayment of tax in connection with that return.  This means that each taxpayer is responsible for paying the

When you file a joint tax return with your spouse, each one of you is "jointly and severally" liable for any understatement or underpayment of tax in connection with that return.  This means that each taxpayer is responsible for paying the entire tax debt (though the IRS cannot collect more than the total amount of the liability).  Even if you had nothing to do with the preparation of the tax return, with the omission of the income or the overstated deduction, or even with the IRS audit, both you and your spouse are on the hook for the whole thing.

Innocent Spouse Relief

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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:

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