Tax Lawyer's Blog

Sometimes the IRS is simply wrong.

This happens more often than you might think.

Over the years we have found that the IRS makes mistakes most often in the following areas:

• Wrongful Calculation of Penalties and Interest
• Matching of Income to the Wrong Taxpayer
• Wrongful Assessment of Penalties
• Failure to Release a Lien
• Incorrect Calculation of Collection Statute Expiration Dates
• Misplacement of Tax Returns and Other Filings
• Compliance with the Taxpayer Bills of Rights

Of course, the more the IRS screws up, the busier we are.

Here is what you should do in each of the above situations.

Wrongful Calculation of Penalties and Interest

We never assume that the IRS’s penalty and interest assessments are correct.

The first thing we do is get a complete transcript directly from the IRS computers (we have special rights to do this based on the frequency with which we handle IRS matters).

The transcript should contain all penalty and interest assessments as well as a credits for any payments made for the tax year(s) in question.

We recalculate the penalty and interest assessments using a software program designed for that purpose then compare our calculations to those included in the IRS transcript.

If there is a discrepancy, we immediately forward our calculations to the IRS agent handling the account and demand correction.

If the IRS does not immediately correct the mistake, we file a form 911 – Application for a Taxpayer Assistance Order – with the Taxpayer Advocate’s Office.

Finally, the failure to challenge a penalty assessment gives rise to a presumption of its legitimacy and accuracy. For this reason, we almost always file a formal written challenge of a penalty assessment.

Matching of Income to the Wrong Taxpayer

The IRS’s matching program triggers many assessments and audits.

But it isn’t always correct.

Sometimes false and inaccurate 1099s or W-2s containing your social security number are filed with the IRS. The IRS presumes these filings are correct and expects to see the amounts show on them included on your tax return.

We have seen situations in which a former employer, spouse or business partner intentionally filed an inaccurate 1099 just to trigger an IRS investigation.

Use of the information reporting system for harassment purposes is illegal, but that reality doesn’t deter everyone.

Other times the IRS itself has just processed the reported information incorrectly.

When this happens we often will solicit the help of the IRS Taxpayer Advocate.

Finally, we have seen cases where people sharing the same name have been charged with receiving income that they, in fact, did not receive.

The computerized nature of the IRS bureaucracy makes it more difficult than it should be to resolve these errors.

You need to know what buttons to push in order to get problems like these resolved and the record corrected. There are certain individuals within the IRS who can resolve these problems quickly.

Knowing who they are and how to contact them is essential to quality IRS representation.

Wrongful Assessment of Penalties

In most cases the IRS automatically assesses penalties against delinquent taxpayers.

This means taxpayers must affirmatively request removal of the penalties.

This is done through what is known as the penalty abatement process.

Penalty abatement requests are formal written applications for the removal of statutory fines. In most cases, the burden of proof is on the taxpayer to prove that the particular penalty assessed is inaccurate or inappropriate in his or her case.

The penalty abatement application, in order to be successful, must contain the following:

• Statement of the Facts
• Statement of the Law
• Documents and Affidavits in Support of the Facts
• Legal References and a Memorandum of Law
• Conclusion and Argument

If you have been assessed a penalty of more than $10,000 we strongly recommend that you hire a qualified, experienced tax professional to assist you in filing the application.

It should greatly increase your chances of success.

Failure to Release a Lien

The IRS is efficient in placing liens on delinquent taxpayers, but often negligent in the prompt release of those liens.

The IRS website states that it will release of the Notice of Federal Tax Lien:

• Within 30 days after you satisfy the tax due (including interest and other additions) by paying the debt or by having it adjusted, or
• Within 30 days after we accept a bond that you submit, guaranteeing payment of the debt.

A taxpayer seeking a lien release is required to pay any fees that a state or other jurisdiction charges to file a release the lien. These fees are added to the amount owed.

After the collection statute has expired the a lien releases automatically if the IRS has not filed it again.

If the IRS knowingly or negligently fails to promptly release a Notice of Federal Tax Lien, the taxpayer may sue the federal government (but not IRS employees) for damages.

Incorrect Calculation of Collection Statute Expiration Dates

We often represent clients who have owed taxes for ten years or more. Our first job in these cases is to determine the correct collection statute expiration date (CSED).

This is important because knowing the date that the IRS is no longer legally allowed to collect a tax debt will dictate our representation strategy.

Generally, the collection statute expires 10 years and a day after the date of assessment of the tax.

However, there are several events and acts of the taxpayer that will extend the collection period. It is the calculation of these statute extensions that often causes the IRS to err.

Before you proceed with negotiating either an installment agreement or an offer in compromise with the IRS, you must first determine when the collection statute expires.

The filing of an Offer in Compromise will extend the statute by at least a year.

See Statute of Limitations for a description of the events that will extend the collection statute.

Misplacement of Tax Returns and Other Filings

Thank God for “certified mail, return receipt requested.” It has saved our clients on many occasions.

If the IRS can’t find something you mailed to it and you can’t prove that you mailed it, the IRS (and the law) assumes that you didn’t mail it.

In other words, the IRS assumes you’re lying.

And this is true despite the fact that the IRS has a long history of misplacing or losing tax returns and other tax filings.

There are a variety of things that are dependent on knowing the correct date a tax return or other IRS correspondence is filed.

Here are several of them:

• The calculation of penalties and interest for late filing of a tax return and late payment of tax
• The timely filing of an appeal or response to an IRS CP2000 tax return adjustment notice
• The timely response to an IRS Information Document Request (IDR)
• The protest of an IRS assessment
• The timely filing of a United States Tax Court petition
• The timely filing of various tax elections

If you have filed something with the IRS and the IRS now claims it never received it, you should contact a qualified tax attorney immediately.

Sometimes, through the filing of affidavits and submission of circumstantial evidence that the filing in question was actually filed, the IRS will allow the taxpayer more time.

Remember, always send mail to the IRS “certified, return receipt requested” and always make copies of everything you send.

Compliance with the Taxpayer Bills of Rights

Most experienced IRS agents and collection officers know your rights and will honor your exercise of them.

However, some IRS officials are either wholly unaware that there is any such thing as “taxpayer rights” or simply don’t think it’s important to honor them.

We see this most often in the explicitly defined taxpayer right to counsel.

Time and again we have had IRS officers and agents contact taxpayer’s directly after we and our client’s have duly executed and filed a Power of Attorney.

We have even had IRS collection officers call our clients and tell them they were wasting their money hiring a lawyer.

Any attempt by an IRS official to bypass our POA and/or drive a wedge between our client and us is treated by us as a violation of your rights and we will not tolerate it.

These are blatant violations of the Taxpayer Bill of Rights and whenever it occurs we will immediately lodge a complaint with the offending officer’s group manager.

If that doesn’t get us anywhere (it usually doesn’t), we will file what is known as a TIGTA (Treasury Inspector General for Tax Administration) complaint asking for an investigation of the officers conduct.