Once the IRS makes an assessment against a taxpayer, the taxpayer will receive several notices before the IRS takes enforced collection action.
This is the notice that is required before the IRS can levy and seize a taxpayer’s assets.
Some form of response should be sent with respect to these notices. The response, along with a copy of the notice, should be sent by certified mail, return receipt requested, using the envelope provided by the IRS. The purpose in sending a response is so that it will show that the taxpayer is concerned about the taxes and is not ignoring them.
Dealing with the Revenue Officer can be confusing, costly and time consuming. However, failure to communicate with the Revenue Officer will only result in enforced collection action. Everything agreed upon with the Revenue Officer should be confirmed in writing. The purpose of this is to document the file of the IRS in case the file is transferred to another Revenue Officer who has no knowledge of the agreement. The taxpayer has two purposes in dealing with the Revenue Officer:
- Stop enforced collection activity by the IRS.
- Obtain a payout agreement or some other arrangement for payment of the taxes.
Negotiating with the Revenue Officer can be extremely difficult in some situations. However, it is possible in many cases to work out an acceptable agreement with the IRS that meets the requirements of your client. Understanding IRS procedure and what the Revenue Officer can and cannot do is essential in negotiating an agreement for your client.
The following represents alternatives which should be considered when negotiating with a Revenue Officer:
- Installment Agreement – The IRS gives the taxpayer the right to pay taxes in installments contrary to what some Revenue Officers will tell you. Insist on such an agreement for your client.
- Audit Reconsideration – This generally comes into play when a taxpayer has chosen to ignore a statutory notice of deficiency or where there has been a communication problem between the taxpayer and the IRS. In some of these limited cases, the IRS permits audits of returns after collection has begun.
- Hardship on Taxpayer – A hardship exists if levy action prevents the taxpayer from meeting necessary living expenses. The IRS should not undertake collection action if a hardship is present. The hardship must be impressed upon the Revenue Officer during negotiations.
- Currently not Collectible – If a taxpayer cannot pay taxes owed without placing himself in a financial hardship (unable to pay necessary living expenses), then the IRS will defer collection by classifying the case as “currently not collectible.” If this is done, collection is deferred until sometime in the future, and the taxpayer will not have to deal with the Revenue Officer. The Revenue Officer should be requested to classify a case as “currently not collectible” if the taxpayer has no funds with which to pay.
- Bankruptcy – Bankruptcy will discharge taxes in some cases. Generally, taxes must be at least three years old and have been assessed for at least 240 days. There are several exceptions. Make sure your client has a bankruptcy attorney who understands the discharge of taxes in bankruptcy.
- Offers in Compromise – The Internal Revenue Code permits the IRS to accept an amount less than the full amount if there is doubt as to collectability, and/or doubt as to liability. Submission of an offer in compromise will extend the statute of limitations on collection. As a practical matter the right situation must be present for the IRS to accept an offer in compromise, and one should only be submitted if there is a strong possibility that it will be accepted.
- Abatement of Penalties – In almost all cases an abatement of penalties should be sought. It is easy to request that penalties be abated, and the abatement of penalties could substantially reduce the amount of a taxpayer’s tax liability.
- Taxpayer Advocate – The Advocate will help with almost everything except negotiating a payout with the Revenue Officer.
- Possibility of Amended Returns – Original returns should be reviewed to determine if amended returns will reduce tax liability. If so, they should be prepared and filed.
- Has the IRS Made a Valid Assessment? Check the statute of limitations. Generally, an assessment must be made within three years from the date the return was filed, plus any extension executed by the taxpayer. In addition, the IRS has six years after the taxes are assessed to collect the taxes. If the IRS has not followed the proper procedure, the assessment may not be valid, and the taxes cannot be collected.
- Form 911 – The Taxpayer’s Emergency Number. This form requests that a Taxpayer Assistance Order be issued to stop certain action being taken by the IRS. The taxpayer must be “suffering or about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered.” In any event, this form will stop all collection action until someone above the Revenue Officer has had a chance to review the case.
At all levels of the IRS the taxpayer has certain rights, and the taxpayer should take full advantage of these rights. If a taxpayer owes taxes, the taxpayer should seek professional advice in helping to resolve the matter.