Dealing with the IRS can be a dangerous labyrinth for the untrained taxpayer or their non-tax advisors. In a recent Federal court case, E. John Rewwer, et al. v. United States, the taxpayers filed the wrong form claiming a refund and both the IRS and the DOJ Tax Division cried foul and tried to dismiss their case.  Fortunately, the court found that the taxpayer’s filing met the “informal refund claim” requirements and denied the government’s motion.

The taxpayers received an unfavorable audit determination increasing their tax liabilities for 2007, 2008 and 2009.  All amounts were paid and the taxpayers then filed IRS Form 843 (Claim for Refund and Request for Abatement) for all three years. The taxpayer’s attorney, not the taxpayers, signed the requests for refund but didn’t include IRS Form 2848 (Power of Attorney). The IRS allowed the 2008 claim but then denied the 2007 and 2009 claims, so the taxpayers appealed within the IRS.  A taxpayer generally has two years from the date of the determination to file a refund suit in federal district court.  The taxpayers didn’t hear from IRS Appeals, and the two years was expiring, so they filed their refund suit.
Continue Reading Taxpayer Wins Tax Refund Despite IRS Claims That The Taxpayer Used The Wrong Form

3D illustration of a rubber stamp with the word compromise printed on a brown paper with the text party one and twoOnce the IRS makes an assessment against a taxpayer, the taxpayer will receive several notices before the IRS takes enforced collection action.

Notice of Intent to Levy

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.
Continue Reading Negotiating with the IRS Collection Division

Vintage composition of handwriting, quill pen and ink. Selective focus on ink and pen. Text is from Shakespeare's Sonnet 18. (Vintage composition of handwriting, quill pen and ink. Selective focus on ink and pen. Text is from Shakespeare's Sonnet 18.,In Shakespeare, an English King blames the loss of an important battle on his lack of a horse:  “A horse, a horse, my kingdom for a horse!”[1]

In real life (and especially, it seems, in tax law) it is more like to be the lack of a timely piece of paper that causes the taxpayer to lose.

In the course of administering a trust, it sometimes happens that mistakes are made that require correction.  For example, distributions may be made that are not in accordance with the provisions of a trust: payments to the wrong beneficiaries, or in the wrong amounts or for the wrong purposes.  A similar situation may arise when a trust instrument requires the trustee not to make any disposition of certain “legacy” assets, and the trustee erroneously sells them anyhow.

In such situations, the way to “undo” the transactions is for the parties to reverse the erroneous transaction by returning the distributions made in error.  When the year of distribution is a closed tax year and the act of correction is made in a later year, it is important to make sure that the distribution that is returned is treated as a tax-deductible expense, thus offsetting the taxable receipt of the erroneous distribution in the prior tax year.
Continue Reading A Horse, a Horse, My Kingdom for a Horse! Lack of Proper Documentation Dooms IRS Disputes