The Ultimate IRS Collection Workshop From Billing Notice to Offer - - PDF document

Presented by:

The Ultimate IRS Collection Workshop

Eric L. Green, Esq.

From Billing Notice to Offer Acceptance Letter

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 There will be 16 attendance check words  Please write these down  You will need them at the end when you click on the link

and go get the certificate

CPE

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 Stick to our schedule  10 Minute breaks at the top of

each hour

 Go to the restroom and refill

your coffee (or drink of choice)

Schedule

1 2 3

QUICK BREAK

We will resume the program in a moment.

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Agenda

• The Current State of IRS Collection
• The Tax Collection Process
• Collection Appeals
• Collection Alternatives

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Why Collection is HOT and Getting Hotter… 4 5 6

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Non‐Filers

More than 7 million (Before COVID‐19)

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IRS Collection Process

• Assessment of the tax
• 10‐Year Collection Statute
• Billing Notices
• Threat to levy and right to a hearing
• Appeals (CDP, Equivalent, CAP)
• Resolution

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Step #1: Tax Compliance

• All returns filed that are due as of this date
• Current tax period payments being made

a)

Proper withholding

b)

Estimated tax payments

c)

Payroll tax deposits

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Inside Secret

• What is compliance for tax returns?
• Last 6 years – IRM 1.2.14.1.18

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IRS Collection Process: Assessment

• The IRS will assess the tax

when the return is received and processed or it creates a “substitute for return” (SFR) for the taxpayer

• Pull transcripts to determine

the exact date of assessment

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Goal?

• Taxpayer should voluntarily

file their own return

• Otherwise IRS will do it for

them

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IRS Collection Process: 10-Year Statute

• Pursuant to IRC §6502 the IRS has 10 years to collect a

tax debt

• The 10‐year statute begins upon the date of

assessment, not the date of filing

• There are a number of actions that will toll, or

suspend, the collection statute

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IRS Collection Process: 10-Year Statute

• Taxpayer files bankruptcy—IRC §6503(h)
• The time for a bankruptcy plus six months!
• Filing of a Collection Due Process hearing request—Regulation

§301.6330‐1(g)

• Filing of an Offer in Compromise—Regulation §301.7122‐1(i)
• Pending Installment Agreement — IRC §6331(i)(5)

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Transcripts

• This is why we pull transcripts
• How much time remains will drive the decision on how to resolve

the tax debt

• Need to review the Transcripts for things the taxpayer has done

that may have tolled (extended) the statute

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16 Offer‐in‐Compromise Master Class

Pull Transcripts

17 Offer‐in‐Compromise Master Class

Calculate the CSED Dates

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Billing Notice — CP 501

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Threat to Levy — CP-504

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CP-90

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IRS Collection Process: Final Notice and Right to a Hearing

• Final Notice includes Form 12153
• Taxpayer has 30‐days to request a hearing
• You MUST file the request
• If the 30‐day window is missed, file for an equivalent

hearing

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Form 12153

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IRS Collection Process: Appeals: CDP

• 1998 IRS Restructuring and Reform Act created appeal rights for

Collection Cases and gave the United States Tax Court authority to hear collection appeals

• The IRS is required to give the taxpayer 30 days to request an

appeal prior to levying

• This appeal is referred to as Collection Due Process Appeal, or

CDP

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IRS Collection Process: Appeals: CDP

• If the Form 12153 is filed within 30 days requesting a CDP hearing,

the case will be forwarded to Appeals

• All collection action will cease for that tax period, unless the

taxpayer continues to pyramid liabilities

• If the taxpayer continues to incur new tax liabilities, Appeals may

grant tax collection division the authority to continue enforced collection activity

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IRS Collection Process: Appeals: CDP

• Appeals will contact the taxpayer with a letter

confirming they have the case and requesting information

• Knowing the Appeal was requested, the

taxpayer should be preparing the Collection Information Statement (Forms 433) in advance

• f the hearing

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IRS Collection Process: Appeals: CDP

• The hearing is usually by phone, though the

representative can request a face‐to‐face meeting

• No guarantee IRS will grant the in‐person

request

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IRS Collection Process: Appeals: Equivalent Hearings

• If the taxpayer failed to request a CDP hearing, they have up until
• ne year to request an equivalent hearing
• With an equivalent hearing there

is no requirement the IRS cease levy action

• There is no right to judicial review in the Tax Court

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IRS Collection Process: Appeals: CAP

• IRS created a procedural appeal process called the Collection

Appeal Process, or CAP

• A CAP appeal can be requested whenever a levy or lien is

threatened by the collection division

• This is a procedural review to make sure the collection division has

followed procedure

• It allows a taxpayer to get their case in front of an appeals officer

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IRS Collection Tools: Levies

• The seizure of a taxpayer’s

property

• Generally issued when a taxpayer

has either failed to respond to IRS requests or failed to provide the collection division information

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Two types of Levy

• Regular Levy (bank, vendors)
• Continuing (wages or routinely paid commissions)

~ IRS allows standard deduction divided by the pay periods and takes the amount above that

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Avoiding/Dealing with a Levy Do what taxpayer should have done!

• Compliance
• Call IRS
• Propose a resolution

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 Find out how much was taken before calling  Request a release of the funds (may do this the first time)  If not, ask for a partial release if necessary to pay bills

Remember…

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IRS Collection Tools: Liens

• Pursuant to IRC §6321, a lien arises automatically whenever

demand for payment is made and the taxpayer fails to pay

• No other action is required of the IRS
• IRS may file a Notice of Federal Tax Lien
• Though the lien arises without any further IRS action, the IRS filed the Notice to

inform third‐party creditors of the IRS lien on the taxpayer’s assets to protect its (the IRS’s) interest

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IRS Collection Tools: Liens

• IRC §6320 grants the taxpayer the right to a hearing to contest the

filing of a notice of federal tax lien

• Pursuant to IRC §6322 the lien will continue in force until the tax is

either paid, compromised, or the 10‐year collection statute expires

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 Discharge (sell out from under the lien)  Withdrawal (statute expired and bank is an idiot)  Subordination (house that burned down)

Tax Liens

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 The IRS just wants the equity it could get if it seized  Release: IRS is getting whatever it’s interest is  Subordination: it get the IRS cash or improves collection  Withdrawal: under 25K in a direct debit IA which full pays

in 60 months or less (IRM 5.12.9.3.2.1)

Inside Secret to Liens

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The Fixing America’s Surface Transportation Act

• The FAST act funds America’s highways
• Added provisions for IRS collection
• Requires IRS to use private debt collectors
• Allows IRS to have passports suspended

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Passport Denial/Revocation

• The IRS to inform the United States Secretary of

State of those taxpayers who owe “seriously delinquent taxes,”

• Defined as those taxpayers who owe more than

$50,000 in back taxes

• State Department may revoke the passports of

those taxpayers owing back taxes or deny the issuance of a passport to taxpayers applying for

• ne that owes back taxes

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Passport Denial/Revocation

A taxpayer will not have his or her passport suspended/revoked if they are:

• Paying the tax through an I/A
• Involved in an Offer‐in‐Compromise
• Has filed a request for a Collection Due Process hearing
• Has filed for innocent spouse relief

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Passport Renewal Blocked

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Private Debt Collectors

The Act Amends IRC § 6306 to require that the IRS use private debt collectors to try and collect “inactive receivables” (ie. back tax debts) that meet the following requirements:

• The debt has been removed from the current case inventory or the

taxpayer cannot be located;

• More than one‐third of the collection statute has elapsed and the case

has not been assigned to an IRS collection employee, or

• More than 365 days have passed without interaction with the taxpayer or

a representative for furthering the collection of the back tax debt.

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Private Debt Collectors

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Private Debt Collection

IRC § 6306 already allowed the IRS to use private debt collectors Failed miserably The National Taxpayer Advocate noted in her report to Congress that in 2004 when cases were sent to private debt collectors, debt resolution increased initially, then the numbers dropping off sharply thereafter

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Private Debt Collectors

Private Debt Collectors make calls and collect the easy debts They have no power to take collection action Inevitably the hard debts are all transferred back to the IRS This time around, IRS gets to keep 25%

• f what PDC’s collect for new hiring

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Serious Concerns

• Scam artists
• Information in the hands of private debt

collectors

• Suspended passports for those overseas
• No administrative challenge
• Issues reported (suggestion loans against

credit cards)

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The Impact on Collection

• The FAST Act changes our approach to

collection

• CNC may no longer be the safe place it
• nce was
• We may need to take a more aggressive

approach to resolving our clients back tax debts

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Resolving an Outstanding Debt

Installment Agreement Uncollectable Offer-in- Compromise Bankruptcy

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The Client

• Free Consultation?
• Consult Fee?
• Flat Fee v. Hourly?
• Form 2848
• Retainer agreement
• Retainer ($)

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Initial Considerations

• Statute of Limitations
• Compliance
• Financial Analysis
• RCP
• Easier Solution? CNC or

Bankruptcy?

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Collection Statute Expiration Date (“CSED”)

• How much time is left on the statute?
• Pull Transcripts (the tale of Ron)
• Are there assets? (beware DOJ)

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Is the Taxpayer in “Compliance”?

What’s compliance? #1 issue with collection clients Returns – now all outstanding years Current payments Educating the client

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Analysis

• Are they an Offer candidate or not?
• This is why we charge for consultations
• Taxpayer will get benefit just from the meeting

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Process

• Consultation
• Retained
• Obtain the financial information/documentation
• Pull transcripts
• Draft documents
• Contact IRS and file Offer
• Appeal if denied

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Reasonable Collection Potential

• Gross monthly income
• Allowable expenses
• Determine future income
• Net equity in assets (QSV)
• FI + NE = RCP

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Financial Guidelines

Gross monthly income Allowable v. actual expenses Why most

• ffers/IA

requests are denied

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Resolving a Federal Tax Debt: Installment Agreements

• There are three types of Installment Agreements

1

• Streamlined

2

• Regular

3

• Partial-Pay

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Resolving a Federal Tax Debt: CNC What is Currently Not Collectable, or “CNC,” status? How CNC status is determined? When should you seek CNC status? Time to file an Offer?

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Food, Clothing & Misc. (national std)

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Housing (local by county)

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Transportation

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Transportation – Operating Regions

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Out of Pocket Health Care Costs

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Practitioner Secret 1-year rule & 6-year rules: IRM 5.14.1.4.1

(not if a partial pay)

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Financial Guidelines

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Offer in Compromise

Three types of Offers:

 Doubt as to liability  Doubt as to collectability  Effective Tax Administration

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Doubt as to Liability

Challenging the underlying liability Challenging the underlying liability Not about ability to pay but if the taxpayer can prove they do not owe the money Not about ability to pay but if the taxpayer can prove they do not owe the money

y

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Effective Tax Administration Offers

An ETA offer is an Offer where the taxpayer could full- pay the liability but where, for public policy reasons, the IRS should agree to accept less than the full-amount Very rarely given All ETA Offers are reviewed in Washington, DC

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Doubt as to Collectability

 Most common Offer  Based upon the taxpayers inability to

full pay the liability

 It’s a request or the government to

accept less than the full amount owed because of the taxpayer’s financial situation

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Offer in Compromise

Lump Sum

• Paid in 5 or fewer payments

Deferred

• Paid in more than 5 but less than 24

monthly payments

• Payments must be made starting when

the OIC is filed

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Offer in Compromise

 $205 application fee  20% deposit with a lump sum

• ffered

 Monthly payments with deferred

• ffers start when the offer is filed

and continue until accepted or rejected

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OIC Analysis

• No OIC if can be full paid via an

installment agreement

• Income averaging
• Dissipated assets

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Practitioner Secret

Additional $200 a month for operating an

• lder vehicle

IRM 5.8.5.20.3.5

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OIC Analysis

• Future income collateral agreement
• Low‐income?
• Qualified investments

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Low-Income Certification (656 Page 2)

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Way to Look at an OIC

• Government seizes all the assets
• Sells at 80% quick sale value
• Pays off any loan ahead of its lien
• Whatever is left is included in the offer

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Way to Look at an OIC

• Future income
• 12 months for lump sum offers, 24 months for deferred offers)
• If future income available will full pay within the CSED, no offer!

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 Taxes in general are not dischargeable unless they meet

• ne of several exceptions

 MUST review transcripts  Market to bankruptcy attorneys!  Automatic stay applies to IRS

Bankruptcy

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Taxes are dischargeable if they meet the following criteria:

1.

Income Tax (not a trust tax – sales, payroll, excise)

2.

Tax year is three years old (3‐year rule)

3.

If the return is late filed it is on file for at least two‐years (2‐year rule)

4.

Any addition to the tax on the return is at least 240 days old (audit or amended return)

5.

No fraud (civil or criminal) Remember Tax Liens survive the bankruptcy if attached to real estate!

Dischargeable in Bankruptcy

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 Chapter 11 and 13 are repayment plans  Must pay over 60 months from DATE OF FILING  Can strip penalties off  Force an IA on an otherwise unwilling IRS  Consider a “Chapter 20” (a 7 followed by a 13) for dealing

with the non‐dischargeable taxes

Restructuring Through Bankruptcy

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CASE STUDIES

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 The Non‐Filer  The Tax Levy  The House Sale  Collection Options: Which to Choose?

Cases

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 Arrives with his spouse  Self‐Employed  Has not filed tax returns since 2012

#1: The Non‐Filer

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 Last 6 years, federal and state

• a. Wage & Earning Reports
• b. Intentional (potential criminal)
• c. State Voluntary Disclosure Program?

 Complete a 433‐A and calculate the RCP

• a. MFS vs MFJ (separate property state)
• b. State Returns first (state income tax)
• c. Shopping to adjust RCP?

The Non‐Filer: Steps

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 How many years must be filed (6 federal, state?)  The RCP: better off MFJ or MFS  Is there an improvement in the RCP if we file the state

first and set up the state IA

 Shopping: Health Insurance, New Car Payment, Disability

Insurance, Term Life Insurance, Rent a nice place (within standard)

The Non‐Filer: Decisions

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 Taxpayer arrives and she is extremely upset  The IRS levied her back account and swept the account  This came out of the blue and is a complete shock  She owes them just over $60,000 but does not

understand why they wont give her more time

 Has tried calling but cant be bothered to wait for hours

#2 – The Tax Levy

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 Client’s Copy

The Levy

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1.

Retainer, POA, Call IRS and Request Levy Release

2.

Compliance

3.

RCP Calculation

4.

Streamlined, CNC, Offer

The Levy: Steps

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 Client calls  They need to sell their home – they can’t afford it  Only the wife is responsible for the tax debt (it was hers

before they got married)

 Own the home jointly with about $240,000 of equity  She owes the IRS $300,000

Case Study #3 – House Sale

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 Submit the Form 14135  Propose 50% of the equity, or $122,000, for IRS  IRS asks for some back‐up documents  Calculated payoff, with interest and closing costs, is

$104,672

Lien Release

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14135

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IRS Response – Request for Documents

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Payoff Calculated and Sent

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Release Sent After Payment

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 Phone rings  Mark owes $445,000 for 2018 to the IRS but its wrong  They picked up a 1099 twice  He needs us to get this fixed  Corrected it will reduce the liability to $48,000

Case Study #4: How to Select an Option

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 Before you grab your cape and dash to the rescue, think  What is the end‐game?  Will Mark just pay the $48,000 when its corrected?

Analysis of the Case

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 Retained ($)  POA  Transcripts/CSED  RCP

What we need to do:

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 Case 1 ‐ Mark’s RCP is:

• a. $275,000 in equity in his home
• b. Monthly income available is $3,000

 Case 2 ‐ Mark’s RCP is:

• a. $0 equity in assets
• b. Monthly income available is $1,000

What if…

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 Mark will be able to full‐pay  If we have to pay, we want to pay the least amount  Fight the 1099 issue and get it corrected  Get Mark into a streamlined IA (no financial disclosures,

roughly $48,000/100 months (+ interest) = $500/mo

Case #1

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 Mark Cannot full‐pay at the $445,000  He can full‐pay if its $48,000  Leave the liability alone  File an OIC ‐ $12,000 ($1,0000 a month x 12 months)

Case #2

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Workshop Special!

Tax Rep - Don’t Take Our Word For It

• “I joined TRN because I realized I needed a

new revenue stream outside of tax season. I got trained as a tax resolution specialist. I’ve been able to really grow my practice and help

• clients. I’ve probably increased my revenue

now by $150,000 as a solo practitioner. Without TRN and Eric Green’s help, none of that would have been possible.” --Patrick Wanzer, CPA

Tax Rep Network Members Say

• Anthony Delucia – “Eric, I took your advice and started my IRS

representation practice after the course. Without any further advertising other than adding “IRS Representation Practice” to my sign, I added an immediate $18,000 to my billings on just a few client matters. Marketing to my own clients added more than $140,000 in income by the end of the first year! The workshop is straightforward and easy to follow, my only regret being that I did not do this sooner. Thank you!”

• Anthony sold his 1040 practice after 4 years and now only consults

in financial planning and representation matters.

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Questions

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