Articles Posted in Tax Litigation and Tax Controversy

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A 2017 case is a stark $300,000 reminder that the IRS is not bound by statements made by its employees, such as Revenue Officers. Tommy Weder was a responsible officer of a corporation which failed to pay its payroll taxes, and as a result, he was assessed a trust fund recovery penalty (TFRP) pursuant to IRC Section 6672. After he paid the $300,000, he filed suit in federal district court in Oklahoma requesting a refund. His theory was that the company had paid $300,000 towards the trust fund taxes, and that, therefore, his personal liability was reduced by that amount. In most cases, a taxpayer must pay any tax in full (not just a portion) before he or she can file a suit for a refund. However, under the so-called Flora rule, payroll taxes are divisible taxes, therefore, the taxpayer must only pay the tax due for one employee for one quarter.

The IRS took the position that the payment was not properly designated toward the trust fund, and that it was therefore entitled to, and did, apply the payment towards non-trust fund taxes owed by the company, which of course doesn’t reduce the trust fund recovery penalty. Weder didn’t dispute that there hadn’t been a written designation of tax. The payment had been made through the IRS’ EFTS system, and there was no designation. Weder argued, however, that the Revenue Officer that had been assigned to collection had met with representatives of the company, including its CPA, and that the Revenue Officer had demanded that the payment be made through EFTPS, and represented that the payment would be applied to the trust fund taxes.

The court ruled that absent a WRITTEN designation by the company, the IRS was free to apply the payment in the “best interest” of the government. The Court relied on Rev. Proc. 2002-26, which provides that absent written directions, the IRS “will apply payments to periods in the order of priority that the Service determines will serve the Service’s best interest.” It pointed out that prior to Rev. Proc. 2002-26 being promulgated, the prior IRS guidance was contained in Rev. Rul. 73-2. CB 43. That Revenue ruling only required that taxpayers give “directions.”

What is an IRS Summons?
An IRS summons is an official order to produce information or provide testimony to aid in an IRS investigation. Summonses may be issued to the taxpayer being investigated or to third parties who may have information that the IRS wants to use in the investigation. If you receive a summons, you should immediately consult with a tax litigation attorney to determine what information you are required to produce, what arguments you have for refusing to disclose certain information, and whether you may incriminate yourself by producing certain information.

Before you receive a summons, you should receive several other notices from the IRS, beginning with an Information Document Request (IDR). An IDR is a more informal notice, but will often be requesting the same information as the summons. The IRS would prefer that you respond and give them the information they want without requiring the issuance of an official summons, which can be enforced by a federal district court.

The IRS will have to prove to the court that the summons is necessary to obtain information that may be relevant to a legitimate investigation. The taxpayer will be asked to show why the summons is not proper, and a failure to respond to the summons after a district court orders it enforced will usually result in a citation for contempt which can include time in jail.

Which Court Should You Use For Your Tax Dispute
There are actually four different courts that can be used for tax litigation. The United States Tax Court is the most commonly used option, but other courts may have advantages in certain situations.

The four courts with jurisdiction to hear tax controversy cases are:

  • Tax Court

The IRS Is Not Always Right: How to Fight Back
Dealing with an IRS mistake can be a frustrating experience, but it happens fairly often. There are many different types of error the IRS can make:

  • Wrongful calculation of penalties and interest
  • Wrongful assessment of penalties

What Should I Look for in a California Tax Lawyer
When you need tax help, it only makes sense to look for in-depth experience in all of the tax laws relevant to you and your business. Federal and California state tax laws are constantly changing, and it isn’t easy for the average taxpayer to keep up with all of the changes from one tax year to the next. You need professional guidance from a tax lawyer.

Accountants and tax preparers can handle certain tax matters, but there are some situations where working with a tax attorney has its advantages. The attorney client privilege offers protection for your communications with your attorney. This is particularly important if you are concerned that the IRS may bring a criminal tax case against you.

What to Expect from a California Tax Lawyer 

Tax litigation
Tax laws change regularly, and are a challenge to adequately decipher under the best of circumstances. Even with the requisite due diligence and the help of a CPA, you may find yourself the recipient of a letter from the IRS “inviting you to an audit.” If you’ve been audited by the IRS and disagree with their findings, all is not lost.

Your rights as a U.S. taxpayer include the right to contest an IRS bill which you feel is inaccurate or unfair by filing an appeal. The key to gaining a satisfactory result from an appeal is strict adherence to each step of the process. Guidelines and deadlines must be closely followed.

How it Works

Tax Piles
Periodically, the Brager Tax Law Group surveys tax preparers and/or taxpayers on a variety of issues. Our most recent survey targeted tax preparers and their interaction with the IRS in a number of areas, including disclosure programs, FBARs and marijuana businesses.

The survey contained several quantitative questions with a scale from 1 to 5 with 1 as poor and 5 as excellent. The lowest scoring statement was respondents’ experience in getting a response from the IRS within a few business days, which scored only 1.96. The highest score was on respondents’ experience in participating in the Offshore Voluntary Disclosure Program, which scored 3.20. Overall interactions with the IRS scored 2.79.

No survey respondents have been contacted by the IRS subsequent to filing amended returns as part of the Offshore Streamlined Procedure submissions.

Concept of businessman thinking with arrows coming from tax

Tax season is difficult enough. When living abroad, it can become even more complicated. As a U.S. citizen, you must file a tax return with the IRS, regardless of where you are living in the world. You also may need to pay and file taxes in the country where you live. Here are a few of the tax considerations that may affect you while you are living or working abroad.

Worldwide Income

Your tax return must include all your income, whether or not it was earned on U.S. soil. Income earned in a foreign country is taxable by the IRS and must be claimed on your tax return. It may also be taxed by the country where it is earned, causing a double taxation situation. However, you may be able to deduct the tax that you pay to another country. But this can be tricky. Number one, it must be considered deductible by the IRS, which can depend on the country where you are living. Secondly, you must be able to prove you paid the taxes – this can be difficult due to the difference in tax years, and documentation available in various countries.

Retirement Jar
The Taxpayer Advocate is a tireless champion of taxpayer rights. The Taxpayer Advocate is required by law to issue reports to Congress. Her most recent mid-year report was recently released. One of her issues was that the IRS continues to levy on retirement accounts even though the IRS guidance to its revenue officers is “insufficient to protect taxpayer rights.” As her report points out, the IRS has identified three steps which MUST be taken before a Notice of Intent to Levy can be issued on a retirement account such as IRA Qualified Pension, Profit Sharing, and Stock Bonus Plans under ERISA, and Retirement Plans for the Self-Employed (such as SEP-IRAs and Keogh Plans). These steps are:

  1. Determine what property (retirement assets and non-retirement assets) is available to collect the liability;
  2. Determine whether the taxpayer’s conduct has been flagrant; and