Tax PracticeChapter 6 pp.157-203 2018 National Income

Tax Workbook™

Tax Practice p. 157

When the IRS Pays a Taxpayer Interest Requesting Technical Advice from IRS Responding to IRS Liens and Levies Installment Agreements and CNC Status Innocent Spouse/Injured Spouse Relief

pp. 158-159

When IRS Pays Interest

Whether interest is paid & rate paid is dependent on event, time of payment, & when filed Overpayment arises only after tax fully

paid▪ Overpayment date

• Starts when 1st payment > liability• Based on actual payment date

pp. 158-159

When IRS Pays Interest

Ex. 6.1 1120 filed 4/18/18 $1,000 due – paid in $500 installments▪ 4/18/18 and 6/15/18

IRS adjusted liability to $900 6/15/18 $100 overpayment starts interest

p. 159

Important Dates for Interest

Payment dates▪ Withholding: 15th day of 4th month > year▪ Estimated: Due date of return (w/o ext.)▪ No interest until due date of return

Availability date (for refund or offset)▪ Due date: W/h’g, est., pay < due date▪ Date paid/credited: If after due date

p. 159

Offsets

Overpayment offset to other year’s liability:▪ To earlier year → no interest▪ To later year → interest from availability

date to due date of later year A late filed return will affect availability dateEx. 6.2 Timely filed 1120 $15,000 2016 overpayment to 2017 tax Interest: 04/18/17 to 04/17/18 (due dates)

Refunds p. 160

Original Return

Filed before due dateNo interest if refunded w/in 45 days > due date

Filed after original due date & before ext.No interest if refunded w/in 45 days > date filed

Late filedNo interest if refunded w/in 45 days > date filed

Interest to refund date minus not more than 30 days (i.e., back off period)

Refunds p. 160

Amended Return

Interest begins:▪ On due date if original timely-filed▪ On date original filed if filed late

Interest ends (subject to back-off period):▪ If paid w/in 45 days: Date amended filed▪ If not paid w/in 45 days: Date of refund

Refunds p. 156

Amended Return

Ex. 6.3 Timely-filed 2014 amended 8/14/16 Refund issued 9/21/16 Interest from 4/15/15 (due date) to 8/14/16

(filing date of amended) less back-off

If not refunded within 45 days, interest would run to refund date (less back-off period)

Refunds p. 160

NOL Carrybacks Overpayments

Treated as arising from loss-year return No interest if paid w/in 45 of latest of:

1. Due date of loss-year return2. Filing date of loss-year return3. Date loss-year return is processible4. Application or claim received date5. Date application/claim is processible

Interest paid if not w/in 45 days

Refunds p. 160

NOL Carrybacks Overpayments

If interest to be paid, runs from:▪ Due date of loss year timely filed▪ Filing date if loss year delinquent

Note: Farm losses and Prop & Casualty insurance losses still have possible 2-year carrybacks after TCJA

Refunds pp. 160-161

IRS Initiated Adjustments

Interest stops 45 days prior to refund▪ No additional back-off period

IRS initiated = no TP request

Refunds p. 161

Interest Rate - § 6621

General rule: federal short-term + 3% Corporate: federal short-term + 2%▪ If > $10,000, federal short-term + .5%

Compounded daily Rate set in the 1st month of the preceding

calendar quarter (3rd Qtr 2018 set in April) Figure 6.2 (2017-18 quarterly rates)

Special Interest Rules p. 161

Reissued Refund Checks Check undeliverable, incorrect, not rec’d Interest paid if government’s fault

§ 6603 Deposits Deposit for later payment of tax Withdrawn $, interest at short-term rate After applied to tax, normal rate applies

Special Interest Rules pp. 161-2

Credit Elect Treated as payment for next year If refund wanted & IRS error → interest If TP error, no interest (hardship needed)

Quick Refund – Corporate – Form 4466 Interest if not refunded w/in 45 days of later of

1120 due date, received or processible date

Special Interest Rules pp. 162-3

Overpaid overpayment interest IRS cannot use assessment procedures Offset, request pay, file erroneous refund

suit (w/in 2 years, 5 if fraud)

Underpaid overpayment interest Form 843 w/in 6 years of refund – always

do 1st to exhaust administrative remedies Can file civil suit w/in 6 years

p. 163Requesting Technical Advice from IRS

Private Letter Ruling – PLR Before a transaction or before return filed Interprets laws & applies to TP’s specific facts Binding on IRS unless facts inaccurate User fee for most PLRs is $10,000Determination Letter Issued by an IRS Director Completed transactions Principles/precedents by Chief Counsel

pp. 163-164Technical Advice Memorandum - TAM

From Office of Chief Counsel Requests arise during examinations Issued on closed transactions Final determination of IRS position on

specific issue in specific case TEAM: Expedited TAM (shorter timeframes) Overview of process – p. 164

TAM - Process pp. 164-165Initiating the Request

TP (Rep) or IRS may initiate Issues warranting TAM

▪ Law & regs not clear on the issue, no published precedents

▪ Lack of uniformity on issue disposition▪ Doubtful/contentious issue▪ Issue unusual/complex▪ A director believes securing TAM is in best

interest of IRS

TAM - Process p. 165Appeal of Denial of Initial TAM Request

Within 30 days, submit written statement of facts, issue, legal arguments, TP’s position & explanation of need for TAM

No conference held, no appeal If appeal denied, review available Field suspends activity on the issue(s)

while pending

TAM - Process p. 165Acceptance of TAM Request

Exchange of Statements – Field and TP▪ Facts & issues to go to associate office

Presubmission Conference▪ Held w/in 30 days – field, TP, assoc.▪ Generally by phone, can be in person▪ Mandatory for all TAM requests▪ Agree to scope, facts, documents

TAM - Process pp. 165-166

TAM Request ▪ Field office & field counsel prepares▪ Memo of facts, issues, law, arguments

supporting TP and field’s positions• TP: 10 days to reply w/disagreements• Both: 10 days to resolve disagreements• Memo sent to associate office

TAM - Process p. 166

Review by Associate Office▪ In 7 days: discuss deficiencies w/field▪ In 21 days: discuss issues, additional info▪ Attorney calls TP – 10 days for info needed

Tentative Advice to Field▪ 21 days of having all info (TEAM 5)▪ Issued to field, not taxpayer (since it is not

final)

TAM - Process p. 166

Adverse Conference▪ Associate office advises TP of adverse TAM▪ Associate office offers conference▪ Held within 21 days of notice (TEAM 10)

Final TAM▪ Informally discussed w/field▪ Final TAM issued to field and counsel▪ Field office gives copy to TP

p. 167

Federal Tax Lien

Lien attaches automatically to all real and personal property after demand for payment and no payment made▪ Attaches also to later acquired property

Notice of Federal Tax Lien (NFTL) filed to▪ Provide public notice of the lien▪ Protect the government’s interest

pp. 167-168

Federal Tax Lien

Jointly Owned Property▪ Joint tenancy or tenants in common

• Entire property may be sold• Nonliable tenant must be compensated

from sale proceeds▪ Joint tenancy: Death - Lien ceases to attach ▪ Tenants in common: Lien survives death

Federal Tax Lien p. 168Filing Notice of Federal Tax Lien (NFTL)

Real: filed where property located Tangible/intangible personal: filed where

taxpayer resides▪ If resides outside US, filed in D.C.

TP receives notice of filing – 5 days▪ Notice + info on appeal rights

Federal Tax Lien p. 169Filing Notice of Federal Tax Lien (NFTL)

Tax lien continues until liability full paid▪ Collection statute expiration date

(CSED) is generally 10 years from assessment (can be extended)

▪ If judgment by suit, no expiration of time to collect until satisfied

Federal Tax Lien p. 170Options after NFTL Filed

Can affect credit rating…employers, landlords, getting loans

Options after NFTL filed Appeal Request release Apply for withdrawal Apply for discharge Request subordination of the lien

Federal Tax Lien p. 170NFTL Filed - Appeal

Collection Due Process (CDP) Hearing –w/in 30 days of notice• IRS cannot levy, suspends statute

Form 12153 TP identifies alternatives/disagreement

• Equivalency Hearing – > 30 days• Collection activity can continue• Cannot appeal decision to Tax Court

Federal Tax Lien p. 170NFTL Filed - Appeal

Collection Appeals Program (CAP) Hearing▪ Form 9423▪ Faster results than CDP▪ Cannot appeal determination in court▪ TP should attempt to resolve with

collection manager

Federal Tax Lien pp. 170-171NFTL Filed - Release

IRS must release w/in 30 days of:▪ Full payment▪ Expiration of collection statute▪ Bond accepted for liability payment

If > 30 days & no release▪ Call Centralized Lien Operation▪ Submit written request for release

Federal Tax Lien p. 171NFTL Filed - Withdrawal

Withdrawal = IRS abandoning lien priority Federal tax lien still remains (still liable) NFTL may be withdrawn if:

▪ Installment agreement▪ Will help taxpayer pay the liability▪ IRS failed to follow proper procedures▪ NFTL in violation of bankruptcy stay▪ Best interest of the government and taxpayer

Federal Tax Lien p. 172NFTL Filed - Discharge

Lien can be removed from specific property when it is being sold1. Value of other property under NFTL = ≥ 2 x

liability (gov’t share)2. Payment ≥ value of govt’s interest 3. Value of gov’t interest in property = 04. Sale proceeds in fund – retains priority5. 3rd party deposit/bond = gov’t’s interest

Form 14135 (Application for Certificate of Discharge)

Federal Tax Lien pp. 173-174NFTL Filed - Subordination

Allows other creditors ahead of government Form 14134 (application for subordination) Appropriate when refinancing Can appeal denial of discharge/subordination

Federal Tax Levy p. 174Requirements for IRS to Levy

1. Tax assessed & IRS sent Notice & Demand for Payment to Taxpayer

2. Taxpayer neglected/refused to pay3. IRS sent Final Notice of Intent to Levy

and Notice of Your Right to a Hearing

In person, left at home or business, sent by certified/registered mail w/ return receipt request

Federal Tax Levy p. 174Requirements for IRS to Levy

Notices issued simultaneously if TP is:▪ Pyramiding employment taxes

(w/h’g and not remitting)▪ Made certain frivolous arguments to IRS for

2 or more periods, or▪ Failed to file required returns for 2

successive periods or 3 nonconsecutive periods – IRS prepared SFRs

If IRS believes collection of tax in jeopardy, levy without notice

Federal Tax Levy pp. 174-175Property Subject to Levy

Wages, salary, commissions▪ Served once, remains in effect until full paid

Dividends, promissory note payments▪ Applies only to those due or right to future

payments as of date of levy Bank account

▪ Funds available for withdrawal ▪ Bank holds for 21 days before giving to IRS

Federal Tax Levy pp. 174-175Property Subject to Levy

Federal Payments▪ Federal retirement, social security (up to

15%)▪ Vendor/contractor payments (up to 100%)

House, car, other property▪ Results in seizure and sale▪ IRS sets value, TP can challenge▪ Any excess proceeds from sale go to TP

Federal Tax Levy pp. 175-176Property Exempt from Levy

List – 175 Minimum wage amount based on standard

deduction + exemption▪ Figure 6.3

Personal residence if deficiency small (≤ 5,000) Seizure of residence requires judicial approval Seizure of business assets exempt unless area

director approves or collection in jeopardy

Federal Tax Levy p. 176Release of Levy

Avoid a levy → pay, installment agreemt, OIC Release of levy required by law if

▪ Amount owed paid in full▪ Levy not issued before CSED▪ Release would facilitate collection▪ Installment agreement terms do not allow▪ Levy creates an economic hardship▪ Value of property > amount owed & release

will not hinder government’s ability to collect

Federal Tax Levy p. 177Release of Levy

Will release wrongful or erroneous levy

Wrongful: Improperly attaches to 3rd party property

Erroneous Levy – If issued…1. Against exempt property2. Prematurely3. Before TP received required notice4. While TP in bankruptcy w/automatic stay

Federal Tax Levy p. 177Release of Levy

Erroneous Levy – If issued….5. When seizure & sale costs would exceed

FMV of property6. While alternative requests were pending or

accepted (IA, innocent spouse, OIC)7. While Appeals or Tax Court is considering

CDP cases8. While Appeals or Tax Court is considering

denial of innocent spouse relief

Federal Tax Levy p. 177

Appealing a Levy▪ 30 days from notice to request CDP hearing▪ 30 days from appeals determination to

appeal to Tax Court▪ May appeal through CAP if CDP not

available

Federal Tax Levy pp. 177-178Recovery of Wrongfully Seized Property

Property may be returned at any time if not sold If sold, $ may be returned w/in 2 years of date

of levy▪ Interest may accrue (at overpayment rate)

Retirement Plan Levies▪ Interest paid regardless of reason for release▪ Treated as a rollover if contributed back to plan (if by

original due date of return)▪ Interest paid treated as earnings w/in the plan and

not included in income

Federal Tax Levy p. 178Recovery of Wrongfully Seized Property

Third Party Claim▪ File a claim or civil action Claim by letter to IRS advisory group Details and documents to support If rejected, appeal through CAP hearing

No economic damages by court if administrative remedies not exhausted first

Federal Tax Levy p. 178Recovery of Wrongfully Seized Property

Claim for Bank Charge Reimbursement▪ Charges incurred due to wrongful levy▪ Form 8546▪ Claim w/in 1 year of date claim accrues▪ Limited to $1,000▪ Must include copy of levy and bank records▪ Allowed if: IRS agrees erroneous, TP did not

contribute to error, TP cooperative < levy

p. 179

If Can’t Pay Currently

Extension of Time to Pay – locally, online Offer in Compromise (2017 Workbook)

▪ Doubt as to collectability▪ Doubt as to liability▪ Effective tax administration

Installment Agreement Currently Not Collectible

p. 179

Installment Agreements

Must be current in all filings Online or through Form 9465 Enforcement action suspended ▪ While agreement pending▪ While in effect▪ 30 days after rejected ▪ During appeal of rejection/termination

▪ User fees apply (see p. 179-180)

Installment Agreements p. 181

Guaranteed Installment Agreements

1. Aggregate ≤ $10,000 (no int., penalt.,additions)2. In preceding 5 years, TP & spouse have not: Failed to file any return Failed to pay tax required to be on return Entered in an IA for payment of any tax

3. IRS determines TP unable to pay in full4. Agreement requires full payment in 3 years5. TP agrees to file all returns & pay

Installment Agreements p. 182

Agreed Examination Deficiency

Individuals (no delinquent 941), out-of-business business entities, corps (income tax only), other business entities

All required returns filed All required tax deposits/estimates made Installment agreements may be

guaranteed (depending on amount) Deficiencies over $50,000/$100,000 involve being sent

to collections

Installment Agreements p. 182Partial Payment Installment Agreement

Unable to full pay by CSED with some ability to pay

Form 433-A or B needed IRS may require assets sold If enforcement action appropriate

(taxpayer has significant equity in assets) IRS will not approve PPIA

Installment Agreements p. 184Termination (Default)

Cause for termination: Fails to make payment when due Fails to pay another liability when due Fails to provide requested financials Provided info prior to IA that was

inaccurate or incomplete Fails to pay modified payment based on

updated financial info

Installment Agreements p. 184Termination (Default)

IRS sends written notice re: termination▪ 30 days: Comply or request CAP

hearing▪ IRS cannot levy during appeal period

pp. 184-185

Currently Not Collectible Status

Paying any amount prevents TP from meeting basic living expenses▪ Delay collection until ability improves▪ Must be current with all required returns

– estimates and withholding sufficient ▪ Forms 433-A, B, or F ▪ IRS still bills but no collection action

List of reasons – p. 184-185

p. 185, 188

Currently Not Collectible Status

NFTL generally filed on CNC if aggregate unpaid > $10,000

Levy on wages must be released if CNC If CNC, IRS will check for transfereesIRS Follow-up Automatic system follow-up on hardship,

unable to locate, unable to contact Mandatory if TPs ability to pay improves

p. 189

Innocent Spouse & Injured Spouse

Innocent Spouse▪ Relieved of joint liability

Injured Spouse▪ Share of refund offset spouse’s

liability

pp. 189-190

Innocent Spouse

§6015 (b) Innocent Spouse Relief▪ Relief of additional tax on item of spouse

§6015(c) Separation of Liability Relief▪ Separate allocation of additional tax

§6015(f) Equitable Relief▪ Unfair to hold TP liable for unpaid or

understated taxFigure 6.8 – p. 190 (requirements for each

type of relief)

Innocent Spouse pp. 190-191

Filing Deadline

Form 8857 W/in 2 years of collection activity

▪ Offset a refund by joint tax due▪ IRS claim in court▪ IRS files suit to collect▪ IRS issues notice of intent to levy▪ Collection activity ≠ stat notice, notice of

lien, notice & demand for payment

Innocent Spouse p. 191

Requesting Relief

Cannot request if:▪ Court already considered issue▪ TP meaningfully participated in court

proceeding & did not request then▪ TP entered into OIC for the liability▪ TP entered into closing agreement for

the year

Innocent Spouse p. 191

Participation of Spouse/Former Spouse

IRS must contact spouse/ex-spouse Allowed to participate – no exceptions Right to appeal preliminary partial/full

relief but not appeal to Tax Court

Form 8857 information shared w/nonrequesting spouse. May provide some info orally rather than w/Form 8857

Innocent Spouse Relief p. 191

Conditions for qualifying1. Joint return understatement due to

erroneous items of other spouse2. When signed return did not

know/had no reason to know3. Unfair to hold liable4. No fraudulent asset transfers

Innocent Spouse Relief p. 191

Erroneous item Unreported income Incorrect deduction, credit, prop. basis

Actual knowledge Knew spouse received unreported income Knew the facts that disallowed

deduction/credit Knew expenses not incurred or to extent of

deduction

Innocent Spouse Relief pp. 191-192

Domestic Abuse: May qualify even with actual knowledge Fear of retaliation – did not challenge

Reason to Know Reasonable person standard Reason to know of the transaction that

gave rise to the understatement

Innocent Spouse Relief p. 192

Reason to Know1. Level of education2. Involvement in the financial/business

activities of the family3. Unusual or lavish expenses4. Nonrequesting spouse’s evasiveness

or deceitfulness about finances

Innocent Spouse Relief p. 192

Indications of Unfairness – IRS considers whether 1. Requesting spouse received significant

benefit▪ Property transfer, exceeds regular support

2. Nonrequesting spouse deserted3. Divorced or separated

▪ No longer married – favors relief4. Requesting spouse received benefit on

return

Innocent Spouse Relief p. 192

Indications of Unfairness – IRS considers whether 5. Requesting spouse will suffer economic

hardship6. Is legal obligation of nonrequesting spouse7. Nonrequesting spouse made good-faith

effort to comply (even if not successful)8. Requesting spouse knew/had reason to

know tax would not be paid

Separation of Liability p. 193

Allocation of an understatement of tax (interest & penalties) to responsible spouse Available for unpaid liability arising from

an understatement (not on return) Cannot request refund of tax paid

Separation of Liability p. 193

Requirements ▪ No longer married to or legally separated

from spouse on joint returnOR

▪ Not a member of same household at any time during 12 mos prior to filing Form 8857

Must establish basis for allocation and that no property transfer to avoid tax

Separation of Liability p. 193

Limitations on relief – no relief if:▪ IRS proves assets transferred in

scheme to defraud IRS or 3rd party▪ IRS proves requesting spouse had

actual knowledge when signing return▪ Nonrequesting spouse transferred

property to requester to avoid tax

Separation of Liability p.194

Allocations of Deficiency

Allocate deficiency in same ratio as spouse’s share of erroneous/total Penalties follow allocation of items

causing the penalty Separate treatment item allocable solely

to one spouse Erroneous items TP knew of cannot be

allocated only to other spouse

Separation of Liability p.195

Allocations of Deficiency

Separate Treatment Items Deficiency attributable to an item allocable

solely to one spouse▪ Credit▪ Self-employment tax

Separate treatment item added to allocable share of remainder of deficiency

Equitable Relief pp. 196-7

If innocent spouse relief and separation of liability do not apply Understatement or underpayment of tax Inequitable to hold liable Requirements – pp. 196-7 Unpaid liabilities: File relief request on or

before CSED Credit/Refund of amounts paid: File relief

request within 3 yrs of filing/2 yrs of payment (later of)

Equitable Relief pp. 197Streamlined Determination

Establish: No longer married to nonrequesting Would suffer economic hardship Did not know/have reason to know of

understatement or deficiency

If streamlined N/A, facts & circumstances

Injured Spouse Relief p. 201

TP’s refund applied to spouse’s past-due financial obligation Requirements of injured spouse:▪ Withholding, estimated payments,

refundable credit▪ No obligation to pay past-due amount

to which the refund is applied

Injured Spouse Relief p. 201

Form 8379

File Form 8379▪ With tax return▪ With amended return▪ By itself

File when first aware of offset▪ W/in 3 years of due date (w/ext) or▪ W/in 2 years of tax paymt used for offset

Questions?