Let's talk about managing a face-to-face audit.
Let's go on here now.
Now, that we've got the basics out of the way, let's look at the specifics here of managing
a face-to-face audit.
The first thing that starts an audit is the notice from the tax, from the IRS saying,
"You've been selected for audit."
As I said, I got one of those in front of me today.
Very propitious timing here for this particular audit notice.
This is a letter-- In this particular situation, the IRS has selected the car and truck expenses,
the schedule C interest expenses, and legal and professional fees.
We're going to look at the years in question, we're going to determine the issues, we know
from this notice that I got, it's tax year 2015 and those are the three issues that are
in question.
The IRS also included what they call an IDR.
An Information Document Request.
The Information Document Request tells you what specific items the IRS is looking for,
and in this case, they want proof of the car and truck expenses, proof of the business
purpose, that sort of thing.
What I'm going to now is I'm going to sit down with my client, I want to make sure I
get a copy of the tax return, I'm going to review that tax return very carefully, I'm
going to see exactly what claims were put on the tax return, and I'm going to work with
my client to organize the records so we can prove exactly-- We could prove to the auditor
the numbers that were put on that tax return.
What I'm going do is I'm going to match the records that the client gives me to the deductions
that were claimed on the tax return.
Here's the thing that we find in a lot of audits and that is the taxpayer has more documents
to support greater deductions than were claimed on the tax return.
If that's the case, don't ever be afraid to submit additional documentation to actually
increase the deduction the taxpayer's allowed to claim, because just because they didn't
claim it doesn't mean they can't claim it.
As long as the statute of limitations is open, we'll talk about that in just a minute here.
As long as the statute of limitations is open, they have to let you claim those additional
deductions.
In fact-- And you probably heard this is a tax probe over the years, you probably heard
it.
People have told me hundreds of times.
"Dan, I don't ever claim all the deductions I'm entitled to claim just in case I get audited
specifically so I can go in there and present additional things to the IRS."
I don't think that's a good strategy because it really just costs you money, but the fact
of the matter is you got to inquire of your client whether they've got a proof additional
items that were not claimed on the return because you got every right to claim those
things.
Let's go on and talk about ground rules.
When we're talking about a face-to-face audit it is very important to set ground rules with
the tax examiner so that the audit does not spin out of control.
The first thing I do is I may-- If the tax year in question has not been identified,
and this is very common that they'll make an initial request for a meeting and not tell
you what the tax year is or what the issues are that are in question.
You got to make sure that the agent identifies the issues that are in question if there's
any doubt whatsoever.
As I said on the letter that I just received, they'd clearly identified the three issues.
It's car and truck, schedule C interest, and legal and professional so it's easy for me
to understand what the issues are, but they don't always do that.
Often they will just say, "We want you to make an appointment, and then we're going
to look at these various aspects."
Don't do that.
Get them to pin down the issues so you understand what you're up against.
Next thing is: Determine whether you're going to, in fact, have a face-to-face meeting.
The IRS conducts, as we already said, the vast majority of their audits are done through
the correspondence process, and frankly, my process, the procedure that I follow in my
office here, is to turn every single audit into a correspondence audit if that's possible.
Correspondence audits are much better, you've got significantly less likelihood for miscommunication
and misunderstanding because you're putting everything in writing, you're providing the
documents to them which are clear and sharp photocopies, you're not leaving any original
documents in the hands of the auditor, that's very important.
Sometimes, the IRS will push for a face-to-face examination or a face-to-face meeting with
a taxpayer.
We'll talk about that as we go on here, but the fact of the matter is you have every right
to have a correspondence examination.
You do not have a legal obligation to sit down face to face with a tax examiner in person.
Keep that in mind.
The other thing is: Do not be pushed into a conference if you're not ready for a conference.
These letters that they send out setting an appointment will give you a date that you
have to respond by.
They'll tell you when they want to meet with you.
They'll give you that deadline and they'll say, "Well, you got to be in our office in
10 days or two weeks or whatever."
Don't be pushed into a conference that you're not ready for.
The law gives you the right, and it's Code Section 7605 that I've got sighted right there
on your outline.
The law gives you a right to determine the time and place of the examination and the
law provides that the time and place has to be reasonable under the circumstances.
It's not reasonable if they're not giving you a sufficient amount of time to get organized
and to get the documents you need and to understand the issues and so forth.
Don't be pushed into a conference you're not ready for.
We'll talk about what to do about that later on.
The other thing is, the client has an absolute right to counsel.
This is very important.
It finds itself in two particular places in the Internal Revenue Code, not the least of
is the Taxpayer Bill of Rights which is in Section 7803.
That says that the client has the right to counsel, the absolute right to counsel.
This is important when the IRS is pushing for a face-to-face examination and a face-to-face
discussion, a personal one-on-one discussion with the client.
I don't ever let the IRS auditors talk to my clients.
The idea of having counsel is to provide some insulation so the taxpayers don't say stupid
things or things that they are unsure of or speculate or guess or misremember which is
very likely in a situation of a typical audit.
Hear this audit that I've got in question right now.
Here we are, June of 2018, they're auditing tax year 2015 so these are events that took
place three years ago and obviously, people don't always remember every little detail
so it is important to provide some protection for your client in that respect.
Let's move on here now.
Let's talk about the Assessment Statute Expiration Date because it is very critical to understand
what the Assessment Statute is and how that works because you would be surprised how many
times the IRS tries to audit tax returns for tax years that have expired or the IRS is
proceeding in a manner based on an assumption of one kind or another that just isn't applicable
in the situation.
Let's talk about the Assessment Statute, the so-called ASED.
The general rule is that the IRS is three years from the date of filing the return on
which to assess the tax.
That's the limitation.
Three years from the date of filing the tax return.
If returns are filed late, then that's what the three-year clock starts with the date
of filing, not the due date of the return.
It starts with the date the return is filed.
That three-year rule is hard and fast except in these limited situations: It goes from
three years to six years if more than 25% of gross income is omitted from the tax return
or more than $5,000 of income from offshore activity is omitted.
In that situation, the examination goes from three years to six years.
There are circumstances in which there is no statute of limitations whatsoever and we
need to understand that as well because this is-- You'll see this often in areas where
the IRS has moved beyond the three-year rule.
They'll try to assert one of these circumstances in which the statute does not apply.
First of all, there's no statute of limitations if the tax is attributable to fraud.
Fraud is defined as a deliberate attempt on the part of the taxpayer to evade or defeat
the payment of taxes by any means.
We're going to talk about fraud in a little bit because there's a burden proof in there
that's important.
If no return is filed, the IRS can go back three years, five years, 10, 20 years to collect
the delinquent, to chase a delinquent tax return because the law provides for no statute
of limitations in the case of an unfiled tax return.
The next area is that if information required by Section 6501(c)(8) is not provided, then
there's no statute of limitation.
6501(c)(8) is the provision of the code that requires taxpayers with certain offshore assets
to file that Form 8938.
Form 8938 is the statement of certain offshore assets.
If that is not filed and the taxpayer does, in fact, have offshore assets, then there's
no statute of limitations.
The IRS can go back indefinitely, and this exclusion applies to every aspect of the tax
return, not just the offshore income.
It's important for clients to understand that they've got to file that form or they are
putting themselves into a position where the IRS will have no restriction on their ability
to go back and audit.
Section 6501(c)(8) has a reasonable cause provision.
What it means very simply is that the taxpayer can prove that the failure to report the offshore
assets was due to reasonable cause and not willful neglect, then only the omitted item
is subject to audit indefinitely, not the entire tax return.
That's important.
Now, the statute limitation can be extended by agreement.
The IRS and the taxpayer can enter into an agreement on Form 872 which is a consent to
extend the time to assess the tax.
When the IRS is conducting an audit, and the time is running out on the audit, they will
ask the client to waive the assessments statute when the IRS has fewer than six months left
to close out the case.
We're going to talk about that in a little while too, cause you need to know how that
works as well.
For more infomation >> Audit Defense Strategies & Negotiating with the IRS: Part 1 (2/4) - Duration: 10:33.-------------------------------------------
Audit Defense Strategies & Negotiating with the IRS: Part 1 (1/4) - Duration: 8:19.
Okay.
Welcome, everybody to Negotiating with Revenue Agents.
This is part one of our Audit Defense Strategies program, and we're going to get right into
it now.
We're going to talk about understanding the audit process generally.
What goes on in the audit process as a general matter, I want to look at that.
We're going to drill into a couple of different aspects of that.
First of all, let's start with the basics here, what is the purpose of a tax audit?
The purpose of the tax audit is to determine the correctness of a tax return.
A lot of people make the mistake of believing that their tax return has been selected for
audit because they made a mistake in the return.
The IRS found the mistake, that's why they've been targetted.
Now, they somehow have themselves convinced that they're going to owe more money just
because the return has been selected for audit.
That's not true.
Now, there can be some circumstances in which a tax return is selected because of a mistake,
but when we're talking about an examination process, that's not what happened.
What happened is the computer looked at your tax return and found some question, not necessarily
a mistake, but a question and that question is what gave rise to the examination.
What I want to do is I want to drill into what those kinds of questions can be.
First of all, we've got two different types of audits here.
We've got a correspondence audit and then we've got a face-to-face audit.
Let's start with the correspondence audits.
Every single tax return that's filed goes through a very detailed screening process
by the IRS.
That screening process looks for a number of things.
First of all, correspondence audits can be generated through the Math Error Program,
where there's just a simple Math error on the tax return.
Addition, subtraction, that sort of thing and the IRS sends out a notice.
The Automated Under-reporter Program is responsible for millions of notices every year that go
out to taxpayers that say, "We've got information in our system that shows you made X dollars."
Every information return that's filed with the IRS gets compared with the tax returns
that are filed.
If the IRS has the information returns with a taxpayer's name and social security number
that shows they made $70,000 worth of income but the tax return only reports 50,000 that's
going to generate an Automated Under-reporter process or an examination.
The Substitute for Return Program, ASFR program, is a similar program for non-filers.
If the IRS has got information that you earned income but didn't file a tax return, then,
of course, that is going to trip the Substitute for Return Program and they're going to look
into that.
The IRS also has what they call an Electronic Fraud Detection System that looks at various
elements of tax returns to determine whether there's a potential for fraud.
Then that makes up the Correspondence Examination Program.
The Correspondence Examination Program is a program specifically designed to audit tax
returns by correspondence.
In fact, I got a notice in the mail today, that one of my clients is going to be audited
through the Correspondence Exam Program.
There can be any number of reasons why the IRS selects those.
As far as face-to-face audits are concerned, the face-to-face audits make up the smallest
component of the audit universe that goes on in a given year.
The audit universe might consist of tens of millions of tax returns that are audited through
the electronic process, but only a small percentage of those are face-to-face audits.
When the IRS talks about its audit coverage, it's always referring to face-to-face audits
and not necessarily the Correspondence Program audits.
The Correspondence Program audits are up in many cases by three and four-digit percentage
points increases over the years because they spend so much energy on the correspondence
audits and not that much energy on face-to-face audits for obvious reasons.
They don't have the manpower and they don't have the money to audit every taxpayer through
the face-to-face process.
They cover a lot more ground through the Correspondence Audit Program.
But of the returns that are selected for audit in the Face-to-Face Program, about 65% of
those, just about two-thirds of them are selected through a program called The Discriminate
Income Function System, the so-called DIF Program.
What this program does, it compares every line of your tax return with national and
regional statistical averages for a person in your same income category and profession.
If any one line of the return is out of sync with those averages the difference is scored.
It's called the DIF score and the higher the score the more likely you are to be audited
by the IRS as to that particular item.
That is about two-thirds of all the returns that are selected for face-to-face audits
come through the DIF system.
The rest of them come through very specific compliance initiatives.
That is to say, these are specific programs where the IRS is gunning for a particular
type of tax return for a particular reason.
We've got a list of some of the more common compliance initiatives there, non-filers,
of course, are on the top of the list.
The IRS is always looking for non-filers and they're looking to conduct audits to get non-filers
back into the system and to get these delinquent returns filed.
The IRS has been looking at flow-through entities for years, subchapter S corporations, LLCs,
and partnerships.
They're looking at the income on the entity versus the income on the taxpayer because
with a flow-through entity the taxpayer doesn't report the gross income of the entity.
The taxpayer only reports the net income.
That's what shows up on his tax return.
They're looking at flow-through entities for the purposes of determining or auditing the
income issue.
Profit motive issues have always been a high profile for the IRS when they're looking at
Schedule C businesses that report a loss.
Schedule C businesses that report a loss are always subject to being looked at under the
question of the profit motive issue.
Employment tax enforcement is another thing that generates face-to-face audits with businesses
looking for employment tax compliance.
Of course, offshore audits are a big thing as well.
IRS has spent the last 10 years or so screwing itself into the ground trying to track down
all of the people that have offshore assets.
These offshore audits are something that's an ongoing thing and then just Schedule C
deductions generally.
That is a part and parcel of the profit motive audit, but any Schedule C business is always
at risk that the IRS is going to look at some of these things that are claimed on the return.
All right.
The last point here that I want to make, with respect to the audit process generally, is
you need to understand that the decisions of tax auditors are never final.
This is what we need to wrap our heads around.
That the tax auditor does not have the power to put you in jail.
He doesn't have the power to lean and levy any assets.
He doesn't even have the power to change a tax return without the consent of the taxpayer.
All this examiner can do is make recommendations that this or that deduction be disallowed
for whatever reason and that is subject to appeal.
We're going to talk about the appeal process here.
This right of appeal is absolute, friends, this is not conditional.
You need to understand that this applies not just in audits but in every situation, where
the right of appeal is absolute.
This is talked about in the Taxpayer Bill of Rights Act, code section 7803, which is
the Taxpayer Bill of Rights is now codified into law.
That gives you the right to challenge the position of the IRS and to be heard and to
appeal the decision of the IRS in an independent forum which is what the Office of Appeals
purportedly is.
-------------------------------------------
Audit Defense Strategies & Negotiating with the IRS: Part 1 (3/4) - Duration: 17:24.
Let's move on now to understanding the burden of proof.
This is vitally important to understand this aspects of the tax audit because it's all
about proving your case.
People think in terms of being audited as an attack by the IRS and they've got to defend
themselves.
Well, there's some truth to that, no question about that but in the strictest, technical,
legal sense, you are prosecuting not defending.
You are demonstrating with evidence because, here's the thing, with respect to deductions,
the burden of proof is always on the taxpayer.
The Tax Court has ruled a thousand times that deductions are a matter of legislative grace
and if a taxpayer wants to take advantage of a particular deduction, then the taxpayer's
got to prove that he's entitled to the deduction.
The minimum burden of proof for every deduction in the Internal Revenue Code amounts to four
things.
Number one, you got to prove that the money was paid in the year that you claim it was
paid.
If you're writing off car and truck expenses for tax year 2015, you've got to prove that
you spent money on your car and truck in 2015.
The amount claimed on the return was in fact paid, if you report $5,000, you got to prove
that you spent five grand, you've got to prove that the character the expenses recognized
by laws are deductible expense.
If you wrote off all of your vacation trips to Disneyland, for example, you're not going
to be able to establish that that's a deductible expense, because it's not recognized by laws
of deduction.
You've got to prove that your expense was recognized by law as deductible and in the
last item, number four, is that the amount claimed does not exceed the statutory limits.
Those are the bare minimum things for every single deduction in the tax code.
Now, there might be proof required for other particular deductions depending on the statute
itself.
For example, if we're talking about the business use of a home, you also have to establish
in addition to those four things that we're talking about there, you've got to establish
that the space used in the home was used regularly and exclusively for business purposes.
You are not allowed a deduction for business use of your home if that space is used for
something other than business.
If the spare bedroom is an office during the day and a TV room for the kids at night.
Well, guess what, doesn't meet the exclusive use test, you can't write it off.
If you're claiming mortgage interest, you've got to prove that mortgage interest is for
your primary residence.
Secondary interest, credit card interest, that sort of thing, not deductible, you've
got to prove its mortgage interest, you've got to prove it for your primary residence.
When we're talking about business travel expenses, you've got to show the business purpose of
the expense.
Again, that trip to Disneyland might well have been a business expense if you can prove
that there was a convention you attended at Disneyland.
That's not unusual but the burden of proof is on the taxpayer.
When we're talking generally about business, travel, meals and entertainment, all of the
elements of code section 274D have to be established.
274D is the substantiation requirement for that category of expenses and it's very specific,
you've got to prove the amount of the expense, of course, the time and place of the travel.
You've got to prove the business purpose of the expense and you've got to prove the business
relationship to the taxpayer of the person that was entertained in the case of a meal
or some such thing as that.
That 274D element for business travel and meals and entertainment is very specific and
you've got to meet that burden of proof.
Now, how do you prove your deductions?
Well, we're going to talk about that in detail but you're generally going to use receipts
or cancelled checks or invoices.
Then with respect to these intangible items, these things that you don't get a specific
receipt for, like you don't get a specific receipt for establishing that your spare bedroom
was used for your office, you don't get a receipt for that, that's an intangible item.
You're going to use an affidavit which is a detailed letter of explanation that you
have notarized-- A client has it notarized to present those facts to the IRS and we'll
talk about what that looks like in just a minute.
This is the general burden of proof with respect to deductions and now, let's go on now and
talk about the burden of proof with respect unreported income.
One of the most common things that the IRS does in an examination case is, they add additional
income to a tax return that they call unreported income.
Every audit can focus on one of two elements.
The first element is the question of deductions.
The second element is the question of income.
The IRS may look at your tax return and say, "Yes, you're entitled all your deductions,
no problem there, these deductions are all well as established but we think you had $50,000
worth of income that you didn't report on your tax return."
That is the other element and now, you need to understand what that burden of proof is
with respect to income, because it's different.
The burden of proof is different with respect to income than it is with respect to tax deductions.
First of all, the IRS has the burden to prove unreported income, the taxpayer does not have
to prove a negative in an audit situations, the IRS will routinely say, we think you had
$30,000 more worth of income than was reported on the tax return.
Because, we don't think that your lifestyle, could be supported with the amount of income
that you claim.
That's speculation on the IRS's part and they can't just simply put out a claim there that
says, you earn 30 grand and then make you prove a negative.
The fact of the matter is, it's virtually impossible to prove a negative, you can't
prove you can't fly, because no matter what your argument is, the IRS says, well, we don't
believe it, we think you can fly.
The case law is very clear that the IRS has got the burden of proof on reported income,
the taxpayer does not have to prove a negative and the IRS has got to establish some foundation
of extrinsic evidence that's going to support their claim that you had income, you didn't
report.
Common methods, the three most common methods are bank deposits, you got a small business
and you report $200,000 worth of gross receipts on your schedule C.
The IRS looks at the bank statements and sees that there was $250,000 that went through
the bank, now they've got some foundation of evidence.
You had $50,000 more going through your bank than was reported on your tax return, that's
a foundation of evidence.
Specific expenditures, the IRS can look at specific expenditures and say, "Well, look,
you paid cash for this car or you paid cash for these vacations or whatever the case may
be, and it does not look like that cash was reported."
That could be the evidence that they're looking for and of course, net worth increases or
something, these are not common but it does happen.
Where the IRS looks at your net worth at the beginning of the year and then they look at
your net worth at the end of the year and they say, "Well, Gee, you paid down your mortgage
by $50,000 and based on the income and expenses on the tax return didn't look like you had
an extra $50,000 available to pay down that mortgage," and that is a type of evidence
that the IRS can use to support their claim.
Now, once the IRS establishes a foundation of evidence, then the burden shift to the
taxpayer to prove how he accomplished these things or to prove that the funds were from
a nontaxable source.
Getting back to our $50,000 bank deposit discrepancy, you got $200,000 reported on your tax return
but $250,000 going through the bank well, that could have been a loan, could have been
a gift, could have been an inheritance, could have been a return of capital, maybe you sold
some stock and you got the cash back from your stock, put the money in your business
bank account, because you needed to use it, maybe you transferred the money from savings.
The IRS has notorious friends who are not doing bank deposit analyses correctly.
If a taxpayer has two or three bank accounts, let's say, the IRS will add up the deposits
to each one of the accounts and then add those together to determine the gross deposits.
When in fact, if the taxpayers got a checking account and a savings account, it is very
common for the people to be moving the money back and forth and these of course, are called
re deposits and the IRS never almost never, I shouldn't say never, almost never takes
re deposits into account when they're doing their bank account deposits analysis, why
don't they?
Well, they'll take the position that the burden of proof is on the taxpayer to show that the
funds were from a nontaxable source.
In this case, could be a savings account, could be attributable to bank to multiple
redeposits and this is a situation as I said, happens so often, it's just amazing to me.
In my book, How to win your tax audit, I've got an entire section in that book that deals
with how the IRS handles bank deposit analysis and what you have to do to unravel those things.
Now, let's go on here with our analysis of the burden proof.
In the case of the 25% omission, if they take the position that the taxpayer under-reported
income by 25%, the statute grows from three years to six years, the IRS has the burden
to prove that omitted income.
They must prove that the income was omitted, that it should have been reported and this
25% factors figured without regard to any deductions or credit, they don't have to prove
that it's a net income.
It's just gross income.
Now, let's talk about fraud.
Let's go on to the next slide and talk about fraud here for just a second.
Fraud in the context of either a criminal or a civil case is very rare, it's extremely
rare in a criminal situation.
It's not quite as rare in civil but it still is a rare situation.
The reason it's rare is because, the IRS has the burden of proof with respect to fraud.
The IRS has got to prove fraud with clear and convincing evidence.
This is a very strict or a very high standard of proof that's required under our system
and in fact it's-- Let me talk about the burden proof very generally.
If the IRS is going to prosecute a person for a crime, in order to be convicted, the
IRS has to prove beyond a reasonable doubt the burden of proof is beyond a reasonable
doubt to establish that the taxpayer committed this crime.
The next level of evidence is clear and convincing, this clear and convincing standard is basically
just one notch below the evidence required to convict somebody in court.
This clear and convincing evidence is a very strict standard, it's a high standard of proof
and the IRS has got to have a lot of facts to support that.
All right, and they've got to establish that you set out to deliberately attempt to evade
or defeat the payment of the taxes.
How do they do that?
They've got to prove an affirmative act, evasion requires or in this case fraud-- civil fraud
requires a specific act calculated to deceive or mislead the IRS.
You've got to understand that there's a difference between an act of omission and an act of commission.
An act of omission is failing to act, like failure to file a return or failure to pay
taxes.
Those things can't rise to the level of fraud because they are failures to act.
This is why failure to file a tax return is only a misdemeanor and not a felony.
The IRS has got to prove with evidence beyond a reasonable doubt of a deliberate attempt
to evade-- to break the law by not filing.
The IRS in a fraud situation has got to establish some badges of fraud, something that establishes
that the taxpayer was attempting to evade or defeat the payment of taxes.
Could be bogus receipts that he concocted or fake invoices for business expenses that
were never paid.
Maybe he was keeping a double set of books and records to show the IRS one set and show
the bank another set.
Maybe he's dealing in cash, and by dealing in cash I mean he's taking cash from customers
and not only not putting the cash in the bank, but not reporting it.
First of all, there's no legal obligation to put any cash in the bank, you don't have
to do that.
Taxpayers are not required to deposit their cash to a bank account.
They are required however to account for the cash and to report it to the IRS and if they're
not doing that, then the IRS would call that dealing in cash and that's more than a failure
to act because now you've got the specific over an act of taking the money and essentially
hiding it from the IRS by not by not disclosing it.
The use of Dominis to hold assets could be another badge of fraud.
Substantial unreported income by itself is a badge of fraud.
If you've got a small business with $200,000 worth of receipts on the tax return, but there's
actually three or $350,000 that's run through the bank account or was generated by cash
transactions, then that substantial unreported income as a badge of fraud as well.
For employees, if they file a false W-4 withholding certificate specifically to stop withholding
on their paychecks that is a badge of fraud as an affirmative act as well.
Let's move on and let's talk about documents that are sought by the IRS through an ongoing
process.
First of all, as the audit progresses, the IRS will often request additional information
through what they call an information document request, this is an IDR.
They will give you deadlines for this, I've had audits where they've issued dozens of
these IDR's and in some cases, they've asked dozens and dozens of questions and then they
give you an arbitrary period of time to provide that information.
As I said, we don't succumb to arbitrary deadlines and not just for an initial audit conference
but for records that have to be provided during the course of the audit.
You've got to have an opportunity to collect the records, to evaluate the records as counsel,
to sort them out and present them to the IRS in an understandable way.
That takes time, it can't be done in just a matter of a couple of days or depending
on the scope of the documents sought, it might not even be able to be done in the matter
of a couple of weeks.
When you're dealing with an auditor though, don't ask for an extension.
If you ask the auditor for an extension almost every single time, they're going to tell you,
"We're not going to give you an extension, you don't get an extension."
but that is unreasonable.
As I told you the statute that controls the audit 6705A gives you the opportunity and
gives you the right to have the audit and in this case subsequent documents provided
in a reasonable time based on the circumstances.
What you're going to do is, if you need more time, you're just going to tell the agent
that, you're not going to ask for an extension, you're going to tell the agent that you need
more time.
The way I do that is, I don't even call them up and have a phone conversation.
What I do, is I send the agent a fax or a letter, you'll have a fax number to deal with
them.
They almost all have e-faxes now, it's very convenient to communicate with these folks
via fax.
It's very helpful to do that because now you got everything in writing anyway.
It's especially important in collection cases where you're dealing with collection due process
hearing.
It's important in audits as well.
What I do, is I'll fax the agent a letter and I'll say, "I can't have the documents
to you by your deadline of X date.
I'm going to need three additional weeks, I will provide the information to you by Y
date," and I tell them the day on which I'm going to get them this information.
If they've got a problem with that, they can they can voice their concern but normally,
they just accept that and then, of course, I live by my own deadline.
I get them the information by the time that I promised to get them the information.
You're going to need to be interacting with your client on an ongoing basis to make sure
that the client understands that there will be deadlines.
Obviously, you can't drag your feet forever with these things and moreover, you can't
make unreasonable requests either.
You can't tell an agent that you're going to have the documents in 60 or 90 days and
expect the agents to sit back and accept that.
There's going to be some pushback on that and we'll talk about what that might look
like.
That's how we're going to deal with the requests for additional documents that are sought through
an information document request.
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Audit Defense Strategies & Negotiating with the IRS: Part 1 (4/4) - Duration: 19:16.
All right, now let's talk about what constitutes adequate proof of deduction.
I said the burden of proof is on the taxpayer to prove that you are entitled to a deduction.
Now, how do you do that?
Of course, obviously we think in terms of documents.
The first thing that comes to mind is you got to have a piece of paper.
That's generally what the IRS is looking for.
A piece of paper.
There's actually six different ways to prove a deduction.
I want to talk about all of these things generally.
First of all, you got your canceled checks of course, proof that you that you paid utility
expenses for your business, you're going to have canceled checks, you got cash receipts
or invoices.
Let's back up to a check for example.
Checks are very helpful because of course you got the amount and the date right there
on the check, you've got the PAYE on the check.
You got the nature of the expense.
Hopefully, the nature expenses on the check as well.
This is the problem that a lot of people have with their checks, however, is they don't
write enough details on the check to allow a third party to look at it and see at a glance
what this particular payment was for.
Often canceled checks have to be supplemented with other information.
An invoice may be the other information, if you get an invoice from the XYZ business and
then you write a check to the XYZ business and the amount of that invoice, and you can
tie the two together, then you've got rock solid proof of your deduction.
Of course, a cash receipt can do that as well.
You can pay invoices with cash, it's just like you can write a check and if you can
tie that together with a receipt to the invoice then you're good.
Year-in statements are very very helpful, I like year-in statements as the best way
to prove a deduction, the single best way to prove a deduction.
The reason is because year-in statements are provided by a third party.
Third parties never lie because we all know that the IRS has particularly impressed with
third party statements because it's not a statement by the taxpayer.
It's a statement by some third party, even though it's absolute from a legal standpoint,
it's absolutely 100% hearsay.
It doesn't matter.
The IRS accepted at face value and accepts it is the gospel truth.
The perfect example of year-in statement is the statement you get from your mortgage company
that tells you exactly how much mortgage interest you paid over the course of the year.
You get a year-in statement from the county telling you how much real estate taxes you
paid, but you can get year-in statements from anybody.
It might be that you have to do some digging to get these things particularly if it's after
the fact but if a client can go out and and get statements from providers and so forth,
suppliers, people that are vendors for the business or whatever the issue may be.
Of course, we're talking about year-in statements when we're talking about charitable contributions
as well, get year-in statement from the church or the charitable organization you gave money
to, that tells you exactly how much was paid, year in question, who paid it.
Year-in statements are outstanding as far as being a comprehensive list of the elements
that you have to prove to support that particular deduction.
Logs and journals are also very, very important for proving certain business expenses.
For example, if you claimed a business miles, business use your vehicle, you got to have
a business log to support that or a mileage log to support that, the mileage log has got
to establish that the travel was for specific business purposes.
Logs and journals are very, very helpful.
If you've got listed property, for example, a cell phone and with listed property like
a cell phone, you've got to establish that that phone is used 100% for business, if you're
going to write the whole thing off.
If you aren't writing the whole thing off and you're saying it's 50% business 50% personal,
how do you prove the business use?
You're supposed to have a log or journal to do that.
Most taxpayers don't have that but that's something you need to consider in the context
of perhaps a reconstruction.
That's the fifth area.
Taxpayers lose records all the time, just because you've lost your records doesn't mean
you lost the deduction.
You can reconstruct the records, we're going to talk about that.
Then testimony of the taxpayer themselves is proof of a deduction.
The Tax Court regularly accepts taxpayer testimony as proof of a particular deduction in the
absence of a full package of documentation to support it.
We're going to talk about what that testimony looks like as well.
The irony of testimony, however, is that the IRS at least at the audit level, this is not
true at the appeals level and it's absolutely not true at the tax for level.
At the audit level, these auditors will routinely reject the statement of taxpayers regarding
a specific expenditure and they'll say, "We just can't take your word for it.
We have to have proof of this.
We have to have verification of this but testimony is an absolute absolutely viable, legitimate
way of proving expenses of proving any fact."
Just take the murder trial, for example.
You got the witness sitting on the witness stand in the murder trial that says, "I saw
the defendant shoot the victim."
Well, the defense attorney doesn't go up there in cross examination and say, "Do you have
a receipt to prove that?"
No, there's no receipt to prove that.
This is something I witnessed with my own eyes, I experienced it with my own senses,
I saw it with my eyes, I heard it with my ears.
That is what the nature of testimony is all about, providing inside information, specific
information on what was experienced, your personal experience with one of the senses
of the of the body, the eyes, the ears, and so on.
This is completely allowable.
We're going to talk about that in just a second here.
Actually, we're going to talk about that as we move on with part two of our audit defense
strategies.
We'll talk about that in the next section.
Obviously, the proof of a deduction is best used in combinations of these things.
It's rare that you would have just one item to support all these things.
It's best to have a combination package of information.
Now, let's move on to negotiating specific points with tax auditors.
When we're negotiating specific points, I just want to give you some some tips here.
First of all, you always want to focus on agreements when you're dealing with these
people, not disagreements.
By that I mean, let's say there's four or five or six things on your audit list, issues
that you've been dealing with.
These six items, or five, six items, whatever is in question here are going to fall into
one of two categories.
They're going to be major issues.
They're going to be smaller, less significant issues.
The major issues are what I call litigation points.
What I mean by that is, these are things that you do not want to give up on at any expense.
If the IRS says, for example, that your client had $50,000 worth of income they didn't report
on their tax return, that's not something you want to readily concede.
Likewise, if the IRS disallows all of your all of your travel expenses, and there's 15,
$20,000 where the travel expenses on the tax return, you don't want to just cave in on
that.
Then we got smaller issues and the smaller issues are oftentimes bargaining chips and
by a smaller issue.
They say, "They disallowed $50,000 that they dislike $20,000 were the travel expenses,
but they've also disallowed $200 worth of office supplies."
Those are obviously the smaller things that you can afford to give up without affecting
the long term financial security of your client.
What I do is, as I try to work on the smaller things first, I get the IRS to concede on
the smaller things so that you don't have to give those things up as you go through.
We work from smaller to larger issues and focus on agreements in the course of the process,
the facts that you can agree on during the course of the process to get the IRS to give
up on these issues, you don't have to trade them away.
Let's talk about negotiating the deduction, not the tax because this is important also.
People tell me all the time when they're going through tax audit, let's say the IRS comes
back with an audit that says they owe $10,000 and the taxpayer says, "10 grand, that's a
lot of money.
How about if we just give them five?
Will they take five?"
What you're doing in that situation is you're negotiating the tax.
When you're going through a tax audit tax auditors will not negotiate the tax.
Their job is not to negotiate the tax.
Their job is to determine what the correct tax liability is.
Then it's a matter for collections to negotiate the tax if it ever gets that far.
If you want to take your tax liability and cut it from 10 grand to five grand, you can't
offer the IRS five grand, what you got to do is look at the specific deductions that
were disallowed.
Let's get back to our travel expense deduction of 20 grand.
IRS disallows the travel expensive $20,000.
You say, "You've just allowed the entire expense, but we've provided evidence that establishes
this, and this and this.
We provide documents.
We're missing some records but we provided an explanation and we provided testimony."
We'll talk about what that looks like.
We've established that we've got some basis for the deduction.
We should be allowed half of the deduction.
When you're negotiating that deduction not the tax, the examiner has the authority to
give you half of the deduction or three quarters of the deduction or whatever it may be and
then that has the corresponding effect of reducing the tax liability on behalf of your
client.
The last thing I want to discuss here in this particular element is don't argue based on
nuisance value.
Do not argue with the IRS based on the nuisance value of the case.
It's never going to get you anywhere, where the IRS says, "We think the number's 10 grand."
You're all out of negotiating strategies.
You can't go to them and say, "Look, guys, you're going to spend six or $7,000 trying
to collect this tax anyway because you got to do this and you got to do this.
How about we just settle it for the four grand or five?"
That's nuisance value.
They're never going to settle based on nuisance value.
If the IRS believes you on $50, or your client owes him $50, they'll take the case to the
United States Supreme Court over $50, because if they believe they're legally entitled to
the money, they're not going to give up based on nuisance value.
What you have to do is negotiate terms of hazards of litigation.
Getting back to our $20,000 travel expense example, IRS disallows the entire travel expense
but we're arguing to them that they should have allowed this expense or this portion
of it or that portion of it.
Now we're going to present to them the discussion that says, "If we take this to court, there's
better than a 50 50 chance we're going to win it.
There's better than a 50-50 chance we're going to win it because of this reason, and this
reason, and this reason, and you lay those out."
Now if you can establish that there's approximately a 50-50 chance of winning the case, the IRS
will concede the deduction based on 50%.
It's hazards of litigation that we got to focus on, not the nuisance.
Let's move on here now and let's talk about extending the assessment statute of limitations.
I want to deal with this because this is very important.
As I said earlier, the IRS often asks taxpayers to extend the assessment statute expiration
date, to give them an opportunity to get the case wrapped up before they have to close
it out.
First, you need to understand that the taxpayer has no legal obligation to sign a waiver,
no legal obligation to sign a waiver.
The IRS claims that you're going to lose your appeal rights if you don't sign it but that's
never true.
This is a tactic they use to deceive and mislead people into signing these things that they
don't have to sign and in some cases shouldn't sign.
It's never true that you lose your appeal rights.
What is true is that the character of the appeals process changes, it ends up going
down a different track.
I'm going to show you what that track is right now, we go to the next slide.
What happens if you sign the waiver and give the IRS more time to complete the audit, your
case is then forwarded to the office of appeals prior to the issuance of a notice of deficiency.
At the office of appeals, they will consider your case.
They will look at the facts and circumstances of your case before they issue a notice of
deficiency.
You have that opportunity for an appeals conference before the notice of deficiency is signed.
What happens if you don't sign it?
The case goes down a different track.
It's different slightly in that once the IRS has its back against the wall on the assessment
statute, they will issue the notice of deficiency right away to protect the statute so it doesn't
run out.
Now you've got the notice of deficiency in hand, you didn't sign the waiver.
They issued the notice of deficiency.
Now you've got the notice of deficiency and what you have to do is finally Tax Court petition.
Now have 90 days from the date of the notice of deficiency, that date of mailing actually
of the notice of deficiency in which to get that petition file with the tax.
We'll talk about that in just a minute.
Now, here's what happens.
You've got a docket of tax court cases.
The case gets sent back to the appeals office for full and complete consideration at the
appeals level, you do not lose your appeal rights.
You end up in Tax Court first, then the case goes back to appeal.
It is advantageous in a lot of ways to be in Tax Court versus not being in Tax Court,
because it puts a lot more pressure on.
Now the question is, do you sign or not sign?
What should the taxpayer do with these requests, sign or not?
I've got a checklist here of things to look at, consider signing.
Consider signing the waiver.
If the auditor you're dealing with is reasonable, if this is a reasonable person, and you're
making progress and you think you can get the thing resolved, there's no reason not
to sign it.
You can keep working with that order, get your case resolved.
If you think your cases going to settle short of a notice of deficiency, you never end up
in Tax Court in the first place that would be one reason to sign it as well.
Maybe you got multiple years that are under examination and you want to maintain continuity
with the audit, if you've got tax years '14,'15 and '16, for example, and '14 is about to
run out, then you might sign the waiver on '14 but not on '15 and '16 to keep these keep
these things moving forward especially if you're dealing with a reasonable auditor.
This is worth repeating, now, you never lose your appeal rights by signing this thing.
You don't lose appeal rights by not signing it.
Just because you sign it doesn't mean you've given anything away to the IRS in terms of
issues or appeals right, keep that in mind.
The other thing you can do is negotiate the length of the waiver, just because the IRS
asked you to give them an extra year doesn't mean you have to give them an extra year.
As a matter of fact, I rarely sign a waiver that gives them a year.
What I will often do is say listen, I'll give you six months on the waiver and let's work
real hard to get this thing resolved.
My client doesn't want this hanging over his head.
Let's just make a commitment here to get this thing resolved.
I'll give you six months and if we can't do in six months then we'll reconsider.
You can also negotiate the terms of the waiver, not just the length but the terms.
You might say, "We've got three of the four issues in this case resolved.
Let's get those done.
Let's get those wrapped up and we'll give you an issue- I'll give you a waiver on this
one issue."
The IRS has two versions of the 872.
872 is the one version which is a specific date on which the waiver expires.
The other one is 872 A which is a open ended waiver.
I don't recommend signing the open ended waiver but if you do sign an open ended waiver you
can always terminate it by submitted form 872 T for Tango to the IRS that will terminate
the waiver.
You're not stuck just because you signed an open ended waiver, keep that in mind.
We would consider not signing the waiver if the assessment statute is very close to expiration.
You just want to put the put the heat on the IRS to get the thing done because there's
a chance they might miss the statute and I would never give them an extension if there
was if I thought there was a chance that they would just simply miss the statute of limitations.
If you're dealing with an unreasonable auditor, don't sign the waiver because that's a great
way to get the case out of the hands of an unreasonable auditor, let them issue there
notice a deficiency, file your tax court petition and and get the case in the appeals office.
If you want to pressure the IRS to settle the case and stop lollygagging around, you're
going to not sign the waiver at that point in time, keep that in mind as well.
Now the last point I want to make and then we're going to wrap up for this session.
That is at any point along the way here you need to keep in mind that you've got the opportunity
to have a conference with a manager.
The managers conferences are always available.
They're available anytime there's an impasse on any issue.
You don't have to wait for the audit to be concluded in order to have a conference with
a manager.
I would bring particularly if you're dealing with an unreasonable agent who is uncooperative
in terms of demands, who's uncooperative in terms of timing, uncooperative in terms of
visits - any of those things I'd get the manager involved.
That'll help you keep the agent under control.
That concludes my presentation here entitled 'Negotiating with revenue agents Part one.
Audit defense strategies.'
We'll move on to part two next time so thanks a lot.
Thank you so much for joining us.
As you can see on your screen we've got some additional resources wasted reach out to Dan
and see his websites as well, also some things that we have with Canopy.
We do hope you'll join us for part two as Dan is going to go more in depth on some of
these things and cover again, those strategies and other things.
Thank you so much for joining.
We'll look forward to seeing you on a future webinar.
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Audit Defense Strategies & Negotiating with the IRS: Part 2 (3/4) - Duration: 12:05.
All right, so we're going to talk about dealing with potentially unreasonable revenue agent
demands.
There's a couple of things that come to mind when somebody says, "What are the unreasonable
demands that a revenue agent might make and how do I deal with them?"
The first one is a site inspection.
Revenue officers will often say to a taxpayer that we're going to have the audit in your
house.
Particularly if there's a home office this comes up where the IRS will say, "We've got
to inspect the home office," but here's the regulation very clearly says that a site inspection
is necessary only if issues can't otherwise be verified.
They give two examples in that regulation, they give the example of inventory and then
they give the example of depreciated assets.
First of all, inventory is a ridiculous example because if we're being audited in 2018 for
tax year 2015, how is a site inspection of a building in 2018 going to prove or disprove
what inventory existed in 2015?
It's irrational and plus the fact that with inventory we have all kinds of other records
I can establish inventory, not just the taxpayers' inventory records purchases in and sales out,
but the actual inventory records, the vendor records themselves of purchases by the taxpayer.
The IRS also insists on the home visit and I mentioned that in connection with a home
office inspection.
"We got to come in and we have to look at your home office or we're going to do this
audit in your living room because I'm a field agent and I don't have an office to do this
at, so we have to come to your house, and so you have to let us in."
No, you don't have to let the IRS into any taxpayer's home.
The IRS does not have a right to come into anybody's private property.
This is established by the United States Supreme Court, it was actually established by the
Constitution of the United States under the Fourth Amendment which protects a person's
property from unreasonable searches and seizures, they can't get into your house without a warrant.
The Supreme Court confirmed that in 1977 in that GM leasing case, so they don't have a
right to come into your house, they cannot get into your house without your permission
or with a search warrant.
Now, I'll tell you, friends there is no way, no way the IRS is going to get a search warrant
to come into your house in connection with a routine audit.
That is never, never going to happen.
It's rare that the IRS gets search warrants in any event, but they always get search warrants
when they get search warrants.
The only time they get search warrants is in the context of a criminal investigation.
If we're talking about a routine tax audit, there is zero chance that they're going to
go to a judge and swear out an affidavit that says that they have probable cause to believe
that you committed a crime and that there's probable cause to believe that evidence of
the crime is located in the premises.
Then they've got to describe what the crime is they think was committed and describe what
kind of evidence they think they're going to find in that place as a result of the search.
That's not happening in the context of a tax audit, it is never going to happen.
The answer is they don't have a right to come into your house, you don't have to let them
into your house, the only way they can get into your house is with your permission.
The other thing they push for, moving to the next slide, the other thing they push for
is an interview with a client, a face to face interview with the client.
Revenue agents will tell me all the time, "I have a right to talk to your client," and
my response is, "No, you don't have a right to talk to my client.
You have a right to talk to the taxpayer with the power of attorney that's in place.
I'm the taxpayer, I function in all respects as the taxpayer, if you got a question, ask
me your question and I'll get you an answer.
If I don't know the answer off the top of my head, I will get the answer and we will
get you a truthful and accurate answer, but you do not have a right to talk to my client."
They push that and they'll often say, "The Internal Revenue Manual requires that I do
this personal interview," and I'll say, "That's your manual, my manual says you don't get
to talk to my client."
That's the standoff and the fact of the matter is that they can't talk to your client unless
they issue a summons, so we're going to talk about a summons in just a second here.
The other thing that creates problems is these QuickBooks files.
This isn't a new phenomenon and, in fact, I talk about it at length in my book, how
to win your tax audit, what to do about these QuickBooks files where the IRS says, "We want
to see your QuickBooks, and we want to see all the versions of your record keeping, and
we want you to give us the files, and we want you to give us the codes, and the passwords,
and all that crap."
It's got to be original information because what they want to see is they want to see
the metadata on these QuickBooks files, and the metadata, of course, is the programming
codes that are in there that will indicate whether you made changes to the entries, and
it gives them all the background information.
The fact of the matter is that these QuickBooks files are not primary source documents.
The IRS says, "We need to see your QuickBooks ledger's to establish whether your claim of
income is plausible and believable."
What?
[laughs] It doesn't make any difference what my ledger say my income is.
If the ledger says the income was $50,000 and the bank deposit say the income was $100,000,
do you think the IRS is going to go by the ledgers?
The IRS is not going to go by the ledgers in a situation like that, they're going to
go by the bank deposits because the bank records are primary source documents, the ledgers
are not primary source documents.
Ledgers are created from other background documents such as sales records, bank deposits,
checks from clients, these kinds of things are what make up the ledgers.
The ledgers are a reflection of primary source documents, they are not primary source documents.
They don't constitute proof of anything either good or bad, and so you want to keep that
in mind when the IRS is pushing for these QuickBooks ledgers.
Now let's talk about the summons issue because the summons issue is a risk if, for example,
you are adamant about the IRS not talking to your client, and the IRS, on the other
hand, is adamant about talking to the clients.
First of all, in the vast majority of cases, the IRS will not push the summons in a situation
where counsel is providing the information that the IRS is asking for, is answering the
questions that are required to be answered, and essentially cooperating to get to the
correct decision with respect to the tax return.
They generally are not going to issue a summon, but the risk is there, and so I want to talk
about that for just a minute.
First of all, the IRS has the authority to summons any third party records.
This can be bank records, mortgage records, credit card records, any of those things.
They can summons personal records, they can require the taxpayer to bring in his personal
records if the taxpayer is refusing to produce records.
Now, generally in an audit situation, they don't do that, generally, in an audit situation,
they won't bother summonsing the taxpayer's personal records.
The reason they don't do that is because the burden of proof is on the taxpayer, the IRS
doesn't have to prove anything, so if a taxpayer doesn't want to cough up his records, their
solution generally is to just simply disallow the deduction.
You don't want to give us the information, fine, you don't get the deduction.
The deduction is a matter of legislative grace, the burden of proof is on you and if you don't
want to prove it, don't prove it.
We don't care, makes the audit easier for us, we just disallow everything.
That's typically the approach, but if for some reason they've got some bug of some kind,
they could issue a summons for personal records, which raises Fifth Amendment questions which
we'll talk about in just a second.
The other thing they can do is they can request or they can summons for testimony, they could
summons an individual to appear before the IRS, not necessarily to produce records but
to give testimony.
This happens in criminal investigations all the time where the IRS will summons a bank
manager for example or summons a former employee or whatever, and they gather information that
way.
Now, what you need to understand about summons is, friends is they're not self-enforcing.
As far as the IRS, as far as the courts are concerned, the summons itself is just a piece
of paper, it does not enforce itself.
In other words, the IRS will tell you that if you don't obey these summons, you'll go
to jail for five years for failure to obey, that's not true.
That's not true at all.
The summons has to be enforced first, they can only be enforced by a court, and so if
the IRS issues a summons to a taxpayer for his QuickBooks records, for example, and the
taxpayer refuses to provide them, then there is no consequence to that in so far as the
IRS is concerned.
What they have to do if they want that summons enforced, they have to file a petition in
the United States District Court and the petition has to name the taxpayers as a defendant,
and it's got to ask the court for permission to enforce the summons.
Now, the summons will be enforced only based on the power elements, so let's go to the
next slide and we'll talk about the power elements.
The power elements is based on the United States Supreme Court case of US versus Powell
decided 1968 which is the clarion case for summons enforcement.
The power elements are these four elements, these are the four things that the IRS has
to prove to a district court in order to get a summons enforced.
Number one, that it was issued in connection with a legitimate examination or investigation.
There's got to be a legitimate ongoing exam activity.
Number two, the records have to be relevant to the exam.
Number three, the information is now already in the IRS' possession, and the last thing
is that all administrative steps required by the tax code were followed.
Let's talk about the summons in the context of QuickBooks records just as an example.
IRS issues a summons for QuickBooks records, but instead of providing QuickBooks records,
you provide all of the primary source documents from which the taxpayer computed his income.
That would be bank statements, third-party statements on income, 1089s, any of that sort
of thing.
Those are all the primary source documents.
In that situation, if you did not provide the QuickBooks, will the IRS get a summons
enforced?
I believe they would not because they have to prove that the information is not already
in the IRS' possession.
If they have the underlying information from primary source documents, it is extremely
unlikely that the court would order the summons enforced and require the taxpayer to produce
the information.
Now, if they're asking for personal testimony and this gets back to the question of whether
the IRS is going to issue a summons to require the taxpayer to appear and give testimony
to the IRS, if they do that, the taxpayer has Fifth Amendment rights.
If the IRS has gone to the extreme of issuing a summons to the taxpayer himself to require
that taxpayer to appear and give testimony as opposed to having counsel provide the information,
then at that point in time, I think you want to probably consider getting a defense counsel
involved and evaluating whether the option to plead the Fifth Amendment is viable under
the circumstances and desirable under the circumstances because there may be potential
for criminal liability or criminal exposure in a situation like that, so you got to be
real careful about that.
Keep that in mind.
Also, any time the F-word comes up in the context of an audit, by the F-word I mean
fraud, any time the F-word comes up during the course of an audit, you've got to stop
your audit right there and get counsel involved.
If you yourself are not equipped to deal with a potential criminal investigation or a potential
allegation of civil fraud, you need to get counsel involved immediately that can help
the client to mitigate that.
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Audit Defense Strategies & Negotiating with the IRS: Part 2 (4/4) - Duration: 16:59.
Okay, so let's talk about the examination report now.
The examination report comes at the end of the audit after the IRS has made its decision.
I'm talking about the auditor now, issues the examination report.
We often refer to the examination report as a '30-Day Letter', because it gives you 30
days to sign the report, accept the terms, or else appeal it.
The "or else" means that you can take an appeal and challenge it.
Remember I said in the first session when we talked about audits generally, the very
first thing that we talked about is the fact that the right to appeal is absolute.
You always have the right to challenge an IRS decision, and this is one way that we
do it is through a Protest Letter that challenges the examination report.
Before we talk about the Protest Letter, I want to talk about two essential elements
of the examination report that you need to understand as counsel.
The two critical elements are Form 4549, which is entitled, Income Tax Examination Changes,
and then Form 886, which is entitled, Explanation of Items.
The Form 4549 is a list of the items that the IRS disallowed on the tax return.
The 4549 is the worksheet that shows how they came up with the additional taxable income
and tax they say is due.
On page one of the 4549, they're going to have a listing of all of the various items
they disallowed.
We disallowed this expense, we disallowed that expense, it's going to give this year,
and the amount, and the item that was disallowed.
Then it goes on to calculate the the correct, quote unquote, correct taxable income.
Then it was onto page two, and it tells you what the penalties and interest are that they've
that they've asserted, and with respect to penalties it tells you specifically the code
section, and the description of the a penalty and the amount.
Then it gives you the bottom line tax liability of X dollars and it's got that broken up a
year.
You go on to Form 886, and the Form 886A there might be one page, or there might be 10 pages,
or there might be 20 pages.
Depends on what the IRS disallowed and how much explanation the IRS gives you of why
they disallowed.
Sometimes the explanation is very cursory, sometimes it's very detailed.
What you got to do is use the Form 4549 to understand exactly what they disallowed and
then the Form 886 A to understand why they disallowed it.
From there we're going to file a Protest Letter.
The Protest Letter is filed in response to the examination report.
You got 30 days to file the Protest Letter and Publication 5: IRS Publication 5 tells
us what needs to be in that Protest Letter.
Let's just go down the checklist of items.
Number one, the name and the address and the taxers identification number obviously, a
simple statement that you wish to appeal this report, the date and symbols of the examination
report.
These are the initials that are on the bottom of the page.
The type of tax and the years in question is laid out there.
A list of the unagreed adjustments.
These are the things that we don't agree with.
Where are these coming from?
They're coming from IRS Form 4549, all right.
Look at Form 4549, go through it in detail and understand what you agree with and what
you disagree with.
In every single audit friends, I shouldn't say every audit, but In the vast majority
of audits, there are multiple issues involved.
Three or four items that are disallowed, sometimes more than that, sometimes six or eight or
10 items that are disallowed.
As you go through that report and you see what they disallowed, and you go through the
886 explanation of items and you understand why they disallowed them, you're going to
find that some of the IRS's determinations are correct.
If there are six issues at stake they might be right about two or three of them, but they're
going to be wrong about something every single time.
In fact, in the statistics that come out of the Appeals Office, which I talk about in
How To Win Your Tax Audit.
The Appeals Office reports that examination results are wrong between 60 to 90% of the
time depending on the issue.
I'm telling you there is always something wrong with these examination reports, and
it's almost always worth appealing them because you're almost always going to do better on
appeals than you do with the tax auditors, and so I just wouldn't hesitate to appeal
these things.
You're going to express your disagreement with these issues based on the Form 4549 and
the explanation of items.
If you're representing a non-filer, a person who has not filed the tax return, and the
IRS has come out with their what they call, Substitute For Return, the SFR.
Those calculations are presented in the wage and income transcripts.
If the IRS says, "The taxpayers income was X", and the wage and income transcript show
that it was Y, we'll then write off the bat, "We got the wrong income".
The other thing of course is that in SFR calculations, the IRS never and I mean never takes into
account the deductions of the taxpayer.
Remember the burden of proof is on the taxpayer, so they don't have to take them into consideration
unless you provide specific evidence of these various deductions; mortgage, interest, charitable
contributions whatever, business expenses, whatever it may be.
Moving on, the next thing that we have in this examination report is a Statement of
Facts to support your position.
You're going to have a separate brief Statement of Fact for every item with which you disagree.
So align the fact statement with the adjustments that you disagree with.
The statement should be sufficient to establish your basis for disagreement.
For example, if the IRS disallowed all your business expenses.
You would say something very simple along the lines of, "The taxpayer operated a business
for the purposes of earning income and these expenses were incurred in the ordinary course
of business".
So just a general statement like that to establish your fact basis for it.
The next thing you need is a simple statement of law to support your position.
Again, you're going to align this with the facts.
The law aligns with the facts, the facts align with the specific items that were adjusted
or disallowed.
You don't have to have a legal brief here.
This does not have to be a very very elaborate legal explanation with court cases and citations
and all the rest of that stuff.
All you need to do is point to a specific statute.
For example, if we're talking about business expenses, travel expenses as an example, you
would point to Code Section 162, that allows a deduction for expenses incurred in connection
with earning income.
Then you would point to Code Section 274, which establishes what the burden of proof
is, and you would make a statement very simply to the effect of, you know, in accordance
with Code Section 162 and 274 that you have established that you're entitled to these
expenses and the IRS arbitrarily disallowed them.
It's a simple process.
You're going to have to have a Perjury Clause.
The perjury clause is very simple.
Just states that under penalty of perjury, you've just counsel, you've done an investigation
to determine that the facts presented are true and correct.
The perjury clauses with respect to the facts of the case and you can see a sample perjury
clause is included in IRS Publication 5, which I talked about a minute and is also included
in my book, How To Win Your Tax Audit.
Let's go on and talk about some documentation.
Documentation, evidence and so forth to support your position is not required to be submitted
with the Protest Letter.
All right, the Protest Letter is basically a bare bones letter.
Depending on how many issues are at stake, we're talking about maybe two to four-page
letter.
It's not lengthy, it's not elaborate.
All it has to do is inform the IRS of what issues you disagree with, and why in a very
simple statement of your legal position, or the law that supports your position.
You don't have to provide copies of the documents.
When you have an appeals conference later on with an Appeals Officer, you'll have ample
time to provide additional documentation if you need to.
You got to mail the Protest Letter to the person to contact, this is going to be the
individual as identified in the upper right hand corner of the letter, and the name will
be up there and of course the address will be at the top of the letter.
You need to use certified registered mail.
Actually these days I use exclusively priority mail with tracking.
It's a little bit more expensive than certified mail, but you don't have to pay for the return
receipt because when you get the tracking, the post office automatically tracks it and
you can just go onto their website- the post office's website, punch in your tracking number
and you'll get proof of delivery.
You need to mail the protest time, you've got 30 days from the date of the letter in
which to mail your Protest Letter, and in accordance with Code Section 7502, the date
of mailing is the date of filing.
As long as you get it mailed by the 30th day you're good and as long as you use either
priority or certified mail you'll be fine.
As far as proving that and if your deadline falls on a Saturday or Sunday or legal holiday,
then the due date is the next business day, so you keep that in mind as well.
Now, I want to talk about a Notice of Deficiency here.
The Notice of Deficiency, I mentioned in the Part One when I was talking about the assessment
statute of limitations and whether to waive it or not, the question of a Notice of Deficiency
came up.
There's a lot of misunderstanding about Notices of Deficiency, and I want to clear this up
because it's very very important for you as counsel to understand what this is.
Before the IRS can assess a tax against an individual, an income tax or other taxes that
this rule doesn't apply to, when we're talking about income taxes.
This is an absolute hard and fast rule no exceptions invariable.
Before the IRS can assess a tax, they have to mail a Notice of Deficiency.
The Notice of Deficiency constitutes the final administrative determination by the IRS that
the taxpayer owes money and how much money is owed, right.
A Notice of Deficiency is the final administrative determination.
The 30 day letter that we just talked about is not a Notice of Deficiency.
It's a 30 day letter that gives the taxpayer the right to appeal.
Even if you don't respond to the 30 day letter either on time or at all, the IRS cannot assess
a tax based on a 30 day letter.
They must mail the Notice of Deficiency as part of the deficiency procedures.
All right.
Once the IRS makes its final administrative determination with the Notice of Deficiency,
the citizen has the right to seek judicial review of that determination.
This is done in two ways.
The first way could be a lawsuit in the United States District Court, but in order to get
into the district court the tax has to be paid in full including all the penalties and
interest, then the citizen has to file a claim for refund with the IRS and if the claim is
denied then he's got two years to file a suit for refund in the district court.
Obviously that's a more expensive route, because it requires opening of the tax even if you
think you don't owe it.
It's got to be paid for.
The next option is to file a petition for redetermination in the Tax Court.
This is a prepayment option.
The tax does not have to be paid.
The petition has to be filed with the court within 90 days of the date of mailing the
Notice of Deficiency.
The Notice of Deficiency has got a date in the upper right corner.
It's got also in the upper right corner an entry that says, "Last day for filing petition",
and it gives you that date 90 days out.
That is the day on which you have to file the petition for redetermination.
All right.
Now a timely tax court petition prevents an assessment.
Under Section 6213 the IRS cannot touch a nickel's worth of your assets while the case
is in court.
All right, but you've got to file a timely petition and here is the key.
There is no extension of time that's available for filing this petition.
I see happen all the time where a taxpayer gets a Notice of Deficiency and they'll call
the IRS up on the phone, and I've even seen tax pros do this, make this mistake.
Where they'll call the IRS on the phone and they'll say, "We got this petition but we
need this Notice of Deficiency, but we need more time".
The IRS person on the other end of the phone will gladly say, "Oh we can give you more
time.
You've got 60 more days.
Don't worry about it we're not going to do a thing for 60 days".
Well, friends they say that all the time but they don't have the legal authority to do
it.
This date for filing a petition is fixed by law.
It's 90 days.
The IRS can't extend it, you can't extend it.
You have to get the petition filed within that time, and a timely petition is a prerequisite
to tax court jurisdiction.
If you don't get it filed, you default the IRS will assess the tax and now they can collect
it, because you defaulted on the Notice of Deficiency.
You cannot allow these Notices of deficiency to default.
You have to understand that the petition has got to be filed and once it's filed then the
case goes back to the Appeals Office where you're going to get full consideration.
We talked about this in the prior session in part number one.
So do not misunderstand this Notice of Deficiency, it's critical that you know how this thing
works.
Once you file the petition, or as I said earlier to file a petition is going to lead to an
assessment, they'll collect the tax.
Now, if you owe under $50,000 to the IRS you can file what's called a Small Tax Case.
The small tax cases that Judge Wapner version of the United States Tax Court.
Small claims court before the United States Tax Court.
That is an option here that really simplifies things.
I wrote a book called, The Taxpayers Defense Manual, which has an entire chapter on in
it that shows you how to deal with the United States tax court payer and how to deal with
notices of deficiency to make sure that the client's rights are protected.
That's the most important thing as counsel at the tail end of these things, if you've
got a Notice of Deficiency you have to take steps to make sure the client's rights are
protected.
The other thing is, this appeal goes to the Tax Court not the Internal Revenue Service.
I've seen tax professionals in the past file Protest Letters with the IRS in response to
a Notice of Deficiency.
That's the wrong answer.
If you send in a Protest Letter to the IRS in response to a Notice of Deficiency it's
going to go straight the trash.
They're not going to mail it back to you.
That's going to go right in the trash and they're not going to bother to pick up the
telephone and tell you that you mailed the Protest Letter to the wrong place.
All right, the Tax Court petition has got to go to the United States Tax Court not to
the Internal Revenue Service, and the address of the Tax Court in this statement is right
on the face of the Notice of Deficiency in the cover letter.
It's right there plain as day.
Take care do not mess up these notices inefficiency and cost your client their right to challenge
the underlying tax liability in the United States Tax Court.
All right.
Wrapping up we want to thank you again for attending the session and both sessions and
Dan for being here.
Great knowledge as always check out his other courses that we have on the platform, we've
got a lot of information.
Also as you can see on the screen we've got ways to get a hold of him, some of his resources
books that he's mentioned, et cetera, as well as resources with the Canopy community, other
places that you can take free courses, and we hope to see you on future free courses.
I want to thank you again for attending today.
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Audit Defense Strategies & Negotiating with the IRS: Part 2 (2/4) - Duration: 13:56.
Alright, we're going to talk about the Cohan rule next, it's very important that every
tax professional that handles audits at any level knows and understand the Cohan rule.
The Cohan rule is based on the 1930 Court decision of Cohan versus Commissioner and
in this particular case, Cohan was a business person in New York that was in the entertainment
business.
He dealt with actors, he dealt with the critics, he dealt with people that were in the theater
business and Cohan had to entertain these people.
He was always providing meals and so forth to these folks and taking them out to dinner
and whatnot, and he had to travel to handle the work that he did.
Cohan kept no specific records, instead, he made an estimate of his expenses over a two-year
period of time and estimated that there were about $55,000.
Over the course of the audit, of course, the IRS disallowed all of it, but in disallowing
this, they recognize that in the business that he was in, he probably spent some money
and as a matter of fact, they acknowledged that something was spent on these various
expenses.
But because Cohan kept no records, that they were-- IRS was in no position to allow any
deduction for any of these items and so they disallowed them all.
Cohan ended up in court and the court allowed-- the court ruling was that the IRS must allow
some deduction.
If there's evidence to show that money was spent and sufficient evidence is presented
to provide a basis for the estimate.
This gets back to this affidavit thing that I was talking about, the affidavit is structured
to present specific evidence or sufficient evidence to establish some basis for the estimate.
That is not something you just simply pull right out of your hat or that the taxpayer
pulled right out of his hat.
There is some factual basis for it, taxpayer was in business, taxpayer was doing these
specific things in business, taxpayer had to incur these various expenses for business
purposes.
Here's how we estimated those expenses and based on those estimates, the Cohan rule allows
that the IRS will allow some expense based on Cohan estimates.
I'm dealing with appeals officers all the time that recognize that taxpayers lose records
or didn't keep the proper records or whatever and the good ones will often say, "Well, let's
just Cohan this, why don't you get me something specific that shows me some evidence to establish
a basis for the estimate and I'm willing to allow this stuff based on Cohan."
When you're doing this, you've got to recognize that absolute certainty is impossible with
respect to reconstruction, and not only is it impossible, it is not necessary.
You're going to make as close an approximation as you possibly can, you're going to get as
close to it as you can based on the circumstances but it's not going to be perfect.
The amounts that you provide just need to be based on some reasonable calculation.
Let me give you another case, and I talked about this case in my book, How to Win Your
Tax Audit.
The case from the Tax Court years ago, we had an audit that involved the farmer who
was audited for four years.
In two of the years, two of the later years, he had perfect records to support everything,
in the other two years, he didn't have any records whatsoever.
Not a shred of documentation to show what his fuel costs were, what his fertilizer costs
were, what his electric, nothing.
But as I said, in the second four years, the records were perfect.
When the IRS completed the audit, they allowed every nickel's worth of expense on the second
four years and didn't allow a single nickel's worth of expense on the first four years,
the case ended up in court.
The United States Tax Court agreed that based on the information that was presented an affidavit
and the testimony that was presented by the taxpayer, that deductions for the first two
years should be allowed based on the percentage of income to expenses that was established
in the second two years, because we proved that the farmer's business was exactly the
same from one year to the next.
What he was doing in the second two years was exactly precisely what he was doing in
the first two years and so the ratios shouldn't be remarkably different.
For example, if it was established in the second four years that 5% of his income was
spent on fuel and 20% of his income was spent on seed and another 6% was spent on fertilizer,
we applied those same ratios to the first two years and the Tax Court allowed all of
it.
This is how you base it on some reasonable calculation, you've got to draw on some personal
estimates for minimum expenses based on the circumstances what would it likely look like
given this situation.
And you've got to understand this, Cohan makes this clear that reconstructions are not fatal
merely because it's somewhat speculative.
Now, here's a unique problem with reconstructions.
Code Section 274 with respect to travel, meals and entertainment expenses can be tricky when
we're talking about reconstructions.
Now, I talked at the beginning of this session, I talked very specifically about Code Section
274, allowing the taxpayer to reconstruct records where the records were lost.
There's no question about the fact that 274 allows a taxpayer to reconstruct records that
were lost.
But what happens if the taxpayer didn't keep the records in the first place?
This creates a unique problem for reconstructions with respect to Section 274.
However, I think we can get over that hump as well.
274 D, for dog, specifically says that-- talks about tech talks about what the taxpayer has
to provide, he talks about the burden of proof, I should say, and it says that these various
deductions for travel, meal, and entertainment, and so on, are not allowed unless the taxpayer--
and this is a quote now from the statute-- unless the taxpayer substantiates by adequate
records or by sufficient evidence corroborating the taxpayer's own statement.
Then it goes on to tell us what has to be proved, the amount of the expense, the time
and date, so on.
If the taxpayers lost his records for 274 or didn't have them to begin with, I believe
274 D, this section I just read to you, allows us to corroborate the taxpayer's own statement
with sufficient other evidence.
Let's just take an example of a travel expense to Las Vegas for a convention.
Taxpayer buys a plane ticket, goes to Las Vegas, spends two days in a hotel in Las Vegas
going to a convention, for whatever reason loses all of the records.
If the taxpayer can go back to the company that put on the convention, get a copy of
his convention registration, let's say, or at least a brochure or advertising piece or
some marketing piece that described what the convention was.
Then the taxpayer provides an affidavit along with that document and the affidavit states
that he spent $400 on a plane ticket and $150 a night for two nights at the hotel and then
another $60 a day for food and so forth.
We add all this up and there's the cost of the business travel, I believe that such a
thing constitutes sufficient evidence to corroborate the taxpayer's own statement.
The evidence from the convention company would provide the sufficient evidence to corroborate
his own statement that he traveled for purposes of business.
This is the unique situation with Code Section 274 and the travel, meal, and entertainment
expenses.
But remember, 274 only applies to travel, meal, and entertainment.
If we're talking about any other business expense, any other business expense of any
other description, the right to reconstruction is absolute.
There's no question about it and the IRS has to allow you to do that.
When you prove that some money was spent, they absolutely have to allow a deduction
based on a reasonable reconstruction.
Now, a critical element of reconstruction is oral testimony, this is a critical part
of the process.
Testimony is valid evidence, as I said, when you're in any other kind of a court case other
than a tax court case, it's the direct testimony that constitutes the most valuable type of
evidence that there is.
A person who witnesses a car crash says, "I saw the blue car go through the red light
and crash into the brown car."
That is direct testimony.
It's not hearsay testimony because the individual who's making the statement is the person who
saw the event happen.
That person who's testifying experienced that event with their own senses, sight, sound,
and so forth.
They experienced it because they were present there at the scene.
That is firsthand testimony.
When you present firsthand testimony to the IRS, "I traveled to Las Vegas, I went there
in February of 2018, I went there for business, this was the nature of the business, here
was the convention I attended."
That's all first hand direct non-hearsay testimony that an IRS agent will almost always reject
because the IRS agent wants hearsay evidence.
The hearsay evidence is the brochure from the seminar company, the hearsay evidence
is the receipt from the airline company, the hearsay evidence is the credit card statement.
These are all third-party statements who didn't witness anything.
IRS somehow wants the inferior evidence to supersede the superior evidence in terms of
proving a particular case.
But obviously, that's backwards.
As I said, the tax court regularly accepts testimony from taxpayers that establishes
these various elements.
And I just read the statute, the section 274D, I just read that to you.
You know that the law allows taxpayers to provide their own personal statement to support
their deductions as long as it's corroborated by something else.
Now, the question is, what kind of testimony is the court and the IRS appeals office going
to accept?
The testimony has to be plausible, it's got to be believable, it's got to be credible.
You've got to have some rational basis for what you're saying if what you're saying is
completely crazy, it lacks credibility, it lacks believability, it doesn't have to be
accepted, but when it is plausible, believable and credible, it's going to be accepted by
the courts.
Earlier, I said that you've got to provide details in your affidavits.
The way you present plausible and believable and credible testimony is to be specific,
very, very specific as to time, as to dates, in many of the details as you possibly can
provide.
For example, with our Las Vegas convention, if you say, "I attended a convention in Las
Vegas."
and that's the only statement you make, then that doesn't necessarily have credibility
to it.
It isn't necessarily believable just because you say, "I went to Las Vegas for a business
convention."
On the other hand, if you say, "I went to Las Vegas for a business convention, the convention
was held at Caesar's Palace.
The topic of the convention was X.
During the course of the convention, I attended three workshops.
Workshop A was this, workshop B was that, workshop C was this.
At the close of convention, we had a hospitality meeting where I met with three prospective
clients.
Client A, we talked about this, client B we talked about that, client C we talked."
That is the kind of detail and specificity that leads to plausibility and believability
and credibility.
That's what you have to present, and the Tax Court will regularly allow the deductions
based on this testimony and you prove these deductions through the use of an affidavit.
You've got to wrap your heads around how to use these affidavits.
In my book, The IRS Problem Solver, I've got an entire chapter in there, a couple of chapters,
in fact, that show you exactly how to craft these affidavits and I show you how to put
them to work in the book, How to Win Your Tax Audit.
That is information that is very vital
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Emergency Strategies for Stopping Collection (1/4) - Duration: 9:16.
Okay, everybody, thanks for attending the webinar here, Emergency Strategies for Stopping
Collection.
My name is Dan Pilla, I'm a tax litigation consultant, and author of 14 books on dealing
with the IRS, and I've got over 40 years of experience in handling IRS problems of every
description.
About 80% of the work that I do is collection defense work, and so we're going to start
right in with exactly how collection begins.
I want to show you exactly what you can expect from the IRS when you've got a client that
owes taxes, and we're going to talk about old debts, we're going to talk about new debts.
Let's start with the new debts, how collection begins with new debts.
What happens is before the IRS can levy any kind of assets, before they can touch a nickels
worth of your clients assets, the IRS has to send a final Notice of Intent to Levy.
Now this is a very important notice because there are critical rights that attached to
the receipt of this letter, and I want to explain what these final notices look like.
There's actually three different versions, because you can't expect the IRS to do things
easily or simply, they got to have three versions of the same letter.
The first letter is called a letter 1058.
That's letter 1-0-5-8, and it's entitled Final Notice of Intent to Levy, and Notice of Your
Right to a Hearing.
You identify letter 1058 by the lower right margin, the letter number is in the lower
right margin.
This letter is unlike the computer notices that the IRS mails out from the service center.
Those notices our so-called CP notices, we'll talk about those in just a minute.
But the final notice letter looks like actually somebody sat down at their computer, and actually
typed out a letter address to your clients.
So that's the letter 1058.
The second version of this letter is called the letter CP90.
Now this does look like some of the computer notices that the IRS mails out from the service
center.
But when you read it carefully, it is also identified as a Final Notice of Intent to
Levy, and Notice of Your Right to a Hearing.
You identify the CP90 in the upper right corner of the notice.
It'll say notice number, and that's where you get your CP90 from.
The third version, and this is probably the most common version of all, is the LT 11.
It looks, for all the world, just like the CP90.
But of course, it's got a different identifying number that being the LT11.
You first want to make sure what you're dealing with when you're receiving computer notices.
Too many people do not understand what the notices are that they're getting.
The final notice letter only takes the form of one of these three letters that we've just
identified.
Letter 1058, letter CP90, or the LT11.
No other notice that the IRS mails out is a Final Notice of Intent to Levy and Notice
of Your Right to a Hearing.
It's critical to understand this letter because you've got important rights that grow from
these notices.
Now, I want to talk for just a second about what these- what a final notice is not.
A final notice is not any of the other CP notices the IRS mails out.
A CP501, CP503, CP504, these are all various collection letters, but they're not a final
notice letter.
The IRS cannot levy a bank account, a paycheck, any assets whatsoever until they mail this
Final Notice of Intent to Levy and Notice of Your Right to a Hearing, and this is critical.
Now, there is an exception to the CP notice thing, and it's CP523.
I want you to make a margin note here about CP523.
This is a notice that an installment agreement has been rejected, and the IRS can levy after
30 days of sending out a CP523.
Now this is important, and so I'm going to spend some time on it later in the conference
here, so you understand exactly how that works.
Collection begins when this final notice is sent out, the final notice gives you 30 days
to file a collection due process appeal.
Now, I want you to understand something very important, and this is a mistake that a lot
of people make.
Taxpayers make this mistake all the time, and sometimes tax professionals make this
mistake as well.
So I want you pay attention to this.
You cannot get an extension of the 30 day period of time on the final notice letter.
That 30 day period of time to file, what's called a collection new process appeal, is
statutory.
There is no exception to that.
And so if you call the IRS, and say, "Well, we can't pay in 30 days.
Can we get an extension?"
They'll give you an extension on payment that's true, but you will not get an extension on
your ability to file a collection due process hearing.
That 30 days is hard and fast and cannot be extended.
Now, the reason it is important to submit a collection due process appeal is because
this does two remarkable things for you.
First of all, it stops all collection in its tracks.
The IRS is automatically shut down from levying or seizing anything as long as you file that
collection due process appeal within the 30 day window, so that's number one.
It's an injunction against the IRS from collecting.
Number two, as it moves the case to the IRS's Office of Appeals.
You take the case out of the hands of the collection function, you put it into the hands
of the appeals function, and the written job description in this context now is to negotiate
a settlement with the IRS.
Their function, the Appeals Office function is to entertain what are called collection
alternatives, and to give you an opportunity to propose, for example, an installment agreement,
or an offer and compromise, or perhaps uncollectible status, or any such thing as that.
Perhaps you can get some penalties canceled, any of those kinds of combinations of things
that are available.
Another important thing is when you file this appeal in a timely manner, you've got the
right to a Tax Court appeal if you can't come to terms with the Appeals Office.
It's a judicial appeal through the Tax Court which is very, very important, because you've
got that leverage, the IRS is forced to consider your arguments carefully and to do the right
thing when it comes to applying the law and the facts.
This is a very, very powerful tool that you need to know about.
In order to execute this collection due process appeal, you have to file IRS form 12153, it's
called a Request for a Collection Due Process or Equivalent Hearing.
That is the form that commences the collection due process appeal.
That form is filed within 30 days of the date of the final notice letter, and that kicks
things off as far as your appeal is concerned.
So now, what happens if your client missed the 30 day deadline?
Very often, what happens is clients come into my office, and they've got a shoe box full
of unopened envelope from the IRS that they've been collecting.
It's only when their paycheck gets hit or their bank account gets levied that they actually
get jolted into action.
In that situation, they have blown their 30 day deadline, they do not have the opportunity
for a collection due process appeal.
However, there's a second appeal that's available, and that appeal is called an Equivalent Hearing,
you use the same form, form 12153, you submit that form, and that form can be filed within
one year of the final notice date.
This is the secondary appeal process.
First one is called Collection Due Process.
This one is called a Request for an Equivalent Hearing.
It's filed within one year of the final notice letter.
This will also kick your case into the Appeals Office where you've got an opportunity to
sit down with an appeals officer and propose collection alternatives.
The problem with the Equivalent Hearing, and this can be a significant downside to having
missed that 30 day deadline, is you do not have a Tax Court appeal right when it comes
to further challenging the decision of the Appeals Office.
Appeals Office decisions in these Equivalent Hearing cases are final, they're not subject
to judicial review.
And so that's an important limitation.
However, the upside is that the IRS will very often, unless there's some reason for it to
believe that there's abuse, or that this is done solely for the purposes of delay, the
IRS will often stop collection while an Equivalent Hearing is pending.
That gives you an opportunity to propose collection alternatives without having the negative impact
of levies and seizures going on while you're doing that.
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(FREE) Rich The Kid x Famous Dex Type Beat - "Woah Woah" ft.Playboi Carti | Trap Instrumental 2019 - Duration: 2:48.
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最新芸能ニュース一覧 - 楽天WOMAN - 水前寺清子の恒例餅つきに坂本冬美「ももクロ」百田ら約３００人が参加 - Duration: 2:25.
拡大写真 前寺清子と餅つき る百田夏菜子（左 歌手の 前寺清子（７３） ２８日、東京・世 谷区の自宅で５４ 目となる毎年恒例 餅つき会を行い、 出家の石井ふく子 （９２）、歌手・ 本冬美（５１）ら ３００人が参加し
出場２２回、紅組 会を４回務めたＮ Ｋ紅白歌合戦につ て「今年は冬美ち んや北島三郎さん 楽しみ
平成最後に演歌の 力を感じてもらい いね」。自身は来 がデビュー５５周 で「初めてのこと どんどんやりたい と抱負を語った
大みそかは２ 連続で「ももいろ ローバーＺ」が歌 戦形式で行う年越 ライブに出演予定 「かわいいももク ちゃんたちと一緒 盛り上げたい」
餅つきにはリーダ ・百田夏菜子（２ ）も参加。「水前 さんと一緒にお客 んに楽しんでもら るライブにしたい と語った
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York County lakes and streams reaching high levels - Duration: 1:59.
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Grandma Makes Wheelchair For A Calf | Kritter Klub - Duration: 2:36.
Calf Bongshik using a wheelchair
And friend Tol-Tol
Looks exhausted
How did the calf end up in a wheelchair?
If not for the wheelchair, the calf can't get up
So I made it
The grandmother made the wheelchair herself
Without the wheelchair..
Bongshik can't stand at all
It was born with astasia.
From a mother with nutritional deficiency
The other grandmas also adore it
Kiss, please
Bye, Bongshik!
With Tol-Tol, side-by-side
Tol-Tol bites Bongshik's leg to say a job well done
Home at last
Mom, I'm home
Did you have a good day?
Step by step, Bongshik parks
Can't reach each other
Brings them together
The mom checks Bongshik's legs
Calf cries in mommy's embrace
Is there a cure for Bongshik? Stay tuned..
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