PORTFOLIO

Federal Tax Collection Procedure — Defensive Measures (Portfolio 638)

Tax Management Portfolio, Federal Tax Collection Procedure — Defensive Measures, No. 638-4th, analyzes in depth the procedures available to defend against IRS collection actions. Beginning with assessment of tax, notice and demand, and nonpayment by a taxpayer, the federal tax lien arises and attaches to all of the taxpayer's property and rights to property.

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DESCRIPTION

Tax Management Portfolio, Federal Tax Collection Procedure — Defensive Measures, No. 638-4th, analyzes in depth the procedures available to defend against IRS collection actions. Beginning with assessment of tax, notice and demand, and nonpayment by a taxpayer, the federal tax lien arises and attaches to all of the taxpayer's property and rights to property. In addition to the federal tax lien, there are other administrative collection devices that the IRS uses to enforce collection of unpaid tax liabilities. These include the federal tax levy and seizure and sale of a taxpayer's property. The IRS also may enforce collection of tax liabilities by instituting judicial proceedings. A further discussion of all of the administrative and judicial collection procedures available to the IRS is contained in 637 T.M., Federal Tax Collection Procedure — Liens, Levies, Suits and Third Party Liability.

Taxpayers are not without defenses to enforced tax collection by the IRS. Taxpayers (and, in some situations, other third parties) have a variety of administrative and judicial procedures available to postpone or curtail collection activity by the IRS. These procedures include appeals, installment agreements, offers in compromise and bankruptcy. These procedures are discussed at length in this Portfolio.


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AUTHORS

STEVEN R. MATHER
Steven R. Mather, University of Iowa (B.B.A., with highest distinction 1978; J.D., with distinction 1982); member, California Bar and Iowa Bar (inactive); Certified Public Accountant, Iowa, 1979 (inactive); Senior Attorney, District Counsel, Internal Revenue Service, Los Angeles 1983–87; Co-Director, Tax Court Pro Se Program (Los Angeles/Beverly Hills) 1988–Present; lecturer, Federal Tax Procedure, Golden Gate University Masters in Taxation Program; member, Section of Taxation of California, Los Angeles County and Beverly Hills Bar Associations; author: 624 T.M., Audit Procedures for Pass-Through Entities; co-author: 637 T.M., Federal Tax Collection Procedures — Liens, Levies, Suits and Third-Party Liability; contributor: The Tax Lawyer.

PAUL H. WEISMAN
Paul H. Weisman, University of California at Davis (B.A., cum laude 1979); Loyola Law School, Los Angeles (J.D. 1982); member, California Bar; Attorney, Legislation and Regulations Division, Office of Chief Counsel, Internal Revenue Service, Washington, D.C. 1982–83; Senior Attorney, District Counsel, Internal Revenue Service, Los Angeles 1983–87; Alternative Member, Los Angeles County Assessment Appeals Board; Co-Director, Tax Court Pro Se Program (Los Angeles/Beverly Hills) 1988-Present; member, Beverly Hills Bar Association; co-author: 637 T.M., Federal Tax Collection Procedures — Liens, Levies, Suits and Third-Party Liability; contributor: Taxation for Accountants and Journal of International Taxation.

TABLE OF CONTENTS

Detailed Analysis

I. Introduction

Introductory Material

A. Collection Process: In General

B. Role of IRS Branches and Other Agencies

1. Revenue Officers

2. Technical Services

3. Office of Chief Counsel

4. Justice Department

5. Summary of Collection Process

C. Overview of Defensive Measures

II. Assessment, Statute of Limitations and Payment Issues

Introductory Material

A. Summary Assessment

B. Deficiency Procedures

1. Definition of Deficiency

2. Notice of Deficiency

a. Last Known Address

b. Joint Income Tax Returns

c. Erroneous Assessment of a Deficiency

3. Statute of Limitations

a. In General

b. Pass-Through Entities

C. Non-Deficiency Cases

1. Employment Taxes

2. Penalty Assessments

D. TEFRA Partnership Cases

E. Jeopardy and Termination Assessments

1. Elements of Jeopardy

a. Departure from Country

(1) In General

(2) Certificate of Compliance

(a) Resident or Nonresident Alien with No Taxable Income

(b) Resident Alien Whose Taxable Period Is Not Terminated

(c) Nonresident Alien Whose Taxable Period Is Not Terminated

(d) Resident or Nonresident Alien Whose Taxable Period Is Terminated

b. Concealment of Assets

c. Insolvency

2. Administrative Procedures

a. Jeopardy Assessment vs. Termination Assessment

b. Jeopardy Assessment of Non-Deficiency Taxes - § 6862

c. Administrative Approval

d. Written Statement of Basis of Assessment

e. Notice of Deficiency

3. Administrative Appeal

4. Judicial Review of Assessment or Levy

a. Procedural Issues

b. Discovery

c. Burden of Proof

d. Appeal

5. Tax Court Review of Deficiency

6. Collection Issues

a. Jeopardy Levies

b. Jeopardy Bond

c. Stay of Sale

7. Special Issues

a. Possessor of Cash - § 6867

b. Civil Forfeiture

F. Issues Concerning Application of Payment

1. Voluntary and Involuntary Payments

2. Prepayment of Tax vs. Deposit

a. Deposit Procedures

b. Refund Issues

3. Stray Payments

G. Expiration of the Statute of Limitations

H. Innocent Spouse Relief

I. Request for New Audit

J. Abating Penalties

III. Administrative Appeals

Introductory Material

A. Collection Due Process Appeals

1. Request for Hearing After NFTL Filing

a. Notice

b. Request for Hearing

c. Hearing

d. Jurisdiction Retained by Appeals Office

e. Hearing Result and Judicial Appeal

f. Equivalent Hearing

2. Pre-Levy Request for Hearing

a. Notice

b. Request for Hearing

c. Hearing

d. Jurisdiction Retained by Appeals Office

e. Hearing Result and Judicial Appeal

f. Equivalent Hearing

B. Collection Appeals Program

C. Taxpayer Assistance Order

IV. Injunctive Relief

V. Determining Whether Fair Tax Collection Practices Were Followed

VI. Installment Agreements

A. In General

B. Financial Analysis

C. Alteration, Modification and Termination of Agreement

D. Effect of Agreement on Collection Activity

VII. Extensions

A. Short-Term Extensions

B. Long-Term Extensions

VIII. Offers in Compromise

Introductory Material

A. Offer in Compromise Based on Doubt as to Liability

B. Offer in Compromise Based on Doubt as to Collectibility

C. Offer in Compromise That Promotes Effective Tax Administration

D. Submission and Consideration of Offer in Compromise

E. Rejection of Offer in Compromise

F. Levy While Offer in Compromise Pending

G. Offers Determined To Not Be Processable or Submitted Solely for Purposes of Delay

H. Effect on Collection Statute of Limitations

I. Acceptance of Offer in Compromise

1. Binding Effect

2. Default

J. Collateral Agreements

1. Future Income Collateral Agreement

2. Agreement to Reduce Basis

3. Agreement to Waive Losses

4. Agreement to Waive Deductions

5. Co-Obligor Agreements

K. Sample OIC Scenarios and Analysis

IX. Bankruptcy

Introductory Material

A. Overview

1. Available Bankruptcy Proceedings

2. Creation of Bankruptcy Estate

3. Exempt Property

4. Proof of Claim

a. In General

b. IRS Proof of Claim

c. Bar Date

d. Objections to Proof of Claim

5. Classification of Tax Claims

a. Secured Claims

(1) General Rule

(2) Nonpecuniary Loss Penalties

(3) Equitable Subordination

(4) Setoff

(5) Interest

(6) Undersecured Claim

b. Unsecured Priority Claims

(1) General Rule

(2) Interest

c. General Unsecured Claims

d. Post-Petition Administrative Claims

6. Priority for Payment

a. Chapter 7 Cases

b. Chapter 11 Cases

c. Chapter 13 Cases

B. Stopping or Reversing IRS Enforcement Actions

1. Automatic Stay

a. Effect of Automatic Stay

b. Duration of Automatic Stay

c. Violation of Automatic Stay

d. Relief from Automatic Stay

e. Limitations Period Tolled

2. Recovery of Property by the Bankruptcy Estate

a. Turnover

b. Preferential Transfers

c. Fraudulent Transfers

d. Assumption/Rejection of Contracts

e. Claim for Refund by Bankruptcy Estate

C. Discharging or Reducing Tax, Interest and Penalties

1. Discharge and Exceptions to Discharge for Individuals

a. General Rules for Nondischargeable Taxes.

(1) Priority Taxes

(2) Unfiled or Late-Filed Returns

(3) Fraudulent Return

(4) Willful Avoidance of Payment

(5) Nonpecuniary Loss Penalties

(6) Unscheduled Liability

(7) Interest and Penalties on Nondischargeable Tax

(8) Effect of Earlier Bankruptcy

(9) IRS Burden of Proof

b. Chapter 7 Cases

c. Chapter 11 Cases

d. Chapter 13 Cases

2. Discharge and Exceptions to Discharge for Partnerships and Corporations

D. Deferring and Designating Payment

E. Obtaining Relief from Federal Tax Lien

1. Avoiding Lien

2. Effect of Discharge on Perfected Tax Lien

F. Determining a Tax Liability

G. IRS Motions to Convert or Dismiss

H. Miscellaneous Tax Issues in Bankruptcy

I. Examples: Bankruptcy as Defense to IRS Collection

X. Miscellaneous Collection Issues

A. Employee v. Independent Contractor Cases

B. IRS Summons in Aid of Collection

C. Freedom of Information Act Requests by Taxpayers

D. Additional Rights

E. Techniques for Dealing with Revenue Officers

F. Attorney-Client Privilege


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 Interplay Between § 6320 and § 6330 - Collection Due Process Chart

Worksheet 2 Dischargeability of Taxes in Bankruptcy (Chart)

Worksheet 3 IRM 5.8.11 - Effective Tax Administration Offers in Compromise Under § 7122

Worksheet 4 IRM 5.15.1 - Financial Analysis - Allowable Expenses and Questions and Answers to Assist in Financial Analysis (Excerpts)

Worksheet 5 Collection Financial Standards - Monthly National Standards for Food, Clothing, Other Items, Out-of-Pocket Medical and Transportation

Worksheet 6 IRS Form 53, Report of Currently Not Collectible Taxes

Worksheet 7 Sample IRS Billing and Collection Notices

Worksheet 8 Publication 1660, Collection Appeal Rights, Administrative Collection Appeal Rights (CAP Program)

Bibliography

OFFICIAL

Statutes and Regulations:

Regulations:

Committee Reports:

Treasury Rulings and Procedures:

Cases:

UNOFFICIAL

Periodicals

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