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08/08/11 © www.taxdebtanonymous.com 2010 TaxPractice Series

1

10 Steps to Resolving Collection Issues

Welcome to TaxMama’s Place Home of the

http://www.cpelink.com/?s=85iz6kg


2Table of ContentsMeet Your Instructors

1. Determine the Statute of Limitations2. Gather Information3. Evaluate your options

• Audit reconsideration • Penalty abatement • Installment agreement (IA)• Currently non-collectible status (CNC)• Offer-in-Compromise (OIC) • Bankruptcy of tax debt

4. Discuss options with client5. Determine your strategy 6. Set Plan of Attack7. Contact IRS & Set the stage 8. Provide documentation9. Be Prepared to wait & educate your client10. Re-evaluate & Follow-up

Evaluations and Thanks!



3Who is Eva Rosenberg MBA, EA

Eva Rosenberg, EA, Your TaxMama® has been teaching Enrolled Agents Exam review courses off and on since developing the program for UCLA Extension over 15 years ago. These days, she’s teaching her own course online at www.irsexams.com Eva has a BA in Accounting and an MBA in International business. Your TaxMama® is a TaxWatch columnist for Dow Jones' www.MartketWatch.com and author of the ever-popular book, Small Business Taxes Made Easy, published by McGraw-Hill – new edition to be published in December 2010.As a speaker, TaxMama® is popular with both tax professionals and taxpayers. You can find her at www.TaxMama.com and subscribe to her free daily podcast at www.TaxQuips.com

http://www.irsexams.com/



http://www.martketwatch.com/



http://www.taxmama.com/

http://www.taxquips.com/





4Who is Tom Buck, CPA

Tom Buck, CPA is a published author, tax coach, teacher And mentor. He has been a licensed CPA since 1971 and has been in private practice since 1982.

Tom was chairman of the Nevada Society of CPAs Taxation Committee. Tom has been representing taxpayers and solving IRS problems ever since the landmark Casino employee cases in 1982.

The approach Tom takes and that he would like to pass on to you is this:the “science” of the work is the law and how it should be applied. The “art” is being able to counter any and all IRS measures which are not supported by law. Does the IRS always follow the rules? Of course not, so part of the “art” is really in forcing the IRS to obey the law. Of course, having the tenacity of a bulldog is often the critical ingredient. In the final analysis, once you determine what the outcome should be, then you must be ready to take any detours necessary to get your client to the finish line.

Tom is a willing and helpful teacher and looks forward to sharing his hard-gained knowledge.



5Who is Sonya Wilt, EA

Sonya Wilt, BS in Management, EA and entrepreneur. A graduate of Upper Iowa University, Fayette, and former student of Eva Rosenberg’s Enrolled Agent Review Course, Sonya also has an extensive background in management and accounting, small business consulting, and employee training

Sonya’s desire to stay on top of the changes in tax law is two-fold: 1) To make sure her investments and entities are taking advantage of

every legal tax deduction available with adequate documentation, and…

2) 2) To provide our clients with accurate information so they may make solid decisions in both resolving current tax issues and legally protecting their future earnings.

Sonya and her partner, Tom Buck, CPA aggressively represent clients before state and federal taxing authorities through audits, appeals and collections.


Introduction to Collections Resolution

This is a big topic.

It involves PEP – Precision - Expertise - Precise timing

We can’t cover it all in two hours – that’s why we’ve produced this series for you.

Some concepts will be introduced today - covered later. There are hurdles to doing this well…

New hurdle from FTC – see your Resources page


Statue of Limitations

Unique benefit in the U.S. Tax Code

Federal Taxes expire!

Stick head in sand long enough – taxes go away. But only if….

What has to happen first?


Assess Taxes

For taxes to expire – they must be assessed. To start the clock running, you must1) You must file a tax return2) Have IRS file a tax return – SFR3) IRS correction letter adds additional taxes or

penalties4) Audit assessment adds additional taxes and/or

penalties


Statute Open Forever or…

To avoid keeping the statute open forever on a year –

• File a tax return.• Even if there is no obligation to file – file it.



10Understanding Statue of Limitations

Understanding the 10 year statute:• CSED – Collection Statute Expiration Date

Based on original Assessment Date• Ask IRS & Verify• Tolling events (Tolling = Freeze the Statute)

•Collection Due Process•Consideration of Offer In Compromise + 90 days – after close•Pending Bankruptcy + 6 months•Consideration of Installment Agreement•File a Tax Court Petition•Essentially anything that prevents collections



11Gather Information From Client

Learn everything you can from the client about their assessment.

• If due to an audit, perhaps you can fix the audit.

• If due to a Substitute for Return (SFR) filed by IRS, perhaps you can

reduce the assessment by filing a real tax return.

• If is due to unpaid taxes, with related penalties and interest, perhaps you

can reduce the penalties.

• If due to a spouse’s taxes, business, or filing a forged return, perhaps

you can correct that, too.

• Interest is high due to IRS administrative delays, get the interest reduced


Gather Information From IRS

Avoid surprises – • If a Revenue Officer is assigned to the case, ask the RO. • If not, using Form 4506-T, the Practitioner’s Priority Service (866-

860-4259) or IRS e-services get copies of the client’s records for each year in question + the year before and the year after.

Account Transcript, which contains information on the financial status of the account, such as payments made on the account, penalty assessments, and adjustments made by you or the IRS after the return was filed. Return information is limited to items such as tax liability and estimated tax payments. Account transcripts are available for most returns

Record of Account, which is a combination of line item information and later adjustments to the account.



13Know your options

Understand the rules and guidelines

for each of the following

collection resolution options



14Options: Audit Reconsideration

When should you request audit reconsideration?Legitimate Reason

• Taxpayer did not appear for audit• Taxpayer moved and did not receive notification• Taxpayer has new or additional information• You filed an original return after an Substitute for Return (SFR)

– Though rarely have to ask for reconsideration• You believe IRS has made a computation error• Taxpayer disagrees with auditCan be used years after completion of auditCan be used after all deadlines for routine appeals and

protests have expired.



15Options: Audit Reconsideration

When may cause denial of audit reconsideration?Denied if:

• Client signed a closing agreement (Form 906)• Client signed a compromise agreement• Client signed a Form 870-AD• US Tax Court issued Final determination


TaxMama’s Audit Recon Case Study

CZClients: Married Filing JointlyRetained Repr.: January 1995Employment: Real Estate investor, investor• History: Always current and incompliance. • Tax Preparer handled audit, poorly - twice.• Audit assessment = About $300,000 including penalties

and Interest• RO assigned to case believed me, that the audit

assessment was wrong. RO ordered Audit Recon.



17Tom Buck Case Study

Bill S.Clients: SingleRetained Repr.: January 2009Employment: Previously SE, Currently WE

• History: No returns filed since 2003, Audited in 2001, 2002, & 2003, Audit that resulted in strange activity on the account transcripts

• Audit for which IRS fails to reproduce the audit report



18Options: Penalty Abatement

When to request Penalty abatement?Legitimate Reasons

• 1st Time Offender• Drug Rehab Program, Imprisonment, Death • Destruction of the taxpayer's records• Divorce or court proceeding preventing payment• Incorrect advice from a tax professional • Bad advice received directly from the IRS (be specific)

– Make notes• Can T/P prove event was beyond their control?


Options: Interest Reduction

Form 843 - Requesting Abatement or Refund of Interest Due to IRS Error or Delayhttp://www.irs.gov/instructions/i843/ch02.html#d0e195 The IRS will abate the interest only if there was an unreasonable error or delay in performing

a managerial or ministerial act (defined on this page). The taxpayer cannot have caused any significant aspect of the error or delay. In addition, the interest can be abated only if it relates to taxes for which a notice of deficiency is required. This includes income taxes, generation-skipping transfer taxes, estate and gift taxes, and certain excise taxes. Interest related to employment taxes or other excise taxes cannot be abated.

Managerial act. The term “managerial act” means an administrative act that occurs during the processing of your case involving the temporary or permanent loss of records or the exercise of judgment or discretion relating to management of personnel. A decision regarding the proper application of federal tax law is not a managerial act. See Regulations section 301.6404-2 for more information.

Ministerial act. The term “ministerial act” means a procedural or mechanical act that does not involve the exercise of judgment or discretion and that occurs during the processing of your case after all prerequisites of the act, such as conferences and review by supervisors, have taken place. A decision regarding the proper application of federal tax law is not a ministerial act. See Regulations section 301.6404-2 for more information.

http://www.irs.gov/instructions/i843/ch02.html



20Options: 120 Day Full Pay

Non-published optionCan your client full pay or significantly pay down the debt in 120 days?



21Options: Installment Agreement

When to set up an Installment Agreement (IA)?• Balance can be paid in full within 3 years• Balance can be paid in full within within 5 years• Balance can be paid in full before statute expires

Essentially, when clients are working, have assets, education and good health – IRS will expect to collect the balance due.

When there is no way around paying, here’s how to get an Installment Agreement, IA, for short.


Installment Agreement Fees

$105.00 – Base fee$ 52.00 – Pay via Electronic funds withdrawal$ 43.00 – Low Income (Form 13844)


Guaranteed Installment Agreement

Guaranteed installment agreement.

Your client cannot be turned down if the tax owed is not more than $10,000 and all three of the following apply.

• During the past 5 tax years, taxpayers have timely filed all income tax returns and paid any income tax due, and have not entered into an installment agreement for payment of income tax.

• The IRS determines they cannot pay the tax owed in full when it is due and they give the IRS any information needed to make that determination.

• The installment agreement is set to pay the full amount within 3 years and taxpayers comply with the tax laws while the agreement is in effect.


Online Payment Agreement

Balance due $25,000 or less , use the Online Payment Agreement (OPA) Or Form 9465 – Installment Agreement Request

http://www.irs.gov/individuals/article/0,,id=149373,00.html


Installment Agreement Tricks

• Reduce filing fees by paying automatically• Control payment date – reduce odds of NSFs• Have client alert you if ever they cannot pay



26Options: Currently Non Collectible

Knowing when to use Currently Non Collectible (CNC)…• CNC only suspends collection activity• CNC does not toll statute of limitations• Detailed review of client’s financial situation



27Options: Currently Non Collectible

Review client status/circumstances• Need to gather client info

433-A, 433-B or 433-F• No equity in assets• Insufficient Income to make any payment

without causing hardship• Is client in compliance?• CNC as a stepping stone



28Options: Offers In Compromise

Taxpayers compliance history is a consideration for nearly all Offers In Compromise (OIC)




Considerations for using Doubt as to Collectability“I have insufficient assets and income to

pay the full amount”• Will halt collection activities, but will not

necessarily stop filing of lien(s)• Tolling of Statutes




Qualifying for an Offer In Compromise (OIC)Doubt as to Collectibility

• Income

• Equity in Assets

IRS takes a very dim view of Dissipated Assets




Financial Requirements for Doubt as to Collectibility Offer In Compromise (OIC)• 20% Down Payment• $150 Application Fee

Fee Waiver available in case of hardship 656-A

IRS takes a very dim view of Dissipated Assets




Considerations for using Doubt as to Liability• 656-L (Separate Form)• Can be used to force Audit Reconsideration• Collection Information Statement Not Required• Application Fee Not Required




Considerations for using Effective Tax Administration“I owe this amount and have sufficient assets to pay the full

amount, but due to my exceptional circumstances, requiring full payment would cause and economic hardship and would be unfair and Inequitable”

Examples:• Funds needed to provide for medical care• Taxpayer disabled, home has equity but equip for disability,

insufficient funds to pay additional house paymentMore examples at www.irs.gov/irm/part5/irm_05-008-011.html

http://www.irs.gov/irm/part5/irm_05-008-011.html







34Options: OIC Payment Options

Options & Strategies

•Lump Sum Cash Offer (5 or few installments)

•Short Term Periodic Payment Offer

•Deferred Periodic Payment Offer



35Case Study

Shawn & Dana P.Clients: Married Filing JointRetained Repr.: April 2008Employment: Shawn self-employed (S-Corp),

Dana - homemaker

History: Shawn works in family business, filed OIC, IRS attempting to re-value assets, CDP request filed in response to lien, Fast Track Mediation Requested



36Options: Bankruptcy

Bankruptcy or OIC – How to help your client decide?

Some Considerations:• Does your client have additional debt and creditors after

them?

• Timing?

• Funds available?

• Other?



37Case Study

Paul & Karen K.Clients: Married Filing JointRetained Repr.: 2009Employment: Previously wage earner, now

semi-retired/self-employed

History: Former government employee, real estate investor legal battle on bad investment, bankruptcy for non IRS debt, then OIC



38Options: Bankruptcy

Circumstances• Tax Return Filed at least 24 months

• Assessed 240 days

• The due date for filing a tax return was at least three

years ago

• The tax return was not fraudulent


Bankruptcy Note

If IRS has a lien filed, they may be able to collect funds from the bankruptcy estate if there is money left after earlier secured creditors have collected their reimbursements – or based on a formula to share the assets determined by the Bankruptcy Court Judge.



40Discuss options with client

Set forth the options with your client. Discuss the issues:

• Even if levy is lifted, lien will still be out there

• Affects on their Credit rating

• How much information will be public knowledge

• Affects on their Cash flow

• Personal Ethics

• Affect on standing in the community

• The time frame involved

• The pros and cons of the alternatives – for their lives


Educate them

Consequences. What happens…

• With their tax refunds• If they default on IA or OIC payments• If their income increases while paying an OIC• If they inherit money along the way• If their income dramatically drops during OIC• If illness or death occurs• If they default on another year’s tax obligation or filing.


Specific Instructions

Once you decide on a strategy, be very, very clear on what needs to be done by your client each step of the way.

• Information to gather – by when• Payments to make – when• Revisions to withholding – provide forms• Contact you immediately if anything changes or

if they get notice



43Determine your strategy

No cookie cutter approach, every client is different

This is where you need to know your client, they are living

breathing people and situations change

Your strategy needs to address both their current situation and

at least look at any future indicators of increased income or

inheritance

You are the expert, but it is the client’s life, they should make

the decision



44Set plan of attack

1. Specify the roles

A. What will you be doing?

B. What will the client be doing?

2. Communicate expectations with client

3. Set deadlines with client

4. Explain that those deadlines rarely apply to IRS



45Contact IRS & Set the stage

1. Keep the IRS abreast of what is going on 2. Request the time you need to get the job completed, if

you are requesting and extensive amount of time, be prepared to back it up (Client having surgery or they’ve had a flood, need time to compile records, depends on the strategy/option)

3. Inform the IRS of your clients “willingness” to resolve the situation (Your client has seen the error of his ways and wants to get resolve the situation or they wouldn’t be paying you)

4. Know the rules in case they are not willing work with you.



46Provide documentation

1. Keep your client on taskRarely does a client get into this situation by accident, like it or not this job involves some babysitting, some clients need one or two reminders, others every week by phone and e-mail (make sure you charge accordingly for your time)

1. Do what you say you are going to doIf you are going to send the IRS something, send it (get proof), verify receipt if you fax it, call first to let them know it is coming, if you’ve mailed something to the SFR unit, contact the Revenue officer and let them know it has been sent



47Provide documentation

1. If there is a delay, communicate with the IRS immediately, if you are going to miss a deadline, call the agent and request more time

2. Provide the documentation certified mail w/return receipt, Proof you’ve sent it! Proof they’ve received it!

3. NEVER SEND ORIGINALS OR MAKE SURE YOU HAVE A COPY OF EXACTLY WHAT WAS SENT



48Hurry up & wait

1. Be prepared to waitThey are the government, nothing happens overnight

1. Set expectations with clientExplain to your client that while it may take a month to gather all the documents and prepare an offer, the IRS could effectively sit on it for 2 years

1. Be persistent & proactiveYou don’t have to wait too patiently, you can call and check on the status, remember to update your clients even if you’ve found nothing out, they will appreciate it.



49Re-evaluate & Follow-up

Re-evaluate & Follow-up

Be prepared to make changes

Expect the best, plan for the worst

And let’s look at some strategy summaries


Statute Strategies

Monitor the Statute – the longer an offer stays open, the longer the statute of limitations is open.

Either settle the case in your client’s favor, Or insist the case be closed. Most tax pros let unsettled cases sit there –

leaving the statute open endlessly.


Payment Strategy

Sometimes, the best option is full pay. If so1) Reduce the balance due if possible

a) Audit Reconb) Innocent Spousec) Penalty Abatementd) Interest reduction due to administrative delayse) Collection Due Process

2) Set up the lowest fee installment agreement with the highest payment that your client can afford, to shorten the payment period.

3) Set up a payment date that will ensure your client always has money in the account on that date.

4) Better yet, help them borrow the money and not be on the hook to IRS at all. Lenders are safer than IRS.


Payment Reduction Strategy

• Indefinite Delay – Currently Non-Collectible (discussed in Levy Release class)

• Wait for the statute to toll• Offer in Compromise• Bankruptcy



5310 Steps Summary

1. Determine the Statute of Limitations2. Gather Information3. Evaluate your options4. Discuss options with client5. Determine your strategy 6. Set Plan of Attack7. Contact IRS & Set the stage 8. Provide documentation9. Be Prepared to wait & educate your client10. Re-evaluate & Follow-up



54The Practice Series

IRS Practice Series: 10 Steps to Release IRS Levies on Paychecks or Bank Accounts Available online

IRS Practice Series: 10 Steps to Resolving Collection Issues October 8, 2011

IRS Practice Series: Hands-on Collections Workshop November 1, 2010

IRS Practice Series: 6 Simple Steps to an Offer-in-Compromise: Completing (form 656) December 7, 2010

IRS Practice Series: The Un-agreed Collection Alternatives and AppealsDecember 10, 2010

http://www.cpelink.com/product/detail.php?p=2199













55Resources

Audit Reconsideration: http://www.irs.gov/pub/irs-pdf/p3598.pdf

CNC reconsideration closing codes: http://www.irs.gov/irm/part5/irm_05-016-001.html#d0e292

Effective Tax Administration: http://www.irs.gov/irm/part5/irm_05-008-011.html













56CPE Link

Thanks for coming.

Remember to give CPE Link your evaluations.

Drop by to sign up for other TaxMama classes – http://www.cpelink.com/teamtaxmama

Return often for two new series, coming soon: International Taxpayer issues – dealing with resident aliens

and Americans overseas.The Tax Practice Series - Taxpayer representation –

Collections, Offers In Compromise, other payment alternatives

http://www.cpelink.com/teamtaxmama





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