 Legal requirement to file returns and pay taxes. ◦ I.R.C. Sections 6001, 6011 ◦ Regulations under § 6011  Self-assessment system. ◦ Proper form, required information  Individual taxpayer returns are due April 15 th.  Automatic Extension to File. ◦ Penalties & interest will accrue if estimated payment is not made by the taxpayer

 Assessment is a term of art and means the tax due has been recorded in the IRS system.  Taxpayers self-assess by filing tax returns.  Assessment is a prerequisite to collection.  IRS can assess deficiency within three years of due date of return or date return filed. I.R.C. § 6501(a).  The IRS has six years if more than 25% of gross income is underreported.

 The three year period for assessment may be extended under I.R.C. § 6501(c)(4) where both the IRS and the taxpayer consent in writing to its assessment after such time, and the tax may be assessed at any time before the expiration of the period agreed upon.  The period may be further extended by subsequent agreements in writing.

 The three year limitation does not apply to a false or fraudulent return. I.R.C. § 6501(c)(2).  The period of limitations for assessment or collection is suspended for the period the IRS is prohibited from making an assessment, or from collecting by levy, e.g., until a Tax Court decision becomes final with respect to the taxpayer and for 60 days thereafter.

 Examination authority under I.R.C. §  Major compliance program intended to improve voluntary compliance, address the tax gap, and help taxpayers better. understand their tax-related responsibilities  Terms audit and examination are interchangeable.

 Three main types of audits: correspondence – by mail; office – at the local IRS office; and, field – at the taxpayer’s business.  The IRS has “broad authority” to examine taxpayers books, papers, records, etc.  The IRS has summons power to compel a taxpayer or a third party to produce records or testify.

 65% of cases and all EITC cases are correspondence exams, including: AUR: Automated Underreporter ASFR: Automated Substitute for Return  Examination begins with initial contact letter (ICL) to taxpayer.  If taxpayer does not respond within 45 days, an audit report with proposed adjustments is issued (30-day letter).

 If taxpayer does not respond within 45 days, the Statutory Notice of Deficiency (90-day letter, Stat notice, SNOD) is issued.  The taxpayer has to file a Tax Court petition within 90 days or examination is closed and collection begins.  Exam will accept for consideration a response after SNOD, but petition should be filed.

 The initial contact letter (ICL) will request to meet with the taxpayer and have the taxpayer bring specified information or documentation to the local IRS office.  The issues are too complex for a correspondence audit, but not complex enough for a field audit.  Conducted by Tax Auditor.

 Used for more complex business and individual returns.  Conducted by Revenue Agent.  Potential issues are not as concrete and the taxpayer should not be overly generous with information to avoid widening the scope of the audit.  Must always cooperate and provide requested information.

 Partnership audit procedures are under TEFRA and it is far beyond the scope of this presentation.  You should be aware that the procedures are different and very complex.  In general, applies to partnerships with more than ten partners.

 Earned Income Tax Credit (EITC)  Child Tax Credit and Dependency Exemptions  Alimony: one income, one deduction  Discharge of indebtedness  Self-employment tax  Tips  Schedule C businesses

 High Income Nonfilers  Alternative Minimum Tax  Underreported Income  Schedule C Businesses  S-Corp owners compensation

The IRS Appeals Office is independent of any other IRS office and provides a venue where disagreements concerning the application of tax law can be resolved on a fair and impartial basis.

The Appeals Office has jurisdiction over the following cases: Preassessment cases; Post assessment cases; Employee plan and exempt organization cases; and Collection cases.

 Appeals preassessment involvement is most commonly an audit where issues are disputed.  A timely response to the 30-day letter allows Appeals review of the disputed issues.

What is needed to appeal the 30-day letter?  If the amount in dispute is under $2,500, an oral request is sufficient (written better).  Between $2,500 and $10,000 provide a brief statement of disputed issues and request for Appeals consideration.  For all other cases, a formal written protest is required.

 Mainly the following types of cases go to Appeals after assessment: Penalty abatement request denials; Innocent spouse request denials; and Collection action determinations, including denials of offers in compromise.

I recommend that a taxpayer seek an attorney who specializes in those specialized areas for those issues.

 Appeals handles Collection Due Process hearings under I.R.C. § 6320 (lien) and § 6330 (levy).  The Final Notice Intent to Levy or the Notice of Federal Tax Lien provide the rights to the hearing with Appeals.  If the appeal is timely, within the 30-day deadline, and sent to the correct address, the hearing is a CDP hearing.

 If the appeal of the notice is not timely, the taxpayer is only entitled to an Equivalency Hearing.  The taxpayer can seek Tax Court review of a CDP hearing – NOT an equivalency hearing.  A Final Determination from Appeals is the “ticket” to Tax Court and provides the due date to file the petition.

 Section 6330(c) governs the matters that may be considered at the hearing.  The taxpayer (or taxpayer’s representative) may raise any relevant issue relating to the unpaid tax or the proposed levy, including spousal defenses, challenges to the appropriateness of collection actions, and proposed collection alternatives.

 The taxpayer may also challenge the liability if the statutory notice of deficiency was not received or the taxpayer did not otherwise have an opportunity to dispute such tax liability.  The Appeals determination will be based on consideration of the following: 1. Verification from the IRS that the requirements of any applicable law or administrative procedure have been met;

2. The issues raised by the taxpayer as mentioned above; and, 3. Whether any proposed collection action balances the need for efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary.

The Collection Appeals Program (CAP) procedure is available under more circumstances than the CDP hearing procedure. There is no judicial review of a CAP determination. See IRS Publication 1660

The CAP can be used with the following: Notice of Federal Tax Lien (if CDP and Equivalency are not available); Notice of Levy (if CDP and Equivalency are not available); Seizure of Property; Denial or Termination of an Installment Agreement; or The Decision of a Revenue Officer.

 A prerequisite for a CAP hearing is that you have to ask for and speak with a manager to request one.  Then a Form 9423 is submitted.  Must explain why disagree and offer a solution to resolve the problem.  Form 9423 MUST be received within TWO days of the conference with the manager.

 I have only had to threaten a CAP with a Revenue Officer manager.  I have not had to use the CAP procedure in all my years of practice.

Whether in an audit, challenging an assessment,or in collections, it is usually necessary to take your issues to the Appeals Office. In general, the Appeals/Settlement Officers are better trained and helpful in reaching a reasonable resolution.

It is very important to remember that if the Appeals case has rights to appeal to court – you are making the record for the court case. All taxpayers should have an attorney involved at the Appeals level if the case may go to court – especially if it is a CDP case because the record is limited to what was presented in the hearing.