Posts Tagged ‘Appeals’

Good, Bad, and Ugly With the IRS

Thursday, February 9th, 2023

This week I’ve had to call the IRS up for several different items.  There is good news, bad news, and some ugly news.

The good news: In calling the Practitioner Priority Service (PPS), I’ve gotten through every time!  Twice, there was no wait!  I was disconnected once after reaching an agent but I called back and was immediately connected to another agent.  For practitioners, this is great news and will make our lives easier in Tax Season.

The bad news: The IRS remains slow to respond to obvious issues.  For example, the California “Middle Class Tax Rebates” were announced last year.  California exempted them from state taxation (which is their right); how would they be treated for federal tax returns?  There were (and are) two schools of thought: these are taxable as an accession to wealth or these are not taxable based on the “General Welfare” theory.  A ruling from the IRS is due soon.  My suspicion is that the IRS will rule that these aren’t taxed–based on politics, not law.  (This isn’t just a California issue; several states enacted similar programs in 2022.)

The ugly news: Yesterday, I spoke with an IRS Appeals Officer on a case.  We didn’t agree completely on my client’s issues, but we did agree on where to go to move the case forward.  (Like almost everyone I have dealt with at the IRS, she was pleasant and helpful.)  So why am I putting this in “ugly news?”

The issue is her workload.  From everything I’ve seen, Appeals is buried (see below for another example of this).  She confirmed this, and noted that over the past three years the number of Appeals Officers has decreased to a point that she thinks it will take five years to rebuild the staffing.  (You can’t just hire effective Appeals Officers.)  I agree–it will be years before this and other Pandemic-related backlogs are resolved.

Speaking of backlogs, paper remains the IRS’s Achilles heal.  Here’s an example impacting a client of mine.  An individual self-represented for an audit.  That individual lost at the audit, hired me, and I requested an Appeals hearing by certified mail.  That request was received timely (we tracked the mailing), and we received a notification that the file was sent to an IRS office.  No matter, a Notice of Deficiency was issued so now my client must file a Tax Court petition because of an IRS error.  If this ever goes to Tax Court (which isn’t likely–filing the petition will cause the case to be assigned to Appeals), I doubt the court would look favorably at the IRS ignoring its own procedures.

Additionally, yesterday I needed a transcript for a client.  I went onto IRS E-Services to download it (I had an authorization sent to the IRS back in 2021) and it failed.  Why?  Who knows.  I show it was successfully faxed–but it went into the ether.

As I noted above, it’s going to take years for the IRS to work its way out of the backlog and staffing issues.  This isn’t just for Appeals, but for Exam (audit), collections, and all functions of the IRS.  If there’s a budget shutdown or anything else like that, this could delay things even more.

IRS Appeals Implements Stupid Policy of Not Sending Initial Contact Letters

Tuesday, December 6th, 2016

I have a client who filed a Tax Court petition in late September. She is disputing additional tax from an Automated Underreporting Unit (AUR) notice. She didn’t respond to the initial AUR notice, so the way to resolve this is to file a Tax Court petition and get this in front of IRS Appeals. I have a Power of Attorney for my client; I expected to hear from IRS Appeals in three to five months.

When I got in yesterday morning I had a message from someone identifying themselves as an IRS Appeals officer out of Philadelphia. When I returned the call I discovered he was the assigned Appeals Officer in the case. I also discovered that:

– In the past for a case sent to Tax Court the IRS sent a letter to the petitioner (and her representative) noting that the case was being assigned to an IRS Appeals Officer with the hope of settling the case;
– IRS policy has changed, and these letters are no longer being sent;
– Now the initial contact would be by phone with no letter being sent; and
– Even after my calling the Appeals Officer there’s no way for me to receive correspondence showing that the Appeals Officer has been assigned to the case.

In this particular case I am certain that this Appeals Officer is working on the case (he had details of the case that were not public). However, I do not want to just take the say-so of a voice on the phone. Hasn’t the IRS Appeals Office heard of identity theft? Perhaps they’ve heard of the IRS Phone Scams? This week also is “National Tax Security Awareness Week;” it appears that the IRS Appeals Office should consider how their security appears to tax professionals.

The IRS recently mandated that, “ALL initial taxpayer contacts to commence an examination must be made by mail using approved form letters. [emphasis in original]” Similar rules now apply for payroll tax examinations and FTD Deposit Alerts. The Appeals Office policy of calling first is, to be blunt, stupid.

An initial contact letter (or fax) costs a couple of dollars to send out. It informs the taxpayer and his representative that a specific individual has been assigned to the case, their contact information (address, phone and fax numbers), and gives official notification of the assignment. (It also usually gives the name of the Appeals Officer’s Manager.) The cost for sending out this letter is likely less than five dollars. This is a minimal cost. I don’t know exactly how much the Appeals Officer I spoke to yesterday makes, but I can guarantee he spent more than five dollars worth of his salary proving to me that he was assigned to the case.

Hopefully the powers that be at the IRS will realize that this is a very penny-wise, pound-foolish policy. In these days of identity theft and phony IRS phone calls how am I to know that Appeals Officer Smith really is an Appeals Officer rather than a scammer?

IRS, please reconsider.

Reversing Two Penalties That Should Never Have Been Charged

Monday, May 6th, 2013

When are tax returns due? For most individuals, its April 15th. However, if you are outside of the United States on April 15th for purposes of employment or self-employment you get an extra two months (until June 15th) to file your return. There are no penalties but interest is charged. As the IRS states (see the link), you simply attach a statement to the return and no penalties are supposed to be charged. I’ve been preparing returns for expatriates for years and never had any problem with this…until last year (the 2012 tax season for filing calendar year 2011 returns).

For whatever reason, I had several clients who were charged penalties who were outside of the United States on April 17, 2012 (last year’s tax deadline) for employment/self-employment purposes. I checked with my software vendor and they told me that nothing had changed with the software–the notices were attached to the filed returns. I believe them because I had two clients who paper-filed who were charged penalties! In all cases, a statement was attached to the return noting the taxpayer was outside of the US on the tax filing deadline.

In most of these cases, I was able to reverse the penalties with a phone call. However, I have had three clients where I have had to write letters to the IRS. Here’s how one case was resolved.

This client’s return was filed in early June. She took the automatic extension, with a statement attached to her return. She had a small balance due which was paid through electronic debit (with the filing of her return). In mid-July she received a CP14 notice noting that she owed late filing and late payment penalties. I obtained a Power of Attorney and called the IRS. The IRS refused to lift the penalties. I wrote a letter in early August explaining that no penalties should be owed. In mid-September, I received a response from the IRS that they hadn’t resolved the situation. In mid-December, the IRS denied removing the penalties.

We have carefully reviewed your case. However, the information provided did not establish reasonable cause. Thus we are unable to remove your penalties for failure to file and failure to pay.

Did the IRS even read the letter I wrote? I asked for the penalties to be removed based on the out-of-country automatic extension, not for reasonable cause. (And yes, it took the IRS over four months to give an answer to my letter.)

We then appealed the decision. The hearing was held in late March and was the shortest Appeals hearing I’ve ever had. The Appeals Officer stated that we were correct, and that no penalties should be charged. “I can’t remove the interest,” he noted. I told him that was fine–the client does owe the interest. The Appeals Officer told me that he had no idea why this couldn’t have been resolved at the Service Center level or by Service Center Appeals Screening. (All appeals are first screened for obvious cases where the appellant is correct. A few years ago, I filed an appeal on behalf of a client who was charged the late filing penalty when his efile return was rejected on October 15th; he had mailed the return the next day–and mailed it using certified mail, return receipt rejected. The screening staff granted our appeal.)

Well, I may be able to answer the question as to why this couldn’t be resolved at the Service Center. I suspect that staff answering the notices (generally, the automated underreporting unit, or AUR) have problems when it’s not something they’ve encountered before. (I cringe when I have a client who receives a CP2000 notice regarding, say, a W-2G. Most personnel at the IRS rarely see gambling-related tax issues and don’t understand the law.) Most likely, the individuals who reviewed the letters I sent had no idea that there’s an extended deadline when you’re outside of the US on April 15th. Since they didn’t know of it, it couldn’t exist.

Second, the sheer volume of notices being sent out is creating a huge volume of responses. This means the staff handling those responses have been overworked. Given that two-thirds of IRS notices are incorrect (in part or in whole), the IRS is likely getting lots of letters. Overwork leads to errors in responses.

I don’t know if I’ll actually have to go to Appeals on the other two clients whose cases have yet to be resolved. (These are both going through the same IRS Service Center which rejected my first client’s out-of-country extension.) In the end, I’m certain my clients are in the right. But consider the expense to my clients and the expense to the IRS. As Joe Kristan noted last week, the IRS could do a better job in spending the money it has. I would expect that basic training in the deadlines would be given (or at least, knowledge of the rules or a database of where to look).

Unfortunately, I don’t expect things to get better. The problem is that the AUR program is a huge moneymaker for the IRS. Far too many individuals see an IRS notice and blindly pay it. Most of my clients have been reading my newsletter (or this blog) and know the reality of IRS notices and don’t blindly pay IRS notices. Make sure you don’t either.

Will the Third Time be the Charm for Appeals?

Tuesday, February 5th, 2013

The IRS Office of Appeals describes its mission as,

[T]o resolve tax controversies, without litigation, on a basis which is fair and impartial to both the Government and the taxpayer in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the Service.

A case decided in Tax Court yesterday isn’t making Appeals look good.

Jurate Antioco sold a bed and breakfast on Martha’s Vineyard in 2006 and came into some money. With the proceeds she bought an apartment building in San Francisco and lived in one of the units; she moved her ailing 96-year-old mother into another. Three other units are rented and she lives off that income.

What Ms. Antioco didn’t realize until April 2008 is that she owed taxes on some of that money, a tax debt of $170,000. With all of her money tied up in the apartment building she couldn’t pay the IRS. So she suggested an installment agreement. The IRS wanted to seize (levy) the apartment building.

Fast forward to 2009, when IRS Appeals gets the case for the first time. Ms. Antioco has issues with borrowing against her apartment building (the current lender wouldn’t agree to it), and she has obvious economic hardships. No matter, IRS Appeals denies Ms. Antioco’s request; she filed a Tax Court case.

Before the case was heard, the IRS moved to remand the case stating that the Appeals officer had abused her discretion. Yes, the IRS admitted that the Appeals officer erred. The case was remanded, with the Tax Court noting that new financial documentation (an IRS Form 433-A) should be reviewed. You would think things would go smoothly; after all, the Tax Court told the IRS to look again at the financial issues.

No. The new Appeals officer called Ms. Antioco requesting documentation:

[H]e called Ms. Antioco several more times that day and at one point told her she was being uncooperative and that she didn’t have to go through with the case. He also told her to “put your money where your mouth is” and that he had been a witness in Tax Court. Ms. Antioco felt so threatened by Mr. Owyang’s calls that she stopped answering and hired an attorney to help her.

The Appeals officer made a preliminary determination that, “Ms. Antioco could pay her liabilities but “simply chose not to do so.” [emphasis in original]” Indeed, the Appeals officer thought that fraud had occurred when Ms. Antioco added her mother to the deed. Only there wasn’t fraud; she had provided documentation and adding her mother to the deed was a requirement of a new lender.

The Appeals officer further called Ms. Antioco a “won’t pay taxpayer.” The only problem is that,

There is nothing in the record to support any of these conclusions either. The record in fact shows just the opposite: Ms. Antioco didn’t even find out she owed any tax for 2006 and 2007 until her accountant told her in April 2008.

The Appeals officer also didn’t consider her mother’s ill health. “These were precisely the reasons Ms. Antioco listed as grounds for entering into a short-term installment agreement until she could either obtain a loan or sell the building after her mother passed away.” Only the Appeals officer ignored this. Ms. Antioco also noted economic hardships; again, the Appeals officer ignored this.

We have found that Mr. Owyang abused his discretion in sustaining the proposed levy and that we cannot uphold the supplemental notice of determination on any of the stated grounds…We will therefore again remand the case to Appeals to consider Ms. Antioco’s proposed installment agreement, her financial information, and whether special circumstances or economic hardship exists.

Hopefully, the third IRS Appeals officer will actually get it right.

Case: Antioco v. Commissioner, T.C. Memo 2013-35