U.S. IRS COLLECTIONS

The Revenue Officer will often seek interviews with those individuals it believes are responsible for the unpaid payroll taxes. The reason is that it helps the IRS determine if there were other individuals who should be considered as responsible parties and pursued for the Trust Fund assessments. The Revenue Officer will conduct the interview utilizing its Form 4180, Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes. 

There are issues with the IRS Form 4180. This Form used to be eight pages long in 2003. It is now three pages long. In an effort to reduce the paper used in forms this form had its questions combined into broader ones, reducing the amount of print and therefore the number of pages. The problem is that the questions have become very broad and encompassing, allowing the IRS to potential claim people are responsible who should not be.

Christopher G. Carmona CPA,CFE

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A fraudulent conveyance is where the tax debtor transfers assets to a third-party with the object or the result of placing the property beyond the reach of the creditor or hindering the creditor’s ability to collect a valid debt. A fraudulent transfer also occurs when property is transferred without fair consideration. 

Taxpayers who attempt to frustrate collection by transferring away assets that the IRS lien has attached to are usually subject to this claim of fraud, and these liens would be filed against the recipient of the assets.

Christopher G. Carmona CPA,CFE

Orange County, USA 

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Just because someone had signature authority does not mean they ever used that authority or had any knowledge of the tax problems. A critical piece of information to support a client’s defense that they did not sign payroll checks or even other checks would be copies of the cancelled checks. Like the bank signature card, a copy of these checks may be in the administrative file you obtain through the FOIA request. If they are not, the client may need to obtain copies from the bank. You need to review cancelled checks to determine that the client:

A. did not sign checks, or

B. if they did sign checks, that they did not sign payroll checks.

Christopher G. Carmona CPA,CFE

The PDC (Private Debt Collection) can contact the taxpayer and attempt to get either full-paid or get the taxpayer into a payment arrangement. The PDC can not take any enforcement action, meaning they have no right to levy the taxpayer. 

The PDC also has no authority to compromise a debt or abate tax penalties. For those taxpayers who claim to be in uncollectible status, the PDC would send their case back to the IRS to be worked. It is possible for taxpayers who prefer to work with the IRS to request in writing that their account be sent back to the IRS. 

The PDC is able to establish a payment plan (installment agreement) with the taxpayer. When this is done the taxpayer and his or her representative will receive a letter confirming the agreement is in place from the PDC

Christopher G. Carmona CPA,CFE

If an employer owes money to the IRS and can pay that liability back in full in short order, then the IRS will resolve the case that way. If, however, the employer will be unable to repay the liability back quickly then the IRS will begin trying to determine which owners and/or employees were responsible for the company’s failure to pay over the payroll taxes. 

Once the IRS determines who it believes is responsible for the company’s failure to collect and remit the payroll taxes, it will begin the procedures to assess those individuals for the unpaid trust fund portion of the payroll taxes

Christopher G. Carmona CPA,CFE

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A streamlined installment agreement is very similar to the automatic installment agreement. If a taxpayer meets the following criteria, they can simply make a phonecall to the IRS and arrange an installment agreement:

• The taxpayer owes less than $50,000

• The taxpayer has not had a back-tax debt or an installment agreement in the last 5 years

• The taxpayer agrees to full pay the liability within 72 months or before the Collection Statute Expiration Date (“CSED”), whichever occurs first. Just like an automatic agreement, with a streamlined agreement the taxpayer does not have to provide any financial information. The taxpayer can create an agreement with just a phone call (or going to the IRS website).

Christopher G. Carmona CPA,CFE

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Taxpayers and practitioners who wish to seek TAS’s help can do so by filing a Form 911, Request for Taxpayer Advocate Service Assistance. The form is completed and faxed to the taxpayer’s local TAS office. A complete listing of these offices is available on the TAS website. After filing the Form 911 with the local TAS office, the practitioner will receive a phone call from a TAS representative within 48 hours to discuss the taxpayer’s situation. 

TAS (Taxpayer Advocate Service) can be extremely helpful in helping clear up system and procedural issues within the IRS, as well as, with advice for the practitioner who has a messy issue to handle. Practitioners should be sure to make use of TAS whenever appropriate.

Christopher G. Carmona CPA,CFE

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323 707-6148

The tax in question must have been assessed more than 240 days prior to the bankruptcy (plus any period of time during which an offer incompromise was pending, plus 30 days). An amended return, an examination of a return, or an audit may trigger a new or second assessment showing an increase in the tax claim. 

If any of these events occur, the subsequent audit assessment triggers a new 240-day period applicable to the increase in the tax assessment. The original portion of the tax, if dischargeable prior to the audit, would still be dischargeable.

Christopher G. Carmona CPA,CFE

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323 707-6148

A late-filed tax return must have actually been filed more than two years before the bankruptcy petition date. In order for a document to be considered a ‘return,’ under either the bankruptcy or the tax laws, it must purport to be a return; be executed under penalty of per jury; contain sufficient data to allow calculation of tax; and represent an honest and reasonable attempt to satisfy the requirements of the tax laws.

Therefore, although a substitute for return SFR (Subsitute For Return) generally doesn’t count as a return, if the debtor signs the SFR (Subsitute For Return) it may constitute a return.  

Christopher G. Carmona CPA,CFE

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If the taxpayers have a CDP (Collection Due Process) hearing, they are able to raise the underlying liability; however, they must do it at the first opportunity. What this means is that the taxpayer must raise the issue of the liability when they are allowed their first CDP (Collection Due Process) hearing, whether that notice is for the threat to levy or the filing of the NFTL (Notice of Federal Tax Liens).

The taxpayers can raise the issue when they file the Form 12153 by checking “Other” at the bottom of Box 8 and writing in the explanation that they don’t believe they owe the money the IRS believes they do. When the taxpayers do hear back from Appeals, they should submit their documentation to the Settlement Officer for consideration and attempt to have the liability reduced 

Christopher G. Carmona CPA,CFE

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323 707-6148

IRC § 6672 allows the Internal Revenue Service to recover “trust funds” withheld from employee’s pay from “any person required to collect, truthfully account for, and pay over any tax imposed” and “who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof”

There are two key elements required for an individual or business to be held responsible for the Trust Fund Recovery Penalty under IRC § 6672:

1.The person had to be required to collect, account and pay-over the payroll taxes, and

2.The person’s failure to do so must have been willful.

Contact our office if you failed to properly collect and pay payroll taxes.

Christopher G. Carmona CPA,CFE

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The FTD (Federal Tax Deposit) Alert Program is the only Collection tool available that identifies anomalies in an employer’s pattern of payroll tax deposits. Using this tool to anticipate deposits that are missed allows IRS’ Field Collection the opportunity to interact with the taxpayer and proactively address potential problems as they develop, but before the amount owed exceeds the taxpayer’s ability to pay. 

In IRC § 6302 Congress mandated that the IRS establish a system of making deposits by electronic fund transfer in order to expedite the collection of depository taxes. In doing so, Congress has provided special procedures for the collection of depository taxes held in a special fund in trust for the United States in IRC § 7501.

Christopher G. Carmona CPA,CFE

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If the taxpayer claims that either they did not have bank signature authority or does not know if they had authority, the bank signature card is critical. A copy of the bank signature card may be in the Freedom of Information Act ‘‘FOIA’’ information you receive, but if not, have the taxpayer go to the bank to obtain a copy. If the bank refuses because they do not have signature authority, you can raise this in your protest or at the Appeals hearing. One of the best defenses to a trust fund assessment is to show the taxpayer could not have been responsible because they did not have signature authority. This means they could not have paid the taxes even if they wanted to as they could not direct payment for taxes, thus rebutting a claim of willfulness.  

Christopher G. Carmona CPA,CFE

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Similar to a Regular Installment Agreement, a Partial-Pay Installment Agreement (“PPIA”) is reached when a taxpayer provides financial information to the IRS and the information shows that the taxpayer can make payments but they will not result in full-payment of the tax liability within the time remaining on the collection statute. 

When a taxpayer’s RCP  "Reasonable Collection Potential" analysis indicates that they can make payments, but those payments will not be enough to full-pay the liability within the time remaining on the Collection Statute, the IRS will still agree to the payment plan. These agreements, called “partial-pay” installment agreements, will be just like a regular agreement except that the IRS will revisit the taxpayer every 18 months or so to see if the taxpayer’s ability to pay has improved.

Christopher G. Carmona CPA,CFE

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A Lump-Sum Offer is one in which the taxpayer agrees to pay the offered amount in less than six months upon acceptance. Once the taxpayer and practitioner calculate the taxpayer’s RCP  "Reasonable Collection Potential" , then the following steps occur:

1.The taxpayer files the offer based upon two components to calculate RCP: 

a. Net Equity in Assets

b. 12 months of Future Income

2.The taxpayer sends in two checks that accompany the offer:

a. $205 for the offer application fee

b. Twenty percent (20%) of the amount offered (for instance, if a taxpayer offered $10,000 he would send in a check for 20% of the amount offered, or $2,000)

3. Upon acceptance of the offer the taxpayer would have five months to pay the balance of the amount offered 

Christopher G. Carmona CPA,CFE

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Section 362 of the Bankruptcy Code provides that, with few exceptions, all collection activity by creditors must cease once the client files for bankruptcy.

This includes the IRS and its efforts to pursue collection of back taxes. So one of the immediate benefits of filing for bankruptcy is that it can put a stop to all IRS and state revenue departments’ collection efforts against the taxpayers and their property. 

The bankruptcy effectively removes the case from the IRS Collection Division and moves it to the IRS’s Insolvency Unit, which deals with bankruptcy cases. This can give a taxpayer immediate relief to work out a plan through bankruptcy when the IRS may have otherwise been unwilling to work with the taxpayer.

Christopher G. Carmona CPA,CFE

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323 707-6148

The IRS will not consider an OIC if the taxpayer shows the ability to full-pay the liability within the time remaining on the statute. It is therefore critical that you look at how much time remains on the collection statute and calculate if the taxpayer could full pay the liability. 

To do this you need to look at the net equity calculated from assets and assume the taxpayer made their future income payments until the end of the statute. If the taxpayer’s equity in assets and future income will cover the liability within the time remaining, then the taxpayer is not considered eligible to file an OIC. The taxpayer would be required to get into an installment agreement. 

Christopher G. Carmona CPA,CFE

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