Trust Fund Recovery Penalty

In case you do not know what this is, I will give you a brief definition:

Corporations, Limited Liability Co, Limited Partnerships are entities unto themselves. These entities are responsible for the collecting and paying of the taxes that are being withheld from the employees’ paycheck. When   these payments are not made, the IRS looks at the Officers and key employees of the entity for these payments. The trust fund is one of the cases where the corporate veil is broken. If one or more people are found responsible for the payments not being paid, the actual amounts not paid will be assessed to those individuals.

Trust fund penalty is really not a penalty, but the actual taxes that were to be paid. When assessed to the individual, no penalties or interest are charged to the individual accounts, just the tax. After assessment, the interest does start to accrue.

That being said, the IRS looks at the trust fund that was not turned over to them as embezzlement.  The Bankruptcy Court feels the same way as you are not allowed to discharge this assessment in Bankruptcy Court.

Any person who is charged with this penalty has the potential of being charged criminally.

Prior to being charged with this penalty, a trust fund interview must be given by the Revenue Officer. It may be a good idea, since there are criminal implications, depending on the circumstances, the taxpayer may want to evoke their Fifth Amendment rights.

The good news, the statue of limitations for assessing the trust fund penalty is three years from the date the applicable return was filed or three years from April 15th of the succeeding calendar year. If this date is missed, the penalty cannot be assessed against those involved.

Advanced Non-filers Representation

When a taxpayer comes to you and tells you that they have multiple years of unfiled tax returns, before you start filing, fill out the 8821 and get a complete report for all the years that the taxpayer has not filed. This request will not alert the IRS to go after the client.

Generally, the IRS is only interested in the last 6 years of tax returns according to their policy statement P-5-133. Be aware that there is no civil statue on unfiled returns, but the criminal statue is 6 years.

Do not mail all the back years in the same envelope. With each return, file a letter of reasonable cause for abatement of penalties. The chances are great that each of the returns you file will go to a different examiner. So if you have 6 returns, you have 6 chances the examiner might buy your reasonable cause for abatement of penalties. Make sure you pay a small amount of money on each return, even if no money is owed. This way the IRS cannot say they did not get the return. On the back of the check you send in will have the IRS notation for what tax return this payment is to be attributed. Therefore proof of filing.

Tax Negotiations

What tax negotiations boil down to is finding out what the IRS wants and what you are prepared to trade. It is finding mutually acceptable compromise giving both you and the IRS what you want.

DO NOT take a position of taking no prisoners, this might work in this case, but can really hamper your affectedness in future cases.

There are 4 steps to negotiations:

  1. Preparation
  2. Information exchange
  3. Bargaining
  4. Commitment

When preparing for negotiations your need to assess your goals, what you are willing to trade, what alternatives there are if you do not reach agreement with the IRS, what is your particular relationship with this IRS employee and what you expect as the outcome. You also need to think about the consequences of your winning or losing.

Power of Attorney and Forms of Authority

Did you know that with a valid POA you can represent your client at all levels of the IRS? This includes the chief counsel’s office. Once the case is in front of tax court, you are out of luck unless you are an attorney.

I find dealing with the Chief Counsels Office easier than dealing with appeals. The attorneys at this office are really ready to deal as they do not want to take up the courts time on something that can be settled.

Even though the POA can allow you to sign 433 A, B, 656, extension of the statute of limitation excreta, DO NOT SIGN.  Have your client sign for your ultimate protection.

Things that the POA does not generally allow you to do in the way of representation can be added to line 5 of the authorization.

Form 8821 authorizes any member of your firm to request a FOIA, ROA and income data. The 8821 can be a request for multiple years, thereby getting the information you need to see the full picture of the status of the client, but not allow you to speak to the IRS for the years the information was requested.

When you are representing your client for a specific year, the POA should be for only that year. That way the IRS cannot ask you for information regarding other years and you can deal with the year at hand.

FYI – Currently there is a bottle neck at the POA department. It is taking up to six weeks to get your POA on the system. The IRS says that it is working to fix this.

Don’t forget to revoke your POA once you completed your case. This is easy, all you need to do is send a revoke letter with a copy of the original POA.

Oh thanks for asking what my business is

I am a Certified Tax Resolution Specialist and CPA. I do not want to do tax returns I absolutely do not want to do write up work. I want to help taxpayers get out from under the heavy-hand of the IRS and State.

Currently all my work is from referrals from other CPA’s, EA’s and attorneys. I also have referrals from previous clients.

The professionals who contact me on behalf of their clients know enough to not get involved with tax resolution work. It is a specialty that takes special training and skill. I cannot tell you how many cases I have done in the past that a tax professional messed up from not having the right background. They were great tax accountants, but not so good in the resolution area.

I’ve said enough about me for now; blog you next week.

Building and sustaining a business on line

Well I guess I took this session to heart. Am I not here spilling my guts? It is really hard to get involved in a new way of doing and growing a business.

I am computer savvy in many ways, just not where Facebook, Linkedln, blogging, WordPress and Twitter are concerned. I am at a complete loss. So what did I do? I went online and purchased Social Media for Dummies and WordPress for Dummies. I started to read them, and then went on line to have someone else set me up. I know, I am chicken.

Oh thanks for asking what my business is.

I am a Certified Tax Resolution Specialist and CPA. I do not want to do tax returns I absolutely do not want to do write up work. I want to help taxpayers get out from under the thumb of the IRS and State.

Currently all my work is from referrals from other CPA’s, EA’s and attorneys. I also have referrals from previous clients.

The professionals who contact me on behalf of their clients know enough to not get involved with tax resolution work. It is a specialty that takes special training and skill. I cannot tell you how many cases I have done in the past that a tax professional messed up from not having the right background. They were great tax accountants, but not so good in the resolution area.

Enough about me, back to business.

Criminal Tax Problem Resolution

After spending time learning about Criminal Tax Problem Resolution I have decided I do not want to involve myself in this area of practice. Give me a civil case any-day.

I did learn some interesting things though that I can apply to my civil practice.

I think everyone knows that when you deposit $10,000 or more into a bank account it is reported to the Federal Government. What I don’t think people know is that banks are now reporting a pattern of deposits in the $6,000, $7,000 $8,000 and $9,000 range. So if you have a client who always deposits $8,000 many times during a short period of time, there is a likelihood of it being reported.

If your client is being audited or the IRS was asking for unfiled returns, and all of a sudden you no longer hear from the auditor or agent and the auditor or agent does not return your calls, this is a good indication that this case has been forwarded to the Fraud Investigation Unit.

If this happens, sit down and have a frank talk with your client, ask them to come clean. If there is something there, advise them to hire a criminal tax attorney to represent them immediately.

Audit Reconsideration

What do you do when a client is unsuccessful after an audit? We know that the client will be receiving a “Statutory Notice of Deficiency is issued or a 90-day Notice is given.

The taxpayer can either file a court petition during the 90 day period or he can file for audit reconsideration.

This process allows the taxpayer to disagree with the results of the audit. However, the IRS does not have to allow the audit reconsideration. There is nothing in the IRC that requires them to do so.

For the IRS to agree to the audit reconsideration there must be compelling reasons to do so.

These are the reasons for requesting audit reconsideration.

  1. The taxpayer did not participate in the initial audit or appeal
  2. The taxpayer disagrees with the results of the original audit
  3. The taxpayer was not notified of the original examination appointment
  4. There is new information that was not presented at the initial audit
  5. The taxpayer wants to challenge the basis of the SFR
  6. The taxpayer was denied allowable tax deductions or credits.

If the taxpayer has already participated in an Offer in Compromise, there was a final U.S. Tax Court regarding the assessment or they are within 120 days of expiration of the statute, they may not request audit reconsideration.

What you need to do before you proceed with the audit reconsideration:

You must get a copy of the original audit report. If the taxpayer does not have a copy, you can request a copy of it from the Memphis Audit Department.

The items that need to be present when requesting the audit reconsideration are:

  1. A formal request giving the reasons for the reconsideration
  2. The original audit report ( Form 4549)
  3. The taxpayers complete name address and identification number
  4. A statement that the taxpayer is requesting the AUR
  5. Provide a detailed statement outlining all pertinent IRS correspondence
  6. List all tax years or periods related to the AUR
  7. List all the exceptions or issues that should be addressed
  8. Provide a statement of facts that the taxpayer is relying on
  9. Submit a detailed statement of law based upon legal basis which the taxpayer was relying. Cite references that support your facts and circumstances.

10.  Include affidavits or exhibits that will demonstrate the points of law, facts and circumstances

11.  Write a concise conclusion statement referring to all the documents

12.  Submit a declaration of representation.

If you are unsuccessful in the Audit Reconsideration, by the filing of it, you can appeal the decision citing Publication 5 or you can pay the liability in full and file a formal claim for refund, don’t respond to the AUR and deal with collections or just wait out the statue of limitations.

American Society of Tax Problem Solver Seminar

Wow! I just returned from a three day advanced seminar put on by the American Society of Tax Problem Solvers.

This is the third time I have been to one of their boot-camps and by far this was the most informative.

Topics and presenters were:

  1. Criminal Tax Problem Resolution – Robert Patrick Sticht, Esq.
  2. Representing Trust Fund Recovery Penalty Cases – Neil Deininger, CPA, Esq.
  3. Building and Sustaining Business Relationships Online – For Tax Problem Solvers – Jennifer Bailey, Director at JAILBREAK CREATIVE
  4. Practice Growth – Donald J. Hahn, CFF,CPBA,CPVA
  5. Audit Reconsideration: An Often Overlooked Gem – LG Brooks, EA, CTRS
  6. The power of attorney and Forms of Authority – LG Brooks, EA, CTRS
  7. Advanced Non-Filer Representation – Robert McKenzie, Esq., EA, CTRS
  8. Tax Negotiations – Robert McKenzie, Esq., EA, CTRS

I will be giving my thoughts regarding what I learned over the next several weeks along with some direct information provided by the above presenters.

Stay-tuned.