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IRS Dirty Trick

The Blog deals with an appeal of a levy action under the "collection due process" appeal rules of IRC 6330. We indicated that there is no tax liability for my client because she was not liabile for the payroll taxes of a company managed by her husband. She was not a "responsible person" for the payment of the payroll taxes under IRC 6672. Before the conference, we receive a letter from a Settlement Officer Kathryn E. Dugan, in the IRS Appeals Office, 31 Hopkins Plaza, Suite 1310, Baltimore, MD 21201. Dugan said that we could not submit an OIC based on "no liability" because my client had a prior opportunity to resolve that issue in another IRS forum. I called Ms. Dugan and told her that if she would delay the conference one day, I would send her a legal memorandum on why I believed that an OIC based upon no liability was within the 6330 statute. Ms. Dugan refused. We had a difficult conference because Ms. Dugan had no answer to my reference to the unmodified language of 6330 that the taxpayer had the right to submit an Offer in Compromise under the statute. My client listened in on the conference call and took notes on the conference. My Client and I heard Ms. Dugan state that she would allow me to send her a legal memorandum to support my conclusion in the conference that an OIC can be submitted under the clear language of 6330. Without question that language is in the statute and the right to submit an OIC IS NOT MODIFIED BY ANY OTHER LANGUAGE IN THE STAUTE. I sent Ms. Dugan a memorandum with a technical analysis of IRC 6330 to explain why the statute was clear that we could submit an OIC. I pointed out that the IRC 6330 does not distinguish between an OIC "doubt as to liability" or an OIC on "doubt as to collectibility." I noted that the right to submit an OIC in 6630 is UNQUALIFIED. I also addressed the trust fund penalty issue in that memorandum. I requested that Duggan request technical advice on the technical issue from the IRS National Office. It took about 2 months to hear from Ms. Dugan. Ms. Dugan drafted a Determination Letter dismissing the CDP Appeal because we did not submit the OIC Form 656. She did not address the 6330 interpretative issue. She did not address the tust fund penalty issue. She merely based the adverse determination letter on the fact that she never receved a Form 656 that she indicating writing she would not consider. FIRST: Ms. Dugan sent us a memorandum before the conference stating that we could not submit the Form 656. SECOND: Ms. Dugan in the Appeal Conference allowed me to send her a post-conference technicla memorandum to justify an OIC on Form 656 and indicated that she would reply to that memborandum. THIRD: My client and I heard Mr. Dugan state that she would nto allow us to file a Form 656. I contacted the area manager Ruth Vriend. Ms. Vriend said that the notes of Ms. Dugan states that Dugan said that we could submit the Form 656 even though Dugan's notes also said that we could not submit the Form 656. Ms. Vriend let the determination letter stand without change. Summary: 1. Ms. Dugan said in writing before the conference that we could not submit the Form 656. 2. Mrs Vriend stated that Ms Dugan's notes said that she believed that the OIC "no liability" could not be submitted. Vriend also said that Dugan's notes told us we could submit the Form 656. 3. My client and I both did not hear Ms. Dugan say we could submit the Form 656. And in the same conference Vriend said that Dugan noted that we could not submit the OIC. We not only have a conflict on the facts, we have A CONTRADITION BY DUGAN WHO SAID WE COULD SUBMIT THE OIC AND ALSO THAT WE COULD NOT SUBMIT THE OIC. 4. Dugan never addressed my argument that IRC 6330 was clear on its face that we could submit an OIC in the 6330 conference as an alternative to collection by the IRS. 5. After Dugan got my memorandum she did not tell me that she also wanted the Form 656 or that she expected it. 6. Since I had a statement by Dugan in writing that I could not submit the OIC, I expected her to reply to my memorandum before the Form 656 would be an issue. Moreover, Ms. Dugan said she would reply to my legal memorandum. 7. My client and I disagree with the appeal notes of Dugan who claims to have said we could submit the Form 656 EVEN THOUGH SHE SAID WE COULD NOT SUBMIT THE FORM 656. Does that make you crazy, or what? We will have to go to the Tax Court on this issue to determine if Dugan abused her discretion. That is a very high burden of proof on our part but we have in writing Dugan's statement that we cannot submit the Form 656. And Dugan's notes on the conference state her belief and argument that we could not submit the Form 656. This was a very "chap shot" by Dugan. She could not and did not disagree with my legal memorandum on the issue. Therefore she closed the case by stating that we did not submit the Form 656. Ms. Dugan get my nomination for THE IRS ABUSE OF THE DAY. She also gets my nomination for the "cheap shot" of the day and "the liar of the day." What is clear is that Ms. Dugan did not follow the IRS Mission Statement to apply the tax law with "integrity" and "fairness." Please post any comment you may have on the issues discussed. Alvin S. Brown, Esq ab@irstaxattorney.com

posted @ 5/26/2007 10:27 AM by IRS Forum

Abuse of the 6672 trust fund penalty statute

Today's IRS abuse is by Audrey F. Donaldson, IRS Revenue Officer, 201 Thomas Johnson Drive, Suite 203, Frederick, MD 21701. I have been working with a taxpayer to help get the IRS to correct corporate payroll tax payments which were posted to the wrong periods by the IRS. There have been some other distortions that we wanted to correct. We told the IRS that the corporation would pay any balance due on payroll taxes if there is a balance due. Donaldson sent out a certified letter to Taxpayer, the person responsible for the payment of the corporate payroll taxes. The certified letter proposed to assess the "trust fund penalty" against Taxpayer. We never got it. Donaldson said the letter was never picked up and it was returned by the Post Office. Donaldson also said that she did not have Taxpayer's new address. We met with Donaldson on other issues. We talked with Donaldson and her manager on other issues. If Donaldon wanted to give us notice of a proposed trust fund penalty, all she would have to do is call us on the telephone. She did not do that. Secondly, Donaldson misapplied section 6672 which required "willful" faiilure to pay. We were "willfuly" trying to resolve the tax liabilities. We have been willfully trying to resoleve the correct assessment. The is completely opposite of the "willfull" requirement of IRC 6672. Donaldson was technically wrong on the facts and the law in her misapplication of IRC 6672. Donaldson is a clear example of the failure of the IRS to live up to its Mission Statement to apply the tax law with "integrity" and "fairness." She did not send the proposed assessment letter to the tax attorney because she said that I did not have "penalty" in the Power of Attorney Form. She refused to call either the Taxpayer of me to let us know that the posposed assessment was not delievered. Donaldson gets my award for the IRS Abuse of the Day.

posted @ 5/24/2007 12:29 PM by IRS Forum

IRS Abuse - Failure to Withdraw Levy to Preven Economic Hardship

The IRS abuse in this case involves the failure to withdraw a salary levy. Congress requires that a levy be withdrawn in the event of an economic hardship (section 6343 of the Code):

Taxpayer Husband (H) is a carpenter. Taxpayer wife (W) manages a branch office of a bank that provides mortgage services. W’s income is 100% commission income. H and W have a tax liability of $42,000 for the years 1997 through 2002. H, recently employed had been out of work for over one year due to a work related injury.

H and W engaged Alvin Brown & Associates (ABA) to help them file an Installment Agreement in 2004. The initial amount offered was rejected, and a timely appeal was filed by ABA. H & W could not pay as much as the IRS requested because H was not able to work due to his injury. By statute, the IRS cannot levy wages when an Installment Agreement (IA) is pending.

On 7/6/06, H contacted ABA stating that the IRS has filed a “Notice of Levy on Wages” with W’s employer. This created an emergency situation because W states that she will be discharged from her employment if her wages are garnished. [She works for a bank and her management responsibilities involved sensitive and confidential financial information.] He check for the current pay period is due to be cut on Monday 7/10/06

Attorney Alvin S. Brown (ASB) personally called the IRS Service Center (ASC Support in Bensalem, PA) at 1-800-829-3903 to ask the IRS to stop the levy because an IA is on appeal and the garnishment of wages would create an economic hardship.

Section 6343(a)(1)(B) requires the release of a levy if the release will facilitate the collection of the liability. Section 6343(a)(1)(D) requires the release of a levy if the IRS determines that the levy is creating an economic hardship.

After about a 30 minute wait, an IRS person (IRS) stated that the IA appeal cannot be found. H told ASB that the office that handled the IA filing was closed and that the files of that office were sent to NY. Apparently, the IRS lost the ABA written appeal. IRS stated that IRS cannot do anything to stop the levy because H and W are not in tax compliance because the 2004 tax return was not filed. H told IRS that his 2004 tax return was prepared by a CPA firm and that he assumed it was not filed. Nevertheless, H said that he would be able to get a copy of the filed return and fax it to the IRS on Monday. IRS said no. IRS also said no halt to the garnishment would be made without a completed Form 433F.

ASB requested that the levy be put on hold for a few days for the following reasons:

The information that the IRS wanted (a copy of the filed 2004 tax return and a completed Form 433F could be sent to the IRS on Tuesday.
If the lRS is not satisfied, they can reissue the notice of levy a day later.
The wage garnishment will result in the loss of W’s job. If her job is lost, it could create an economic hardship because they will have no money for food, housing, transportation, and other necessary expenses.
If W loses her job, H and W lose the opportunity to full pay their tax debt including interest and penalties. Hence the IRS will benefit and be fully paid if the levy is temporarily put on hold or temporarily withdrawn.
ASB pointed out the very strong Congressional policy to encourage the IRS to enter into Installment Agreements.
ASB discussed the tax policy of Congress in enacting section 6343 of the Code making the withdrawal of a levy mandatory in the case of economic hardship and also in situations where both the IRS and the taxpayer mutually benefit from with withdrawal of levy.
ASB argued that section 6343 does not make the filing of a tax return a predicate to the issue of economic hardship.
ASB pointed out to the IRS that H and W qualify to get their tax debt discharged in bankruptcy because the tax debt is over three years old. ASB also noted that if W is unemployed, H & W can get all of their tax debt eliminated in an Offer in Compromise.

IRS ABUSE: The IRS would not withdraw the levy even until Tuesday. That IRS refusal is in violation of section 6343 of the Code. IRS would have waited until Tuesday and received a copy of the 2004 tax return and a completed Form 433F. Congress has clearly communicated to the IRS its legislative intent to encourage Installment Agreements. The second abuse in this case deals with the failure of the IRS to follow the intent of Congress to facilitate the full payment of the tax debt in an IA. Congress also want the tax gap closed. The incredible stupidity of IRS in this case results in the loss of $48,000 that would otherwise have been collected. The IRS does not have the authority to legislate and ignore a statue written by Congress. Further, the IRS did not follow its own regulations with define "economic hardship" to exist when the levy takes away income and leaves a taxpayer without basic necessities (money needed for food, housing, transportation, meical expenses, etc.)

The infomration was sent to the IRS on Monday (a copy of the filed 2004 Tax Return and Form 4333F), and the levy was lifted. But the damage was done - the W's paycheck had been garnished with the resulting adverse consequenses descrimed above.

For any questions on the facts of this case or for more information, call Alvin S. Brown, Esq. at 703 425-1400 ex 106 or contact him by e-mail at ab@irstaxattorney.com. The taxpayers are willing to talk about this IRS abuse. For more information on tax levies, go to www.irstaxattorney.com

posted @ 7/12/2006 6:08 AM by IRS Forum

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