By H.T. Astrov, JD, CPA (inactive), LLM
Taxpayers should always be cordial and respectful to the revenue officer because this initial encounter can establish the tone of future interactions. Taxpayers need to recognize that revenue officers wield a vast array of resolution alternatives which span the gamut from voluntary but manageable (e.g., installment agreements) to involuntary and consequential (e.g., wage garnishments and asset seizures).
Although the nature of the job can be difficult, most revenue officers are well-intentioned and want to arrive at a fair solution to resolve the tax liability. Revenue officers, though, expect taxpayers to satisfy their obligation to provide financial information and make agreed-upon progress toward a voluntary collection alternative (such as a full or partial pay installment agreement, submitting an offer in compromise, and/or requesting currently not collectible status). If not, revenue officers who are trained to distinguish between “can’t pay” and “won’t pay” situations will, when necessary, take involuntary enforcement action.
In almost all instances, the taxpayer should not attempt to complete a financial statement “on the spot.” If the taxpayer states at any time during an interview that they wish to consult with an authorized representative (such as an attorney, CPA, or other individual enrolled to price before the IRS), the IRS employee will immediately suspend the interview to permit such consultation. In these circumstances, the IRS will allow a minimum of 10 business days for the taxpayer to consult and for the authorized representative to contact the revenue officer. Once a representative is retained, with very few and infrequent exceptions, the IRS must speak with the authorized representative and not directly with the taxpayer.
The taxpayer and representative will work together to understand the advantages and disadvantages of the various voluntary collection alternatives discussed above. In assisting the taxpayer with preparing the financial statements (and responding to any other IRS information requests), the representative will ensure that the information is well-documented and supportable.
Information submitted to the IRS must not raise uncontemplated new questions. Further, often to support the taxpayer’s desired collection alternative, the taxpayer needs to provide information beyond what is directly asked in order to present a full picture of the taxpayer’s financial situation and its nuances.
The IRS is hiring and has hired many new revenue officers over the past few years. During the period that field visits were suspended, many of these new revenue officers have been unable to perform one of the most consequential aspects of their job (i.e., the field visit). It is entirely possible that these individuals might not possess the judgment and willingness to exercise administrative discretion possessed by more seasoned revenue officers. Taxpayers must be vigilant about exercising their rights and not agreeing to a premature and not viable collection alternative.
At a minimum, before the IRS grants voluntary collection alternatives, the taxpayer must submit all delinquent tax returns.
It is always desirable for the taxpayer to initiate contact with the IRS. If a case has not been referred to a local office, the IRS Automated Collections System will likely be able to assist with a payment arrangement.
Taxpayers should always make sure the IRS has their current address. Address changes can be submitted to the IRS by using Form 8822. Otherwise, taxpayers who have moved since the taxpayer filed their last tax return may not receive important notices regarding potential liens and levies. Taxpayers should prepare the necessary financial statements and gather appropriate documentation (including the non-quantitative factors) to understand the advantages and disadvantages of the various voluntary collection alternatives.
Taxpayers with significant tax liabilities should consider retaining a representative experienced in dealing with IRS collection matters and submitting a Form 2848 (Power of Attorney and Declaration of Representative) to the IRS. As indicated above, once this is on file, the initial field visit by the IRS revenue officer will be to the representative and not to the taxpayer. In this regard, representatives should also develop procedures and instruct office staff on how to handle such visits.
Hear more from H.T. Astrov at the MEGA Tax Conference on Dec. 13-14. Register here.