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Archive for Matthew Roberts

What Happens If I Default On An IRS Installment Agreement?

What Happens If I Default On An IRS Installment Agreement?

Installment Agreements Generally

Taxpayers do not always have the financial wherewithal to pay all of their federal tax obligations on time.  In these instances, the Internal Revenue Code (the “Code”)[i] grants taxpayers with a statutory right to request additional time to make full or partial payment through an installment agreement.[ii]  If the IRS accepts the terms of the installment agreement, the taxpayer benefits in that the IRS is precluded from levying against the taxpayer’s assets, provided the taxpayer continues to comply with the terms of the agreement.[iii]  Moreover, the IRS benefits in that it is not required to devote its resources to investigate the taxpayer’s financial situation and also seek levy of the taxpayer’s assets to satisfy the outstanding tax debts.

IRS Form 433-D.[iv]

Generally, a taxpayer enters into an installment agreement with the IRS through execution of an IRS Form 433-D, Installment Agreement.  A standard-form Form 433-D provides the following terms and agreements amongst the parties:

  1. The amount of the monthly payment to the IRS;
  2. Whether the monthly payment will remain static or increase/decrease after a specified period of time;
  3. Recognition by the taxpayer that the agreement is based on the taxpayer’s current financial condition and that the agreement may be modified or terminated if the IRS has information that suggests that the taxpayer’s ability to pay has “significantly changed”;
  4. Recognition by the taxpayer that the taxpayer must remain compliant with other federal tax reporting and payment obligations while the agreement remains in effect;
  5. Recognition that the IRS may terminate the installment agreement in certain instances, including: (1) if the IRS has information that suggests that the taxpayer’s ability to pay has “significantly changed;” (2) the taxpayer has failed to stay compliant with all federal tax reporting and payment obligations; (3) the taxpayer misses a monthly payment; and (4) the taxpayer fails to provide requested financial information to the IRS.

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What Is IRS Notice Of Deficiency?

What Is IRS Notice Of Deficiency?

Ordinarily, taxpayers file their income tax returns each year with the IRS and hear nothing more.  Rather, the Internal Revenue Service (“IRS”) simply processes the tax return, assesses the reported amount of tax due, and accepts and credits the taxpayer’s payment against the reported tax amount.  In this manner, life moves on until the same process is repeated again the next year.

But, there are times in which the IRS disagrees with the amount of tax reported on a taxpayer’s return.  In these instances, the IRS must utilize so-called “deficiency procedures” to communicate to the taxpayer the IRS’ belief that adjustments should be made to the return.  These deficiency procedures provide taxpayers with significant procedural rights to contest the IRS’ determinations.  This article discusses the deficiency procedures including the Notice of Deficiency (“NOD”) the IRS must issue prior to making an assessment of federal tax.  This article also discusses the taxpayer’s right to challenge the IRS’ determinations in the NOD through filing a petition with the United States Tax Court (“Tax Court”).

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Congress Readies New Round Of Tax Increases

Congress Readies New Round of Tax Increases

Background

The House Committee of Ways and Means (the “House”) has been busy the last few days.  Indeed, the House continues to mark up and work through potential revenue raisers (i.e., tax increases) to help pay for recent legislative proposals.  Although these proposals are not yet law, tax professionals should keep a careful eye on the proposals to ensure that they do not potentially interfere with their client’s tax planning.  At a very minimum, tax professionals should be knowledgeable enough to discuss the proposals with their clients and how such proposals (if eventually enacted into law) would impact their clients’ overall goals and objectives.

Income Tax Rates

Increasing income tax rates is generally the easiest way to raise additional revenue for the government.  And, the proposals are no different in proposing additional income tax increases.  These potential increases are discussed below.

Individual Income Tax Rates

Individual income tax rates are currently housed in section 1 of the Internal Revenue Code of 1986, as amended (the “Code”).  The Tax Cuts and Jobs Act of 2017, Pub. L. No. 115-97 (the “TCJA”) reduced income tax rates for individuals. Under the TCJA, the top income tax rates for tax years 2018 through 2025 were reduced from 39.6 percent to 37 percent. However, the reduced rates were not permanent and were set to sunset in 2026, i.e., the top rates were set to revert back to 39.6%.

The House proposal seeks to increase these reduced rates from 37 percent to 39.6 percent for the 2022 and later tax years.  In addition, the proposal seeks to bring more high-income earners into the higher marginal tax rate of 39.6 percent through a reduction of income subject to the higher rate.  For example, under existing law, taxable income of over $538,475 for a single individual is taxed at 37 percent.  Under the proposal, taxable income over $501,250 would be taxed at 39.6 percent for a single individual.

Corporate Income Tax Rates

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How Long Can The IRS Levy On Social Security Benefits?

How Long Can The IRS Levy On Social Security Benefits?

To levy on Social Security benefits, the IRS generally issues Form 668-W to the Social Security Administration (“SSA”).[i]  After receipt of the Form 668-W, Notice of Levy on Wages, Salary, and Other Income, SSA will withhold future amounts of payments due to the Social Security beneficiary and remit the same to the IRS for payment on outstanding tax liabilities. Often, the question I receive from clients subject to Social Security levies is how long will the levy continue?  This Insight tackles that interesting question.

IRS Levies

After a tax assessment has been made, the IRS generally waits for the taxpayer to make full payment of the assessment or offer payment arrangements (e.g., an installment agreement or an offer in compromise).  But, if the taxpayer fails to do either, the IRS will begin issuing notices to the taxpayer to demand full payment.  Taxpayers who ignore these notices generally do so at their own peril.

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Recovery Of Attorney Fees Under “Chapter 38” In Texas

Recovery Of Attorney Fees Under “Chapter 38” In Texas

Under the “American rule,” litigants on each side generally pay their separate legal fees associated with a lawsuit.  This is generally so even if one party prevails on the merits of his or her claim or claims.  Texas follows this rule.

But, there are exceptions.  One of the more routinely utilized exceptions (particularly for breach of contract claims where there is no governing language in the agreement) in the State of Texas is Chapter 38 of the Texas Civil Practice & Remedies Code (“Chapter 38”).

Under Chapter 38, a plaintiff may recover attorney fees if the plaintiff successfully shows:  (1) the plaintiff properly plead for a recovery of attorney fees; (2) the plaintiff’s claims fall within a specified category of claims; (3) the plaintiff was represented by an attorney; (4) the defendant was an individual or a corporation (although this is about to change);[i] (5) the plaintiff timely presented the claim to the defendant; (6) the defendant failed to tender timely payment within 30 days after the claim was presented; (7) the plaintiff prevailed on his or her claim; and (8) the plaintiff incurred attorney fees that were reasonable.  Tex. Civ. Prac. & Rem. Code §§38.001, .002

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How To Designate An IRS Employment Tax Payment

How To Designate An IRS Employment Tax Payment

When a taxpayer makes a voluntary payment to the IRS, the taxpayer has the option to designate the application of the payment to certain periods and/or taxes.  For example, if a corporation owes federal employment taxes and the corporation desires to make a partial payment towards the past due employment taxes, the corporation or an authorized individual may designate the payment towards the “trust fund portion” of employment taxes due.  In this manner, the payment reduces not only the employment taxes owed, but also the potential liability for persons who may have been liable or may be subsequently found to be liable for so-called trust fund recovery penalties (“TFRPs”) under Section 6672 of the Code.

On July 23, 2021, IRS Chief Counsel released a Chief Counsel Advice Memorandum on this issue, and it serves as an important reminder to tax professionals and taxpayers regarding the option to designate payments and also the requirements taxpayers must follow to do so.

Trust Fund Recovery Penalties Generally

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Can You Transfer Assets To Avoid Paying Taxes To The IRS?

Can You Transfer Assets to Avoid Paying Taxes to the IRS?

In many cases, taxpayers attempt to transfer assets or property to third persons to shield those assets and property from the federal tax lien or federal tax levy.  Predictably, the IRS has various tools at their disposal to attack the transfer, including seeking a court order to set aside the transfer or, in other cases, to go directly against the recipient.  This Insight discusses some of the more common options utilized by the IRS in these circumstances.  It also discusses the potential criminal liability associated with transferring assets or property to evade taxes.

The FDCPA

Transfers by taxpayers to third parties may be attacked by the IRS under the Federal Debt Collection Procedures Act of 1990, Pub. L. No. 101-647 (the “FDCPA”).  Under this statute, if a taxpayer owes a tax liability to the United States and subsequently transfers property to another person, the United States may seek to attack the transfer as “fraudulent” if:  (1) the person makes the transfer without receiving reasonably equivalent value in exchange for the transfer; and (2) the taxpayer is insolvent at the time of the transfer or is rendered insolvent as a result of the transfer.  See 28 U.S.C. § 3304(a).

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IRS Gets Green Light To Seek Information From Third Parties Regarding Panama Offshore Legal Services

IRS Gets Green Light To Seek Information From Third Parties Regarding Panama Offshore Legal Services

On July 29, 2021, the United States Attorney for the Southern District of New York, the Assistant Attorney General for the Department of Justice Tax Division, and the IRS Commissioner all announced that a federal court in New York had entered an order “authorizing the IRS to issue summonses requiring multiple couriers and financial institutions to produce information about U.S. taxpayers who may have used the services of Panama Offshore Legal Services (‘POLS’) and its associates (together, the ‘POLS Group’) to evade federal income taxes.”  A copy of the news release can be found here.  Although the government’s efforts to identify additional foreign assets and accounts is not surprising, the news release does provide another cautionary tale of the government’s power and reach to identify taxpayers who hold foreign accounts and assets overseas without proper reporting and payment of federal taxes.

Background 

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What Is A Kovel Accountant? A Deep Dive

Kovel Agreement

The Internal Revenue Service (IRS) has broad statutory authority to investigate and audit taxpayers.[i]  In many cases, the IRS attempts to fulfill this statutory authority through seeking communications made between taxpayers and third parties, such as tax return preparers and CPAs.  Oftentimes, the IRS is authorized to obtain these communications.

However, there are methods to protect communications made between taxpayers and accountants.  One such method is referred to as a Kovel agreement.  Under that agreement, the taxpayer engages a tax attorney who, in turn, engages the services of a tax accountant.  When done properly, federal courts have recognized that communications amongst these parties are not subject to disclosure under the theory that such communications are protected by the attorney-client privilege.

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A Summary Of The IRS’ Streamlined Filing Compliance Procedures

A Summary Of The IRS’ Streamlined Filing Compliance Procedures

The IRS’ streamlined filing procedures were first offered by the IRS on September 1, 2012.  Since that time, the IRS has made several revisions.  A current summary of the IRS’ Streamlined Filing Compliance Procedures is discussed below.

Do I Qualify for the IRS’ Streamlined Filing Compliance Procedures?

To qualify for the IRS’ Streamlined Filing Compliance Procedures (either Domestic or Foreign), taxpayers must meet the following initial requirements:

  1. The taxpayer must be an individual taxpayer or an estate of an individual taxpayer.
  2. The taxpayer must certify in a narrative under penalties of perjury that the conduct was not willful. The relevant conduct requiring certification relates to not only the failure to report income and/or pay tax, but also to submit all required information returns, including FBARs (e., FinCEN Form 114).
  3. The IRS must not have initiated a civil and/or criminal investigation of the taxpayer for any tax year.
  4. The taxpayer must have a valid Taxpayer Identification Number (e., TIN).

For streamlined filings under the IRS’ Domestic procedure, the taxpayer must also meet the following requirements:

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A Summary Of The IRS’ Streamlined Filing Compliance Procedures

A Summary Of The IRS’ Streamlined Filing Compliance Procedures

The IRS’ streamlined filing procedures were first offered by the IRS on September 1, 2012.  Since that time, the IRS has made several revisions.  A current summary of the IRS’ Streamlined Filing Compliance Procedures is discussed below.

Do I Qualify for the IRS’ Streamlined Filing Compliance Procedures?

To qualify for the IRS’ Streamlined Filing Compliance Procedures (either Domestic or Foreign), taxpayers must meet the following initial requirements:

  1. The taxpayer must be an individual taxpayer or an estate of an individual taxpayer.
  2. The taxpayer must certify in a narrative under penalties of perjury that the conduct was not willful. The relevant conduct requiring certification relates to not only the failure to report income and/or pay tax, but also to submit all required information returns, including FBARs (e., FinCEN Form 114).
  3. The IRS must not have initiated a civil and/or criminal investigation of the taxpayer for any tax year.
  4. The taxpayer must have a valid Taxpayer Identification Number (e., TIN).

For streamlined filings under the IRS’ Domestic procedure, the taxpayer must also meet the following requirements:

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Can I Deduct Theft Losses?

Matthew Roberts

Federal tax law permits taxpayers to deduct so-called “theft losses,” provided certain requirements are met.  Initially, a taxpayer must show that he or she will not receive compensation through insurance or another third party for the loss.  If this threshold is met, the taxpayer must overcome additional hurdles, including showing:  (1) the occurrence of a theft; (2) the amount of the theft; and (3) the date the taxpayer discovered the theft.  As discussed more fully below, these requirements are not always so easy to meet.

The Occurrence of a Theft

Commonsensically, a taxpayer must first show the existence or occurrence of a theft to sustain a theft loss deduction under Section 165 of the Code.  For these purposes, theft is “deemed to include, but shall not necessarily be limited to, larceny, embezzlement, and robbery.”  Treas. Reg. § 1.165-8(d); see also Littlejohn v. Comm’r, T.C. Memo. 2020-42 (“As used in section 165, the term ‘theft’ is a word of general and broad connotation, intended to cover any criminal appropriation of another’s property, including theft by larceny, embezzlement, obtaining money by false pretenses, and any other form of guile.”).  Moreover, according to the IRS and a majority of the federal courts:

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