Client Receives “The Letter”
Best case scenario; we see the client as soon as that first CP2000 letter arrives at their door. Unfortunately, many times we don’t see a client until they have actually received the SNOD. This puts us at the disadvantage as some of the taxpayers time lines have already been blown by this point.
A quick review of the basics of any representation contact:
1. Engagement letters for specific situations (i.e consultation only, representation, etc)
2. Review of all IRS correspondence, taxpayer’s return and documentation, time lines in play and IRS transcripts.
3. Decision to take the case or not.
4. Where in the IRS “machine” exactly is the client?
5. Is the IRS correct in their assessment?
6. What are our options at this point?
Once these items have been established we can decide how to proceed. If the IRS assessment is completely correct, then we explore payment options and abatement of penalties, if any. If the IRS is only partially correct or completely wrong we can proceed from there.
The initial goal; keeping a return in exams before it gets sent to collections, is to work on the assessment. Both the dollar amount and the ASED are important. The dollar amount is an obvious goal, we will try to lower our clients tax liability plus penalties and interest (P&I) to the least amount we can negotiate.
What is not so obvious is why we would want to control the ASED on a tax liability or the imposition of additional tax or P&I. The ASED is the date from which all following dates flow. You can not have a CSED without an ASED. The normal ASED date is within three years of the later of the filing date or due date of the return. There are exceptions that extend the ASED in the case of understatement of income is more than 25% (extended to 6 years) or there is determined to be intentional fraud (never).
Even in the case of a non-filer or a fraudulent return there is an ASED on the date the IRS considers the assessment to be made. The ASED begins to run on a return for both the tax shown on the return and the penalties attached to that tax on the filing date of the return, so it is in the client best interest to get the unfiled returns filed ASAP. However, in fraud cases, that ASED date is immediately tolled and the clock stops running, but none of us would be involved in filing a fraudulent return for a client, so enough about that!
By the time a client has received a SNOD they have, normally, already received several pieces of correspondence from the IRS and either have not been able to work things out or have ignored the correspondence.
There are three basic types of SNOD letters.
1. The CP3219A – Normally the followup to a non-response to a CP2000 letter.
2. The CP3219B – A response to the taxpayers response to a CP2000 or CP2030 letter.
3. The CP3219N – Response to a non-filer failure to respond to a CP2566 letter.
As long as you are within the statutory time lines on these letters you still have the option to file a Tax Court Petition for Judicial review of the assessment. The 90 day (or 150 days if out of the country) time limit will be identified in the letter and can not be extended for any reason.
This does not mean that if the time line is already past that you can not still file a CAP, CDP, or Audit Reconsideration. It just means your client has lost his right to a Judicial Review by filing a Tax Court Petition.
If your client is close to the expiration of the Tax Court Petition and you believe there is a good case for negotiation, see if the client wants to go ahead and file the Tax Court petition. This does not commit the client to going to Tax Court, it simply reserves his right to do so. However this action does toll the CSED, so be aware. More about this later.
The three types of SNOD letters have a lot of similarities.
1. Indication of the tax year involved
2. Notice date
3. Last date to petition the Tax Court
4. Instructions on what changes have been made and how the IRS came to those conclusions
5. Instructions on how to agree or disagree with the changes
6. Response Forms
7. Break downs of the tax, P&I assessed and payments made
8. Contact information and Taxpayer Advocate Service contact information
It is important to read the SNOD thoroughly and make sure you understand all of the time lines involved, as well as the tax issues the IRS has addressed, and any issues that you are aware of that they have not addressed. Once you have a firm grasp on the clients situation you can help him develop a plan to deal with the situation.
For example, the IRS has addressed the taxpayer’s large 2106 expenses and wants documentation for them, however, they have not addressed the huge charitable contributions. The taxpayer has told you he has no receipts for “anything” the other tax preparer put on his return. He just signed it! Where do you go from there in responding to the IRS?