Waking the Government

Restarting the government after a two and one half week shutdown is like waking up on a weekend after you found the time to sleep in.  It doesn't happen quickly.  The websites of each the IRS and Tax Court have each posted notices about what to expect from them as they wake up and the wheels start turning again. 

The IRS has issued news releases concerning the resumption of operations following the shutdown.  They can be found here and here. The IRS is substantially backlogged.  They continued to receive returns, correspondence and information from people during the shutdown, but there was nobody to look at any of it.  As a result, they are telling taxpayers to expect substantial delays and to wait to call the IRS “if their issue is not urgent.”

The tricky part is that there is no clear explanation of what is urgent.  The IRS likely takes the position that questions concerning your refund are not urgent, but, those concerning liabilities… probably should be treated as urgent.  As the IRS resumes operations, they will resume issuing liens and levies.  Those that owe tax and wish to avoid liens or levies, should get in touch with the IRS regardless of how long they might have to wait to get through to someone.  It may take a while to get a response, but being proactive is better than having to deal with an empty bank account because you and the IRS disagreed about whether the case was urgent.

Those individuals and businesses dealing with a specific IRS agent might expect to receive a phone call to discuss the timing of any future action.  In the meantime, any previous deadlines set by the IRS should be respected unless otherwise discussed with the agent.

The United States Tax Court has posted detailed guidance on its website.  Those with trials that were scheduled during the shutdown will hear from the Court about rescheduling.  Those trials that were to start this week and later will begin as scheduled unless there was an inability to discuss the cases with the IRS.  In such cases, the Court should be advised and it will consider how best to proceed.  The notice also identifies the deadlines for taking certain actions that were/are impacted by the shutdown. 

The Tax Court notice advises, however, that any statutory filing deadlines provided in the Internal Revenue Code are not impacted by the shutdown.  That is, if you have a fixed 90 day deadline in which to file a case with the Tax Court, the 90 days still stands.  If that 90 days would have expired during the shutdown, the postmark date of any filed Petitions will govern whether the time period was satisfied.  If a Petition to the Tax Court is outside of the 90 days, it will likely mean that the case will be dismissed as filed late.

Wisconsin's Solo and Small Firm Practitioner Conference

On October 24^th, I will be speaking at the State Bar of Wisconsin’s 8^th Annual Solo and Small Firm Conference: http://www.wssfc.org/  

My talk, entitled: "The Tax Man Cometh: What are the IRS, Wisconsin Department of Revenue and Local Authorities Up to in Audits, Appeals and Collections" will provide information on current developments in tax controversies at each level of government.  

The conference aims to help solo and small firm practicing attorneys build their business while improving their life.  There is still time to sign up!

Start Your Engines…the Internal Revenue Service is Back to Work.

October 17^th marks the end of the lapse in appropriations that caused the Federal Government Shutdown.  The Shutdown kept IRS employees home from work for the past 16 workdays.  Because the IRS has now returned to work, it is time to put the taxlawforum.com back to work as well. 

With approximately 91 percent of IRS employees returning to work, we should expect that operations will be back to full swing in the next few days.   During the shutdown, individuals and business owners were unable to move forward with the resolution of any tax matters (audits, collections, appeals, etc.)  Those with outstanding tax liabilities were able to breathe a sigh of relief as the shutdown meant no new liens or levies. 

Now that the IRS is returning to work, audits will be resumed and collection activity will start again.  Of course there will be a 16 day backlog that has to be dealt with.  Unfortunately, however, this likely means that less time will be spent on each account.  While at first blush this may sound as though it will increase the number of favorable results, it may well mean the opposite.  Taxpayers should be prepared to make sure that their rights are safeguarded and that proper procedures are followed.  Overwhelming workloads may mean that corners are cut and that matters may not receive the attention that they require.  It is simply a question of workload vs. time available.  Therefore, whether working with a professional, or dealing with a tax matter alone, individuals and business owners should make sure that their matter is dealt with thoroughly and that the proper outcome of any case is achieved.  

The Rules Still Matter

There has been a rash of scandals plaguing the Internal Revenue Service over the past many weeks. These scandals include the targeting of conservative groups seeking tax exemption, the disclosure of confidential information to opposition groups, the appearance of a cover up and even allegations of targeted federal tax audits. Regardless of how these issues play out, who was involved and what consequences befall those responsible, the fact is that the tax laws, rules and regulations will still apply to the taxpaying public.

The credibility that the IRS may have had concerning its even-handedness has been significantly damaged by these scandals. Collectively, these actions are as bad as those which caused a complete reorganization of the IRS with the 1998 Restructuring and Reform Act. That act still has ripple effects through the agency today. It will take years before the IRS is able to overcome the shadow of these scandals and it will have to work hard to counteract the likely effect on the voluntary compliance of our tax system.

The taxpaying public should be offended by the IRS’ failure to follow the rules and apply the law equally to all who come before it. The unfortunate, but understandable, question that will pervade the minds of many taxpayers at tax time is whether they need to follow the rules if the IRS has failed to do so itself. The answer is yes. The rules still matter and the tax laws still apply.

The IRS will still apply the federal tax law and administrative procedures concerning compliance with those laws in the same way. From the perspective of any one individual or business reporting their tax liability, these issues that systemically affect the IRS will not matter.

No taxpayer should take the perspective that just because the IRS didn't follow the rules that they should somehow be excused from doing so. Rather, the failure to obey the tax laws, properly report income and deductions or file appropriate returns will not be forgiven. Tax returns should be accurate and any taxpayer receiving correspondence from the IRS (be it an audit or a matter of tax collection) should address the issues with the IRS as they arise. If documents and information are requested to support certain transactions, those transactions should be supported. Threatened collection action should be addressed. Failing to do so may result in unnecessary tax, penalty and interest being assessed or paid. Those are the rules and the rules still matter.

It is essential, however, that the taxpayers also hold the IRS to following the rules themselves. This is particularly true in light of recent events. That is, where the IRS, under the apparent authority of the federal government, takes action or makes certain requests, those actions should be scrutinized and the requests should only be complied with if they comport with applicable federal laws and regulations. The rules still matter, even for the IRS.