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.

A Word On The Tax Court

In November and December of 2010, I wrote a series of tax articles for the State Bar of Wisconsin's Inside Track electronic news letter.  The first concerned tax audits and can be read here.  The second article discussed appeals and can be read here.


The third article discussed challenging a tax audit beyond the Appeals Division and into the United States Tax Court and can be read here.

IRS Appeals – Settlement of Cases In Appeals After a 90-Day Letter.

I have written a number of posts that discuss 30-Day Letters and 90-Day Letters (Statutory Notices of Deficiency) an how they may be appealed to the IRS Appeals Division. This post discusses what happens at the end of an appeal of a 90-Day Letter.

When a taxpayer receives a 90-Day Letter and Petitions the Tax Court for a reconsideration of the asserted deficiency, the IRS Counsel’s Office will first prepare an Answer in the Tax Court case denying most or all of the positions the taxpayer takes in the Petition.

Following the filing of the Answer to the Petition (and any necessary Reply), if the case has not already been to Appeals via 30-Day Letter, the IRS Attorney will refer the case to Appeals for settlement. Currently, when a case is referred to the Appeals Division, an Appeals Officer will have jurisdiction over the case for 4 months beginning at the time Appeals receives the case.

An Appeals conference should be arranged within 45 days of receipt of the case. If a settlement is reached, Appeals will forward the stipulations and computations back to IRS attorneys who will prepare the settlement documents for filing in the Tax Court. The stipulated settlement will become part of the Tax Court proceeding and then become a judgment in the case.

If at the expiration of the 4 months during which Appeals has jurisdiction over the case a settlement is substantially likely, the IRS attorneys may extend the Appeals Division’s jurisdiction for a period of 60 days (subject to the placement of the case on the Tax Court trial calendar).

[Proposed regulations would extend this authority for such time as there is a reasonable likelihood of settlement but not beyond the date that the case appears on the trial calendar]

If no settlement is reached, the case will be sent to IRS attorneys and formal preparation for a Tax Court trial will begin. Once the case is with IRS attorneys, there is still the possibility of settlement, however, it will be amidst the trial preparation process (i.e. discovery requests, stipulations of fact, preparation of expert reports, etc.).

IRS Appeals – Settlement of Cases In Appeals After a 30-Day Letter.

I have written a number of posts that discuss 30-Day Letters and 90-Day Letters (Statutory Notices of Deficiency) and how they may be appealed to the IRS Appeals Division. This post discusses what happens at the end of an appeal of a 30-Day Letter.

Where 30-Day Letter cases are settled in appeals, the settlement will be documented and the Appeals Officer will ask the taxpayer to waive restrictions on assessment and the collection of any deficiency. That is, the taxpayer will be asked to agree to the immediate “assessment” (a term of art in tax practice) so that the IRS may quickly move forward on the collection of the agreed tax, penalty and interest.

Where no agreement, or only a partial agreement, is reached, a 90-Day Letter (Statutory Notice of Deficiency) will be issued with respect to the disagreed issues. This gives the taxpayer the right to continue a challenge of the disagreed issues in the Tax Court.

IRS Appeals – Deciding Which IRS Letter to Appeal.

Following an audit, the IRS auditor will issue a 30-Day Letter outlining the IRS’ position on an asserted liability (and creating a right to appeal) before issuing the more formal 90-Day Letter (creating the right to appeal via a Petition the Tax Court). However, a taxpayer may request that the 30-Day Letter procedure be bypassed and that a 90-Day Letter be issued promptly. Alternately, if the taxpayer ignores the 30-Day Letter, the auditor will issue a 90-Day Letter.

Appealing after receiving a 30-Day Letter may be advantageous because it does not start a Tax Court proceeding. If additional information is submitted with the Protest, the auditor may make additional favorable adjustments before transferring the case to the IRS Appeals Division. These additional adjustments may eliminate the need to appeal the case. Moreover, while the appeal must be filed within 30 days, the auditor can retain the case for further consideration while the right to appeal can be preserved.

Appealing a 90-Day Letter may be advantageous because it may lead to a more speedy resolution of the case. Appealing a 90-Day Letter requires filing a Petition with the Tax Court. A Petition to the Tax Court will first transfer the case to the Appeals Division (if not already considered in Appeals). However, after a Petition to the Tax Court is filed, the Appeals Division will only have jurisdiction over the case for a limited timeframe. At the latest, once the Tax Court places a case on the Trial Calendar, Appeals is supposed to transfer the case to IRS attorneys and may no longer have power over the case. The limited time in which to act can be an incentive for the Appeals Division to resolve a case more quickly.

Conversely, when a 30-Day Letter is appealed, the Appeals Division obtains jurisdiction over a case without the pressure of a pending Tax Court trial. This may result in a lower prioritization of the case and it may take longer to have an appeals settlement conference.

In deciding whether to appeal the 30-Day or 90-Day letter, the factual backdrop of a case should be considered. If time considerations require a quicker resolution to a case, appealing the 90-Day Letter may be appropriate. However, as I wrote in a previous post, if a taxpayer wants to position him or herself to make a later claim for attorney’s fees, the 30-Day Letter must be appealed.

IRS Appeals – The Right to Appeal Following an IRS Audit.

A taxpayer has the right to request a conference in the IRS Appeals Division following a tax audit and the issuance of an audit report (i.e. a 30-Day Letter or a 90-Day Letter).

A 30-Day Letter constitutes the auditor’s outline of items on a tax return that are under attack. A taxpayer can request an appeals conference after receiving a 30-Day Letter by filing a Protest of the proposed adjustments with the auditor within 30 days of its issuance.

A 90-Day Letter (a.k.a. Statutory Notice of Deficiency) constitutes a formal IRS determination of a tax deficiency. The 90-Day Letter may be appealed by filing a Petition to the United States Tax Court. The Petition begins a proceeding in the Tax Court, however, if the matter has not yet been considered in the Appeals Division (following a 30-Day Letter), the case will first be sent to Appeals. The Petition must be filed within 90 days of the issuance of the 90-Day Letter.

A protest of a 30-Day Letter or Petition following a 90-Day Letter can either be (1) a “skinny” document that simply satisfies the formal requirements of an appeal or (2) or a “fat” document that details a wealth of information and a thorough explanation of why each issue should be decided in favor of the taxpayer. The decision to file a skinny or fat Protest/Petition is largely a strategic decision that turns on the nature of the case and complexity of the issues in the case.

Recovering Attorney’s Fees and Costs from the IRS.

It may be a little known fact, but, in certain circumstances, an audited business or individual may recover attorney’s fees and costs from the IRS/United States if it successfully challenges a case into the Tax Court process.

To do so, the taxpayer must be a “prevailing party” and the government must not have been “substantially justified” in its position. If the taxpayer is a prevailing party it must also satisfy the requirements of Internal Revenue Code section 7430. This means that the taxpayer must have:

(1) exhausted its administrative remedies,

(2) substantially prevailed in the controversy,

(3) satisfied certain net worth requirements at the outset of the case,

(4) not have unreasonably protracted the proceedings and

(5) the amount of the costs must be reasonable.

All of these requirements must be met to recover attorney’s fees. If the taxpayer does not satisfy all of them, it cannot recover fees and costs.

A Trip Through the IRS Audit, Appeals and Court Procedures

When dealing with an IRS audit, my clients often ask: What is the IRS going to do?  What happens next?  What happens if we don't agree with the position that the IRS is taking?

Certainly, some IRS procedures are counter intuitive and can be confusing.  However, the movement of a case from the start of an audit, through appeals and into the court system does not have to be confusing.  At least not if you have the flow chart below.  I have had this flow chart for years.  It was handed down to me by someone who said that it came from an old IRS publication.  Whether it is old doesn't matter, because it is still accurate and clearly explains how a case moves through the audit/appeals/court process.

So, if you are currently going through an audit and what to know what happens next or how far you can challenge the case, look at the flow chart below. 

Welcome to the Tax Law Forum!

This blog has been created by Rob Teuber, an attorney with the Law Firm Weiss Berzowski Brady LLP. The goal of this blog is largely to discuss the various issues that a person or business must face when dealing with a tax problem. These problems come in many shapes and sizes and anyone can be caught up in any part of the tax process. Yet, regardless of where in the process you are, there are procedures in place that can be used to resolve any tax problem. Certainly, not all tax problems can be resolved in the same way, but every tax problem has a solution. These solutions, more often than not, can be favorable to the taxpayer.

Examples of tax issues that will be addressed in this blog include:

- IRS tax audits and examinations.
- Appeals of audits and Notices of Deficiency.
- Negotiating tax disputes with government attorneys.
- Tax Court cases.
- Tax collection issues.

In discussing these aspects of the tax law, this blog will comment on responding to an IRS summons, IRS requests for information, handling tax audits, appeals of audit findings, IRS Notices of Deficiency, decisions and issues arising from the Tax Court, handling fixed tax liabilities, Offers in Compromise, Installment Agreements, Collection Due Process hearings, Notices of Federal Tax Liens, wage garnishments, bank account levies, and penalty removal/abatement.

I hope that you find these discussions insightful.

-Rob Teuber