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On May 15th, 2018 by Tom

Connecticut's Response To Federal Tax Reform

Posted In:
CT Department of Revenue Services

Yeah. They actually called the new law "An Act Concerning Connecticut's Response To Federal Tax Reform." Gee - I wonder what this law is about?

 

Well, the text of the Bill is 43 pages long. So I doubt all of it is just a response to Federal Tax Reform.

 

But there are two important sections of the Act that I want to share with you now. We'll get to the rest when we get to it.

 

As with any tax law written by the CT legislature, the bill starts off with a definitions section.

But then there is this (The Entity-level tax section):

 

(1)(b)Each affected business entity that is required to file a return under the provisions of section 12-726 of the general statutes, as amended by this act, shall, on or before the fifteenth day of the third month following the close of each taxable year, pay to the commissioner a tax in an amount equal to (1) (A) the separately and nonseparately computed items, as described in Section 702(a) of the Internal Revenue Code, of the affected business entity, to the extent derived from or connected with sources within this state, as determined under the provisions of chapter 229 of the general statutes, (B) as increased or decreased by any modification described in section 12-701 of the general statutes, as amended by this act, that relates to an item of the affected business entity's income, gain, loss or deduction, to the extent derived from or connected with sources within this state, as determined under the provisions of chapter 229 of the general statutes, (2) multiplied by six and ninety-nine-hundredths per cent. If the amount calculated under subdivision (1) of this subsection results in a net loss, such net loss may be carried forward to succeeding taxable years until fully used. Payment shall be made with the return that is required to be filed under section 12-726 of the general statutes, as amended by this act.

What we have here is an entity level tax imposed on pass-through entities in the amount of 6.99%.

And then there is this:

(f) (1) (A) Each person that is subject to the tax under chapter 229 of the general statutes [income tax] and is a member shall be entitled to a credit against the tax imposed under said chapter, other than the tax imposed under section 12-707 of the general statutes. Such credit shall be in an amount equal to such person's direct and indirect pro rata share of the tax paid under this section by any affected business entity of which such person is a member multiplied by ninety-three and one-hundredths per cent. If the amount of the credit allowed pursuant to this subdivision exceeds such person's tax liability for the tax imposed under said chapter, the commissioner shall treat such excess as an overpayment and, except as provided under section 12-739 or 12-742 of the general statutes, shall refund the amount of such excess, without interest, to such person.

So what we have here is a 93.01% credit for each taxpayer's share of the taxes paid on his/her behalf by his/her business.

Whyyyyyy?

At some point, if I get around to it, I might write an opinion piece of what the CT government has to gain from these (and other) changes to the CT Tax regime. But the obvious purpose of the above provisions is to do exactly what the short title of the Bill says it is doing. It is a "Response" to "Federal Tax Reform."

See, when Congress passed the Tax Cuts and Jobs Act (TCJA), it was a direct-hit at high-tax states like Connecticut. (Some might call the majority of these states "Blue states." In my opinion though, most of these states are gray and gray and in-the-red all over.)

Congress Capped Itemized deductions for State and Local Taxes (SALT) at $10,000.

What that means is this: previously State income taxes were deductible on an individual Taxpayer's Schedule A. But now, if your state and local taxes (Real Estate, Car taxes, Income taxes, etc) exceed $10,000 you are no longer going to get a deduction above the $10,000.

This new measure by Connecticut attempts to bring some of that deduction back for owners of pass-through entities in the form of an "Ordinary and Necessary Business expense."

 

See, when a business needs to pay a tax in order to do business in a state, it is a deduction. It doesn't go on the individual's Schedule A, it goes on the entity's return.

 

A quick ( and very simple) illustration to explain what I am talking about.( This is rough, and not intended to be 100% accurate, just easy to understand. For example, I am treating all of the K-1 as if it is taxable income below. Obviously it is not all taxable income. Consult a professional!)

 

Tony is a partner in a law firm. Tony gets a K-1 every year for 50% of the partnership's income.

in 2018, the partnership generates $175,000 in taxable income attributable to Tony (without taking into account the new tax)

On that $175,000 - the business already paid an entity tax of 6.99%, or $12,232.50. That means that Tony's K-1 is going to show $162,767.50 in income attributable to Tony from the business.

Tony's Federal Income Tax return will report that $162,767.50 amount as income.

Tony's CT tax on that income is roughly $8,816.05.

based on these simplified (and TOTALLY NOT ACTUALLY ACCURATE) numbers, Tony will get a tax credit equal to $12,232.50 x 93.01% on his Connecticut tax return, or $11377.45.

 

I hope that makes sense.

Of course... in this simplified example... Tony is probably going to get a refund of  $2,561.40 on his State tax return, which will be taxable on his 2019 Federal tax return.

 

What do you think? was this a good move by Connecticut? Will it stand up to scrutiny? Will the IRS issue regulations to blunt the impact?

Please tell me what I got wrong in the comments below and let me know what else you would like us to write about concerning this topic.

 

 

On April 18th, 2018 by Tom

How Big is Your Client's Tax Court Case, Really?

Posted In:
IRS Appeals | Tax Attorney | Tax Lawyer

If you are a tax professional not admitted to Tax Court, the following scenario may sound familiar:

  • A client gives you a call. She is being audited.
  • The numbers aren't a problem. All items claimed as income or expense have been documented. All revenue has been accurately reported and accounted for.
  • But there is an issue. The IRS Auditor/Examiner disagrees with how your client treated an item of income or expense.
    • "This is a hobby, not a business"
    • "This isn't a reasonable and necessary business expense"
    • "The fraud penalty is appropriate here"
    • "Substance over form, dear tax pro."
    • "The late filing was not due to reasonable cause or due to willful neglect."
    • (And here's one from the future) "That kind of income is not Qualified Business Income."
  • So you work out the things that you agree with the auditor on and substantially (or insubstantially) reduce the proposed assessment.
  • Then you get the 30-day letter. Do you respond? (Am I the only one with the general impression that even if you appeal, it is a 50/50 shot that any Settlement Officer will ignore their mandate to be a fresh set of eyes and simply tow the party line?)
  • Whether you get somewhere with Appeals or don't, a 90-day letter is eventually issued.

Now what? Is that the end of the ball game? Unlikely. At least I don't think so.  Maybe the IRS came out of the gate swinging, with a CP2000 claiming a deficiency for $150k and you got it knocked down to $55k. Pretty good, right? Maybe it's time to convince the client to accept the results of the audit and move on to payment or settlement options, right?

Does it seem like a non-choice? You can't file a tax court petition for your client. Maybe you can point your client to the Pro-Se "Petition Kit" and cross your fingers? But will IRS Counsel take such a petition seriously? You could point them to the Tax Court's Rules of Practice and Procedure, and wish them luck with filing a valid Petition without using the form. How do you anticipate that panning out? And what is your role once one of those petitions are filed? You might consider "ghostwriting" a petition for them - though I would urge you against that. All of these are bad options, but they probably seem like better options to many of you than the obvious option I am going to propose next.

Maybe you should (or preferably your client) should call a Tax Lawyer.

I already know what you are going to say. "Even if my client has a 50/50 shot at winning this case in tax court, they could end up spending $25,000 in attorney fees!" Not much expected value with attorney's fees that high!

But who told you that!?

I'm going to let you in on a not-so-secret secret. Attorneys are more receptive to legal arguments. And IRS Counsel...? They're attorneys! Your average TCO/Examiner/Auditor and even most Settlement Officers are going to look at their internal positions and interpretations of the Code and Case Law to counter legal arguments you throw at them during an audit or non-docketed appeals. They probably won't budge once they make up their minds. Even if there is a good chance they are wrong, it is likely that a good chance isn't enough to sway them.

 

But, like I said, Attorneys are more receptive to legal arguments. They are also more receptive to settling a case on "legal hazards." Hazards of litigation should be the same for a case whether or not it is docketed, but we all know the practical reality is different. Trying cases costs the government money. Losing the wrong case could cost the government a lot more. Bad case law is bad for the government.

 

So here's an actual secret. Maybe? A normal tax court case should not cost $20-25k unless it is litigated.

As much as the procedures of any court can be daunting, and research of novel issues can be time-consuming, the overwhelming majority involve very basic arguments as to why your client's position should prevail. 9/10 of these cases will settle before ever going to trial. In most cases, it isn't a complicated conversation to have with IRS Counsel. They are going to hear the legal arguments of the petitioner, they are going to consider them, and they are going to give you credit for having an argument that might win.

How big is your client's case? It depends how complicated the legal arguments are and what is at stake. Tax litigation is not "one-fee fits all."

The bottom line is that in many situations, a lot more hours will be spent developing a case for audit or appeals than the time that will actually be spent filing a petition and negotiating a resolution with the IRS.

Are the arguments simple? Does the government have an actual interest in litigating the case? How much money is at stake? How big is your client's tax case? Probably not as big as you think.

It's not going to cost your client $25k every time they consider hiring a lawyer to represent them in tax court. So if you are saying that to your clients now, probably because you've heard some Tax Lawyer or USTCP say it before, please stop. Maybe that's what they think is the appropriate range to set as the expectation. Very sincerely, I'm not judging them, or you.

But if that's how they feel, or what they say and you think your client's tax case "isn't big enough" for the tax lawyer you know, then don't call that tax lawyer. Call another one.

On November 6th, 2017 by Tom

Stop the IRS from Collecting Your Ex’s Tax from You - Innocent Spouse

Posted In:
Innocent Spouse Relief | Tax Attorney

What is Innocent Spouse Relief?

Innocent Spouse Relief is a form of tax relief that is available for people who signed a joint return with their spouses and who have good reasons as to why they should not be held liable for additional tax assessed as the result of an audit, or even for the tax that is shown as due on the joint return. At its most expansive level, called Equitable Relief, a request for Innocent Spouse Relief should be granted if, when considering all of the facts and circumstances, it would be unfair to collect the tax liability in question from the person making the request.

Why does Innocent Spouse Relief Exist?

If you file a joint return, the presumption is that you are agreeing that the IRS can collect any underpayments of tax, or any liability that results from an audit from you or from your spouse. This default rule can be found in Section 6013 of the tax code. This can lead to some seriously unfair consequences.

Consider a situation where a husband takes an early distribution from a 401k or Traditional IRA account to use for his own benefit, or maybe he makes business income at a side gig that he does not disclose to his wife. Is it fair to expect his wife to play detective and scrutinize the books of his business, to monitor his eBay/PayPal account or to check his phone to see if the Uber Driver or Lyft app is installed on his phone?

Sometimes these conversations are evaded by the tax-cheating spouse, or sometimes the activity is so well-concealed that the spouse requesting relief has no reason to expect that items are missing from the return. In that circumstance, the spouse should not be held to account for any new tax liabilities that arise from an audit.

Consider, also, a situation where a spouse signs a tax return which actually shows a balance due. Maybe his wife is a realtor, but she owes tax every year because she never pays her quarterly estimated taxes. Is it fair for the husband to be on the hook for a liability that she accrued by not keeping up with her taxes? Maybe, but maybe not. Maybe she told him that she was going to be mailing a check to pay the liability in full with the return, or that she would be establishing an installment agreement with the IRS to pay the liability off. Even if she did not make these representations, maybe there are other reasons that would make it unfair to hold him accountable for the tax liability.

Often, Innocent Spouse cases arise in the context of a divorce proceeding. It is important to know that a divorce decree assigning liability for particular taxes to one spouse does not settle the matter with the IRS. The IRS will still try to collect the tax liability from both spouses unless one spouse files a successful Innocent Spouse request. Whether or not a the taxpayers are divorced will be considered by the IRS, but that is only one factor the IRS will consider. It is important to remember that the IRS will consider all of the facts and circumstances in front of it when making an Innocent Spouse determination. The IRS is not a party to your divorce decree and is not bound by it, but it will still be considered as weighing in favor of relief.

When is Innocent Spouse Relief Available?

Innocent Spouse Relief is available whenever you have a joint tax liability with a current or former spouse. Certain types relief (in the case of an audit) is only available for 2 years after the IRS begins collection efforts. But relief is always available in some form for as long as the IRS can collect (10+ years). In certain circumstances, which I won’t be covering here, it may be beneficial (if the IRS has been trying to collect for less than 2 years) to make a claim for Innocent Spouse Relief under sections 6015(b) and 6015(c).

But the two year limitation is only a bar to certain types of relief. Innocent Spouse Relief is actually available until the IRS can no longer legally collect the tax from the taxpayer. That means you have at least 10 years to file for Innocent Spouse Relief (under “Equitable Relief” provisions laid out in section 6015(f).)

How do I request Innocent Spouse Relief with the IRS?

The most straight-forward way to request Innocent Spouse Relief with the IRS is to file 8857 with the IRS. This form will start the process with the IRS. I need to mention that this form contains many traps and elicits answers that might result in the IRS making a determination against the taxpayer, when it should not. It is important to distinguish between information that you know now when submitting this return and information you knew at the time the return was filed. The form and its instructions do not make this clear or obvious, and it is possible for the IRS to misinterpret the information provided and deny relief on and erroneous assumption.

Do States offer Innocent Spouse Relief?

Yes. Several states simply follow the same rules as the IRS, while other states have their own versions of Innocent Spouse Relief.

Are there any “cons” to filing for Innocent Spouse Relief?

Yes. This is a situation where a commonly cited “benefit” of filing for Innocent Spouse Relief is also a major downside. When you file for Innocent Spouse Relief, the IRS is prohibited from collecting taxes from you while it considers your request. Due to this prohibition, the IRS will also have more time to collect the tax liability in the event that relief is denied. Essentially, the period of limitations for assessment and collection will be put on pause and other 60 days will be added to the time the IRS has to collect or assess a tax debt when you file for Innocent Spouse relief.

Consider the following example:

Tony and Tanya are now divorced. Recently, Tanya received a collection notice from the IRS and decides to file Form 8857 to request Innocent Spouse Relief. The IRS processes her request and puts it in the queue to be reviewed by and IRS employee at the “Cincinnati Centralized Innocent Spouse Operation.” Assume that prior to filing for Innocent Spouse Relief, the statute of limitations on collecting the tax liability, would have “run” (IRS would be SOL) within three months. As soon as the IRS processes that request, the IRS will hit the pause button. If the IRS rejects the Innocent Spouse Request, and Tanya does not appeal the decision, then the IRS will still have five months (the time left to collect before the request was submitted plus 60 days) to collect the liability from her. Even if it takes the IRS several months to consider the request. So, now Tony has seen his tax debt expire, but Tanya still has to fend off IRS collections for another five months. Do you think the IRS will be aggressive in trying to collect the liability from Tanya? I do.

Where can I find out more about Innocent Spouse Relief?

The IRS provides several publications on the Topic of Innocent Spouse Relief, here are a few that you might find helpful:

  1. IRS Publication 971 provides a basic explanation of what the IRS will consider during an Innocent Spouse Relief, and what is required to request relief. It includes explanations of all of the basic factors that the IRS will consider when processing your case, and provides line-by-line instructions for Form 8857.
  2. Form 8857 is the form the IRS would like you to file to request Innocent Spouse Relief.
  3. Tax Topic 205 provides a very brief overview by the IRS about Innocent Spouse Relief.
  4. The Internal Revenue Manual Section 25.15.1 is the policy and procedure manual that IRS Employees will likely consult when processing your Innocent Spouse Case.
  5. Proc. 2013-34 contains official IRS positions on the processing of Innocent Spouse cases under the equitable relief provisions of Internal Revenue Code 6015(f) and 66(c).
  6. Internal Revenue Code 6015 is the actual statute that contains Innocent Spouse Relief provisions regarding joint tax returns, and Internal Revenue Code 66(c) Contains Innocent Spouse Relief provisions for taxpayers who live in a community property state.

Should I hire a Lawyer to help me with Innocent Spouse Relief?

I am a lawyer, so of course I am going to say you should at least consult  with a Tax Attorney before submitting a request for Innocent Spouse. You should at least be able to get an idea from your conversation with a Tax Attorney whether or not Innocent Spouse Relief is worth pursuing. You can reach me by email at tom@gglawct.com or visit my website, Tom Tax Lawyer, to schedule a consultation.

On February 9th, 2016 by Tom

Should You "Trust a Tax Attorney Now"?

Posted In:
IRS Debt Collection | Optima Tax | StopIRSDebt.com | Tax Attorney | Tax Attorney Now | Tax Lawyer | Tax Resolution Companies | Tax Resolution Firms

If you are wondering whether you actually need a tax attorney now,

right now, then I invite you to schedule a 20-minute phone call

with me where I can answer that question for you.

☎ Schedule with Attorney Groth


Don't Let Tax Attorney Now "Psych" You Out.

I'm a pretty big Corbin Bernsen fan. He plays a pretty likable Henry Spencer on Psych, and he speaks with a lot of authority. He's no Alan Thicke, but he does a pretty good job promoting "Tax Attorney Now"on its late-night (and daytime?) ads. (Apparently Corbin Bernsen also played an attorney on TV in "LA Law.")

I do and I don't wish I could afford the ads that "Tax Attorney Now" and Optima Tax Relief run on a regular basis. It would be nice to try and operate a tax resolution business on that kind of scale, but it almost never ends well. (See Tax Masters, JK Harris, Tax Lady, et al.)

Tax Attorney Now is not an actual Tax Resolution Company

Tax Attorney Now is not a tax resolution company like Optima. Instead, Tax Attorney Now (and other companies like it) simply gather leads for tax resolution "firms" throughout the country. The most disturbing part is that Tax Attorney Now has decided that it is OK to refer callers to non-Attorneys, simply by redefining "Tax Attorney" to mean "pretty much anyone."

(more…)

On November 11th, 2015 by Tom

Innocent Spouse Tax Attorney Podcast

Posted In:
CT Department of Revenue Services | CT Tax Relief | Innocent Spouse Relief | IRS Appeals | Tax Attorney | Tax Lawyer

Innocent Spouse Relief with the IRS

If you are considering filing an Innocent Spouse Request with the IRS, hiring an Tax Attorney with experience in Innocent Spouse Relief matters is in your best interest.

 

Schedule a phone call with Thomas S. Groth, Esq

We decided to do a podcast about Innocent Spouse Relief.

 

I recently had the pleasure of talking with Attorney Anthony Parent over at IRSMedic: Parent & Parent LLP on his up-and-coming (and entertaining) tax podcast "Parental Advisory: The Show". It was a great experience. We might have gotten a little off-track at first, talking about the Connecticut Department of Revenue Services and how they like to put pressure on individuals taxpayers by charging them personally as criminals when they fall behind on state taxes. (Even though they can't actually do that in some cases, they still do.)

Though we did not get into too much of the nitty-gritty of Innocent Spouse Relief under Revenue Procedure 2013-34, we did discuss some high points of what to do, and - more importantly what not to do when filing a claim for Innocent Spouse relief under the "equitable relief" provisions of Internal Revenue Code 6015(f).

(more…)

On April 14th, 2015 by Tom

Connecticut Tax Relief

Posted In:
CT Department of Revenue Services | CT Tax Relief | Tax Attorney | Tax Lawyer

Why can't I find information for income tax relief in Connecticut on the Internet?

If you are looking for some Connecticut Tax Relief  then you are in the right place. However, perhaps you are having trouble finding help with the specific kind of tax relief you are looking for. The reason for that is fairly simple, actually.

See, Connecticut provides a "Tax Relief Program" for property taxes for the elderly and disabled. This property tax credit varies depending on whether or not the homeowner is elderly or single. If you are looking for information on that program, or other CT tax programs for the elderly, I suggest you take a look at the Connecticut Judicial Branch Law Library's page on the subject here. If not, keep reading.

Different municipalities, such as East Haddam and Greenwich also have pages on the web devoted to that subject. (Tolland, Mansfield, New Britain, Norwalk, and Cheshire also have their own pages on the subject.)

What if I need Connecticut Tax Relief for Income Taxes or Sales Taxes in CT?

If you are looking for income tax help in Connecticut, then you should consider whether or not you have been successful with dealing with the Department of Revenue Services on your own. If not, consider hiring a tax lawyer such as myself to advocate on your behalf.

The truth is, that several sales tax problems can get very contentious with the State of Connecticut, so it is best to have an attorney involved as soon as you or your business gets audited. I have seen clients charged with crimes as the result of an audit, or as the result of failing to file their Connecticut sales tax returns.

Even if a tax debt has already been assessed as the result of an audit by the state or as the result of a return that was filed without full payment, tax relief might be available with the state of Connecticut. Whether the resolution of your tax problems with the state is achieved by the implementation of an Installment Agreement or an Offer of Compromise it is possible to keep the DRS at bay, and either settle your taxes for less than what is owed or initiate an installment agreement for a monthly amount that you can actually afford to pay.

What if I do nothing to address my tax problems?

If you do nothing to address your tax problems, the CT DRS will eventually issue Tax Warrants to your employer, your banks, and people you do business with, directing those people and institutions to send money to the state instead of to you. This can be embarrassing and a financial burden. Luckily, you do have the option to head off these problems before they occur by being proactive with the DRS and working to establish an arrangement that satisfies both you and the state.

If you are worried about speaking to the state about the possibility of CT Tax Relief on your own, I understand, and I urge you to contact me for a free consultation.

On April 2nd, 2015 by Tom

My First Criminal Tax Case in Connecticut

Posted In:
Criminal Tax Cases

In Connecticut, if you fail to file your Sales and Use Tax return, they will charge you with a misdemeanor.

 

At my previous firm, I fought to release levies and liens for clients who were on their way to putting their tax problems behind them (but just were not there yet). I fought the IRS and state taxing authorities when the wrong person was stuck with a tax bill to put my clients on track and remove the IRS from their lives. I went to criminal court a few times.

I did not then, and do not now consider myself as a criminal attorney, but I have now had my share of trips to Connecticut criminal courts for tax clients.

One of my first cases as a solo practitioner was not what I expected. I was not looking for criminal cases at the time.

However, that all changed a week later when I met Ted.

There I was one week into my career as a solo-practitioner listening to Ted’s story (Ted’s name is changed for anonymity but I received his permission to share this story). As soon as I heard Ted's story, I wanted to help.

Ted’s story was one of an American Dream gone bust.  While putting all his efforts into the success of his restaurant, Ted never filed sales tax returns. As a restaurant owner, Ted was supposed to file sales tax returns. However, while he was busy trying to make the restaurant succeed, Ted neglected to file and pay his sales tax returns.

Did the Department of Revenue Services (DRS) ever come looking for Ted’s sales tax returns while his restaurant was in business? No.

Instead, the DRS did what any “reasonable” state taxing authority would do, the DRS charged Ted with 10 counts of misdemeanor - failure to file sales and use tax return - each of which is punishable by up to 1 year in prison and up to a $1,000.00 fine.

Instead of being reasonable by auditing Ted and sending him a bill, the DRS sent a Special Agent that threatened to charge him with a crime for failing to file.

So, Ted actually had a serious criminal tax problem. He just did not know it yet.

Ted had no idea whether the DRS Special Agent ever followed through with his threats. In fact, Ted thought that the DRS Special Agent was being hyperbolic when he called Ted a criminal. Then, several years later Ted was pulled over for a seat-belt violation only to find out that the DRS Special Agent had followed through and that there was a warrant out for his arrest.

When Ted discovered that he was charged with failing to file his sales tax returns, he got his information together and hired an accountant to prepare the delinquent returns. Even with the returns in hand, the State's Attorney would not drop the charges. The State’s Attorney was using Ted's criminal case as a negotiating tactic by holding jail-time over his head in order to collect the back taxes. Ted owed $40,000 that he did not have.

After Ted retained me, I got right to work. After researching the law, I realized that the statute was poorly drafted. Ted, as the sole-owner of an LLC, was not one of the people who could be charged under Conn. Gen. Stat. section 12-428(1).

After filing a motion to dismiss to expose this defect in the statute, I was able to negotiate with the State’s Attorney to get a favorable deal for Ted. Ted was more than happy to accept this deal in order to put the entire ordeal behind him and to get the DRS out of his life.

Ted's case was exactly the kind of case I was looking for when I struck out on my own.

When I took his case, I did not know that under the circumstances that Ted could not be charged with the crime but I knew that the government threatening someone with jail-time for owing money was wrong. Finding a way to put this problem in the past for Ted confirmed that my decision to strike out on my own was correct.

I know that not every case will be as clear-cut as Ted's, but while working on Ted’s case I learned something about myself. As long apply the skills I learned earning my law degree, how to read, write, and fight, I will be able to help taxpayers like Ted who are being threatened and mistreated by state and federal governments and powerful collection agencies which all use fear and intimidation in an effort to collect a debt.

On March 29th, 2015 by Tom

"What reasons can I use to request a CDP hearing?"

Posted In:
Collection Due Process hearing | IRS Appeals | Settlement Officer | Tax Attorney | Tax Lawyer | Uncategorized

When filing for a CDP hearing, it is important to make sure that you request the hearing in a way that ensures the IRS does not dismiss your Form 12153 (or a request in similar form) outright as frivolous before you have a chance to be heard.

 

schedule a phone call with Attorney Thomas S. Groth, Esq

In order to do that, you will want to make sure that you use a valid reason to request a CDP hearing. However, in making the initial request for a hearing, you should also avoid making the basis of your request too narrow - the IRS may try to hold you to the basis for your request even if your circumstances or arguments change between the time you request the hearing, and the hearing takes place. Don't feel like you need to check just one box, or that you cannot fill in additional reasons for requesting the hearing - just make sure that your reasons for the hearing comply with the Internal Revenue Code and Treasury Regulations.

How to know when you have the right to request a CDP hearing.

You Owe the IRS a legally enforceable debt.

So, you owe some money to the IRS. Maybe you self-reported this income to the IRS, but could just not afford to pay the amount due on your return, maybe you were audited in some way and have yet to find the funds to pay back the government, or maybe you are stuck holding the bill for what should be someone else's tax problem. Whatever the reason for you tax debts, if you are reading this post, it is likely that you owe the IRS some money, or you know someone who does.

When you owe a legally enforceable debt to the IRS, the government can use its extreme powers of lien, levy, and the US mail to rip any assets or income away from you - midstream, before you even get your hands on it - and apply those funds to your back taxes.

Lucky for you, though, you happen to live in the United States. And, in the United States - we have this thing called Due Process. You are entitled to Due Process before the government can take your stuff away from you.

The trick is knowing when those Due Process rights are triggered, because you have a limited time to exercise those rights to the fullest extent.

If you miss the deadline to file for a CDP hearing, you can still request an Equivalent hearing (EH). But an EH does not protect you from collection while the hearing is pending, and an EH does not allow you to appeal an adverse decision by the IRS Settlement Officer to Tax Court.

The IRS Sends you a letter

The IRS will send you a letter via certified (and usually via regular mail as well) that informs you of its "intent to levy" your property or income. Or the IRS will file a lien and send you a letter notifying you of the filing.

Previously, the IRS was using letter that made it obvious that you have a right to a hearing. However, recently the IRS has begun sending out letters that make taxpayers due process rights less obvious. It is up to you to make sure that you read every letter you received from the IRS carefully to make sure that you are not sitting on your appeal rights. IF you do not understand the contents of a letter, you should bring it to a professional who offers free consultations and who is willing to look at the letter and explain it to you.

When can someone request a CDP hearing with the IRS?

There seems to be some confusing regarding the question of when a taxpayer can request a CDP (Collection Due Process hearing). In terms of a Notice of Levy or similar notice, a taxpayer has 30 days to request a hearing. If the hearing is requested within 30-days, the taxpayer will be protected form levy action until the taxpayer has a chance to be heard by IRS Appeals, an office separate and independent from the IRS offices actually tasked with collecting tax debt.

What reasons can someone use to request a CDP hearing?

A taxpayer is entitled to request a CDP hearing to propose alternatives to forced collection action by the IRS. It is really that simple. However, if you are about to file a request for a CDP hearing, and would like someone to take a look, I urge you to give me a call at (203)628-2952 so we can discuss the right approach to filing a CDP request. If you want me to review your actual filing, to make sure you are using the right words and checking the right boxes to make your request, I am happy to do that for a small fee.

Do you need to hire a Tax Lawyer for your CDP hearing?

No. But you probably should. Too many taxpayers try to go it alone with the IRS and end up getting tricked or misled by the IRS into a "solution" that is not optimal or sustainable for the taxpayer.

In addition, it is too easy to miss something when you have never submitted an Offer in Compromise or requested an Installment Agreement with the IRS. Having a representative speak for you at an IRS CDP hearing puts distance between you and the arguments being made - adding legitimacy to those arguments, because a professional is vouching for those arguments and helped develop them.

A CDP hearing is your best shot at obtaining a fair resolution to your tax problems - and you only get one shot at such a hearing per tax year.

On January 20th, 2015 by Tom

Cover Your Digital Assets

Posted In:
Connecticut Estate Plans

Who has access to your digital assets when you are gone?

Who gets your Twitter account? Can your Administrator/Executor log into your Facebook account and see your private messages to your friends? Who gets your iTunes Library? Shouldn't your estate plan address these questions? Can it?

Can you control where your digital assets go after death? It depends.

The fate of your digital property might depend on the policy of the company itself.

First of all, a lot is going to depend on the privacy policy or licensing policy of the company itself.

Privacy Policy

Facebook, for example allows anyone to  "memorialize" an account. and allows immediate family members to request a request a removal of an account . The bottom line is that per Facebook's terms - if they don't have your password, they're not getting in. Other social media sites, like Twitter, Instagram, Pinterest, and LinkedIn have similar policies - they do not allow family members access to the username/password or otherwise let family members access the deceased person's account. With these sites, however, the only option for family members is to remove the account completely.

Licensing Policy 

Who owns your software or digital music collections after you die?

You might have heard the rumor back in 2012 that Bruce Willis was  suing Apple for the right to devise his iTunes collection. While the story was - according to Willis' wife - "not a true story" - it did have the effect of raising the public awareness that most of what we "own" in digital form - eBooks, Music, Software, and other subscriptions are actually not "owned" at all. Instead, almost all fo the digital content we own these days is provided under a license that terminates at the death of the licensee.

The fate of your digital property might depend on state law.

In Connecticut, for example, the law allows Administrators and Executors of an estate limited access to a person's email accounts. However, the law does not necessarily allow electronic access to these accounts. Instead, the law allows email service providers to choose between providing Personal Representatives of a Connecticut estate either "access to or copies" of the "electronic mail account" of the deceased person.

...or Federal Law

Even Connecticut law provides that "Nothing in this section shall be construed to require an electronic mail service provider to disclose any information in violation of any applicable federal law." Sec 45a-334a(c).  Federal Law prevents disclosure of digitally stored communications without the consent of the owner or a court order.

The fate of your digital property: what you do.

As part of your Connecticut Estate Plan, you should make decisions for how you want your accounts handled after you pass away. Some people might be comfortable sharing their login information with a trusted person, while others may not. As with any aspect of estate planning, the trick is identifying what you want have happen to your "stuff" before you die, and putting a plan down on paper for the proper handling of your assets - digital or otherwise. While there will be certain limitations on what you can accomplish in an Estate Plan, the best approach is to decide what you want to accomplish and contact a professional to discuss your options.

G&G Law, LLC is a Connecticut General Practice Law Firm with a focus on tax controversies, real estate transactions, business planning, and estate planning.

On December 18th, 2014 by Tom

When do you have to file for a Collection Due Process hearing?

Posted In:
Collection Due Process hearing | IRS Appeals | IRS Debt Collection | Settlement Officer | Tax Attorney | Tax Court Decisions | Tax Lawyer

30 Days. That's how long you have to file for a Collection Due Process hearing in response to a Levy notice from the IRS.

It used to be that the IRS was issuing - for the most part - only a "Final Notice of Intent to Levy and Your Right to a Collection Due Process hearing" (Letter 1058) as the last letter before a taxpayer was exposed to a levy/garnishment of all of his assets and income. But recently, the IRS has started issuing a letter called a "lt11" - which it is pretending on its website is the same thing.  It is not. That letter (the lt11) is titled [notice of intent to levy] Intent to seize your property or rights to property. Nothing in the lt11 suggests action in the same way as the words "final notice" or "your right to a collection due process hearing," in the Letter 1058, But I guess that's the point. So be careful(!) and read every(!) certified letter you receive from the IRS. You might have a limited time to act before your property and income is exposed. If you would like me to review a recent notice you have received from the IRS, that is something I do that during all of my free consultations.

Click the call button below to call me now or schedule online.

or just email: groth@tom.tax

or call: 203.628.2952

 

 

 

 

///Start boring Tax Procedure Section///

Yesterday, Keith Fogg wrote a blog article over at Procedurally Taxing about the recently decided Ziegler case. In that case, the Tax Court was faced with the question of whether it had jurisdiction over a case when the IRS allowed an Appeals hearing to proceed as if it were a timely requested Collection Due Process hearing. Ziegler requested a Collection Due Process hearing by mailing the request to the IRS on July 14, 2011. Critically, this request was mailed 31 days after the date on the IRS notice giving Ziegler a right to the hearing(June 13) and 34 days after the date the FNOITL was mailed (June 10). At the end of the hearing, a Notice of Determination was issued by IRS, when the IRS should have actually issued a Decision Letter. Both of these letters have largely the same effect from an administrative perspective - they represent the decision made by IRS Appeals (generally, whether or not to proceed with the levy, or enter into an agreement with the taxpayer for a "collection alternative").

The Court decided that it had jurisdiction over the case, because Ziegler's Tax Court Petition was timely filed in response to a Notice of Determination. However, the Tax Court went on to convert the Motion to Dismiss for lack of jurisdiction to a Motion for Summary Judgment and granted it.

//end boring tax procedure section//

What does this case tells us about the IRS Collection Process?

Despite the boring "tax geek" flavor of this case, what it tells us about the IRS Collection Process in the context of a Final Notice of Intent to Levy is instructive.

If the IRS sends you a Final Notice of Intent to Levy (AKA a FNOITL aka cp1058 letter aka NOIL aka NIL), you have the opportunity to file for what is known as a Collection Due Process hearing. In order to file for a hearing with IRS Appeals, and retain the benefit of Tax Court review,  you have 30 Days to respond to this notice by requesting a hearing.

Benefits of timely requesting a CDP Hearing

The IRS can't collect until the hearing is over

Filing for a Collection Due Process hearing on time has its benefits. First, the IRS is prohibited by statute from taking levy action against a taxpayer while the hearing is pending. In the Ziegler case, the FNOITL was sent on June 13, 2011 and Ziegler mailed a request for a hearing on July 14, 2011, but it wasn't until over a year later - on September 28, 2012 - that IRS Appeals actually issued its "Notice of Determination." This means that for the 14 months that Ziegler's CDP hearing was pending the IRS could not collect against him for the year at issue. (Now in this case, the IRS actually could have collected against Ziegler if someone at the IRS had realized he had actually filed for an Equivalent Hearing (EH), but I'll get to that in a minute).

14 Months is not an exceptional amount of time to wait for IRS Appeals to issue a determination letter or notice of determination when a hearing is requested. Taxpayers should realize that while the delayed enforced collection is a good thing for their bank accounts and paychecks, interest and penalties will continue to accrue while the Appeal is pending.

The IRS Appeals decision made in the context of a CDP hearing is subject to review in Tax Court

Not only is a timely filed CDP hearing an effective way to shutdown the IRS Tax Machine, but the decision made by IRS Appeals is subject to review in Tax Court. This is important from two perspectives - some argue that Settlement Officers (IRS Appeals employees who hear CDP/EH cases) take CDP hearings more seriously than EH cases and are more careful to consider the arguments made by a taxpayer or her representative. This is especially a factor when the representative is a Lawyer or USTCP who can actually file the Tax Court petition when necessary. It is also important for the more obvious reason - it gives taxpayers a second shot at arguing their case in a forum that is even more removed from IRS Collections than IRS Appeals. But, something to keep in mind is that the standard of review in Tax Court for CDP cases is "abuse of discretion," which is a very high hurdle. Taxpayers usually lose CDP cases in Tax Court.

Since a CDP hearing is subject to review in Tax Court, Collections is held at bay for an even longer period of time. In Ziegler, the Tax Court issued it's decision on November 4, 2014. That means IRS Collections had to wait over three years to actually issue that levy it warned Ziegler about in the FNOITL. Again, in this case, if the IRS Appeals agent had realized sooner that s/he should have issued a "Decision Letter" instead of a "Notice of Determination" this delay in collection would not have taken place at all.

 

Downsides to timely filing a CDP Hearing

CDP hearings should never be submitted for the purpose of delay alone. This is for two reasons: the request is actually invalid if it is made solely for the purpose of delaying collection, and there is really no point in filing for a CDP hearing if you know you have no arguments to make. Why bother?

There are a few procedural downsides to timely requesting CDP Hearings:

The CSED (the time the IRS has to collect the tax from you) will increase

It is true that the IRS is prohibited from collecting taxes from a taxpayer when a CDP hearing is pending, but the flipside is that the in exchange for the delay of this collection, the IRS will have more time to collect. Generally, if you don't take steps to stop the IRS collection clock, then the IRS only has 10 years from the date of assessment to collect a tax. (Certain other exceptions exist, but I won't get into them here.) So, let's just say that Ziegler hadn't missed the filing deadline for the CDP hearing, and this case had proceeded to trial. The IRS would now have an additional 3+ years to collect his tax debts from him.

(Interest and penalties continues to accrue, so Ziegler's tax debt is now much higher than it was in 2011 as well - something to consider.)

The time YOU have to wait to file for bankruptcy will increase

There are several rules to the dischargeability of tax debts in bankruptcy. I won't get into them here. If you want to know more about them, contact me. Let's just say that if you file for a CDP hearing, the time you have to wait to file for bankruptcy on the particular tax debt will increase as well.

 

There may be a better option

Equivalent Hearings are basically CDP hearings that are filed late. Filing for an EH has zero impact (it does not stop the clock) on the expiration (CSED) of your tax debts. Equivalent hearings, like CDP hearings, allow you to make your case for a Collection Alternative to someone who's job it is to consider the merits of your arguments, and who isn't also tasked with collecting taxes from you.

The IRS is not legally obligated to put off levy action when an Equivalent Hearing is filed, but it generally will. The biggest upsides to filing for a EH instead of a CDP is that the clock on the expiration of your tax debt continues to run, and you might  also be able to discharge those debts in bankruptcy sooner. The biggest downside is that there is no Tax Court review for EH hearings. This might encourage IRS Appeals to abuse its discretion, but it probably won't.

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