Friday, September 29, 2023

TIGTA Found That IRS Did Not Always Comply With Legal Guidelines When Issuing Levies


According to Report Number: 2023-30-066 TIGTA reviewed levies issued by the Automated Levy Programs for more than 2 million taxpayers during the period July 1, 2021, through June 30, 2022, and certain levies issued by revenue officers. TIGTA identified 11,258 instances of noncompliance that resulted in violations of taxpayers’ rights and taxpayers being burdened. TIGTA identified the following violations:


This is a significant number of CDP violations. 

The majority (10,095) of the taxpayer rights violations occurred from the untimely input of taxpayers’ CDP levy hearing requests by Automated Collection System Support due to an unexpected large initial volume of requests following the July 2021 restart of the Automated Levy Programs. Levy CDP notices had been suspended during the Coronavirus Disease 2019 pandemic. 

As a result, levies were issued while CDP hearings were pending, which is a violation of Internal Revenue Code § 6330. In addition, 561 taxpayers’ rights were violated when they were not notified or timely notified of their CDP rights, including 374 who were not notified due to errors in the Print to Correspondence Production Services pilot program that was initiated in December 2019.

TIGTA made nine recommendations to help improve the proper issuance of levies by the IRS, including that the IRS should periodically conduct a study of CDP levy hearing requests Form 12153, Request for a Collection Due Process or Equivalent Hearing. This will allow the IRS to determine the average time frame from when CDP levy hearing requests are received to when they are input into the CDP tracking system to determine a reasonable time frame to begin taking levy action against a taxpayer after they have been issued their CDP notice. IRS management agreed with eight of the recommendations and partially agreed with one recommendation.

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Tax Court Rules That 30-day Rule For Requesting a Collection Due Process Hearing Is Subject To Equitable Tolling

The U.S. Tax Court in Organic Cannabis Foundation, LLC v. Commissioner, 161 T.C. No. 4 (September 27, 2023), held that the 30-day time limit for requesting a collection due process hearing under section 6320(a)(3)(B) is a nonjurisdictional deadline subject to equitable tolling. 

The Internal Revenue Service Must Consider A Cannabis Company's Day-Late Request For An Administrative Hearing With The Agency To Discuss A Federal Tax Lien Notice.


The taxpayer had unpaid tax for 2010, 2011, and 2018. The IRS issued notices of federal tax lien filings to the taxpayer for all three years, and the taxpayer timely requested a hearing with the IRS Independent Office of Appeals during the 30-day period for requesting a collection due process hearing under section 6320(a)(3)(B) for 2010 and 2011, but requested a hearing for 2018 after the 30-day period.

IRS Appeals provided a hearing for 2010 and 2011, but because the taxpayer’s hearing request for 2018 was untimely, it provided an equivalent hearing for 2018 under Treas. Reg. § 301.6320-1(i)(1). IRS Appeals issued a notice of determination for 2010 and 2011 but no determination for 2018.

The taxpayer then filed a petition before the Tax Court seeking review for all three years. After the petition was filed, IRS Appeals issued a decision letter for 2018.

The IRS moved to dismiss the taxpayer’s case before the Tax Court as to 2018 for lack of jurisdiction on the ground that IRS Appeals did not make a determination for review under section 6330(d)(1). The taxpayer argued that the 30-day period for requesting a collection due process hearing under section 6320(a)(3)(B) is subject to equitable tolling and thus IRS Appeals erred in failing to make a determination for 2018. In response, the IRS argued that the 30-day period is a fixed deadline that is not amenable to equitable tolling.

The Tax Court began its discussion by noting that it previously held in Kennedy v. Commissioner, 116 T.C. 255 (2001), that the 30-day period for requesting a collection due process hearing is a fixed deadline not subject to equitable tolling. 

However, in Boechler, P.C. v. Commissioner, 142 S. Ct. 1493, 1501 (2022), the U.S. Supreme Court held that a different 30-day period in section 6330(d)(1) for a taxpayer to file a petition with the Tax Court for review of IRS Appeals’ determination following a collection due process hearing is a nonjurisdictional deadline that is subject to equitable tolling. 

Thereafter, in Hallmark Research Collective v. Commissioner, 159 T.C. 126 (2022), the Tax Court distinguished Boechler in holding that the 90-day deadline for filing a deficiency petition under section 6213(a) is jurisdictional.

In the light of the Supreme Court’s decision in Boechler and its opinion in Hallmark, the Tax Court decided to reexamine its precedent as to the 30-day deadline in section 6320(a)(3)(B) for requesting a collection due process hearing. The court ultimately held that the 30-day period in section 6320(a)(3)(B) is subject to equitable tolling when the circumstances warrant it, and overruled Kennedy in that regard.  

The court said it "must honor" the choice Congress made to add taxpayer protections by creating an administrative process for challenging the IRS. CDP hearings are meant to balance taxpayer concerns about collections with the government's need to quickly collect, the court said.

"These principles are reinforced by the application of equitable tolling," Judge Goeke said.

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Tuesday, September 26, 2023

IRS Not Filing Liens For All $10,000+ Tax Delinquencies

According to Law360, the Internal Revenue Service did not file notice of federal tax liens against more than 1.5 million taxpayers with high-dollar delinquencies, the Treasury Inspector General for Tax Administration said in a report published on September 25, 2023.

The cases, which occurred from July 1, 2021, to June 30, 2022, involved individual and business taxpayers with a balance due greater than $10,000, according to the report. The IRS' federal watchdog also reported that the agency did not always properly provide taxpayers a notice of a federal tax lien or of their collection due process rights.

One Reason That This Is Important, Is That Tax
 Obligations, Without Federal Tax Liens, Are 
Unsecured
 Debt Which Is Dischargeable In Bankruptcy.

Additionally, the report noted that there were 1,214 cases of automated levies for the federal payment levy program that were issued during a taxpayer's 30-day period to elect a collection due process hearing, as well as 91 cases where levies were automatically issued during a taxpayer's pending appeal.

TIGTA made eight recommendations to the IRS, including ensuring that notices are properly updated to include correct information. The IRS agreed with seven of the eight recommendations, rejecting the implementation of codes allowing for review to determine the date of nonautomated levy program levies and seizures.


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Thursday, September 21, 2023

The IRS Orders an Immediate Stop to New Employee Retention Credit Processing Amid Surge of Questionable Claims

Amid rising concerns about a flood of improper Employee Retention Credit claims, the Internal Revenue Service today announced an immediate moratorium through at least the end of the year on processing new claims for the pandemic-era relief program to protect honest small business owners from scams.

IRS Commissioner Danny Werfel ordered the immediate moratorium, beginning today, to run through at least Dec. 31 following growing concerns inside the tax agency, from tax professionals as well as media reports that a substantial share of new claims from the aging program are ineligible and increasingly putting businesses at financial risk by being pressured and scammed by aggressive promoters and marketing.

The IRS continues to work previously filed Employee Retention Credit (ERC) claims received prior to the moratorium but renewed a reminder that increased fraud concerns means processing times will be longer. On July 26, the agency announced it was increasingly shifting its focus to review these claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS announced today that hundreds of criminal cases are being worked, and thousands of ERC claims have been referred for audit.

The IRS emphasizes that payouts for these claims will continue during the moratorium period but at a slower pace due to the detailed compliance reviews. With the stricter compliance reviews in place during this period, existing ERC claims will go from a standard processing goal of 90 days to 180 days – and much longer if the claim faces further review or audit. The IRS may also seek additional documentation from the taxpayer to ensure it is a legitimate claim.

This enhanced compliance review of existing claims submitted before the moratorium is critical to protect against fraud but also to protect the businesses from facing penalties or interest payments stemming from bad claims pushed by promoters, Werfel said.

"The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in," Werfel said. "The further we get from the pandemic, the further we see the good intentions of this important program abused. The continued aggressive marketing of these schemes is harming well-meaning businesses and delaying the payment of legitimate claims, which makes it harder to run the rest of the tax system. This harms all taxpayers, not just ERC applicants."

"For those people being pressured by promoters to apply for the Employee Retention Credit, I urge them to immediately pause and review their situation while we look to add new protections and safeguards to stop bad claims from ever coming in," Werfel said. "In the meantime, businesses should seek out a trusted tax professional who actually understands the complex ERC rules, not a promoter or marketer hustling to get a hefty contingency fee. Businesses that receive ERC payments improperly face the daunting prospect of paying those back, so we urge the utmost caution. The moratorium will help protect taxpayers by adding a new safety net onto this program to focus on fraudulent claims and scammers taking advantage of honest taxpayers."

In addition, the IRS is finalizing details that will be available soon for a special withdrawal option for those who have filed an ERC claim but the claim has not been processed. This option – which can be used by taxpayers whose claim hasn't yet been paid– will allow the taxpayers, many of them small businesses who were misled by promoters, to avoid possible repayment issues and paying promoters contingency fees. Filers of these more than 600,000 claims awaiting processing will have this option available. Those who have willfully filed fraudulent claims or conspired to do so should be aware, however, that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.

As part of the wider compliance effort, the IRS is working with the Justice Department to address fraud in the ERC program as well as promoters who have been ignoring the rules and pushing businesses to apply.

The IRS has trained auditors examining ERC claims posing the greatest risk, and the IRS Criminal Investigation division is actively working to identify fraud and promoters of fraudulent claims for potential referral for prosecution to the Justice Department.

IRS Criminal Investigation (IRS-CI) investigates a variety of COVID fraud allegations ranging from fraudulently obtained employee refund tax credits to falsified Paycheck Protection Program loans. To date, IRS-CI has uncovered suspected pandemic fraud totaling more than $8 billion. As of July 31, 2023, IRS-CI has initiated 252 investigations involving over $2.8 billion of potentially fraudulent Employee Retention Credit claims. Of those, fifteen of the 252 investigations have resulted in federal charges. Of the 15 federally charged cases, so far six matters have resulted in convictions, four of those cases have reached the sentencing phase with the average sentence being 21 months.

Criminal Investigation's work is in addition to ERC audits that have started. The IRS has already referred thousands of ERC cases for audit.


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Employee Retention Credit Claim?


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IRS To Establish Special Pass-Through Organization To Help With High-Income Compliance Efforts

The Internal Revenue Service will launch a new group focused on scrutinizing pass-through organizations as part of its broader plan for beefing up enforcement work against the wealthy, according to an agency statement on September 20, 2023.

This new unit will leverage Inflation Reduction Act funding to disrupt efforts by certain large partnerships to use pass-throughs to intentionally shield income to avoid paying the taxes they owe. These efforts are consistent with our broader commitment to use Inflation Reduction Act dollars to end the era of historically low error rates for wealthy and large entities, while making sure middle- and low-income filers continue to see no change in audit rates for years to come."

Following a top-to-bottom review of enforcement efforts, the IRS announced on September 8, 2023 the start of a sweeping, historic effort to restore fairness in tax compliance by shifting more attention onto high-income earners, partnerships, large corporations and promoters abusing the nation's tax laws.

President Joe Biden signed the Inflation Reduction Act into law in August 2022. It gave the IRS nearly $80 billion in increased funding, though this year's Fiscal Responsibility Act cut $1.4 billion, including money for IRS enforcement and operations support, and a side deal between the White House and lawmakers cuts $20 billion more from the agency, leaving The IRS with roughly $60 billion in net increased funding for enforcement.

Greater resources are needed to evaluate the compliance of pass-through entities, especially large and complex ones, and pass-through audit rates dropped because of funding cuts, the agency said in the strategic plan.

The agency audited 4.4% of pass-throughs in 2010, and the rate dropped to 0.1% in 2017, the most recent year with nearly all audits closed, according to the plan, which was released in April.

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Monday, September 18, 2023

IRS Looks To Hire 3,700 Employees Nationwide To Audit Wealthy Taxpayers

In IR-2023-172 dated Sept. 15, 2023, the IRS explained that as part of larger transformation work underway to make improvements, the Internal Revenue Service announced the opening of  more than 3,700 positions nationwide to help with expanded enforcement work focusing on complex partnerships and large corporations

These compliance positions will be open in more than 250 locations nationwide and is part of a larger effort to add fairness to the tax system and expand tax enforcement involving areas of concern with high-income earners, partnerships, large corporations and promoters. 

The Hiring Will Be For Higher-Graded Revenue Agents,
Which Are Specialized Technical Positions
That Generally Focus On Audits.

This continued hiring effort builds off earlier efforts to add taxpayer service employees at the IRS, part of the landmark Inflation Reduction Act funding approved in August 2022.

"This is another important step for the IRS as we work to transform the agency and make improvements," said IRS Commissioner Danny Werfel. This next wave of hiring will help the IRS add key talent like tax accountants to help reverse a decade-long decline of audits for the wealthy as well as complex partnerships and corporations.

These New Employees Will Be Focused On Higher-Income
And Complex Tax Areas Like Partnerships, Not Average Taxpayers Making Less Than $400,000."

"This is an exciting time to be at the IRS," said IRS Human Capital Officer Traci DiMartini. "The IRS provides a competitive financial package for people with expertise in this high-demand area. For people with accounting and financial backgrounds, we encourage them to take a close look at the benefits of working for the IRS and serving our nation."

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Friday, September 15, 2023

TIGTA Says IRS Needs to Leverage the Most Effective Training for Revenue Agents Examining High-Income Taxpayers

The Treasury Inspector General for Tax Administration (TIGTA ) issue Report Number: 2023-30-054 on August 31, 2023 concluding that the IRS Needs to Leverage the Most Effective Training for Revenue Agents Examining High-Income Taxpayers.

In August 2022, the Inflation Reduction Act of 2022 (IRA) was enacted providing almost $80 billion (with $45.6 billion for enforcement activities) to the IRS over a decade. In this report, TIGTA assessed the IRS’s strategy to train employees hired specifically to conduct audits of high earners and large businesses that underreport income.

In August 2022, the Secretary of the Treasury stated that IRA funding was intended in part to increase examination of high-income taxpayers. The Secretary also directed that no additional resources, including any new hires, shall be used to increase the share of small businesses or households below the $400,000 threshold that are audited relative to historical levels. 

The Large Business And International (LB&I) Division
Has Expertise In Training Revenue Agents
On Examining High-Income Taxpayers.

However, the IRS’s efforts to train new hires do not appear to be fully leveraging this expertise. 

The IRS treats this training as specialized and only offers it when necessary for employees auditing in this specialized area. Commensurate with the new IRA funding, the IRS should revise its training paradigm and expose new hires to the types of issues associated with high-income taxpayer returns. 

  • The Small Business/Self-Employed Division’s Fiscal Year 2023 Examination Plan showed no significant increase in the number of high-income individual audits. 
  • Additionally, the LB&I Division’s resource allocation plan is not detailed enough for TIGTA to assess the IRS’s intended efforts to examine high-income individuals with the increased enforcement funding. 
  • The IRS does not have a unified or updated definition for individual high-income taxpayers. 
  • The Tax Reform Act of 1976 required annual publication of data on individual income tax returns reporting income of $200,000 or more. The current examination activity code schema still uses $200,000 as the main threshold. 
The IRS’s Inflation Reduction Act Strategic Operating Plan sets forth leveraging data analytics to improve the IRS’s understanding of the tax filings of high-wealth individuals and to address potential noncompliance. 

Consequently, The IRS Needs To Update Its High-Income Taxpayer Definition To Better Identify And Track Examination Results And Manage Examination Priorities.

TIGTA made six recommendations, including that the IRS leverage the LB&I Division’s extensive knowledge base by embracing its current high-income individual training content and ensure that examination plans follow the Secretary of Treasury’s Directive to prioritize coverage of individual high-income earners over $400,000. 

The IRS agreed or partially agreed with five of the six recommendations and disagreed with one recommendation.

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