After applying formulas to value the taxpayer's assets and projected future income, the IRS will determine the reasonable collection potential of the account. The reasonable collection potential is the amount ultimately required to settle, or compromise, the tax debt.
Stop Aggressive IRS Collection Agents
In almost all cases, the Internal Revenue Service (“IRS”) must issue a Notice of a Right to a Hearing prior to taking enforcement action against a taxpayer. Enforcement action includes the garnishment of bank accounts, attachment of wages, and the physical seizure of property.
A timely and well-crafted appeals request will prevent the IRS from taking collection action and give the taxpayer a favorable forum to resolve their case.
Mark Everson, the Commissioner of the IRS, is fond of saying that the “E” in his last name stands for enforcement. Not surprisingly, there has been a significant increase in IRS enforcement activity during Mr. Everson’s tenure as the nation’s chief tax collector.
The IRS’s field collection agents, known as Revenue Officers, are granted sweeping enforcement powers that are exercised with no oversight whatsoever.
Our company’s case is assigned to an IRS field office located near the business’s headquarters. One of the first actions of the Revenue Officer will likely be to make an unannounced visit to our company's offices. The Revenue Officer will ask for the president, flash very official looking credentials, and then demand full payment on the account.
Unfortunately, our company is not in a position to immediately pay the tax due. While it is a viable business supporting 35 employees, there is some question as to whether the company will ever be able to pay the total amount due and continue meeting its operating expenses. The Revenue Officer is told that time is needed to address the company’s obligations to the government.
Our hypothetical Revenue Officer, after hearing that the full $300,000 will not be
paid on that day, returns to his office and generates a final demand for payment. This final demand for payment also incorporates a right to an administrative hearing, which if requested, prevents the IRS from taking collection action. At the hearing, the taxpayer will be able to offer proposals for resolving the tax issues and request an abatement of penalties.
Prior to the recent emphasis on enforcement heralded by Mr. Everson, the final notice was only issued after an impasse was reached between the taxpayer and the Revenue Officer. As part of its more aggressive approach to collection cases, the final notice is now routinely given during or soon after the initial contact with the taxpayer.
If our hypothetical company failed to request a hearing, the Revenue Officer would then be able to issue a levy to the general contractor. The levy would require the general contractor to pay all funds due our hypothetical taxpayer to the IRS. At the very least, such action would give the Revenue Officer the power to make unreasonable demands of the taxpayer and dictate a course of action to resolve the case. The Revenue Officer could also decide that the company is no longer viable and needs to be closed. In which case, the levy would remain in place and our hypothetical company would be forced to cease operations.
Gerald W. Kelly, Esq.
Article: Copyright © 2006-19
Let’s use as an example a construction company that is a subcontractor on a long-term real property development project. This hypothetical
company has only one source of revenue: the monthly payments it receives from the general contractor. Through a series of unforeseeable events, our company incurred a $300,000 employment tax liability, a substantial portion of which includes penalties and interest.
While the “E” in Mr. Everson’s name may very well stand for enforcement, the proper use of collection appeals could have him saying that it also represents evenhandedness in the use of the IRS’s formidable enforcement arsenal.