The internal revenue service everything you always wanted to know but were afraid to ask
Download
1 / 70

The Internal Revenue Service: Everything You Always Wanted To Know But Were Afraid To Ask - PowerPoint PPT Presentation


  • 118 Views
  • Uploaded on

The Internal Revenue Service: Everything You Always Wanted To Know But Were Afraid To Ask. Presented By: Robert C. Webb, Member Frost Brown Todd, LLC. Robert C. Webb. Member of Frost Brown Todd, LLC, Louisville, Kentucky Offices in Kentucky, Indiana, Ohio and Tennessee Education

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' The Internal Revenue Service: Everything You Always Wanted To Know But Were Afraid To Ask' - kiet


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
The internal revenue service everything you always wanted to know but were afraid to ask

The Internal Revenue Service:Everything You Always Wanted To Know But Were Afraid To Ask

Presented By:

Robert C. Webb, Member

Frost Brown Todd, LLC


Robert C. Webb

  • Member of Frost Brown Todd, LLC, Louisville, Kentucky

  • Offices in Kentucky, Indiana, Ohio and Tennessee

  • Education

    • Georgetown University Law Center, LLM, 1990

    • University of Louisville, Louis D. Brandeis School of Law JD, 1988

    • University of Kentucky, BS, 1985

2


Robert c webb
Robert C. Webb

  • Practice Areas

    • Tax Controversy and White Collar Crime

    • Business and Commercial Litigation

3


Overview
Overview

  • Understanding the IRS Organization

  • Audit Risks for Taxpayers

  • Fighting The IRS

  • What Makes a Case Criminal vs. Civil

  • Hot Topics for IRS Enforcement

  • Q & A

4



Taxes are constitutional
Taxes are Constitutional

  • 16th Amendment gave Congress the power to tax income

  • Tax Protestors fail

6


Who controls irs
Who Controls IRS

  • Legislative (Congress)

  • Executive (President)

  • Judicial (Courts)

7


Legislative branch
Legislative Branch

  • Internal Revenue Code

  • Committee Reports

  • Funding

8


Executive branch
Executive Branch

  • Treasury Department

  • IRS Commissioner

  • Treasury Secretary

9


Judicial branch
Judicial Branch

  • U.S. Tax Court

  • U.S. District Court

  • U.S. Court of Federal Claims

10


Who represents the irs
Who Represents the IRS

  • IRS Lawyers

  • Department of Justice Civil Tax Division

11


Federal circuit courts
Federal Circuit Courts

  • 12 Courts for 11 Circuits and the District of Columbia

  • Taxpayers Appeal to these Courts

  • U.S. Supreme Court

12


Irs organization
IRS Organization

  • Post 1998 Reform Act

  • IRS Oversight Board (Policy and Strategy)

  • 4 Operating Divisions

  • Specialized IRS Units

13


What rules must the irs follow
What Rules Must the IRS Follow

  • Treasury Regulations

  • Revenue Rulings/Procedures

  • Letter Rulings

  • Internal Revenue Manual (“IRM”)

14



Irs examinations
IRS Examinations

  • Service Center (“DLN”)

  • Discriminate Information Function (“DIF”)

  • Multifactor Scoring Process

  • Disproportionate Ratios

  • Refund Claims

16


Audit triggers
Audit Triggers

  • Home Based Businesses

  • Excessive Travel and Entertainment Expenses

  • Excessive Charitable Contributions

17


Lowering audit risks
Lowering Audit Risks

  • File an Extension

  • Attach Rider to Return

  • Avoid Disproportionate Deductions

18


Preventing an audit after selection
Preventing An Audit After Selection

  • No Second Examinations

  • Check the Statute of Limitations

    • 3 years

    • 6 years

19


Irs audit focus
IRS Audit Focus

  • Tax Gap $345 Billion

  • Taxes due and not paid

  • National Research Project (“NRP”)

20


Irs automated under reporter program
IRS Automated Under-Reporter Program

  • Targets Tax Gap

  • 4 Million AUR Notices Issued

  • $3.9 Billion in Tax Assessments

  • IRS Matching Program (CP 2000 Notice)

21


How to prepare for an audit
How to Prepare for an Audit

  • Review Information Document Request

  • Prepare and File Power of Attorney

  • Review Tax Returns, Work Papers and Source Documents

  • Review Case Law, Regulations and the IRM

22


How to handle an audit
How to Handle an Audit

  • Documents Bates Stamped and Chronological Order (“ACP”)

  • Pre-Audit Conference with Revenue Agent

  • Document all Contacts with Agents

  • Copy all Documents for the Agent

  • Keep Agent Busy

  • Use Affidavits for Facts

23


Irs summons authority
IRS Summons Authority

  • IRS Summons (IRC §7602)

  • Not Self-Enforcing

  • Powell Factors

  • Motion to Quash

24


Conclusion of audit
Conclusion of Audit

  • Closing Conference

  • No Change

  • Agree -- Form 870

  • Disagree --

    • Thirty Day Letter

    • Ninety Day Letter

25


Final thoughts
Final Thoughts

  • Dealing with Difficult Agents

  • Collecting Attorney Fees (IRC §7430)

  • Shifting the Burden of Proof to the IRS (IRC §7491)

26



Irs appeals offices
IRS Appeals Offices

  • Administrative Forum for Contesting IRS Compliance Actions

  • 80% to 90% of Cases Resolved

  • Hazards of Litigation is Key

28


When to seek appeals office review
When to Seek Appeals Office Review

  • NON-DOCKETED Cases

    • 30 Day Letter (Proposed Deficiency)

    • Collection Actions

    • Refund Denied

  • Docketed

    • Regular Cases

    • S-Cases

  • 29


    How to seek appeals office review
    How to Seek Appeals Office Review

    • Respond to 30 Day Letter

    • Greater than $25,000 requires a Written Protest

    • Small Case Procedure

    30


    Preparing for appeals conference
    Preparing for Appeals Conference

    • Freedom of Information Act Request

    • IRS Positions

    • Affidavits for Facts

    • Key CIRCUIT Caselaw

    • Offer to Settle

    31


    Settling with appeals
    Settling with Appeals

    • Negotiation Strategy

    • IRS Form 870 or 870-AD

    32


    Alternative dispute resolution adr
    Alternative Dispute Resolution (“ADR”)

    • Fast Track Mediation (Rev.Proc. 2003-41)

    • Arbitration

    33


    Final thoughts1
    Final Thoughts

    • Qualified Offers

    • Beware of IRC §6673 Penalties

    • Form 870, Closing Agreement or Stipulations

    • Settled Cases Are Generally Not Reopened Absent Fraud

    34


    Special irs collections matters
    Special IRS Collections Matters

    • Collection Due Process (“CDP”)

    • Collection Appeals Process (“CAP”)

    • Offer in Compromise

    • Trust Fund Recovery Penalty

    • Equivalent Hearing

    35


    A taxpayer s secret weapon
    A Taxpayer’s Secret Weapon

    • Taxpayer Assistance Order (“TAO”)

    • IRS Form 911

    • 10 Year Statute of Limitations from Assessment

    36


    Cdp hearing
    CDP Hearing

    • Federal Tax Lien Filed

    • Notice of Intent to Levy

    • Suspends Collection Activity

    • File IRS Form 12153 to Request

    • Judicial Review

    37


    Cap hearing
    CAP Hearing

    • Expedited Appeal of Collection Actions BEFORE They Occur

    • Proposed Lien Filing; Installment Agreement Rejected

    • Levies That Have Attached

    • Group Manager Meeting Required

    • No Judicial Review

    38


    New offer in compromise rules
    New Offer in Compromise Rules

    • TIP&R Act of 2005 (IR 2006-106)

    • July 16, 2006 Effective Date

    • 20% of Offer Amount (Nonrefundable) (Unless Waiver)

    39


    Fighting the irs in court
    Fighting the IRS In Court

    • Tax Court

    • Federal District Court

    • U.S. Court of Federal Claims

    • Bankruptcy Court

    40


    Tax court tickets
    Tax Court Tickets

    • If Appeals Fails to Resolve a Case (“90 Day Letter”)

    • Collection Due Process (“CDP”)

    • Innocent Spouse

    • Interest Abatements

    • Worker Classifications and Amount of Employment Taxes Owed

    41


    Top 10 litigated issues
    Top 10 Litigated Issues

    • CDP

    • Gross Income (§61)

    • Failure to File, Negligence and Frivolous Penalties

    • Trade or Business Expense (§162)

    • Family Status

    • Innocent Spouse

    • Summons Enforcement

    • Trust Fund Recovery Penalty

    42


    4 what makes a case criminal vs civil
    4. What Makes a Case Criminal vs. Civil

    43


    What makes a tax case criminal
    What Makes a Tax Case Criminal

    • Amount of Money Involved

    • Badges of Fraud/Concealment

    • Pattern of Conduct

    • High Profile Taxpayer

    • Tax Professional

    44


    What is the criminal investigation division
    What Is The Criminal Investigation Division

    • CID Has Approximately 4,400 Employees World Wide

    • 2,800 Special Agents

    • CID Activity in 2005

    45


    How irs special agents work
    How IRS Special Agents Work

    • Surprise Visits are Key Despite Miranda Type Warning

    • Always two Agents

    • Beware of Joint CIVIL and CRIMINAL Investigations

    46


    How to deal with irs special agents
    How to Deal with IRS Special Agents

    • Get Authority from your Client to Convey Confidential Information

    • Keep a Numbered Set of Copies for All Documents Given to Special Agents

    • Have Witnesses Present for Any Discussions

    • IRC §7525 Privilege Does Not Apply

    47


    Advice to taxpayers
    Advice to Taxpayers

    • No Destroying or Altering Documents

    • Do Not Tell a CPA or Tax Preparer What Is on Your Mind

    • Hire an experienced Criminal Tax Lawyer

    • Do Not Talk to Third Parties about the Case

    48



    Cid investigative priorities
    CID Investigative Priorities

    • Tax Return Preparer Fraud

    • FINCEN and FBAR Compliance

    • Tax Haven Abuses

    • Tax Shelters (Are Factual Assumptions in Tax Opinions Realistic?)

    • Trusts to Conceal Income

    • Cash Economy

    • Failure to Withhold Taxes

    50


    Help for tax professionals
    Help for Tax Professionals

    • Contingency Fee Cases in Proposed Rules to Circular 230

    • Award of Attorney Fees

    • Taxpayer Advocate Is Geographical

    • MY E-Mail: [email protected]

    51


    Q & A

    52


    Robert c webb1
    Robert C. Webb

    Frost Brown Todd, LLC

    400 W. Market Street, Floor 32

    Louisville, Kentucky 40202

    502-589-5400

    [email protected]

    www.frostbrowntodd.com

    53


    Table of contents
    Table of Contents

    The Internal Revenue Service: Everything You Always

    Wanted To Know But Were Afraid to Ask……………………………………... 1

    Robert C. Webb………………………………………………………………….. 2

    Overview………………………………………………………………………….. 4

    1. Understanding the IRS Organization………………………………... 5

    Taxes are Constitutional……………………………………………… 5

    - 16th Amendment gave Congress the power to tax income….. 6

    - Tax Protestors fail………………………………………………... 6

    Who Controls IRS……………………………………………………... 7

    - Legislative (Congress)…………………………………………… 7 - Executive (President)……………………………………………. 7

    - Judicial (Courts)…………………………………………………... 7

    54


    Table of contents cont d
    Table of Contents (cont’d)

    - Legislative Branch…………………………………………… 8

    - Internal Revenue Code……………………………….. 8

    - Committee Reports……………………………………. 8

    - Funding…………………………………………………. 8

    - Executive Branch………………………………………........ 9

    - Treasury Department……………………………......... 9

    - IRS Commissioner…………………………………….. 9

    - Treasury Secretary……………………………………. 9

    - Judicial Branch……………………………………………... 10

    - U.S. Tax Court………………………………………... 10

    - U.S. District Court…………………………………….10

    - U.S. Court of Federal Claims……………………….. 10

    Who Represents the IRS……………………………………………. 11

    - IRS Lawyers………………………………………………... 11

    - Department of Justice Civil Tax Division………………… 11

    55


    Table of contents cont d1
    Table of Contents (cont’d)

    Federal Circuit Court………………………………………………… 12

    - 12 Courts for 11 Circuits and the District of Columbia……… 12

    - Taxpayers Appeal to These Courts…………………………... 12

    - U.S. Supreme Court……………………………………………. 12

    IRS Organization……………………………………………………... 13

    - Post 1998 Reform Act…........................................................ 13

    - IRS Oversight Board (Policy and Strategy)………………….. 13

    - 4 Operating Divisions…………………………………………... 13

    - Specialized IRS Units…………………………………………... 13

    What Rules Must the IRS Follow…………………………………... 14

    - Treasury Regulations………………………………………...... 14

    - Revenue Rulings/Procedures…………………………………. 14

    - Letter Rulings…………………………………………………… 14

    - Internal Revenue Manual (“IRM”)……………………………... 14

    56


    Table of contents cont d2
    Table of Contents (cont’d)

    2. Audit Risks for Taxpayers…………………………………………... 15

    IRS Examinations……………………………………………………. 16

    - Service Center (“DLN”)………………………………………… 16

    - Discriminate Information Function (“DIF”)…………………… 16

    - Multifactor Scoring Process…………………………………… 16

    - Disproportionate Ratios………………………………………... 16

    - Refund Claims…………………………………………………... 16

    Audit Triggers………………………………………………………… 17

    - Home Based Businesses……………………………………… 17

    - Excessive Travel and Entertainment Expenses…………….. 17

    - Excessive Charitable Contributions…………………………... 17

    Lowering Audit Risks………………………………………………… 18

    - File an Extension……………………………………………….. 18

    - Attach Rider to Return…………………………………………. 18

    - Avoid Disproportionate Deductions…………………………... 18

    57


    Table of contents cont d3
    Table of Contents (cont’d)

    Preventing An Audit After Selection………………………………... 19

    - No Second Examinations……………………………………… 19

    - Check the Statute of Limitations……………………………… 19

    - 3 years………………………………………………………. 19

    - 6 years………………………………………………………. 19

    IRS Audit Focus……………………………………………………… 20

    - Tax Gap $345 Billion…………………………………………… 20

    - Taxes due and not paid………………………………………... 20

    - National Research Project (“NRP”)…………………………… 20

    IRS Automated Under-Reporter Program………………………… 21

    - Targets Tax Gap………………………………………………... 21

    - 4 Million AUR Notices Issued…………………………………. 21

    - $3.9 Billion in Tax Assessments……………………………… 21

    - IRS Matching Program (CP 2000 Notice)……………………. 21

    58


    Table of contents cont d4
    Table of Contents (cont’d)

    How to Prepare for an Audit………………………………………… 22

    - Review Information Document Request……………………... 22

    - Prepare and File Power of Attorney…………………………... 22

    - Review Tax Returns, Work Papers and Source Documents 22

    - Review Case Law, Regulations and the IRM………………... 22

    How to Handle an Audit……………………………………………... 23

    - Documents Bates Stamped and Chronological Order

    (“ACP”)…………………………………………………………... 23

    - Pre-Audit Conference with Revenue Agent…………………. 23

    - Document all Contacts with Agents…………………………... 23

    - Copy all Documents for the Agent……………………………. 23

    - Keep Agent Busy……………………………………………….. 23

    - Use Affidavits for Facts………………………………………… 23

    59


    Table of contents cont d5
    Table of Contents (cont’d)

    IRS Summons Authority…………………………………………….. 24

    - IRS Summons (IRC §7602)…………………………………… 24

    - Not Self-Enforcing……………………………………………… 24

    - Powell Factors…………………………………………………... 24

    - Motion to Quash………………………………………………… 24

    Conclusion of Audit…………………………………………………... 25

    - Closing Conference…………………………………………….. 25

    - No Change………………………………………………………. 25

    - Agree – Form 870………………………………………………. 25

    - Disagree –

    - Thirty Day Letter…………………………………………… 25

    - Ninety Day Letter…………………………………………... 25

    60


    Table of contents cont d6
    Table of Contents (cont’d)

    Final Thoughts……………………………………………………….. 26

    - Dealing with Difficult Agents…………………………….......... 26

    - Collecting Attorney Fees (IRC §7430)……………………….. 26

    - Shifting the Burden of Proof to the IRS (IRC §7491)………. 26

    3. Fighting the IRS……………………………………………………… 27

    IRS Appeals Offices…………………………………………………. 28

    - Administrative Forum for Contesting IRS

    Compliance Actions……………………………………………. 28

    - 80% to 90% of Cases Resolved………………………………. 28

    - Hazards of Litigation is Key…………………………………… 28

    61


    Table of contents cont d7
    Table of Contents (cont’d)

    When to Seek Appeals Office Review…………………………….. 29

    - Non-Docketed Cases…………………………………………... 29

    - 30 Day Letter (Proposed Deficiency)……………………. 29

    - Collection Actions………………………………………….. 29

    - Refund Denied……………………………………………... 29

    - Docketed………………………………………………………… 29

    - Regular Cases………………………………………………29

    - S-Cases……………………………………………………... 29

    How to Seek Appeals Office Review………………………………. 30

    - Respond to 30 Day Letter……………………………………... 30

    - Greater than $25,000 requires a Written Protest…………… 30

    - Small Case Procedure…………………………………………. 30

    62


    Table of contents cont d8
    Table of Contents (cont’d)

    Preparing for Appeals Conference…………………………………. 31

    - Freedom of Information Act Request…………………………. 31

    - IRS Positions……………………………………………………. 31

    - Affidavits for Facts……………………………………………… 31

    - Key CIRCUIT Caselaw………………………………………… 31

    - Offer to Settle…………………………………………………… 31

    Settling with Appeals………………………………………………… 32

    - Negotiation Strategy……………………………………………. 32

    - IRS Form 870 or 870-AD………………………………………. 32

    Alternative Dispute Resolution (“ADR”)…………………………… 33

    - Fast Track Mediation (Rev. Proc. 2003-41)…………………. 33

    - Arbitration………………………………………………………... 33

    63


    Table of contents cont d9
    Table of Contents (cont’d)

    Final Thoughts……………………………………………………….. 34

    - Qualified Offers…………………………………………………. 34

    - Beware of IRC §6673 Penalties………………………………. 34

    - Form 870, Closing Agreement or Stipulations………………. 34

    - Settled Cases Are Generally Not Reopened Absent Fraud.. 34

    Special IRS Collections Matters……………………………………. 35

    - Collection Due Process (“CDP”)……………………………… 35

    - Collection Appeals Process (“CAP”)…………………………. 35

    - Offer in Compromise…………………………………………… 35

    - Trust Fund Recovery Penalty…………………………………. 35

    - Equivalent Hearing……………………………………………... 35

    A Taxpayer’s Secret Weapon………………………………………. 36

    - Taxpayer Assistance Order (“TAO”)………………………….. 36

    - IRS Form 911…………………………………………………… 36

    - 10 Year Statute of Limitations for Assessment……………… 36

    64


    Table of contents cont d10
    Table of Contents (cont’d)

    CDP Hearing …………………………………………………………. 37

    - Federal Tax Lien Filed…………………………………………. 37

    - Notice of Intent to Levy …………………………………………37

    - Suspends Collection Activity…………………………………... 37

    - File IRS Form 12153 to Request……………………………… 37

    - Judicial Review…………………………………………………. 37

    CAP Hearing …………………………………………………………. 38

    - Expedited Appeal of Collection Actions BEFORE They

    Occur…………………………………………………………….. 38

    - Proposed Lien Filing; Installment Agreement Rejected……. 38

    - Levies That Have Attached……………………………………. 38

    - Group Manager Meeting Required…………………………… 38

    - No Judicial Review……………………………………………... 38

    65


    Table of contents cont d11
    Table of Contents (cont’d)

    New Offer in Compromise Rules…………………………………… 39

    - TIP&R Act of 2005 (IR 2006-106)…………………………….. 39

    - July 16, 2006 Effective Date…………………………………... 39

    - 20% of Offer Amount (Nonrefundable) (Unless Waiver)…… 39

    Fighting the IRS In Court……………………………………………. 40

    - Tax Court………………………………………………………... 40

    - Federal District Court…………………………………………... 40

    - U.S. Court of Federal Claims………………………………….. 40

    - Bankruptcy Court……………………………………………….. 40

    Tax Court Tickets……………………………………………………. 41

    - If Appeals Fails to Resolve a Case (“90 Day Letter”)………. 41

    - Collection Due Process (“CDP”)……………………………… 41

    - Innocent Spouse……………………………………………….. 41

    - Interest Abatements……………………………………………. 41

    - Worker Classifications and Amount of Employment

    Taxes Owed…………………………………………………….. 41

    66


    Table of contents cont d12
    Table of Contents (cont’d)

    Top 10 Litigated Issues……………………………………………… 42

    - CDP……………………………………………………………… 42

    - Gross Income (§61)……………………………………………. 42

    - Failure to File, Negligence and Frivolous Penalties………… 42

    - Trade or Business Expense (§162)…………………………... 42

    - Family Status……………………………………………………. 42

    - Innocent Spouse……………………………………………….. 42

    - Summons Enforcement……………………………………….. 42

    - Trust Fund Recovery Penalty…………………………………. 42

    4. What Makes a Case Criminal vs. Civil…………………………….. 43

    What Makes a Tax Case Criminal…………………………………. 44

    - Amount of Money Involved……………………………………. 44

    - Badges of Fraud/Concealment………………………………...44

    - Pattern of Conduct……………………………………………… 44

    - High Profile Taxpayer …………………………………………..44

    - Tax Professional………………………………………………... 44

    67


    Table of contents cont d13
    Table of Contents (cont’d)

    What Is The Criminal Investigation Division………………………. 45

    - CID Has Approximately 4,400 Employees World Wide……. 45

    - 2,800 Special Agents…………………………………………... 45

    - CID Activity in 2005…………………………………………….. 45

    How IRS Special Agents Work…………………………………….. 46

    - Surprise Visits are Key Despite Miranda Type Warning…… 46

    - Always two Agents……………………………………………... 46

    - Beware of Joint CIVIL and CRIMINAL Investigations……… 46

    How to Deal with IRS Special Agents……………………………... 47

    - Get Authority from your Client to Convey Confidential

    Information………………………………………………………. 48

    - Keep a Numbered Set of Copies for All Documents

    Given to Special Agents……………………………………….. 48

    - Have Witnesses Present for Any Discussions……………… 48

    - IRC §7525 Privilege Does Not Apply…………………………. 48

    68


    Table of contents cont d14
    Table of Contents (cont’d)

    Advice to Taxpayers………………………………………………… 48

    - No Destroying or Altering Documents……………………….. 48

    - Do Not Tell a CPA or Tax Preparer What is on Your Mind.. 48

    - Hire an Experienced Criminal Tax Lawyer………………….. 48

    - Do Not Talk to Third Parties about the Case……………….. 48

    5. Hot Topics for IRS Enforcement…………………………………… 49

    CID Investigative Priorities…………………………………………. 50

    - Tax Return Preparer Fraud……………………………………. 50

    - FINCEN and FBAR Compliance……………………………… 50

    - Tax Haven Abuses…………………………………………….. 50

    - Tax Shelters (Are Factual Assumptions in Tax

    Opinions Realistic?)……………………………………………. 50

    - Trusts to Conceal Income……………………………………... 50

    - Cash Economy………………………………………………….. 50

    - Failure to Withhold Taxes…………………………………….. 50

    69


    Table of contents cont d15
    Table of Contents (cont’d)

    Help for Tax Professionals…………………………………………. 51

    - Contingency Fee Cases in Proposed Rules to

    Circular 230……………………………………………………... 51

    - Award of Attorney Fees……………………………………….. 51

    - Taxpayer Advocate is Geographical…………………………. 51

    - MY E-Mail: [email protected].................................. 51

    6. Q&A…………………………………………………………………… 52

    70


    ad