Howard's IRS and the Law Blog

ACS can be intimidating – big, impersonal and far away on a 1-800 number.

Most IRS collection letters are sent from an Automated Collection Service Center (ACS).  ACS handles the incoming calls from the collection notices. It is responsible for levy releases, lien determinations and setting up installment agreements.

Here are some tips for successfully navigating ACS:

  • Be respectful.  It is easy to get frustrated with ACS, but it will get you nowhere.
  • Expect a wide range of policies and approaches.  It is important to know what IRS internal policy really is, and what the tax laws permit the IRS to do.
  • You should always write down the name and identification number of the representative helping you.
  • Good results are often based on the personality of the employee.  If you are getting a bad feeling, politely end the call and try again.
  • Be prepared:  Every time you call, you will speak to a different representative.
  • You can request to speak with a manager if necessary; you should receive a call back within 24 hours.
  • The representative has a computer in front of her.  She will be documenting your conversation.
  • Before ending the call, request that the representative read back to you her notes.  If you have to call back, the first thing the IRS will do is review the case history.

Closing the gap between you and an IRS Automated Collection Service can be simple if you are courteous, educated, and organized with the information that ACS is looking for.

Ads for IRS problems: Be informed, get the facts

by Howard S. Levy, Esq. on November 23, 2009

in Offer in compromise

Pennies on the dollar!  Act now before its too late! The laws may change!

During first consultations, my clients often have questions about advertisements they have seen on television or heard on the radio about the IRS offer in compromise process.  Here is my response:

The IRS offer in compromise rejection rate is 75%. The IRS accepted only 11,000 offers last year (out of the 44,000 that were submitted).

An offer in compromise is not for everyone.  Your finances have to match up with the IRS settlement guidelines.  Pennies on the dollar is possible, and is certainly a worthwhile goal.  But a detailed understanding of the what the IRS looks for in a financial statement is key to success.

Some ads also have a call to action – “act now as the laws might change.”

The insinuation that the laws might be changing for the worst is incorrect.  There are no changes in law pending in Congress that would hurt the offer in compromise program or disfavor taxpayers.

The irony is that there is a bill pending in the House Ways and Means Committee – The Tax Compromise Improvement Act that would help taxpayers by removing the current 20% nonrefundable offer deposit requirement.  This would make entry into the compromise process more affordable.

Bottom line is to be careful.   Ask questions, be informed and get the facts.  As my readers know, as an alternative to the 75% compromise rejection rate, I am a strong advocate of bankruptcy to elminate IRS taxes.

Everyday, I see how the IRS is responding to people hurt by the economy. The Journal of Tax Practice and Procedure asked me to write an article about it  – “IRS Collections in Troubled Times.”

Current IRS enforcement is centered on recovering government money that was spent to stabilize the economy.  As a result, the IRS is increasing its collection enforcement activities, with lien and levy filings hitting levels not seen since the mid-1990s.

The IRS has sought to soften the impact with public statements that it will attempt to be compassionate to taxpayers.  To their credit, the IRS is trying to be sensitive to those who have had job losses and income reductions.  But much of what the IRS is offering – like flexibility for missed installment payments – were available even in better times.

The reality is that fairness often comes down to individual situations and the IRS employee on the other end of the phone.  I have seen compassion and indifference.  There is some flexibility from the top; the essential question is how it is exercised.

IRS audits – how can you prove expenses without receipts?

by Howard S. Levy, Esq. on November 9, 2009

in IRS Audits, Tax Court

Can you prove expenses in an IRS audit without receipts and checks?

Thanks to the tax case of Cohan v. Commissioner,39 F. 2d 540 (2d Cir. 1930), the IRS will allow expenses even if receipts and checks are missing.

All you need is a reasonable basis to recreate the expense and credible testimony that you actually spent the money.

The Cohan case is law, and is followed by the IRS and the U.S. Tax Court.

Examples of using the Cohan rule:

A mileage log can be recreated if the basis for it is reasaonable – a calendar, for example, showing appointments.  Ever hear of a realtor who sells houses without travel?  A reasonable basis exists for the expense.  A realtor would make a log book from a review of her calendar showing open houses, supplemented by an affidavit providing an overview of how business is conducted.

For a flooring contractor to his subs, for example – labor expenses can be proven by recreating the jobs performed and the manpower used.  Carpet and flooring does not get laid by itself – a statement as to how the business was conducted supports the expenses.  No reciepts, but there is a basis to recreate and prove the expense.

In many cases, your testimony is valuable support for the reconstructed evidence.  In IRS audits, your testimony can be given in the form of an affidavit (a sworn written statement) of facts reciting how you paid the money.

Audit Reconsideration for missing records.

If your audit has already been completed and you are looking at a bill that is too high, the audit can be reopened to allow you to recreate expenses.  This is called audit reconsideration.

The Cohan rule, as it is known, is almost 70 years old, but it has withstood the test of time.  The decision still stands – direct records are not needed to verify an IRS expense deduction.  If you can reconstruct the evidence, you can use that to make an reasonable estimate for the deduction.

You are not a professional record-keeper.  Fortunately, thanks to the Cohan rule, you can overcome holes in your recordkeeping.

“I know I filed it, but the IRS tells me they never received it.”

Tax returns – lost.  Collection appeals – misplaced.  Innocent spouse claims – never processed.

The reality is that the IRS does lose incoming mail.  It is the exception, not the rule, but it happens.

And when it happens, it can be difficult to convince the IRS they are at fault without compelling evidence of filing.

The very best, indisputable way to file with the IRS:

Hand-file it.  Take your return, or your appeal or request, and drive it over to an IRS walk-in center.  Bring a copy with you.  When you file the original, ask the IRS to date stamp the copy as received.

I almost always recommend this for a series of unfiled returns.  Avoid mailing all the returns in the same envelope.  Putting each one in a separate envelope can result in 4 out of 5 being processed. You need 5 out of 5.

Lately, I have been hand-filing collection due process appeals by hand as well.  I have been challenged on more than one occasion by an IRS  Revenue Officer or Appeals Officer as to the timeliness of an appeal. Undisputed proof – a copy with an IRS date stamp – puts an end to these issues.

If you file with a post office proof of mailing certificate, be prepared:  On occasion, the IRS may question what was in the envelope.  Sometimes, I have seen the IRS take the unreasonable position that your mailing reciept only proves you mailed something to the IRS, not what you mailed.

When it is your word against the IRS records, you lose.  If it is important, hand-file it.

I will be on a panel seminar in Cincinnati on November 6 to address taxes and bankruptcy. My co-panelists include Bankruptcy Judge Jeffrey Hopkins and Bankruptcy Trustees Henry Menninger and Tom Geygan.

In addtion to IRS and bankruptcy, other topics that will be discussed include bankruptcy’s impact on divorce, real estate and understanding means testing.

The seminar is “Bankruptcy Forum: What Judges and Trustees Want You to Know.”   Take a look at the program brochure or register online.

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