January 31, 2012
Specialization, Technology and Good Help
Eight years ago I limited my practice to tax controversy matters. Most of the work involves unfiled returns, collection problems, audits and Tax Court litigation. Restricting the scope of the practice has dramatically increased efficiency and productivity. I work the same problems over and over, and the line from beginning to end gets shorter and straighter.
Technology continues to make things easier. We are in the process of going paperless. That puts case files at our fingertips, eliminates searches for paper documents, and spares trees. We have invested in tax return software and that software cuts the time to prepare a tax return in half.
My work is made much easier by the talents of Margarite Mercado who has been working with me for several years. Margarite arrived with superior computer and secretarial skills and with practice has become better and better at pulling together tax returns and financial statements. We work on complicated factual and legal problems and being able to delegate and review accelerates the creative process.
Here are some items of general interest:
Offers in Compromise. Five years ago, 85% of the offers in compromise submitted to IRS resulted in negotiated settlements. The IRS became overwhelmed with what it regarded as frivolous offers generated by tax representation firms and it effectively closed its offer in compromise window. Now about 15% of the offers submitted result in successful conclusions. The Service papers offers to death and looks for reasons to turn them down. Will this trend change? We look for signs. In the meantime we turn to other remedies.
ACS. IRS collection activity starts with the Automated Collection System (ACS), which is a nationwide call center. It is staffed by low grade people who extract information from taxpayers and try to squeeze as much out of them as possible. There are long phone waits and no way to talk to the same person twice. I found that it is much easier to work collection cases by appealing IRS collection decisions and getting the case handled by an IRS Appeals Officer who can assemble a paper file, think through the case with you and come to a reasonable conclusion.
Foreign Accounts and Business Interests. You may have read that IRS has gotten UBS to turn over 4,000–5,000 customer names and has been aggressively pursuing high net worth United States taxpayers who use foreign banks to evade U. S. taxes. IRS developed a voluntary disclosure policy tailored to undisclosed foreign accounts. That announced policy had now expired deadlines and we in the practice try to figure out what the voluntary disclosure policy is going to be for those who did not make a deal before the last deadline.
Taxpayers who have foreign bank accounts are required to check a box on Schedule B of the tax return, disclosing the existence of those accounts; and they are also required to file a separate annual disclosure of those accounts. Taxpayers having interests in foreign corporations and partnerships are required to file annual disclosure statements disclosing their interests. There are severe penalties for failing to make these filings. The dark side of the IRS enforcement program is that immigrants that have passive accounts or small business interests in their countries of origin may be subject to large penalties and a great deal of administrative harassment over situations that have little or no substantive tax impact. I had one client who had close to $1 million in penalties assessed against him when he failed to respond to notices from IRS in respect to his interests in two foreign entities.
Tax Preparation Firms. We are bombarded with the TV and radio advertisements of tax preparation firms offering to settle tax debt for pennies on the dollar. This is bait and switch advertising. If you go to my website, I have an extensive article on lawsuits that have been brought by states Attorneys General against various tax preparation firms. The common complaint is that they spend all their money on TV advertising and sales closers and have nothing left to pay the people that should be doing the work to solve the problems. The complaints say that these firms take retainer fees and do not complete the work.