Tax Blog/Blawg

The National Taxpayer Advocate recently released her 2023 Annual Report to Congress and, while it is chock-full of newsworthy and important data, this blog entry focuses on the report’s discussion of the “wizard behind the curtain” problem, which impedes the independence of the IRS Appeals function.

As background, when taxpayers disagree with audit adjustments proposed by the IRS’ examination division, they have an opportunity to protest the adjustments to a different division within the IRS, known colloquially as Appeals.  The IRS first established this ...

Background:

Millions of Employee Retention Credit (ERC) claims have been filed with the IRS as a result of the COVID-19 pandemic, with millions of taxpayers already receiving their refunds and others still waiting to receive refund checks. The IRS audits and Appeals work has commenced with a fury at a dizzying pace. While many appropriate ERC claims have been filed, the IRS has seen a number of erroneous claims as well. On December 21st, the IRS launched a new initiative to address the issue of erroneous ERC claims. The Voluntary Disclosure Program, part of a broader IRS effort to ...

Recently, the IRS has been devoting substantial resources to its investigation of Malta Pension Plans.  Just this month, the IRS Criminal Investigation division served summonses on multiple entities and persons who it believes were involved with such plans, and has proposed making the transaction a “listed” transaction.  Either action would be noteworthy, but that combined activity tells a story of deep IRS scrutiny.  This article discusses that activity, and provides some high-level options for affected taxpayers.

The Latest Listed Transaction: the Maltese Pension

On June ...

For taxpayers challenging IRS notices and regulations designating transactions as “reportable transactions” or “listed transactions,” the Mann Construction case keeps getting better. 

In 2022, the U.S. Court of Appeals for the Sixth Circuit in Mann Construction held that IRS Notice 2007-83, which labeled a certain type of transactions as a “listed transaction,” was invalid due to the IRS’ violation of the Administrative Procedure Act in promulgating the notice. Last week, on remand, the district court amplified the IRS’ loss by vacating the IRS notice not only ...

On August 11, 2011, TIGTA published a report entitled ‘”Efforts to Address the Compliance Risk of Underreporting of S Corporation Officers' Compensation are Increasing, but More Action Can Be Taken.”  At the outset, TIGTA properly identified part of the problem:  there are S corporations – some owned by one individual and others owned by groups – where the officers perform work and do not pay themselves compensation. 

The S corporation is a “pass through,” so that its income would be passed through and be reported by the Officer.  However, this technique has the effect of ...

I suspect that the answer of most readers will be "why would I want the IRS to find me in any event?" In fact, I can recall one client who actually asked me to have him removed from what he described as "the IRS mailing list."

Believe it or not, while it's always nice to be left alone, there are situations where it is important that the IRS have your correct address. For instance, what if there's a refund you're due, and the IRS is about to send you a check? Similarly, if you are in an audit or owe the IRS money, there are a variety of notices that the Internal Revenue Code requires the IRS to send to your "last known address," and if it sends them to that address, but you do not receive them, you will miss the opportunity to respond, as the law does not require that you actually receive the documents for them to be effective.

In any given year, a person is likely to send one or more of a fairly standard variety of items to the IRS. Tax returns, payments, responses to inquiries, and claims for refund are the most frequent but certainly not an exhaustive list. I've even known of some people who have sent "thank you notes" to IRS employees who seem to have gone above and beyond the call of duty to assist them. That said, how do you know the IRS actually received what you sent? This is not an idle question, as the IRS' failure to timely receive some of those items can result in serious problems for a taxpayer, ranging from ...

Hardly a day goes by when some politician or editorial person doesn’t suggest that we don’t need the IRS or should simply do away with it. Most of them come in connection with suggestions for changing the tax system to something like a national retail sales tax. What these people fail to understand, and this writer is not challenging the sincerity of their views, is that without the IRS, our tax gap would explode geometrically.

We call our system a “voluntary” one, but we remain short of “volunteers”: there are simply too many people and businesses who don’t get around to ...

Well for starters, the IRS won’t be very happy!  Beyond that, the IRS has several avenues it can pursue. 

In extreme situations, such as where a taxpayer owes a considerable sum of money and has not filed for several years, the IRS may consider pursuing criminal liability under I.R.C. § 7203, which makes it a misdemeanor to “willfully” fail to file a Federal Income Tax Return.  This is rarely applied unless a pattern of three consecutive non-filing years are present, but potentially any single willful failure to file could result in this prosecution.  There is a six-year statue of ...

People are always asking how long the IRS can wait from the time you file your return to conduct an audit of your income and expenses.  The simple, most definitive answer is "it all depends," so let's take a look at the rules. 

The time in which the IRS must conduct its audit is governed by what's known as a "statute of limitations."  That statute doesn't begin to run until you actually file a return.  Once you file a return, the IRS has three years from the time the return was filed (or, April 15^th of the year in which you file, if it is filed early) to conduct and complete an audit.  That means that the IRS ...