Vol.33 No.3 May • June 2015
EAs on Capitol Hill • May Meeting Highlights
President’s Message • C...
ffective collection representation comes from a
combination of client management, an under-
standing of IRS rules, and ind...
practical application of IRS rules, and how each
can affect taxpayer expectations.
Introduction to Collection
The essence ...
J u ly • Au g u s t 2 01522
of the 1058. Furthermore, if the app...
23J u ly • Au g u s t 2 015
streamlined installment agreement to qualify
individual taxpayers owing up to $50,000, and
it ...
of 5

The Beginners Guide to Collection Representation

20/20 Tax Resolution’s Vice President, David Miles, EA, was recently published in The National Association of Enrolled Agents (NAEA) July-August 2015 bi-monthly publication, EA Journal. This prestigious publication allows members of the NAEA to stay up-to-date on any industry trends, tax updates and association news.
Published on: Mar 3, 2016
Published in: Business      

Transcripts - The Beginners Guide to Collection Representation

  • 1. Vol.33 No.3 May • June 2015 EAs on Capitol Hill • May Meeting Highlights O CO CNATIONAL CONFERENCE President’s Message • Capitol Corner • 2014–2015 PAC Honor Roll National Conference Information • To Be or Not to Be Social Vol.33 No.4 July • August 2015
  • 2. ffective collection representation comes from a combination of client management, an under- standing of IRS rules, and industry experience. Rather than focusing on the nuances of the Internal Revenue Manual (IRM), we will focus on certain aspects of client management, together with practical input from field experience that will prove helpful in building a foundation for collection representation work. To comprehend the current state of affairs within the IRS, one must look no further than the last five years of budget cuts. In response to the 2015 budget, IRS Commissioner John Koskinen stated in a January 2015 email to IRS employees, “… realistically we have no choice but to do less with less.” Congress responded in April to the IRS rhetoric with a House Ways and Means Committee report that pushes back on the notion that the IRS’ poor performance is the result of congressional cuts. A practitioner must understand that issues seemingly outside the context of day-to-day collection work, like the budget wrangling in Washington, DC, can trickle down to every level of the IRS across the country. Consequently, being a good practitioner is no longer based solely on the breadth of one’s knowledge of the IRM. Just as important is awareness of IRS trends in practice, insight into the By David F. Miles, EA THEBEGINNER’SGUIDETHEBEGINNER’SGUIDETO COLLECTION REPRESENTATIONTO COLLECTION REPRESENTATION THEBEGINNER’SGUIDETHEBEGINNER’SGUIDE J u ly • Au g u s t 2 01520
  • 3. practical application of IRS rules, and how each can affect taxpayer expectations. Introduction to Collection The essence of collections work is the IRS’ attempt to collect on a balance-due account or gain cooperation with a nonfiler account. The collection process begins when a taxpayer files a return and does not pay the balance due in full. An unpaid balance may be clear on the face of the return, but a case may also arise from an audit, simple math errors, mistaken refunds, or misapplied and returned pay- ments. The pursuit of the unpaid balance will continue until the debt is paid in full, the IRS loses the right to collect through the expira- tion of the collection statute, or the taxpayer proposes and establishes an acceptable alter- native resolution. Two important initiatives within the last seventeen years introduced the law and policy that serve, in large part, as the basis of modern IRS collection procedure. The first is contained in the Restructuring and Reform Act of 1998 (RRA 98). RRA 98 created and defined many of today’s collection policies by seeking to i e stomer service and expand taxpayer r g M e specifically, collection policies, ifying the offer in compromise, g g atutory rights to certain installment ag e , and granting taxpayers appeal r g e enforcement action, all have their roots n RRA 98. sh Start Initiative, rolled out by m issioner Doug Shulman in 2012, i m recent change. It is not consid- e qu the milestone of RRA 98, but it h d significant impact nonetheless. a ges offered by the program are m o monly seen in the offer in compro- m r (where taxpayers were given the o u y to recalculate future income), l d installment agreements (where g ibility now allows agreements on h g b ances with less paperwork), and in t ng f notices of lien (where lien filing thresholds were increased for the first time i y y ars). What Is Collections Thinking? The first thing to be aware of is that dealing with IRS Collections is unlike other interactions with the IRS. Many taxpayers—and even tax profes- sionals—approach collections with the same mindset that goes into making business deci- sions or preparing returns. However, IRS collec- tions is not guided by the same principles that underlie such business activities. As opposed to IRS Exam, Collections is not concerned with the reasoning behind filing a return a certain way, the treatment of income, or even the merits of relevant business/tax issues. And, unlike a busi- ness, the IRS does not always make decisions based on what strategy will collect the most money. This is mostly due to IRS reform, most notably those reforms embodied in RRA 98, intended to create a more uniform and impartial system for taxpayers. Collections’ approach is achieved by balancing the goal of collecting unpaid tax revenue, following IRM guidelines, and consideration of case-specific issues. The term “compliance” is arguably the most important term in collection work. In the context of IRS collections, compliance means paying current taxes (i.e., the current employment quarter or the current income tax year) and having filed all returns through the present date, including valid extensions to file. Compliance is required both to qualify for a resolution and to maintain a resolution plan. It is also something that, if not accomplished, will most certainly lead to enforcement action. Therefore, it should always be a taxpayer’s and a representative’s first priority. Rule of thumb: IRS Collections’ focus is on protecting the government’s interest, not the taxpayer’s. Collection Contacts Making contact with the IRS is critical at any phase of a collection case. The question becomes who is the best person to contact at the IRS? The simplest answer is that it depends on where the case stands in the col- lection process. It is important to speak to the representative in control of a taxpayer’s case, and early on that may be IRS customer service. But, if the liability remains unresolved, the case is likely to move up the collection chain of command to the automated collection system and eventually to a revenue officer. There are also other very effective methods of gathering information about a client’s case that do not involve directly contact- ing the person in control of the case, such as Practitioner Priority Service and E-Services. Here, one can get the background of the liability, determine if compliance is being met, obtain transcripts, and understand where the case is assigned (if is not already clear). Communicating with the IRS by phone and by mail should be expected in each case. Phone calls are very effective in achieving immediate relief—such as a stay of enforcement—whereas letters may be more appropriate to propose resolutions, counter an IRS proposed change, or to request penalty waivers. Rule of thumb: Never end a call with IRS without a deadline for next contact. Snail Mail The collections process can be intimidating and time-consuming. However, it actually begins rather mildly. IRS Collections starts with mail, and lots of it. Each individual tax period of liability makes its way through the IRS’ sys- temic mail campaign. The IRS’ use of a single case summary letter is almost non-existent. Yet, however overly burdensome the letters may seem, they can actually be quite helpful to a tax professional by identifying where in the collec- tion process the specific case stands. For example, a taxpayer who is just receiv- ing IRS CP 14 is being notified of the balance due. This is generally the first letter that is sent out in the collection process. Assuming no other periods of liability are owed, one can safely assume that there is no immediate threat of enforcement. However, receipt of IRS Letter 1058 within the last thirty days presents a situation that is much more urgent. An immediate deci- sion needs to be made on the need for filing a Collection Due Process hearing request, which is an appeal right offered through the issuance of today’s collection policies by seeking toof today’s collection policies by seeking to improve customer service and expand taxpayerimprove customer service and expand taxpayer righ More specifically, collection policies,rights. More specifically, collection policies, such as codifying the offer in compromise,such as codifying the offer in compromise, granting statutory rights to certain installmentgranting statutory rights to certain installment agreements, and granting taxpayers appealagreements, and granting taxpayers appeal rights before enforcement action, all have theirrights before enforcement action, all have their roots in RRA 98.roots in RRA 98. The Fresh Start Initiative, rolled out byThe Fresh Start Initiative, rolled out by IRS Commissioner Doug Shulman in 2012,IRS Commissioner Doug Shulman in 2012, is the more recent change. It is not consid-is the more recent change. It is not consid- ered quite the milestone of RRA 98, but itered quite the milestone of RRA 98, but it has made a significant impact nonetheless.has made a significant impact nonetheless. The changes offered by the program areThe changes offered by the program are most commonly seen in the offer in compro-most commonly seen in the offer in compro- mise arena (where taxpayers were given themise arena (where taxpayers were given the opportunity to recalculate future income),opportunity to recalculate future income), streamlined installment agreements (wherestreamlined installment agreements (where greater flexibility now allows agreements ongreater flexibility now allows agreements on higher balances with less paperwork), and inhigher balances with less paperwork), and in the filing of notices of lien (where lien filingthe filing of notices of lien (where lien filing thresholds were increased for the first timethresholds were increased for the first time in thirty years).in thirty years). 21J u ly • Au g u s t 2 015
  • 4. J u ly • Au g u s t 2 01522 NATIONAL CONFERENCENATIONAL CONFERENCENATIONAL CONFERENCE of the 1058. Furthermore, if the appeal is not filed or it has been longer than thirty days since the 1058 was issued, a representative needs to be wary of levies at any time. Rule of thumb: Not every piece of IRS col- lection correspondence warrants a response. Understanding the correspondence, what it is asking, and the consequences of forgoing an immediate response are important steps in collection work. Know Your Taxpayer A representative’s interaction with the taxpayer client is vital to the successful resolution of a tax debt. This involves making sure a taxpayer has appropriate expectations for his or her case, is given correct information to use in making decisions, and is committed to pursuing a reso- lution to the issue. A representative is going to find it very difficult to resolve a tax liability without a taxpayer who is involved throughout the entire process. Many taxpayers fail to disclose the full extent of their collection trouble. This can either be due to ignorance or that the client is not realistically confronting the extent of the problem. Unfortunately, there are many scenarios in which a representative must rely on the client’s explanation of the case, at least initially, and the representative should be aware of possible taxpayer ignorance at that stage. Most importantly, a taxpayer must keep a representative abreast of compliance. Knowing that compliance is the backbone to a resolution plan, both the taxpayer and the representative need to continually revisit the issue of compliance to be sure it is main- tained. The requirement is ongoing and so must be the conversation. Rule of thumb: Always establish the facts of a case and monitor compliance. Potential Consequences The IRS uses several techniques for col- lecting on the debts it is owed, including, but not limited to, the filing of a Notice of Federal Lien (NFTL); issuing levies on wages, bank accounts, and other sources of equity or revenue; and offsetting money that a taxpayer may be due from another govern- mental agency, such as the Social Security Administration or state income tax refunds. An NFTL filing is done by the IRS to put a taxpayer’s creditors on notice of the existence of a federal tax debt. An NFTL differs from a statutory lien, which is created automatically ten days after a demand for payment is made. Historically, an IRS NFTL was a foregone con- clusion in almost any collection case. Certain IRS policy changes and budget constraints have changed my previous assumptions on this topic. Presently, if a practitioner begins a Collections case in which there is no NFTL, discussing the implications of the eventual NFTL or how to avoid the NFTL are important conversations to have with a taxpayer. Enforcement is the IRS’ most aggressive form of collecting money (IRC Sec. 6331, IRM Parts 5.10 and 5.11). The IRS has the power to levy money and/or property, but the question relating to when the IRS will levy and why it may happen can have myriad answers. Despite the many reasons as to when and why a levy may be issued, the most common are missed deadlines or lack of contact. Many fear the IRS’ power to seize homes and cars. But with only 432 seizures in 2014, compared to almost two million levies, clearly it is not IRS’ preferred action. Interestingly, there is actually no legal distinction between a levy and a seizure, but there are different procedures that must be followed by the IRS. Therefore, there is a distinct practical differ- ence between levies and seizure from the IRS’s perspective, which results in far fewer seizures. Rule of thumb: The IRS will take a taxpayer’s money, but usually not without first giving the taxpayer or representative an opportunity to avoid it. Getting Started Practitioners should be familiar with Circular 230 as well as Publication 1 (Your Rights as a Taxpayer), Publication 594 (The IRS Collection Process), and Publication 1660 (Collection Appeal Rights) prior to engaging in collection represen- tation. A collection case should always begin with an engagement letter. This should define the circumstances of the case, what will be done, and the limitations or exclusions to the work. In most every case, IRS Collections is interested in getting the details of the tax- payer’s financial condition. For businesses, this is usually done by completing Form 433-B. Individuals should be completing Form 433-A. These financials serve as the foundation to any discussion of a resolution regardless of the ultimate goal being an offer in compromise, an installment agreement, or uncollectible status—a situation in which the IRS does not demand back-tax payments. Very few resolutions are based solely on the amount owed or a period of time. However, the IRS’ Fresh Start Initiative broadened the IRS To-Do ☑ Have a properly completed Power of Attorney (POA) submitted to CAF and prepared for fax to PPS/ ACS/RO. ☑ Nothing beats a call! Call IRS, PPS, ACS, or revenue officer depending on best idea of case location to deter- mine who within IRS controls case. ☑ Inquire about all potential issues, including, but not limited to, balance due, filings, and deposit compliance. ☑ Acquire transcripts of all periods of liability (PPS, ACS, E-Services). ☑ Determine if there are pending deadlines. ☑ Set deadline with IRS for action. ☑ Inform client.
  • 5. 23J u ly • Au g u s t 2 015 streamlined installment agreement to qualify individual taxpayers owing up to $50,000, and it increased the period of time to pay from five years to six. Other rules found throughout IRM Part 5 highlight opportunities that both serve taxpay- ers’ best interests and limit resolutions in other cases. For example, individual taxpayers can be allowed up to one year at a lower installment agreement payment in order to make neces- sary lifestyle changes. On the other hand, the IRS’ offer in compromise program allows the government a number of reasons to reject an offer because it is “not in the government’s best interests.” Knowing such nuances is important to successfully guide a taxpayer client through the collection process. Rule of thumb: Get the taxpayer started on a 433 immediately in order to identify issues that may impact your recommendations and goals. Bringing It All Together Understanding how the IRS runs its col- lection system is an important step in good collection work. Currently, what we have is an IRS system that is in desperate need of resources to effectively address its mission. Understanding that issue, together with one’s familiarity of the IRM and a keen sense of client management, usually means that a suc- cessful practice is not far off. Developing proficient collection work takes time and, most of all, experience. Circumstances, taxpayers, and IRS repre- sentatives change from case to case. The key to a successful interaction with Collections is to be empowered as a professional repre- sentative and advocate rather than simply serving as a conduit of information between parties. The sooner you can prepare your client for the reality of his or her own situ- ation, the easier accomplishing their goals will become. EA About the Author: David F. Miles, EA, is a consultant with 20/20 Tax Resolution. He has been practicing taxpayer representation for eighteen years. He has been interviewed about a range of tax topics for various news articles, as well as television, and was a panelist on Tax Talk Today in November of 2012. David can be reached at dmiles@2020taxresolution.com. To learn more about this topic, visit the NAEA Forums. Client To-Do ☑ Acquire signed engagement. ☑ Acquire POA covering enough time and tax matters necessary to identify all issues. ☑ Provide 433-A and/or 433-B for client to begin drafting. ☑ Ask client to describe situation in their own words and provide any recent documen- tation (ninety–120 days) from IRS. ☑ Ask client if compliance is being met. ☑ Ask client if there are pending deadlines. ☑ Prepare client for your initial interaction with IRS: what it will entail and what will be achieved.

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