A hearing is scheduled for September 11, 2023 for interested persons and organizations to provide testimony on proposed regulations on the timing and approval process for penalties. Section 6751(b) provides that:

No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate. 

The timing of when the approval is required by Section 6751(b) has been the subject of significant litigation. The Second Circuit in Chai v. Commissioner concluded that Congress enacted section 6751(b) to “prevent IRS agents from threatening unjustified penalties to encourage taxpayers to settle.” This has caused a lot of litigation in both the Tax Court and U.S. District Courts such that there are currently two different standards on timing of when such supervisory approval is required. If supervisory approval is to meet the goal of not being used as an unfair “bargaining chip” it must be required before such unwanted behavior can occur. Many groups have submitted comments asking for supervisory approval to be done earlier in the examination process than the proposed regulations require and that approval be done by a direct supervisor and not just anyone with penalty approval rights within the IRS.Continue Reading IRS Sanctioned for Bad Faith on Supervisory Approval of Penalties While Proposed Regulations on the Same Issue are Pending

Section 2301 of the CARES Act, as amended, permits employers to claim employee retention credits (“ERCs”) if they meet certain requirements. Under one of those requirements, an employer may claim an ERC if the employer’s trade or business operations were fully or partially suspended due to a federal or state COVID-19 governmental order (the “Business Suspension Test”).Continue Reading IRS Chief Counsel Issues GLAM on ERC Supply-Chain Disruption Eligibility

Monetized installment sale transactions (“MISTs”) have been on the IRS’s radar for some time.  On May 7, 2021, IRS Chief Counsel issued an advice memorandum, contending such transactions were “problematic” and “flawed”.[1]  And shortly thereafter, on July 1, 2021, MISTs found themselves on the annual IRS “Dirty Dozen” list, or the publication the IRS uses to alert the public of abusive transactions.[2]  The IRS’s “Dirty Dozen” list for 2022 and 2023 also includes MISTs.[3]Continue Reading IRS Characterizes Monetized Installment Sales as Listed Transaction in Proposed Regulations

In a recent article by Tax Notes, tax experts expressed their concerns and hopes for the influx of funding granted to the IRS via the Inflation Reduction Act. Gray Reed Partner Joshua Smeltzer was one of the experts interviewed. Board Certified in Tax Law by the Texas Board of Legal Specialization, Joshua uses his experience

The IRS, like the rest of society, has faced several challenges as a result of the pandemic. Some of those challenges are still lingering, such as funding, backlog, lack of guidance and inexperienced auditors. Efforts to fix these problems are underway but will take time. As taxpayer advisors, it’s important to recognize the limitations in

3D illustration of a rubber stamp with the word compromise printed on a brown paper with the text party one and twoOnce the IRS makes an assessment against a taxpayer, the taxpayer will receive several notices before the IRS takes enforced collection action.

Notice of Intent to Levy

This is the notice that is required before the IRS can levy and seize a taxpayer’s assets.

Some form of response should be sent with respect to these notices.  The response, along with a copy of the notice, should be sent by certified mail, return receipt requested, using the envelope provided by the IRS. The purpose in sending a response is so that it will show that the taxpayer is concerned about the taxes and is not ignoring them.
Continue Reading Negotiating with the IRS Collection Division

United States Supreme Court Building in Washington DC, USA.The Supreme Court’s recent decision in CIC Services, LLC v. Internal Revenue Service may have significantly expanded taxpayers’ ability to obtain immediate injunctive relief against onerous tax reporting requirement.

The Anti-Injunction Act bars any “suit for the purpose of restraining the assessment or collection of any tax.” Civil penalties are usually considered to be “taxes” for purposes of the Anti-Injunction Act. But in CIC Services, the Supreme Court sustained a suit to enjoin the enforcement of IRS Notice 2016–66 which provides that micro-captive insurance arrangements are “listed transactions” which must be disclosed (regardless of the ultimate validity of the transaction) upon pain of a civil monetary penalty under IRC § 6707A – as well as potential criminal sanctions under § 7203 for the willful failure to make a return or supply information required by law or regulation.  The IRS’ problem in CIC Services was that in issuing Notice 2016-66, it had failed to comply with the Administrative Procedures Act (APA) which requires that a rule with the force and effect of law may be issued only after an opportunity for public notice and comment. No public notice, no enforceable rule, the Court held.  The Anti-Injunction Act did not deprive the courts of jurisdiction.
Continue Reading Recent Supreme Court Case Provides Possible Pre-Assessment Judicial Review for Onerous Penalties

Wooden drawer is open.

There is a wealth of information available from the IRS that is not generally made available to the public.  Most of this information can be obtained by asking.  This information includes files the IRS assembles about a taxpayer, and various training manuals used by the IRS to train its employees.  In addition to training given to its employees, the IRS, like most professional organizations, conducts continuing education on an annual basis for its various divisions.  Most of the training manuals and annual training materials are available to the practitioner pursuant to the Freedom of Information Act (FOIA).
Continue Reading Obtaining Information from the IRS

silhouette of young designer team standing with a white blank screen laptop and notebook in hands while discussing/talking about them new project with the modern office as background.While dealing with the IRS generally involves submitting documents or legal authority to support a client’s position, in most cases the element of negotiating is present.  Negotiating becomes particularly important in dealing with the IRS where documentation may not exist, or the law is in the gray area.  Most practitioners will find that when dealing with the Examination Division, Appeals Office, and Collection Division, negotiating skills and techniques are helpful in resolving issues in favor of the client.

Almost everything is negotiable–even when dealing with the IRS.  Negotiating face to face with someone is generally more effective than negotiating over the telephone.  Accordingly, it is good policy to always arrange a meeting with the representative of the IRS.

In all levels of negotiations there is no substitute for preparation.  This includes knowing the facts of your case, the Internal Revenue Code, the Regulations, Internal Revenue Rulings and Procedures, the Internal Revenue Manual, Circular 230 and other ethical requirements.  Also, you should have a network of other professionals with whom you can discuss your case.

The following are general negotiating tips which, if followed, should give you a greater chance of success in dealing with the IRS:
Continue Reading Tips for Negotiating with the IRS