If a US taxpayer has outstanding tax liability, the Internal Revenue Service may sometimes be particularly aggressive with its efforts to collect. Furthermore, the IRS does not always properly interpret or follow the Internal Revenue Code when trying to collect outstanding taxes. In this regard, taxpayers should be aware of their rights with respect to the IRS’s efforts to collect outstanding tax liabilities. An experienced California tax attorney can help taxpayers understand their rights. A recent case before the U.S. Tax Court highlights the fact that the IRS does not always follow the proper procedures when trying to collect outstanding tax liabilities.
Taxpayer Tried to Negotiate Installment Agreement with IRS
This example involves a sculptor who works in cast bronze and sells his artwork through his wholly owned S corporation. He is also a salaried employee. The buyers typically commission the works and the buyers pay for them before casting. The sculptor does not maintain an inventory from which he sells sculptures.
For the 2007 tax year, the sculptor reported about $164,000 of tax liability and a withholding credit of $1,000. The sculptor, however, failed to remit the $163,000 with his tax return. The IRS assessed a tax penalty of more than $200,000, which included the unpaid tax, plus certain additions to tax and interest. Thereafter, the IRS issued a notice of intent to levy.
The sculptor requested and received a collection due process hearing (“CDP hearing”). The sculptor claimed that collection by levy was inappropriate because less intrusive methods of collection existed, such as an installment agreement. He also requested an abatement of addition to the tax on the ground that “reasonable cause’ exists for the taxpayer’s failure to pay his taxes timely.”
What happens next is simply inappropriate tactical decisions by the IRS…
