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OVERVIEW
Individuals being audited have rights when dealing with the IRS.
Examiners have the ongoing responsibility to ensure that all taxpayer
rights are protected and observed, whether these rights are mandated by
statute in the IRC, Taxpayer Bill of Rights I & II, (TBOR & TBOR 2) the
IRS Restructuring and Reform Act of 1998 (RRA 98) or by IRS policies.
The IRM 4.10.1.6 covers examiners responsibilities, such as:
- Fair and courteous treatment
- Representation/Power of Attorney Requirements
- Confidentiality Privileges
- Notification of Appeal Rights
- Confidentiality of Taxpayer Information/Taxpayer Policy
- Proper notification of third party contacts
- Burden of Proof
To help protect the taxpayer’s rights and better represent the taxpayer
before the IRS, the practitioner needs to be familiar with the taxpayer
rights as contained in IRC sections, the IRM, and various notices and
announcements.
TAXPAYER BILL OF RIGHTS II (TBOR 2)
TBOR 2 was signed into law on July 30, 1996. This law contains numerous
provisions which are intended to provide increased protections of
taxpayer rights in complying with the IRC and in dealing with the IRS.
TBOR 2 contains provisions affecting the following subjects:
- Establishment of the National Taxpayer Advocate's Office
- Expands Authority for Abatement of Interest and Penalties
- Joint Return Filings and Disclosure Rules
- Expansion of Litigation Costs and Attorney's Fees
- Summonses of Third-Party Recordkeepers
- Civil Penalties for IRS Misconduct
- Notice and Information Reporting to Certain Taxpayers
- Penalties for Failure to File and Pay Tax
TAXPAYER PROTECTION AND RIGHTS
The Revenue Reconciliation Act of 98, sometimes cited as the “Taxpayer
Bill of Rights 3” or TBOR III places major emphasis on the observance of
taxpayer rights. Simply stated, taxpayer rights should never be
sacrificed. A primary responsibility of IRS managers is to monitor
employee practices and actions to ensure that taxpayer rights are always
observed. These sections of RRA ‘98, cover taxpayer protection and
rights:
Sec. 3001. Burden of proof
Sec. 3101. Expansion of authority to award costs and certain fees.
Sec. 3103. Increase in size of cases permitted on small case calendar.
(See chapter __, the Appeals Process.)
Sec. 3201. Relief from joint and several liability on joint return.
Sec. 3202. Suspension of statute of limitations on filing refund claims
during periods of disability.
Sec. 3301. Elimination of interest rate differential on overlapping
periods of interest on tax overpayments and underpayments.
Sec. 3302. Increase in overpayment rate payable to taxpayers other than
corporations.
Sec. 3305. Suspension of interest and certain penalties where Secretary
fails to contact individual taxpayer.
Sec. 3306. Procedural requirements for imposition of penalties and
additions to tax.
Sec. 3308. Notice of interest charges.
Sec. 3309. Abatement of interest on underpayments by taxpayers in
Residentially declared disaster areas.
Sec. 3411. Confidentiality privileges relating to taxpayer
communications. (See chapter ___ for the 10 deadly sins.)
Sec. 3412. Limitation on financial status audit techniques.
Sec. 3415. Taxpayers allowed motion to quash all third-party summonses.
Sec. 3416. Service of summonses to third party recordkeepers permitted
by mail.
Sec. 3417. Notice of Internal Revenue Service contact of third parties.
Sec. 3461. Procedures relating to extensions of statute of limitations
by agreement.
Sec. 3463. Notice of deficiency to specify deadlines for filing Tax
Court petition.
Sec. 3464. Refund or credit of overpayments before final determination.
Sec. 3465. Internal Revenue Service procedures relating to appeals of
examinations and collections
Sec. 3468. Prohibition on requests to taxpayers to give up rights to
bring actions.
Sec. 3501. Explanation of joint and several liability.
Sec. 3502. Explanation of taxpayers' rights in interviews with the
Internal Revenue Service.
Sec. 3503. Disclosure of criteria for examination selection.
Sec. 3504. Explanations of appeals and collection process.
Sec. 3505. Explanation of reason for refund disallowance.
Sec. 3508. Disclosure to taxpayers.
Sec. 3509. Disclosure of Chief Counsel advice.
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EXAMINER’S DUTY,
Internal Revenue Manual, IRM 4.10.1.4, www.irs.gov/irm
OVERVIEW
All examiners are to perform their professional responsibilities in a
way that supports the IRS Mission. This requires examiners to provide
top quality service and to apply the law with integrity and fairness to
all. . The standards/responsibilities required of the examiners are as
follows:
- Customer Service (IRM 4.10.1.5)
- Taxpayer Rights (IRM 4.10.1.6)
- Quality Standards (IRM 4.10.1.7)
- Other Applicable IRMs (IRM 4.10.1.8)
MANDATORY EMPLOYEE
TERMINATIONS
Under RRA
’98, the IRS is required to terminate an employee for certain proven
violations committed by the employee in connection with the performance
of official duties. (see exhibit on Treasury Inspector General) The
violations, commonly called “The 10 Deadly Sins,” include:
1.
willful failure to obtain the required approval signatures on
documents authorizing the seizure of a taxpayer's home, personal
belongings, or business assets
2.
providing a false statement under oath material to a matter
involving a taxpayer;
3.
falsifying or destroying documents to conceal mistakes made by
any employee with respect to a matter involving a taxpayer or taxpayer
representative;
4.
assault or battery on a taxpayer or other IRS employee, but only
if there is a criminal conviction or a final judgment by a court in a
civil case, with respect to the assault or battery;
5.
with respect to a taxpayer, taxpayer representative, or other IRS
employee, the violation of any right under the U.S. Constitution, or any
civil right established under titles VI or VII of the Civil Rights Act
of 1964, title IX of the Educational Amendments of 1972, the Age
Discrimination in Employment Act of 1967, the Age Discrimination Act of
1975, sections 501 or 504 of the Rehabilitation Act of 1973 and title I
of the Americans with Disabilities Act of 1990.
6.
violations of the Internal Revenue Code, Treasury Regulations, or
policies of the IRS (including the Internal Revenue Manual) for the
purpose of retaliating or harassing a taxpayer or other IRS employee;
7.
willful misuse of section 6103 for the purpose of concealing data
from a Congressional inquiry;
8.
willful failure to file any tax return required under the Code on
or before the due date (including extensions) unless failure is due to
reasonable cause;
9.
willful understatement of Federal tax liability, unless such
understatement is due to reasonable cause; and
10.
threatening to audit a taxpayer for the purpose of extracting
personal gain or benefit.
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CUSTOMER SERVICE, IRM 4.10.1.5
The examiner is to focus on problem solving (4.10.1.5.1.) and ensure
timely actions (4.10.1.5.2). (Time is discussed in a subsequent
chapter.) IRM 4.10.1.5.3 stresses the need for good oral and written
communication skills, such as:
- In all personal contacts with taxpayers and representatives,
examiners should always be courteous and professional.
- All taxpayer correspondence should be clear, concise, and
professional, as well as
adhering to legal requirements.
- All correspondence must contain an employee name, contact telephone
number, employee identification number, and signature.
RIGHTS DURING
EXAMINATION
OVERVIEW
The EXAMINATION OF RETURNS HANDBOOK provides the basic responsibilities
of the examiner, such as:
(Handbook 4.2,
Chapter 1, Handbook Overview and Basic Examiner Responsibilities, [4.2]
1.6 (05-14-1999), Taxpayer Rights)
1.
Examiners have the ongoing responsibility to ensure that all
taxpayer rights are protected and observed, whether these rights are
mandated by statute or provided as a matter of policy.
2.
Examiners should be aware of all the rights provided by the IRC,
Taxpayer Bill of Rights I & II (TBOR I & II), the IRS Restructuring and
Reform Act of 1998 (RRA 98) and IRS policies.
3.
The rights specifically covered in this section are not
all-inclusive, but rather are mentioned here to provide special emphasis
or to highlight some of the new rights provided in RRA 98.
4.
The taxpayer rights covered in the IRM sections below are as
follows:·
- Representation/Power-of-Attorney Requirements
(4.2.1.6.1)
- Confidentiality Privileges--Accountant/Client
Privilege (4.2.1.6.2)
- Notification of Appeal Rights (4.2.1.6.3)
- Innocent Spouse Relief (4.2.1.6.4)
- Interest Abatement (4.2.1.6.5)
- Consideration of Collectibility (4.2.1.6.6)
- Early Referrals to Appeals (4.2.1.6.7)
- Separate Notices for Joint Filers (4.2.1.6.8)
- Providing Taxpayers with Employee Contact
Information (4.2.1.6.9)
- Confidentiality of Taxpayer Information/Privacy
(4.2.1.6.10)
- Unauthorized Access (UNAX) Requirements
(4.2.1.6.11)
- Third Party Contacts (4.2.1.6.12)
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AUDIT SELECTION METHOD
The IRS examines Federal tax returns to determine the correct liability
of taxpayers. The IRS selects returns to be audited in a number of ways,
such as through a computerized classification system (the discriminant
function ("DIF") system). RRA ’98 requires that IRS add to Publication
1 ("Your Rights as a Taxpayer") a statement which sets forth in simple
and nontechnical terms the criteria and procedures for selecting
taxpayers for examination.
Planning note.
The taxpayer/representative should ask the examiner, “Why was this tax
return selected for audit.” For more detail on Individual Returns Audit
Codes, See IRM Exhibit 4.1.3-1
NOTIFICATION OF APPEAL RIGHTS, 4.10.1.6.3
Examiners should discuss the taxpayer’s appeal rights with the taxpayer
during the first interview/contact to ensure that taxpayer understand
these appeal rights. 4.10.1.6.3 The following IRS publications help
them with this process:
-
Publication 1, Your Rights as a Taxpayer, mailed with
initial contact letter or given during initial interview.
-
Publication 556, Examination of Returns, Appeal Rights,
and Claims for Refund, will probably not be distributed by the examiner
but it is available at www.irs.gov.
-
Publication 5, Appeal Rights and Preparation of Protests
for Unagreed Cases, given by examiner at conclusion of examination and
issuance of the report.
-
Publication 1383 is mailed to persons subject to
correspondence examinations
RIGHT TO REPRESENTATION, (4.2.1.6.1)
The taxpayer was granted the right to representation in TBOR2. If the
taxpayer is in an interview and asks to consult with a person allowed to
practice before the IRS, the IRS must stop and reschedule the interview
in most cases. (see chapter on Authorized Representatives)
Caution.
Examiners most always honor the taxpayer’s request to seek
representation, however, many IRS collection personnel will attempt to
convince the taxpayer that it is not a good idea to seek representation
and will continue their interview.
Representation/Power
of Attorney Requirements
4.10.2.7.5
A
power of attorney is the taxpayer’s written authorization for the
taxpayer to act on their behalf in tax matters. If the authorization is
not limited, the representative can generally perform all acts that the
taxpayer can perform. The authority granted to an unenrolled preparer
cannot exceed that allowed under the special rules of limited practice
described in Revenue Procedure 81-38.
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Power of Attorney and
the Examiner
If at any time during the examination, the taxpayer requests
representation, the taxpayer has the right to postpone examination
activity until, he/she has an opportunity to secure representation.
1.
Examiners must ensure that they take no actions that would
violate or give the perception of violating the taxpayer's right to
representation. 4.10.2.7
2.
The examiner must be willing to talk to anyone who is authorized
by the taxpayer. 4.10.2.7
3.
The representative must commit to having first hand knowledge of
the information requested and affirm that the examiner can rely on the
information provided. 4.10.2.7
4.
The representative should agree to provide follow-up information
timely if information requested at the initial interview is not
available. 4.10.2.7
5.
The representative must be sufficiently knowledgeable to engage
in dialogue concerning the taxpayer's business and personal affairs.
4.10.2.7
6.
Examiners will use their judgment to determine whether an
authorized representative is sufficiently knowledgeable, however
examiners should take all reasonable steps to work effectively with
authorized representatives. 4.10.2.7
7.
If a representative is shielding the taxpayer from the examiner,
an examiner can bypass the representative and deal directly with the
taxpayer. 4.10.3.2.1.1 Guidelines are provided in IRM 21.11, Processing
Powers-of-Attorney (POA).
Learn more about the granting of a
power of attorney to an authorized representative, IRS by-passing a
POA, and other POA procedural issues in Chapter on Authorized
Representative.
CONFIDENTIALITY OF TAXPAYER INFORMATION, (4.2.1.6.10)
IRC 6103 prohibits the disclosure, the making known to any person in any
manner, tax return or return information. The obligation to protect
taxpayer privacy and to safeguard the information taxpayers entrust to
the IRS is a fundamental part of the their mission to apply the tax law
with integrity and fairness to all. (See 10 deadly sins above)Taxpayers
have the right to expect that the information they provide will be
safeguarded and used only in accordance with the law. In regards to
confidentiality of taxpayer information, the Privacy Principles in IRM
4.10.1.6.2 is to guide all examiners.
ATTORNEY AND ACCOUNTANT/CLIENT PRIVILEGE 4.10.1.6.2.
Under RRA ’98, IRC 7525 extended the attorney-client privilege in
noncriminal cases to communications between taxpayers and other
federally authorized tax practitioners as defined by Circular 230. No
equivalent confidentiality privilege existed prior to the enactment of
this provision. This privilege is not automatic, it must be asserted by
the taxpayer. The privilege may be asserted orally or in writing . (CCH-ANNO,
2003FED ¶42,827.501 Examination of Books and Witnesses: Privileges:
Accountant-client privilege)
What Tax Advise Is
Privileged?
4.10.1.6.2.4
IRC 7525 is unclear about what specific tax advise is privileged;
however, based on the conference report, it appears that information
disclosed for the purpose of preparing a tax return would not be
privileged. This provision was not intended to provide tax
practitioners with greater privilege that currently exists between
attorneys and clients, so rules related to attorney client privilege
should be used as a guideline. Refer to the Collection Process, IRM,
Part 5 for a complete discussion of attorney client privilege.
What Is Not
Privileged?
Information received for the preparation of a tax return is not
privileged.
Caution:
Historically, attorneys have hired accountants to assist them in tax
preparation or in anticipation of litigation. If the attorney utilizes
the taxpayer’s accountant who has prepared the taxpayer’s returns prior
to the attorney’s retention, that work product will not be covered by
any attorney/client privilege. Further and potentially more damaging,
that accountant may be called by the prosecution as a witness against
the taxpayer. Thus, a potential dispute arises between the accountant
who is providing accounting services to an attorney in anticipation of
litigation, yet at the same time, may be called to testify against the
taxpayer. It is best to avoid this dispute, and to hire an independent
accountant, assuming such communications are in anticipation of
litigation. (see exhibit)
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TAXPAYER INTERVIEWS
The IRS considers interviewing the taxpayer one of the most important
aspects of an examination and spends considerable effort to train
examiners on various interview techniques. IRM 4.10.3.2 and
Exhibit __
IRC 7521(b)(2) If the taxpayer clearly states to an officer or employee
of the IRS at any time during any interview that the taxpayer wishes to
consult with his authorized representative, the examiner is to suspend
such interview regardless of whether the taxpayer may have answered one
or more questions.
The key words here are “clearly states.”
IRC 7521(a) A taxpayer who makes an advance request will be allowed to
make an audio recording of the interview at the taxpayer's own expense
and with the taxpayer's own equipment.
Planning Note.
Recording of the interview is a recommended exception rather than a
norm. Examiners interpret a request for recording of the interviews as
an indication of non-cooperation and even fraud. Limiting the request
to record interviews to situations where the examiner is uncooperative.
Even then, a request that interviews be contacted with management
present is perhaps a better solution.
Examiners are to discuss the taxpayer’s appeal rights with the
taxpayer/representative during the first interview/contact.
4.10.1.6.3 For more on appeal rights see Chapter _, Administrative
Appeal.
Planning Note.
Much controversy exists regarding the IRS interviewing of the taxpayer
who has given a power of attorney to an authorized representative. See
Chapter __, Field Examination for further discussion.
TIME AND PLACE OF AUDIT
I. T. Regs. 301.7506-1 admonishes the IRS to be reasonable when
determining the time and place of the examination. “Officers and
employees should exercise sound judgment in applying these criteria to
the circumstances at hand and should balance convenience of the taxpayer
with the requirements of sound and efficient tax administration.”
See Chapter __, Field Examination, Place of Examination, for further
discussion.
THIRD PARTY CONTACTS 5.1.17.1
Third parties may be contacted by the IRS in connection with the
examination of a taxpayer or the collection of the tax liability of the
taxpayer. The examiner may, when information is not available from the
taxpayer or the representative, contact third parties. IRC 7602
requires the IRS to notify the taxpayer before contacting third parties
regarding examination or collection activities (including summonses)
with respect to the taxpayer. In addition, for third party contacts
made for the purpose of collecting or determining a tax liability, IRC
7602(c) requires the examiners to:·
- Provide advance notice to the taxpayer that
contacts may be made (4.10.1.6.12.4)
- Periodically provide a list of all contacts to
the taxpayer
- Provide a list of contacts to the taxpayer upon
request
Caution.
Initially the IRS issued blanket third party notice letters. Much
controversy arose in the taxpayer and practitioner community and
procedures have changed somewhat. The IRS revised the tone of the
letter and the procedures for examiners when they issued their final
regulations on Dec. 18, 2002.
NEWS-FEDERAL, 2003
TAXDAY, (Dec. 18, 2002), Item #I.3, Final Regulations Provide Guidance
on Third-Party Contacts (T.D. 9028; TDNR PO-3698)
Exceptions to
Taxpayer Notification Requirements
4.10.1.6.12.4
The exceptions are:
- When the taxpayer authorizes the third party
contact
- When such notice would jeopardize collection of
any tax
- When such notice may involve reprisal against any
person
- When there is a pending criminal investigation
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BURDEN OF PROOF IRM Sub-Section 4.10.7.6
With the burden of proof on the
taxpayer, there was a presumption of "guilt, until proven innocent." In
RRA ’98, IRC 7491(a) provides that the burden of proof in a court
proceeding will shift from the taxpayer to the IRS in income taxes
cases, if the taxpayer presents credible evidence and the requirements
described below, in cases where any item of income is based solely on
statistical information from unrelated taxpayers, and with respect to
penalties. RRA ’98 burden of proof provisions are effective for
court cases arising out of examinations started after July 22, 1998. The
term examination includes an audit, the matching of amounts from
information returns (IRP), and the review of a claim for refund prior to
the issuance of the refund.
Four Requirements IRM Sub-SubSection
4.10.7.6.1.1
In order to shift the burden of proof to the IRS, the taxpayer has the
burden of proving that he has:
-
Met all
substantiation requirements of the Code and regulations.
Taxpayers must meet applicable substantiation requirements, whether
generally imposed or imposed with respect to specific items, such as
charitable contributions or meals, entertainment, travel, and
certain other expenses.
Caution.
Taxpayers who fail to substantiate any item in accordance with the legal
requirement of substantiation will not have satisfied the legal
conditions that are prerequisite to claiming the item on the taxpayer's
tax return and will accordingly be unable to avail themselves of this
provision regarding the burden of proof. Thus, if a taxpayer required to
substantiate an item fails to do so in the manner required (or destroys
the substantiation), this burden of proof provision is inapplicable.
Planning note.
If the taxpayer can demonstrate that he had maintained the required
substantiation but that it was destroyed or lost through no fault of the
taxpayer, such as by fire or flood, existing tax rules regarding
reconstruction of those records would continue to apply.
-
Maintained all
records required by the Code and regulations.
-
The taxpayer must
cooperate with reasonable requests by the IRS for meetings,
interviews, witnesses, information, and documents (including
providing, within a reasonable period of time, access to and
inspection of witnesses, information, and documents within the control
of the taxpayer. The determination reasonable requests will depend
upon the facts and circumstances of each case as documented in the
examiner’s case file.
Caution. The taxpayer is not required
to agree to extend the statute of limitations to be considered to have
cooperated.
Caution. Cooperation includes
providing English translations, as reasonably requested by the IRS.
Planning note.
Keep a record of all documents requested and the taxpayer’s compliance
with those requests. If the examination ultimately reaches litigation,
and it will be necessary to determine whether examiner requests for
information were made and were reasonable
-
Exhausted all its
administrative remedies, including appeal rights.
Caution.
The taxpayer’s failure to appear at the examination, supply documents,
or file a protests for an administrative appeal hearing will cause the
burden to remain with the taxpayer during any court proceedings.
Use of Statistical
Data
IRM Sub-SubSection 4.10.7.6.2.1
Under IRC 7491(b), the IRS has the burden of proof in any court
proceeding where income was reconstructed solely through the use of
statistical information on unrelated taxpayers. This is true whether
the taxpayer does or does not cooperate and provides evidence or
otherwise meets the requirements of IRC 7491(a).
If an examiner
determines that a taxpayer has unreported income, the use of statistical
data must be supported by supplemental information that links the
taxpayer to an income producing activity. Especially when using
statistical information provided by either Bureau of Labor Statistics (BLS)
or Consumer Price Index (CPI) information, an examiner is to develop
supplemental information to support the finding of unreported income.
Evidence could include proof of assets owned, verification of personal
living expenses, and verification of the likely source of income. IRM
Sub-SubSection 4.10.7.6.2.2
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320.10.3 Information
Matching Program (IRP)
IRM Sub-SubSection 4.10.7.6.1.2
Information returns, such as dividends and interest, and by recipients
of mortgage interest and IRA contributions, are matched with income tax
returns filed. The IRS also uses the document matching information to
identify people not file returns. When income tax return information
does not agree with filed information documents, the taxpayer is asked
to explain the discrepancy.
Caution.
The information matching program matches original filed information
returns with original filed income tax returns. If there is a corrected
information return or an amended income tax return, they are not a part
of the matching program data base.
If the taxpayer meets the conditions
of IRC IRC 6201(d), the IRS has the burden of producing information to
support income items reported on the information return (Portillo v.
Comr., 938 F.2d 1128 (5th Cir. 1991)). IRC 6201(d) became
effective in 1996 and applies without regard to IRC 7491. IRC 6201(d)
requires that the IRS produce "reasonable and probative information" in
any court proceeding regarding a deficiency based on an information
return if:
·
the taxpayer raises a
reasonable dispute
Caution. If the taxpayer
does not raise a "reasonable dispute", the Service will not be required
to produce any information beyond the information return.
·
the taxpayer has fully
cooperated. Full cooperation includes timely compliance with requests
for information, including access to witnesses and documents within the
control of the taxpayer.
When a taxpayer disputes income
reported on an information return, or disputes the accuracy of the
information return, the examiner should:
·
Contact the third party
payer and request verification of the accuracy of the information
document.
·
If the third party payer
does not respond to the verification letter, or responds that the
records no longer exist, the adjustment may need to be conceded if the
IRS cannot obtain reasonable and probative information from another
source.
Caution. The above is a
procedure that the examiner should do but most likely it will be left to
the taxpayer to contact the issuer of the information document for
either a corrected information document or a letter regarding the
information document.
Assessment
of Penalties
IRC 7491(c) provides that the IRS has the burden of production in a
court proceeding when the issue is a penalty, an addition to tax, or an
additional amount imposed by the IRC. In any court proceeding, the IRS
must first present evidence that imposition of the amount is appropriate
before the taxpayer raises appropriate defenses, such as reasonable
cause, substantial authority, or other similar defenses. IRM Sub-SubSection
4.10.7.6.3
Example. If a
delinquency penalty is asserted under IRC 6651, the IRS would meet its
burden by showing that the filing date was after the due date for the
tax return, and that there was no evidence the taxpayer filed for an
extension.
IRC 6751(a), a part of RRA ’98, requires that each notice imposing a
penalty include the name of the penalty, the code section imposing the
penalty, and a computation of the penalty.
IRC 6751(b) requires the specific approval of IRS management to assess
all non-computer generated penalties except for the failure to file
penalties, failure to pay penalties, or to penalties for failure to pay
estimated tax.
IRC 6404(g) suspending the accrual of certain penalties and interests
after 18 months if the IRS has not sent the taxpayer a notice of
additional tax owed.
IRC 7521 requires that any notice shall describe the basis for and
identify the amounts of tax, interests, amount in addition to tax and
assessable penalties included in the notice.
Consult IRM 4.10.6, and IRM 20.1,
Penalties, for additional information on penalty issues.
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FINANCIAL STATUS OR ECONOMIC REALITY EXAMINATION
IRC 7602(d) prohibits the use financial status or economic reality audit
techniques to determine the existence of unreported income of any
taxpayer unless the IRS has a reasonable indication that there is a
likelihood of such unreported income.
Caution.
Many taxpayers and practitioners fail to read the “unless” portion of
IRC 7602(d).
Example.
If the IRS has an information document that is unreported on the Form
1040, the IRS has “a reasonable indication that there is a likelihood of
such unreported income.” In this instance, the IRS could use the
extensive financial status or economic reality audit techniques.
For more information on financial status or economic reality audit
techniques, consult any of the Audit Technique Guides developed through
the Market Segment Specialization Program (MSSP).
http://www.irs.gov/businesses/page/0,,id=7045,00.html
RIGHTS OF SPOUSES
Innocent Spouse
Provisions IRM 4.1.4.19
IRC 6015 was expanded to make innocent spouse relief easier to obtain.
Innocent spouse relief is available for deficiencies of a taxpayer who
is no longer married to, is legally separated from, or has been living
apart for at least 12 months from the person with whom the taxpayer
originally filed the joint return.
Also, a spouse can elect to limit his or her liability for unpaid taxes
on a joint return to the spouse's separate liability amount. If the
taxpayer does not otherwise quality for relief, IRC 6015 authorizes
equitable relief in appropriate situations.
Once Form 8857, Request for Innocent Spouse Relief, is filed and
examination of the facts and circumstances are investigated by the
examination function.
Caution.
The IRS and the courts are interpreting knowledge in IRC 6015 in a very
pro-government manner and the rely upon court cases dated prior to RRA
’98.
Separate Notice
Requirements For Joint Returns
4.10.1.6.8
Many taxpayers file joint returns and then separate or divorce.
Historically, there was only one notice mailed to the last know address
of the primary taxpayer. This resulted in many ex-spouses not receiving
timely notices in order to file appropriate appeals or claims. Section
3201 of the RRA 98 requires that any notice relating to a joint return
will be sent separately to each individual filing the joint return. IRM
4.10.1.6.8.1 contains a list of instances where two notices much be
sent.
Planning note.
Be prepared to answer many taxpayer’s questions and concerns. The
process of mailing duplicate notices is to being in April 2003. If a
practitioner has a power of attorney from both husband and wife, the
practitioner may also receive duplicate notices.
Right to Information
on Joint Liability
If a tax deficiency with respect to a joint return is assessed and the
joint filers are either divorced or not living together, the law
requires the IRS to disclose in writing, in response to a written
request by one of the individuals, whether the IRS has tried to collect
from the other individual, the nature of the collection activities and
the amount collected.
Joint Return May Be
Made After Separate Returns Without Full Payment Of Tax
Separate filers who later determine that they would pay less tax by
filing jointly previously couldn’t switch if they were unable to pay the
entire amount of the joint return tax liability before the expiration of
the three-year period for making the election to file jointly. IRC
6013(b) repeals the requirement of full payment of tax as a precondition
to switching to joint filing status.
Also in the joint liability area, both the Treasury and the General
Accounting Office must conduct separate studies analyzing joint return
issues relating to divorce and innocent-spouse qualification.
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RESOURCES
Document 7394, Taxpayer Bill of Right II
www.irs.gov – The Taxpayer Rights Corner.
Publication 1, Your Rights as a Taxpayer
Publication
971 Innocent Spouse Relief (And Separation of Liability and Equitable
Relief)
Protecting Taxpayer Rights, Fact Sheet
www.irs.gov
The Taxpayer Bill of Rights 2, as passed by Congress
www.irs.gov
Taxpayer Bill of Rights II, IRS Training Publication
www.irs.gov
The IRS Restructuring and Reform Act of 1998 (RRA98)
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