IRS Form 12153

Offer in Compromise

The IRS may accept an offer in compromise based on three grounds:

1.  Doubt as to Collectability - Doubt exists that the taxpayer could ever pay the full amount of tax liability owed within the remainder of the statutory period for collection.
   
    Example: A taxpayer owes $20,000 for unpaid tax liabilities and agrees that the tax she owes is correct. The taxpayer’s  monthly income does not meet her necessary living expenses. She does not own any real property and does not have the ability to fully pay the liability now or through monthly installment payments.
   
2.  Doubt as to Liability - A legitimate doubt exists that the assessed tax liability is correct. Possible reasons to submit a doubt as to liability offer include: (1) the examiner made a mistake interpreting the law, (2) the examiner failed to consider the taxpayer’s evidence or (3) the taxpayer has new evidence.
   
   Example: The taxpayer was vice president of a corporation from 2004-2005. In 2006, the corporation accrued unpaid payroll taxes and  the taxpayer was assessed a trust fund recovery penalty as a responsible party of the corporation. The taxpayer was no longer a corporate officer and had resigned from the corporation on 12/31/2005.  Since the taxpayer had resigned prior to the payroll taxes accruing and was not contacted prior to the assessment, there is legitimate doubt that the assessed tax liability is correct.
   
3.  Effective Tax Administration - There is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an OIC. To be eligible for compromise on this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.
   
   Example: Mr. & Mrs. Taxpayer have assets sufficient to satisfy the tax liability and provide full time care and assistance to a dependent child, who has a serious long-term illness. It is expected that Mr. and Mrs. Taxpayer will need to use the equity in assets to provide for adequate basic living expenses and medical care for the child. There is no doubt that the tax is correct. . 

IRM 1.2.14.1.17, IRS's Policy Statement 5-100 goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the Government.

Installment Agreement

Taxpayers wishing to pay off a tax debt through an installment agreement, and owe:

• $25,000 or less in combined tax, penalties, and interest can use the Online Payment Agreement (OPA) or call the number on the bill or notice (have the bill or notice available, along with the social security number). A fill-in Request for Installment Agreement, Form 9465 (PDF), is available online that can be mailed to the address on the bill.
  
  Note: If you recently filed your income tax return and owe but have NOT yet received a bill from the IRS, you can use the Online Payment Agreement to establish an installment agreement on current year returns. To determine the information needed to establish a pre-assessed installment agreement, refer to What Information Do I Need to Use OPA?
  
• More than $25,000 in combined tax, penalties, and interest may still qualify for an installment agreement, but a Collection Information Statement, Form 433F (PDF) may need to be completed. Call the number on the bill or mail the Request for Installment Agreement, Form 9465 (PDF) and Form 433F (PDF) to the address on the bill.

You will receive a written notification telling you whether your terms for an installment agreement have been accepted or if they need to be modified.
 

IRS Status 53 - Currently Not Collectible

Hardship situations, upon request, can result in the IRS avoiding contact for 12 months at a time once a "Status code 53" is assigned to the taxpayer's account.

Currently Not Collectible Policy and Procedure Overview

1. Policy Statement P-5-71 provides the authority for reporting accounts currently not collectible (CNC). See IRM 1.2.14.1.14 Policy Statements for Collecting Process . Accounts can be removed from active inventory after taking the necessary steps in the collection process.
   
2. Accounts may be reported CNC for a variety of reasons using transaction code (TC) 530. It is a requirement that TC 530 be defined by the appropriate closing code. The most commonly used closing codes are displayed in the table below.

Currently Not Collectible Closing Codes Closing Code Definition

03 inability to locate the taxpayer or assets

04 partial expiration of the assessment prior to issuance

05 complete expiration of the statutory period for collection or suit initiated to reduce tax claim to judgment

06 for International casework, inability to collect a liability from a taxpayer living in a foreign country

07 a corporation, exempt organization, or Limited Liability Company (LLC) , where the LLC is identified as the liable taxpayer, liquidated in bankruptcy

08 death of an individual with no collection potential from the decedent estate or no collection potential for estate taxes

09 accounts below tolerance See IRM 5.16.1.2.5(1) and (2) Tolerance, for additional information

10 corporations, certain limited liability partnerships, exempt organizations, or LLCs, where the LLC is identified as the liable taxpayer, which are inactive and defunct with no assets

12 inability to contact a taxpayer although the address is known and there is no means to enforce collection

13 a corporation, exempt organization, limited partnership, or LLC, where the LLC is identified as the liable taxpayer, remains in business and is current but is unable to pay back taxes

14 when suspending collection of BMF balance due accounts when the key individual is deployed to a combat zone; see IRM 5.1.7.9.1 ,Business Masterfile (BMF) Accounts of Taxpayers Deployed to a Combat Zone, for additional information

15 corporate income tax liabilities owed by a financial institution certified as insolvent by the Office of the Controller of the Currency or the Office of Thrift Supervision

24 - 32 collection of the liability would create a hardship for taxpayers by leaving them unable to meet necessary living expenses

Reminder: Hardship closing codes can only be used for individual or joint IMF assessments, sole proprietorships, general partnerships, and LLCs, where an individual owner is identified as the liable taxpayer.  

Mark-to-Market election gives you ordinary loss treatment
"Retroactive" mark-to-market elections for non-filers are a definite possibility.  See us for the proper way to accomplish this.  Recently we have seen some free instructive advice on the internet that over-simplifies and misses the point on what has been briefly mentioned on this page and other pages on the traderstatus.com website for several years.  Missing the whole point when using one of these over simplifications can result in a disallowance as a tax motivated sham.

We have the experience.  These are not "new ideas" to us.  Actually, the IRS has consulted with us specifically about these type of daytrader tax motivated shams (prepared elsewhere) discussing their viability and substance (or lack thereof).  We will opine on your specific situation and which filing methodology is best for you. Good planning, keeping a low-profile and having support for tax positions taken is imperative.  "Making it up as you learn" is the sure way to an audit. 

VDP - Voluntary Disclosure Practice
A taxpayer’s timely, voluntary disclosure of a substantial unreported tax liability has long been an important factor in deciding whether the taxpayer’s case should ultimately be referred for criminal prosecution.  It is currently the practice of the IRS that a voluntary disclosure will be considered along with all other factors in the investigation in determining whether criminal prosecution will be recommended.
http://www.irs.gov/newsroom/article/0,,id=104361,00.html

State - Voluntary Disclosure Program
 Arizona
California     Entities with CA nexus
Connecticut
Kansas
Maryland
New Jersey
New York
Pennsylvania
Utah
Vermont

 National Nexus Program
 

IRS Tax Seizure Auction website: http://www.treas.gov/auctions/irs/

Why retain us to handle your delinquent IRS (and State) tax returns.
IRS controversy issues, tax return audits and even routine IRS and State inquiries are best handled by a professional CPA firm, rather than going it alone and risking "putting your foot in your mouth". Taxpayers signing a special IRS limited Power of Attorney may retain us to represent them with many of these issues. Contact us before you contact the IRS in response to an imposing inquiry.

Why use TraderStatus.com for your trader tax advisor?
TraderStatus.com is the Web Site presence of Colin M. Cody, CPA, CMA.   Colin advises Security Traders and CPAs across the country regarding complex trader status issues.  Colin has been advising Security Traders on the Internet since 1991. 

Colin M. Cody, CPA, CMA has been instrumental in the authorship of the actual and forthcoming securities trader Tax Code by working with the drafters of the IRS Code while interpreting the intent of the US Congress when they pass the law.

Audits are handled for taxpayers in any of the U.S. States either by communicating with the IRS examiners via telephone, fax and mail or by transferring your case to Connecticut for face-to-face meetings with the IRS examiners and appeals officers.

More often than not Colin finds errors in the preparation of the tax returns under audit.  The errors made on self-prepared tax filings are responsible for initiating some audit inquiries.  Errors we find on professionally prepared returns are usually only found after a thorough review of your paperwork back in our offices and sometimes these have quite severe misinterpretations of the law.  

It is not uncommon for us to find that taxpayers have overpaid their taxes in prior years because regular tax rules were used rather than the proper Trader Status allowances.

If errors favor the  taxpayer and your taxes were overpaid, then we may prepare proforma drafts of amended tax filings to present to the IRS examiner during the audit.  If the errors favor the  IRS and your taxes were underpaid, then then we prepare for the possibility that the IRS examiner will also find those same mistakes.


Click here if you are ready to retain us for your audit representation.

Internal Revenue Manual 4.90.7.2 Statute of Limitations (§ 6511)

1. The Specialist must always check claims to verify that they were timely filed. Generally, a claim must be filed by the customer within three years from the time the original return was filed, or two years from the time the tax was paid (or applied from another return), whichever period expires later. See IRM 25.6.6.

   1. If a claim for refund is filed within three years from the time the return was filed, only the tax paid within the three years preceding the filing of the claim, plus the period of any extension of time for filing the return, can be refunded. (IRC 6511(b)(2)(A))

   2. If a claim is not filed within the three year period, then only the tax paid within the two years preceding the filing of the claim can be refunded. (IRC 6511(b)(2)(B))

   3. If no claim is filed, then only the tax paid that would have been allowable, under (a) or (b) above, if the claim was filed on the date the credit or refund was allowed can be refunded. (IRC 6511(b)(2)(C))

   The fact that a claim has been filed never extends the statute for assessing an additional deficiency. Taxable amended returns have the same statute of limitations as the original returns.

2. When a customer files a claim timely, the statute remains open for the IRS to examine it. If the IRS takes no action on the claim within six months from the time it was filed, the customer can file suit in court to recover the amount claimed. The period for filing suit lasts until two years after the date a certified notice of claim disallowance is mailed to the taxpayer or the date the taxpayer signed Form 2297, Waiver of Statutory Notification of Claim Disallowance. On the other hand, if the Service allows the claim (this could be done by the Service Center prior to the case being sent to the field for examination), any further action on that year's return creates a barred statute situation if that year is a closed year.

3. An executed consent extends the time to file a claim. If a customer does not file for a claim within the time limits prescribed by IRC section 6511(a), the customer may still file a claim if the statute of limitation for assessment has been extended by agreement of the Service and the customer (IRC 6511(c)). This filing period will last until six months after the expiration of the extension period.

4. If, after the execution of a consent and within six months after the expiration of the extension period, a claim is filed, or a credit or refund is allowed when no claim is filed, the amount of credit or refund is limited. This limit is the portion of the tax paid after the execution of the consent and before the filing of the claim (or making of the credit or refund), PLUS the portion of the tax paid

 

Exhibit B - RC Refund Claims Limitation Periods (Published 5/2008) I.R.C. Section Situation Limitation Period and Amount 6511(a) Period of limitation on filing claim for refund. Claim must be filed within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid. 6511(b)(1) Limitation on allowance of credits and refunds – Filing of claim within prescribed period. No credit or refund shall be allowed or made after the expiration of the period of limitation prescribed in section 6511(a) for the filing of a claim for refund, unless a claim is filed within such period. 6511(b)(2) Limitation on allowance of credit and refunds – Claim filed within 3 year period. (A) The amount of the refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return. Limitation on allowance of credit and refunds – Claim not filed within 3 year period. (B) If the claim was not filed within such three-year period, the amount of the refund shall not exceed the portion of the tax paid during the 2 years immediately preceding the filing of the claim. 6511(c)(1) Extension of time by agreement–Time for filing claim. The period for filing claim for refund shall not expire prior to 6 months after the expiration of the period within which an assessment may be made pursuant to the agreement or any extension thereof under section 6501(c)(4). 6511(d)(2) Special period of limitation with respect to net operating loss or capital loss carrybacks. The period for filing a claim shall be that period which ends 3 years after the time prescribed by law for filing the return (including extensions) for the taxable year of the net operating loss or net capital loss which results in such carryback, or the period prescribed in section 6511(c) for extension of the period of assessment in respect of such taxable year, which ever expires later. 6511(d)(4) Special period of limitation with respect to certain credit carrybacks The period for filing a claim shall be that period which ends 3 years after the time prescribed by law for filing the return (including extensions) for the taxable year of the unused credit which results in the carryback (or, with respect to any portion of a credit carryback from a taxable year attributable to a net operating loss carryback, capital loss carryback, or other credit carryback from a subsequent taxable year, the period shall be that period which ends 3 years after the time prescribed by law for filing the return, including extensions thereof, for such subsequent taxable year) or the period prescribed in section 6511(c) for extension of the period of assessment in respect of such taxable year, which ever expires later.

2013 update
Finally the IRS has admitted the complexity of the RSED wording and at the urging of the taxpayer community, their CP518 non-filer letters have been partially rewritten in plain English as follows [referring to a non-filer's 2011 form 1040, which was due April 17, 2012]:
"If you are owed a refund, you must file a return by April 17, 2015, or 2 years from the date the tax was paid, whichever is later." 

We feel that this is a step in the right direction, though we suggest that the the following sentence be added for clarity: "After April 17, 2015 (or 2 years from the date the tax was paid, whichever is later) any refund that would have been owed to you will instead be forfeited to the U.S. Treasury as a non-filer penalty."