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- Written by: E. Martin Davidoff
In practicing before the IRS regarding collection matters, penalty abatements, and examinations, I have found certain rules of engagement helpful. For previous rules of engagement, see the June/July, August/September and October editions of this magazine.
9. Meet all commitments made to the IRS … or at least call.
A corollary to the rule of not accepting unreasonable time lines from the IRS is for the CPA to meet all commitments made to the IRS. If you insist on reasonable time lines, you should be able to meet such time lines. In the rare instances that you are unable to meet such time lines, you must be sure to communicate with the IRS before the commitment date passes.
Most revenue officers (RO) and agents will work with you as long as you communicate and make a significant effort to move the case forward. You may need to speak to a manager before securing a reasonable time frame, as the IRS appears to provide little discretion to its front-line telephone collection employees.
In setting time lines or requesting additional time there are techniques you can use along with your own personal style. Let’s say you have a client who owes $75,000 and should be able to full-pay the account in due course. The negotiation with the IRS ultimately comes to whether the client can liquidate assets through sale or loans and/or the amount of monthly installment payments.
One of the first requirements of the IRS is to secure financial information about the taxpayer. For me, the most difficult aspect for most high-income taxpayers is determining and presenting their budget to the IRS. Thus, one of the compromises I will make with a RO will be to provide form 433-A, presenting all but the budget. This is helpful to the RO because it provides a road map to assets and employment. In exchange, I will get the time needed to put together the client’s budget. (See a detailed budget in the April/May 2009 edition.)
How do I convince the IRS to provide more time? Often, I bring it to a personal level. I recognize that we both are professionals and need to be reasonable about the demands we place upon ourselves. To eliminate resistance, I may communicate with the IRS representative along the following lines:
“As one who has been in practice for many years, I am in the business of avoiding stress for my clients and myself. When left to our own resources, we will make your job easier and provide you with a quality, comprehensive package. I know the demands on my time and my client’s time and am in the best position to set my own schedule. I cannot meet the deadline you are asking of me while exercising my due diligence. I am sure if I provide you the requested materials in the time line I have laid out, you are not going to be running out of work. Accordingly, I would appreciate you treating me professionally as you would like to be treated.”
In the most absurd cases, I have had the IRS require eight to ten years of tax returns to be filed in 30 days. The IRS has been waiting for these returns for eight to ten years, and now it is suddenly urgent that they get them in 30 days? I will negotiate a schedule to provide the returns over a period of time that is reasonable for the complexity, or lack thereof, of the client’s tax returns. My rule of thumb has been to provide the first two years’ returns within 45 days and then two more years every 30 days.
10. Do not let appeals deadlines pass without considering action.
Most commitments with the IRS are artificial deadlines set by the IRS (and, hopefully, the practitioner) to keep the case moving along. However, some deadlines are critical. You should never just let those deadlines pass. Examples of such deadlines are the 30-day deadline to appeal a Revenue Agent Report in an examination context, the 90-day deadline to file a Tax Court Petition, the 30-day deadline to request a Collection Due Process hearing or the one-year deadline to request a Collection Due Process Equivalency hearing. Each of these deadlines requires a written response.
There are also deadlines to appeal the imposition of a penalty or the denial of a request for abatement. Never allow a deadline to go by as a result of your indecision or inability to act. Each deadline requires careful consideration and documentation of the actions you decide to take or not take.
More rules of engagement to come next issue.
E. Martin Davidoff, CPA, Esq., is a sole proprietor in Dayton, NJ, with more than 30 years experience practicing as a CPA and tax attorney. He founded the IRS Tax Liaison Committee of the American Association of Attorney-CPAs and is a past president of the AAA-CPA. Contact him at
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- Written by: E. Martin Davidoff
By: E. Martin Davidoff, CPA, Esq. | In July, I wrote about how the United States Supreme Court found Section 3 of the Defense of Marriage Act (DOMA) to be unconstitutional failing to recognize state-authorized same sex marriages. This article addresses a series of questions I had raised, set forth below, that have now been addressed by the IRS in Revenue Ruling 2013-17, announced by IR-2013-72 on August 29, 2013.
Q. How couples legally married in a state that recognizes same-sex marriages [1] will be treated if they reside in states that do NOT recognize same sex marriages.
A. They will be deemed married for federal income and estate tax purposes. Also, foreign same sex marriages will be recognized.
Q. Can married same-sex couples amend past returns to get refunds?
A. Yes, for all open years, which currently includes at least 2010, 2011 and 2012
Q. Must married same-sex couples amend past returns to pay additional tax if such tax is due?
A. No, the filing of amended returns for years prior to 2013 is optional. However, commencing in 2013 returns must be filed as married (either married filing jointly or married filing separately).
Q. What is the impact of state same-sex relationship laws other than full marriage as six states currently provide? [2]
A. Same-sex couples having formalized their relationships in these states will NOT be deemed married for federal tax purposes. The IRS news release states:
1. “Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country will be covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.”
2. Employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pre-tax dollars that are excludable from income. Accordingly, such Taxpayers may file claims for refund.”
3. “Treasury and the IRS intend to issue streamlined procedures for employers who wish to file refund claims for payroll taxes paid on previously-taxed health insurance and fringe benefits provided to same-sex spouses. Treasury and IRS also intend to issue further guidance on cafeteria plans and on how qualified retirement plans and other tax-favored arrangements should treat same-sexspouses for periods before the effective date of this Revenue Ruling.”
Kudos to the IRS for providing such comprehensive and reasonable guidance so quickly.
1 As of July, 2013, eleven states (California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont and Washington), the District of Columbia, and five Native American tribes have legalized same-sex marriages. As of August 1, 2013, the states of Rhode Island and Minnesota permitted same-sex marriages. Prior to 2004, same-sex was not allowed in any U.S. jurisdiction.
2 New Jersey, Oregon, Nevada, Illinois, Hawaii, and Colorado.
For more information, see IR-2013-72 at http://www.irs.gov/uac/Newsroom/Treasury-and-IRS-Announce-That-All-Legal-Same-Sex-Marriages-Will-Be-Recognized-For-Federal-Tax-Purposes;-Ruling-Provides-Certainty,-Benefits-and-Protections-Under-Federal-Tax-Law-for-Same-Sex-Married-Couples), Revenue Ruling 2013-17 and FAQs for Registered Domestic Partners and Individual in Civil Unions referenced in IR-2013-72. Also, see the new FAQs for same sex marriages: http://www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Same-Sex-Married-Couples.
E. Martin Davidoff, CPA, Esq. is the founder of the Dayton, New Jersey firm of E. Martin Davidoff & Associates, CPAs and has more than 30 years of experience practicing as a CPA and tax attorney. Davidoff is the founder of the IRS Tax Liaison Committee of the American Association of Attorney-CPAs and currently serves on the Executive Committee of the AAA-CPA. Mr. Davidoff may be reached at
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- Written by: E. Martin Davidoff
In practicing before the IRS concerning collection matters, penalty abatements and examinations, I have found certain rules of engagement helpful. For previous rules of engagement, see the August/September edition of this magazine.
7. Do not agree to terms your client cannot meet.
If you believe your client only can pay $500 per month, and the IRS insists that your client pay $1,000 per month, you should not agree to the higher amount. By doing so, you are setting up your client for failure. Rather, you should appeal the decision to a manager or other administrative level within the IRS.
Usually, the unpalatable terms of an installment agreement deal with the amount of monthly payments, but occasionally they might deal with the timing of payments. For example, I have had clients who have owed substantial amounts to the IRS who received bonuses at the end of each year. In one case, an attorney could repay the IRS $60,000 per year. But, a $5,000 per month payment plan would not work because the attorney received much of her income in December, January and February of each year through bonuses.
Thus, we negotiated with the IRS to have the payments due for each December, January and February at a rate of $20,000. Although the IRS had to manually monitor this particular installment agreement, they agreed to do so because they understood the logic of structuring the payments in this manner. Usually, you will not get a first-level employee to depart from the prescribed monthly installment formula that is normally used by the IRS. Higher-ups, however, often will exercise their judgment to bring about a resolution.
8. Current taxes get paid first.
While meeting with clients about IRS collection matters, they are likely to tell you their tales of woe about how they got into these predicaments. Hopefully, you will give them excellent advice on how to resolve their past issues. Maybe the issues can be resolved with installment agreements or offers in compromise. Perhaps, the clients will take out equity loans on their homes to pay off the IRS. Regardless of the resolution, they will not be successful in resolving their IRS disputes if they are not meeting their current tax obligations.
Quickly, the conversation needs to move to the current tax year because no long-term resolution will be possible if the client is not current. Is the client paying his or her personal estimated taxes? Is the withholding level correct? It is important that you as the advisor know where the taxpayer stands on the current year. Your goal is to pay in nearly all of the tax by year-end and no more. Why no more? Typically, the IRS will seize the excess and apply it "in the best interests of the government," which is usually not in your client's best interests.
If you are dealing with a client who is also an employer, make sure that all payroll tax filings have been completed and that the payroll taxes are being paid timely. I usually will have the client sign up with a major payroll tax service and opt into their tax-pay service. Such a service takes out the proper withholding tax with each payroll. I educate the client that the net payroll should not be paid unless you have the funds to be sure to pay-in the related payroll taxes.
Many IRS employees understand that current taxes should be the first concern. Yet, some IRS employees will pressure clients to pay delinquent taxes first because those are the cases on the IRS employees' desks. It often takes an aggressive representative to keep the proper focus.
Often, clients just refuse to stay current on their taxes, claiming they are unable to do so. They explain that they cannot afford to pay the mortgage, the auto payments, college, etc., and pay their taxes. In many instances, these are self-employed individuals. Your approach with such individuals has to be clear and firm. People often have to realize that they must change their lifestyles to live within their current budgets and that current taxes are non-discretionary parts of those budgets. So, if a client comes in today, I realize he or she might not be able to pay even the first half of the current year's taxes. But, from this day forward, the client must keep current. I encourage high-income individuals to pay their estimated taxes monthly or weekly through www.eftps.gov to avoid facing those huge quarterly estimated tax payments.
More rules of engagement to come next issue.
E. Martin Davidoff, CPA, Esq., is a practicing CPA and tax attorney in Dayton, NJ. He founded the IRS Tax Liaison Committee of the American Association of Attorney-CPAs and is the immediate past president of the AAA-CPA. Contact him at
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- Written by: E. Martin Davidoff
In practicing before the IRS regarding collection matters, penalty abatements, and examinations, I have found certain rules of engagement helpful. For the first four rules of engagement, see the June/July edition of this magazine.
Assert yourself as appropriate — postscript
Although this was discussed last month, I had an excellent example today of how important it is to assert yourself on behalf of your clients. Several weeks ago, the CFO of a company contacted me. His company owed more than $200,000 in payroll taxes. This is a company that has $6 million in annual sales and is likely to be paying the payroll taxes in full. The IRS revenue officer, Ms. Thomson, had been eager to interview the company's president, Mr. Mays, regarding the possible assessment of the trust fund recovery penalty (IRC §6672). During the preliminary call with the CFO, it was agreed that I would represent Mr. Mays.
Ms. Thomson had set a deadline of May 24 to have this interview, and Mr. Mays called me on May 21 to engage me. At this point, Ms. Thomson knew that Mr. Mays was in the process of securing representation but insisted that the appointment be kept. It took until May 25 for me to receive the engagement letter, including a guarantor signature, the retainer and powers of attorney. The CFO called Ms. Thomson to tell her that the attorney would be engaged on May 25. She said that the interview must take place between 9 a.m. and 1 p.m. on May 25, and this would be the taxpayer's final chance. The implication was clear that she would be taking some sort of enforcement action, but against whom? The company was making regular payments, and Mr. Mays had not yet been assessed. This was nothing but a scare tactic, a threat.
On the morning of May 25, we faxed our power of attorney to Ms. Thomson and left a message on her office phone. It wasn't until the afternoon that we learned we were supposed to call her cell phone. By close of business on May 25, we had not heard from her.
What now? (Even if we had reached her, we were merely going to request more time.) As of close of business, we had not received a return call. In my mind, Ms. Thomson was a possible loose cannon, one who did not take seriously one's right to representation.
So, on May 26, my paralegal, Sarah, called the area director to get the name of Ms. Thomson's manager. She explained the circumstances and secured the name of the manager. She then left a message with the manager stating that a threat had been made and that we could not contact the revenue officer. By the end of the day, we had heard back from the area director's staff, the territory manager and Ms. Thomson. The managers who called us were sympathetic and made it clear that we did the right thing. I believe that we will get the additional time we require to determine what questions Ms. Thomson will be posing to my client (probably those on form 4180) and what my client's answers to those questions will be.
The next day, Ms. Thomson insisted on assessing the Trust Fund Recovery Penalty without an interview. I spoke with the territory manager, who agreed that the interview will be conducted on or before June 18. In the meantime, no assessment would be made against Mr. Mays. I attribute the reasonable extension of time to my office's proactive approach in contacting the higher-ups at the IRS.
5. Never lie. Period.
This seems simple. You should never make representations to the IRS that are misleading or untrue. Better to refuse to answer a question than to lie. In the long run, the IRS learns which practitioners are reliable and which are not. Once you fall in the latter category, your cases will become uphill battles.
At the beginning of most tax examinations, the auditor will ask if there is any income that was not reported on the tax return. If the answer is yes, I have limited choices. I can provide the information or I can say, "that is for you to determine"— thus evading the answer but making no misrepresentation.
6. Do not accept unreasonable timelines.
If the IRS asks for a form 433-A in 14 days, do not agree to do so if you know you need 30 days. If the IRS asks your client to pay $1,500 by next Friday, do not agree to do so if you believe the client is unable to do so. Explain to the IRS your justification for the extension of time or change of payment amount and that you are interested in working together to find a successful resolution for all. You have options in nearly all circumstances. You can speak to a manager or bring the case to Appeals.
More rules of engagement to come next issue.
E. Martin Davidoff, CPA, Esq., is a practicing CPA and tax attorney in Dayton, NJ. He founded the IRS Tax Liaison Committee of the American Association of Attorney-CPAs and is the immediate past president of the AAA-CPA. Contact him at
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By: E. Martin Davidoff, CPA, Esq.
On June 26th, the United States Supreme Court found that Section 3 of the Defense of Marriage Act (DOMA) was wrong in failing to recognize state-authorized same sex marriages. As a result, all legally married gay and lesbian couples, residing in states that recognize their marriages, are considered married for purposes of all federal programs and tax laws. Thus, such couples are entitled to spousal social security benefits and significant estate tax savings. Furthermore, such couples must file their U.S. individual tax returns as “married” whether that be “married-filing jointly” or “married-filing separately”.
Edith Windsor won her case claiming a refund of $363,053, plus interest, for overpaid estate taxes paid on the estate of her late wife, Thea Spyer, who died in 2009, having been Windsor’s life partner for 44 years. The full impact of the decision on Federal tax filings is still not known. However, it is clear that all couples who have legally married in their state of residence will be treated the same as their heterosexual counterparts. This means that they will be able to file joint federal tax returns and can no longer file as Single.
What is still not decided is how couples married legally in a state that recognizes same-sex marriages1 will be treated if they reside in states that do NOT recognize same sex marriages. These matters must now be addressed by the IRS along with issues such as dealing with possible refund claims. Can same-sex couples amend past returns to get refunds? Must they amend past returns to pay additional tax if such tax is due? Also, what is the impact of states that have enacted same-sex relationship laws other than full marriage as six states currently provide?2
What is the impact on same-sex couples who have been divorced? Are alimony payments now income to the recipient spouse and a deduction to the paying spouse?
Although the gay and lesbian community is happy with the Windsor decision, some in their communities will be paying a higher income tax bill as a result of the "marriage penalty" inherent in the tax code. Affluent couples with approximately equal income are likely to pay higher income tax rates as married than they had as single.
As of July 22, 2013, the IRS Website (www.irs.gov) section for “Answers to Frequently Asked Questions for Same-Sex Couples” merely states:
“NOTE: The questions and answers below do not reflect the Supreme Court's June 26 decision relating to DOMA. We are reviewing the important June 26 Supreme Court decision on the Defense of Marriage Act. We will be working with the Department of Treasury and Department of Justice, and we will move swiftly to provide revised guidance in the near future.”
More to come on this issue, for sure.
E. Martin Davidoff, CPA, Esq. is the founder of the Dayton, New Jersey firm of E. Martin Davidoff & Associates, CPAs and has more than 30 years of experience practicing as a CPA and tax attorney. Davidoff is the founder of the IRS Tax Liaison Committee of the American Association of Attorney-CPAs and currently serves on the Executive Committee of the AAA-CPA. Mr. Davidoff may be reached at
1. As of July, 2013, eleven states (California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont and Washington), the District of Columbia, and five Native American tribes have legalized same-sex marriages. As of August 1, 2013, the states of Rhode Island and Minnesota will permit same-sex marriages. Prior to 2004, same-sex was not allowed in any U.S. jurisdiction.
2. New Jersey, Oregon, Nevada, Illinois, Hawaii, and Colorado.