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Written by: E. Martin Davidoff

Published: 10 January 2012

The most underutilized arm of the Internal Revenue Service with respect to Taxpayer collection issues is the IRS Office of Appeals (“Appeals”). This office can be used to appeal threatened levies and liens, denials of installment agreements, and denied offers to compromise one’s tax. Understanding the processes and tools available is critical to a practitioner’s success in this specialty.

Generally, Appeals functions are divided into two categories: i) assessment issues and ii) collection issues. Appeals’ officers have become specialized and most officers deal with either assessment issues or collection issues, but not both. Appeals of examination findings, trust fund assessments, and denials of claims for refund all fall within the area of assessment issues. Appeals’ officers working on collection issues are often referred to as Settlement Officers.

Other than appeals of Offers in Compromise (“OICs”), there are two primary procedures to appeal a Tax Collection matter:

-  Collection Due Process (“CDP”) Appeals (form 12153)

-  The Collection Appeals Program (“CAP”; form 9423)

CAP is the only methodology that can be used to head off the filing of a Notice of Federal Tax Lien (“NFTL”). The CDP Appeal can only be filed in response to the filing of the NFTL or when a Levy is threatened by the IRS. That threat of levy often comes in the form of the Letter 1058 which states prominently, “NOTICE OF INTENT TO LEVY AND NOTICE OF YOUR RIGHT TO A HEARING.” Providing advance notice of levy is required by Internal Revenue Code (“IRC”) §6330. Such notices are always sent via Certified Mail. OICs are appealed through a process clearly delineated on OIC rejection letters and will not be discussed in this article.

CDP Hearings

The biggest mistake made by taxpayers and practitioners alike is not responding to the IRC §6330 notice within the 30 days required to fully protect the taxpayer’s rights. In such hearings, Appeals is empowered to consider ALL collection alternatives. Responding to the §6330 notice is relatively simple. One need only complete the form 12153. The most recent revision (March of 2011) provides comprehensive guidance. Considerations when dealing with a §6330 notice and submitting form 12153 are set forth below, some of which will be more fully discussed in the next edition of this column.

1. Determine whether or not to respond within 30 days.  The IRS has developed a process to consider untimely-filed requests for CDP hearings. Such hearings are administrative, not statutory. Therefore:

a.) The statute of limitations for the IRS to collect the tax continues to run; and

b.) The Taxpayer does not have the right to pursue the matter in the U.S. Tax Court.

IRS policies are that such administrative hearings should be equivalent to the CDP hearing and, as do CDP hearings, should consider all collection alternatives. Accordingly, such administrative hearings have been named “Equivalent Hearings,” which can be requested at item #7 of form 12153 up to 1 year after the taxpayer is provided the §6330 Notice.

So, if a client is not willing to take the matter to Tax Court, would there be any reason to file within 30 days and suspend the running of the statute of limitations? One could argue (correctly, I believe), that the possibility of a U.S. Tax Court appeal from the CDP hearing puts added pressure on Appeals to resolve the matter.

Often, the 30-day period is gone before the practitioner gets involved. So, it is important for a practitioner to obtain IRS account transcripts to see when the §6330 notice was issued so that the time to file an Equivalent Hearing does not pass by without consideration of action.

When one is deep into the 10-year IRS limitations period to collect the tax, filing for a CDP hearing may be considered risky as the statute may expire without the hearing request. This has become rare, as the IRS has become more consistent about issuing notices of intent to levy early in the collection process.

Be careful about missing deadlines. Sometimes practitioners will call the Revenue Officer and/or their manager upon the receipt of a Letter 1058 or other notice of intent to levy. While negotiating or playing telephone tag, the deadline to appeal could go by and weaken your negotiating position significantly.

2. Consider requesting a face-to-face/inperson conference at a local Appeals office. Generally, our office requests a face-to-face hearing on all form 12153 filings (also referred to as “CDP requests”). Why not? Our experience is that we secure better results when meeting in person. Our office is located in central New Jersey. Accordingly, we find any of three offices (Newark, New York City, or Philadelphia) relatively convenient. I believe our flexibility regarding location makes it easier for the IRS to grant our requests.

More information on face-to-face conferences for CDP hearing requests, and the IRS reluctance to grant requests for such hearings, will be found in the next edition of this column.

3. Seek Penalty Abatements. Whenever there is money due to the IRS, the abatement of penalties should be a consideration. Even if you cannot elaborate on the detail of reasonable cause within the form 12153 attachment, you should request abatement and provide an overview of the reasonable causes and state clearly that you are willing to provide additional substantiation.

4. Clearly State the Desired Results. You want to make clear what you want the Appeals Officer to do. Accordingly, your attachment should state the desired results. That attachment should also indicate why you were not able to resolve the problem (i.e. The Revenue Officer sent the threat to levy without ever calling the taxpayer or his/her representative), provide all pertinent facts, and identify the potential issues for consideration.

5. Consider requesting that the hearing be recorded.  To preserve a record for the

Tax Court, you may wish to consider requesting that the hearing be recorded. You have the right to do so. By making this request, you will be assured that the Appeals manager will be in attendance. I have not used this tool personally, but I do know it is being used regularly by practitioners, particularly in larger, more complex cases.

6. Other technicalities. Include statements in your attachment that make it clear that:

-  You reserve the right to amend the request;

-  You reserve the right to supplement the CDP request

-  There shall be no ex-parte communications (communication to influence a decision-making official off the record) between Appeals and other IRS employees working on the case, without your express written permission

-  Don’t forget to include your power of attorney for the client, form 2848

7. Who attends?  As with nearly all of my representation before the IRS, I will attend alone or with a member of my staff. In the rare instances that my client attends an IRS conference/hearing, I make the decision. I have had situations wherein my clients insisted on attending. In such instances, consideration should be given to whether or not to retain the client. My purpose in bringing staff is to either provide training, have someone along with me who is more knowledgeable of the factual nuances and intricacies of the case, and/or someone whose personality will assist in the resolution of the matter.

CAP Appeals

CAP Appeals enable a taxpayer/practitioner to Appeal a specific action or proposed action of the IRS. Some considerations with respect to CAP Appeals:

1. Only the specific action or proposed action is evaluated by the Settlement Officer. The Settlement Officer will not consider all collection alternatives. However, some Settlement Officers will tell you that they are only doing an “administrative review” to determine whether the IRS followed the requisite procedures in deciding to take or threaten the action being appealed. Under the Internal Revenue Manual (“IRM”), this is simply not true in my opinion.

The Settlement Officer is to put himself/herself in the position of the IRS employee and determine whether the action is the appropriate action to be taken considering all facts and circumstances.

2. CAP is an expedited procedure in which the Settlement Officer is required to have the hearing within five days of his/her receipt. However, one never knows when the officer will actually “receive” the case. The five-day rule brings on unfair and extraordinary results, often under the pretense of doing the Taxpayer a ‘favor’ by expediting the case. For example, you could receive a call from a Settlement Officer, have what you believe is a preliminary conversation to the hearing, and then be told that the Settlement Officer is finding in favor of the IRS action. Effectively, you may not have realized that you had the hearing during that conversation!

Accordingly, you need to clarify from the beginning in all conversations whether you are having the hearing or just trying to set up a mutually convenient time for one. Also, if you are planning to be away from the office for an extended period, you may want to contact Appeals to make sure that the hearing is not scheduled while you are unavailable. The IRS will consider your unavailability for more than five days, effectively, a forfeiture of your hearing rights.

3. Normally, face-to-face hearings will be permitted in local IRS offices. However, it is very rare that a Service Center CAP will be transferred for a face-to-face hearing.

4. The CAP Program  is used to appeal rejections of installment agreements (IRC §7122(e)) and proposed terminations of installment agreements (IRC 6159(e)). The details of IRS procedures and practices relating to Appeals change frequently. For that reason, you should regularly refer to Section 8 of the IRM, which covers the Appeals function of the IRS and can be found online at: http://www.irs.gov/irm/part8/index.html. See also IRS Publications 594 and 1660.

Contact E. Martin Davidoff, CPA, Esq. at This email address is being protected from spambots. You need JavaScript enabled to view it. and his firm’s Web site can be found at www.taxattorneycpa.com.

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Written by: E. Martin Davidoff

Published: 20 July 2011

In practicing before the IRS regarding collection matters, penalty abatements and examinations, I have found certain rules of engagement helpful. This is the sixth and final in the series of articles in this magazine on such rules of engagement.

14. Be Realistic With Your Client.

Promise only what you know you can deliver, which will frequently result in your delivering more than anticipated.

Throughout our communications with our client, we promise only what we know we can accomplish. Our goal is to establish trust with our clients and referral sources, while establishing reasonable expectations in the minds of our clients. Since much of our success depends upon our advocacy skills in working with a variety of individual decision-makers at the IRS, we are often able to deliver more than our clients anticipate.

15. Confirm all Oral Agreements with the IRS field employees in writing and request that they sign off.

In collection matters, the IRS often wants information more quickly than you can provide it with reasonable accuracy. Accordingly, you often enter into a negotiation with the Revenue Officer (RO) and establish mutually-agreeable deadlines. For example, when will back tax returns be filed? When will the form 433-A be completed? How will interim payments, estimated taxes, and payroll tax deposits be handled? ROs are instructed to secure form 433-A information (client financial information) immediately. The assets/liabilities sections of the form 433-A are often straight-forward and can be completed in a relatively short timeframe. However, the budget section may take more time and finesse to present a complete and accurate picture of the taxpayer’s finances and monthly budget. Accordingly, you may agree on varying timelines for portions of the form 433-A in order to satisfy the RO’s need for securing at least some information quickly. In exchange for meeting the agreed-to timelines, you should negotiate with the RO to hold off in taking any collection actions and/or issuing notices that will accelerate the collection process.

To avoid any possible misunderstandings, you should set forth the understandings with the RO in writing. You could do a memorandum to your client’s file. However, if you are dealing with a RO in the field, why not turn that memorandum into a letter and ask the RO to sign off on its contents? The worst that could happen is that the RO will not sign the letter. If the RO receives the letter and fails to object to its contents, I believe that such inaction would be considered a tacit agreement to the letter’s terms. If I am dealing with a RO whom I trust, I often send the confirming letter and ask the RO to call me if any of the contents are inaccurate. If I do not trust the RO or have no long-term relationship with the RO, I will often insist that the RO sign off on the letter or issue their own letter of confirmation back to me. On occasion, I will go to the manager to secure a written confirmation from the RO.

In drafting the letter, I take great care to write the agreement precisely as discussed. I would not want to be accused of attempting to renegotiate the agreement by using wording more favorable to my client than our discussion had provided. Sometimes, in drafting the letter, I will think of something that had not been discussed that should be included in our agreement. In such circumstances, I make it very clear that we had not discussed that aspect and invite the RO to call me if he/she does not agree with my proposed resolution of the issue.

When dealing with IRS collections through the centralized telephone sites, securing written confirmation of oral agreements is nearly impossible. In such cases, I write detailed internal memoranda. If nothing else, each memorandum should clearly communicate to your client what has transpired. In lieu of a memorandum, I will often send a letter to my client summarizing the case’s status. Both the memorandum and the client letter serve the purpose of documenting what has transpired and communicating the status of the matter to your client.

16. When you win, say “thank you” and “good-bye.”

• The Appeals Officer agrees to waive your client’s penalty;
• The Criminal Investigation Division decides not to prosecute your client;
• The IRS telephone assister agrees to accept a favorable installment agreement; or
• The IRS finally agrees to that Offer in Compromise.

All of the above are favorable outcomes for your client. Some practitioners might ask “what swayed you to see it our way?” or “how did you come up with that number?” When the IRS says “you win,” you should simply say “thank you” and “good-bye.” (Then, of course, do the memorandum to your file.) For example, I recently received a verbal approval of a highly favorable installment agreement. I then gave the IRS manager in this case, the only information he needed, “I would like the payments to come due on the 28th of each month, starting next month.” That is all he needed to input the installment agreement and, at that point, I quickly ended the call.

17. Pull transcripts and summarize them.

To fully understand a client’s options, it is helpful to prepare a federal tax summary. A sample of such a summary can be found below. To prepare such a summary, you must secure Account Transcripts from the IRS. For practitioners, this can be done through E-Services or by calling the tax practitioner hotline (1-866-860-4259). Preparing a federal tax summary using a spreadsheet program allows you to summarize dozens of pages from IRS Account Transcripts on one page so you can readily see the amounts of tax, interest, late filing penalties, late payment penalties, estimated tax penalties and offsetting payments and credits for multiple years.

18. Be fully prepared for all meetings…anticipate the unexpected.

I recently represented a client at a tax examination. In preparing for my meeting with the auditor, I came in prepared with multiple sets of files. We carefully segregated the information so that we could answer anticipated questions narrowly to prevent raising additional issues inadvertently. The bottom line is that we anticipated virtually all of the auditor’s potential questions. Our thorough preparation enabled us to achieve a more favorable and faster result for our client and minimize her stress. Such preparation is helpful in the collection area too. Comprehensive form 433 packages enable us to secure better results. Anticipating weaknesses in our client’s arguments for penalty abatement hearings enables us to more effectively address those weaknesses with the Appeals Officer.

19. Know the tools available to you and your clients’ rights.

Some examples include:

• Your client has a right to appeal the rejection of his/her request for an installment agreement;
• You have the right to discuss your case with a manager, territory manager, or anyone else up the chain of command;
• You have the right to go to the Office of Appeals for Collection Due Process hearings, CAP Appeals, penalty abatement appeals, and to appeal examination findings;
• To assist you, you have programs available such as the Office of Taxpayer Advocate and Fast Track Mediation;
• You may designate payments as Trust Funds or Deposits in the Nature of a Cash Bond;
• You have the right to see, generally, what is in IRS files through the Freedom of Information Act. You also may see IRS records of third-party contacts.

Learn all you can about your clients’ rights and what tools are available within the IRS so you can utilize them most effectively to benefit your clients. 

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Written by: E. Martin Davidoff

Published: 15 April 2011

Over the past several weeks, the IRS has made some significant changes in collection policies and procedures, which I am covering in this issue. The series “Rules of Engagement in Dealing with the IRS” will continue in a future issue.

IR News Release 2011-20 (02/24/2011)

IR News Release 2011-20 (“IR-2011-20”) appears long on claiming to provide taxpayers a “fresh start” and short on specifics. But, there are several important concepts and details that were provided.

A. Incentives for Direct Debit Installment Agreements (“DDIA”)

The IRS is using the avoidance of a lien as the carrot to provide incentives for people to enter into installment agreements with the IRS that allow the IRS to directly debit a taxpayer’s bank account for monthly payments. If the unpaid assessments of a taxpayer amount to $25,000 or less, then the IRS will consider withdrawing a lien:

• For taxpayers entering into a DDIA;

• For taxpayers converting their existing “regular” installment agreement into a DDIA; and

• For taxpayers with an existing DDIA who request a lien withdrawal from the IRS.

However, the lien will be withdrawn only after a probationary period (the length of which was not covered in the IRS Release) “demonstrating that direct debit payments will be honored.” My guess is that the probationary period will run from 45-90 days from the time that the taxpayer moves into or creates a DDIA with respect to their debt.

Although not mentioned in the IRS release, it appears that taxpayers for whom no IRS liens have yet to be filed, and owing less than $25,000, will be able to avoid a lien upon entering into a DDIA. It should be noted, however, that current policy is to not file a lien for all installment agreements under $25,000.

B. Small Business Installment Agreements

Small businesses owing payroll taxes to the IRS will now have an expanded opportunity to avail themselves of a streamlined installment agreement process only if they enter into a DDIA. Prior to IR-2011-20, such streamlined agreements were only available on payroll tax liabilities if the liability did not exceed $10,000. Under the new rules, small businesses may enter into a streamlined installment agreement (SIA) with balances of up to $25,000 in payroll taxes as long as they agree to a DDIA. However, even though the dollar threshold is higher, the 24-month period remains for small businesses to pay off their SIAs. Accordingly, few are likely to take advantage of this new opportunity as it is currently offered.

Prior to IR-2011-20, small businesses were already allowed to enter into SIAs for income taxes and were allowed up to 60 months to repay such liabilities. One of the many unanswered questions presented by IR-2011-20 is whether the small businesses who only owe income taxes will now be required to enter into a DDIA in order to secure an SIA? If so, the new rules would actually create an added restriction upon taxpayers when compared to the previous rules of IRM §5.14.5.2 (08/05/2010).

C. Fewer Liens

The principal message of IR-2011-20 was that the IRS is taking steps to “help people get a fresh start with their tax liabilities” and announces that it is “making important changes to its lien filing practices.” Let’s look at these five changes.

1. “Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens.”

The obvious question is what is the change in the threshold? In spite of the question being presented to the IRS at several levels, it remains unanswered. The pre-IR-2011-20 rules set forth in Internal Revenue Manual (“IRM”) §5.12.2.4.1 provide that a lien may be considered when the unpaid balance of an assessment against the taxpayer is more than $5,000. And, a lien can be considered even if the balance due is less than $5,000 if “the lien will promote payment compliance.” Is the $5,000 threshold being increased? If so, to what level?

The larger focus of IR-2011-20 was that one may avoid liens if entering into an SIA which is also a DDIA. IRM §5.14.5.2(4) has provided that “A lien determination is not required for a streamlined installment agreement but may be made at the discretion of the revenue officer and liens may be filed.” SIAs have generally been made available to those owing less than $25,000 to the IRS.

So, has the IRS truly taken action to reduce lien filings in IR-2011-20? Probably not, because existing policy generally would not have the IRS placing liens on taxpayers entering into streamlined installment agreements. Actually, for this group of taxpayers (those owing less than $25,000 and entering into a streamlined agreement), the requirements to avoid a lien may have been increased by the requirement for a DDIA. Will the IRS now routinely assert liens for those owing less than $25,000 who enter into an SIA if a DDIA is not elected? The answer is currently unknown to the public.

Who gets the biggest benefit from the new rules? In my mind, it is those who were not getting into a streamlined installment agreement and being unresponsive to the IRS. Such unresponsiveness would have led to the IRS placement of the lien upon the taxpayer. Under the new rules, the IRS will now remove the lien when the taxpayer enters into an SIA/DIA and gets through the probationary period. Previously, the removal of the lien prior to full payment was virtually impossible.

2. “Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill.”

No specifics were mentioned here. Currently, it is not particularly difficult to secure a lien withdrawal after payment. Such can be done at walk-in centers if timing is pressing or through a centralized lien hotline. Will the IRS really make it easier? That remains to be seen.

3. “Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement.”

See the discussion in sections A and B above. And, even if this is true, the IRS is getting a bigger benefit through the increase in the rate of compliance of those entering into DDIAs as compared to those who enter into an agreement to, hopefully, mail in the check each month.

4. “Creating easier access to Installment Agreement for more struggling small businesses.”

See discussion in section B above.

5. “Expanding a streamlined Offer in Compromise program to cover more taxpayers.”

IR-2011-20 goes further, stating that the IRS is expanding the availability of streamlined offer in compromises (OIC) to taxpayers with annual income of up to $100,000 and those owing up to $50,000 (doubled from the previous limit of $25,000). There is just one catch here. I haven’t found anyone who understands how a “streamlined” OIC program is different from the normal Offer in Compromise system. When one searches “streamlined Offer in Compromise” on the IRS Web site, the only entry that comes up is IR-2011-20! Also, the concept of a streamlined OIC is not mentioned in the OIC regulations under §7122.

Revised: Form 12153, Request for a Collection Due Process or Equivalent Hearing

For the first time since 2006, the IRS has revised form 12153, Request for a Collection Due Process or Equivalent Hearing. The form, now available on www.irs.gov, requests more information from the Taxpayer and provides much better guidance on the use of the form. Kudos to the IRS on providing very helpful information as to when and where to file the form. Also, very specific information is provided to assist taxpayers on what takes place in a Collection Due Process (CDP) hearing and what issues can be addressed in such hearings. The following changes have been made to the form itself:

• Separate contact information is requested for the taxpayer and spouse.

• The form now has language encouraging the submission of financial disclosure information (forms 433A and 433B) if a taxpayer wants to discuss collection alternatives. It should be noted that the IRS will not allow the transfer of a case from a Service Center Appeals office unless such financial disclosure forms are provided in advance.

• The form makes it clear that you must provide a reason for your dispute and that failure to do so will result in your request for a CDP hearing not being honored. The instructions provide an entire page of examples of reasons.

• A new box has been added to designate that the CDP hearing will be held with one’s representative.

• The instructions make it very clear that liens may be filed during the pendency of a CDP regarding a proposed levy action.

As a side note, at press-time, the IRS had nine sections on the form, numbered 1 through 8 (two items marked #5).

E. Martin Davidoff, CPA, Esq., is a sole proprietor in Dayton, N.J., 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 This email address is being protected from spambots. You need JavaScript enabled to view it..

REVIEW QUESTION

True or False? Form 12153 has been revised to include language that encourages including forms 433A and 433B if a taxpayer wants to discuss collection alternatives.

Answer: True

The form now has language encouraging the submission of financial disclosure information (forms 433A and 433B) if a taxpayer wants to discuss collection alternatives. It should be noted that the IRS will not allow the transfer of a case from a Service Center Appeals office unless such financial disclosure forms are provided in advance.

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Written by: E. Martin Davidoff

Published: 12 January 2011

In practicing before the IRS regarding collection matters, penalty abatements and examinations, I have found certain rules of engagement helpful. This is the fifth in the series on such rules of engagement, with the previous four editions appearing in this magazine.

11. Carefully read and fully understand all IRS communications.

The title of this “rule” seems to say it all. However, I am astounded by the number of taxpayers and practitioners who misread IRS communications. The first thing to look for in any IRS communications is whether there is a deadline to take action (i.e. appeal the denial of a request for penalty abatement). Even if I do not have time to carefully read the entire communication at first, I quickly peruse it to be certain that no deadlines will be missed. From time-to-time, the IRS will request documentation within a short period of time and failure to do so will create havoc for the client. For example, offer in compromise specialists will often request additional information within 10 to 14 days. If you don’t provide the requested information by the due date, the IRS will return the case to you without a decision. This is worse than a rejection in some respects, because you cannot appeal the decision to return the case. If you realize at the outset that there is a short time line, you can then take action to meet the deadline or speak to someone, including a manager, to request additional time to gather the information.

It is also key to know how to respond. For example, if the proper response is an appeal, to what address do I send the appeal? Most of the time, the communication will provide that information. If it does not, you should call the telephone number on the notice (or the practitioner hot line, 866-860-4259) to determine the proper address (usually, the inside address within the communication). We will often fax our appeal as well as mail it via Certified Mail, to ensure timely receipt.

Many IRS letters can be confusing. For example, some letters state that the IRS has made a decision, but if you provide additional information within 30 days, they will reconsider. Yet, I have often seen that same letter include language advising the taxpayer that he/she had 30 days to appeal the decision (most often in offers in compromise). A taxpayer may send in the additional information, but not ask for an appeal. Thus, if the information does not change the mind of the IRS, the taxpayer has lost the right to go to Appeals!

Many of you are familiar with IRS letter 1058, wherein the IRS advises the taxpayer of a potential levy and his/her right to a Collection Due Process Hearing. After a case has remained dormant for awhile, the IRS may file what is often referred to as a “refresher letter,” letter 3174. Essentially, this again advises the client of the potential for levies as well as other enforcement action if full payment is not timely made. However, there is no formal Appeals mechanism. In my opinion, a response is necessary to ensure that levy or lien action is not imminent. The appropriate response is to follow the process which would lead to a CAP Appeal (form 9423), the first step of which is to communicate with the source who sent the letter 3174.

IRS communications often provide explanations on changes in tax, interest and/or penalties. Yet, such communications are often not complete. So, in order for you to “fully understand” a communication, you may need to use a variety of tools to request such documentation to enable you to fully understand the notice. Such tools are E-Services or the Practitioner Hot Line to secure account transcripts or Freedom of Information requests to secure other documents (i.e. SFR, AUR or examination assessments).

The bottom line is to read the IRS communication from cover to cover, making sure that you fully understand how the document impacts the taxpayer and, if you disagree with that impact, how and when to reply to the communication.

12. Know your case’s status! Set ticklers and follow-up.

When dealing with IRS controversy matters, you, the practitioner, should take control and fully understand the procedural context of the case. Is the case in Appeals? Has the tax been assessed? Can an innocent spouse claim be timely filed? Can the taxpayer take advantage of a Collection Due Process Hearing or the equivalency hearing? Is your case nearing the expiration of the Statute of Limitations on IRS collections? Once you understand the procedural context, then set forth a plan of action and execute that plan.

Never just wait for the IRS to contact you. You should set ticklers and time lines for anticipated contacts. Depending upon your situation and your strategy, you may wish to push the case to a conclusion aggressively. If your hope is that the IRS will be quiet and go away, that should be a strategic decision, not as a result of indecision. At our office, after we have made contact with the IRS, we “tickler” a follow-up to check the status of the case. When the “tickler” pops up, we then decide whether contact with the IRS is appropriate and, if so, we decide upon the best manner of contacting the IRS.

For example, at the time we submit an offer in compromise package on behalf of a client to the IRS, we also set a tickler of 30 days to make certain that the case has been received and assigned. If we have heard nothing in that time frame, we call the OIC unit to which the case was sent (usually Holtsville, NY for us). After the call, we evaluate the discussion and set a new tickler.

Another example, would be securing an installment agreement. We monitor the case to ensure that the IRS is not placing levies or liens on the case while the request for an installment agreement is pending. Also, many clients wish to have some finality to their situation as quickly as possible. So, we will set ticklers and make contacts to keep the case moving along. After each conversation with the IRS we inquire on the best time to make contact again and use that information as one point of reference in setting the next tickler.

13. Confirm all examination computations through tax software.

In the past year, I have saved two clients thousands of dollars by merely running the tax examination results through our tax software. I had a ‘hunch’ on each matter that there were some errors in the initial return preparation or in the computations by the IRS. So, I ran the original return and the adjustments (as a 1040-X) through my tax software. I found that there were computational errors as a result of passive loss computations, the AMT, depreciation and net operating loss carryovers. (It should be noted that the original returns were not prepared by our firm.) The results were so significant that I have made it a rule to check the computations on all examinations. We also check the more complicated interest and penalty computations using a program by TValue entitled TaxInterest.

The first step is to make certain that we ensure that there were no errors in the original return. Through that process, you can discover and evaluate errors in the return, the correction of which will benefit your client. The complexity of the passive loss rules, the AMT and the combination of the two provide a significant opportunity for tax savings. Then we add the agreed-to changes in income to arrive at a revised tax liability.

The IRS will usually not have a problem correcting errors such as those described above. The settlements we reach with them are usually related to under-reported income or disallowed deductions. The ultimate tax is merely a computation. The IRS software for examinations does not have the sophistication of the IRS tax processing computers or our software. Accordingly, it is not unusual for the IRS to fail to pick-up a passive loss carryover, for example, which gets freed up with the disallowance of current year deductions on rental real estate.

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 This email address is being protected from spambots. You need JavaScript enabled to view it..