I. REPRESENTING TAXPAYERS AGAINST THE IRS 

A. What is Tax Controversy.  Tax Controversy involves representing taxpayers in disputes with all divisions of the IRS.

A. What are the Divisions of the IRS?  The primary divisions of the IRS with which a tax controversy attorney deals are the Audit Division, The Collection Division, and the Criminal Investigation Division.

1.  The Audit Division.  Revenue Agents work in the audit division and are responsible for auditing the tax returns of taxpayers.  At the completion of the audit, the revenue agent will issue his Revenue Agent's Report (RAR) containing proposed adjustments.  If the Revenue Agent determines that an adjustment is proper the taxpayer has several forums in which to contest that liability.

a. File a Protest.  The revenue agent will send the taxpayer a 30 day letter advising the taxpayer of the adjustments to the return.  If the taxpayer agrees with the adjustments he can pay the tax.  If the taxpayer disputes the adjustments the taxpayer can file a protest within thirty days of receiving the 30 day letter.  The case will then be reviewed by the Appeals Division of the Internal Revenue Service.  The Appeals Officer has the authority to settle the case on behalf of the IRS and can either agree with all or a portion or none of the revenue agent's report and act accordingly.  If the Appeals Officer does not settle the case then the IRS issues a Statutory Notice of Deficiency that allows the taxpayer to file a petition in Tax Court.

a. Wait on a Statutory Notice of Deficiency.  The taxpayer does not have to file a protest upon receipt of the 30 day letter.  The taxpayer can choose to let the 30 day period lapse and wait for the IRS to send a Statutory Notice of Deficiency (also known as a 90 day letter).  Upon receipt of the Statutory Notice of Deficiency the taxpayer must file a Petition in Tax Court for a redetermination of his tax liability.  Even if a taxpayer chooses to file a Tax Court petition rather than a protest to a 30 day letter, the government sends the case to appeals to negotiate a possible settlement before trial.

a. Tax Court Trial.  A Tax Court trial is different from most trials. The Tax Court judges all sit in Washington D.C. but fly to various cities to hold court once or twice a year.  A Tax Court trial is a bench trial where the parties are required to stipulate to most, if not all, of the documents and evidence to which they can agree.  Only the disputed issues should actually be litigated.  At the completion of the trial the parties file briefs with the Tax Court.  Several months (and sometimes years) after the parties file briefs the Tax Court will issue its opinion.

a. Tax Court Appeals.  Appeals of the Tax Court decision are heard in the Circuit where the taxpayer resides.

1. The Collection Division.   Revenue Officers in the Collection Division are responsible for collecting assessed taxes.  Revenue Officers collect taxes that are determined in tax court (if the taxpayer does not pay after an adverse decision).  Types of matters handled by the Collection Division include:

a. Employment Tax Matters.  Employers who fail to file their employment tax returns (Forms 941 and 940) or fail to remit the correct tax liability reflected on those forms encounter Revenue Officers who attempt to collect the tax and penalties from the employer.

a. Trust Fund Penalties.  Responsible persons of employers who fail to remit the trust fund portion of the employment tax liability will have a 100% penalty assessed.  Revenue Officers are responsible for collecting the assessed penalty against those individuals.

a. Other Delinquent Taxes and Penalties.  Frequently individuals file returns without paying the liability.  Revenue Officers are responsible for collecting these taxes.

a. Liens and Levies.  Revenue Officers file liens against taxpayers who are delinquent in paying their taxes and levy on property owned by taxpayers to collect the revenue for the government.  Taxpayers are entitled to a collection due process hearing before the IRS issues liens and levies.

a. Offers in Compromise and Installment Agreements.  Revenue Officers in conjunction with collection activities may abate penalties or enter into a compromise of the tax liabilities.  In addition, even if the taxpayer fails to qualify for an offer-in-compromise the collection officer may agree to installment payments for paying liabilities over time.

1. The Criminal Investigation Division.  Special Agents within the Criminal Investigation Division investigate and prosecute criminal tax crimes.

a. Administrative Investigations.  Administrative investigations generally are referred when revenue agents in the audit division or revenue officers in the collection division see indications of fraud and refer the case to the criminal investigation division.  Administrative investigations may also be triggered by an angry spouse in a divorce or an angry partner is a business dissolution.

(1) At the conclusion of an administrative investigation the Special Agent will prepare a Special Agent's Report (SAR). Last year a taxpayer could request a review of the report with a District Counsel attorney who would have had the authority to decline to send the file on to the Justice Department for review.  Recently the IRS reorganized the criminal division and now the District Counsel attorney who reviews the file can make suggestions regarding the whether the case presents a good case for prosecution but can no longer stop the special agent from referring the case to the Justice Department for approval for prosecution.

(1) The Justice Department reviews and must approve every case for prosecution.  When the case is referred to the Justice Department the taxpayer will have an opportunity to present his defenses to the justice department.  The justice department can either decline prosecution or refer the case back to the local United States attorney for prosecution.

a. Grand Jury Investigations.   Sometimes the special agent can request that the Justice Department conduct a grand jury investigation of the tax offense.  In this situation the special agent conducts his investigation in conjunction with a federal prosecutor who runs the grand jury investigation. 

(1) At the end of a grand jury investigation, the special agent prepares his report (SAR) and the case is referred to the Justice Department for approval for prosecution.

(1)  The Justice Department can either decline prosecution or refer the case back to the U.S. attorney for prosecution.  Here again the taxpayer has an opportunity to meet with the Justice Department and present any defenses prior to the Justice Department's decision.

Money Laundering Offenses.  The Criminal Investigation Division is also in charge of monitoring cash transaction reporting offenses.  

DISCLAIMER