A Bold Plan - Unethical??

[Corduroy Frog]

For any of us willing to break the mold, or maybe break the rules of ethics...

IRS is getting further and further behind processing work that lags. In some cases, collection division is threatening to levy
taxpayers who don't even owe money, and are even entitled to refunds. But the collection division will not wait on the audit
division to catch up.

Are we willing to force the issue by claiming owed monies as estimated tax payments? I'll create a fictional scenario, and
will ask the forum whether this is proper, ethical, or whatever.

Steve got a CP2000 some 2-3 years ago for 2012. He failed to report the sale of Accor Hotels for $10,000. CP2000 has
assessed Steve for $3800, including penalties & interest. Steve responded to the CP2000 with an amended return for 2012,
as the assessment assumed Steve had no basis in the stock. Steve reported the sale for $10,000 as well as a basis of
$15,000, and requested a refund of $1800.

In the months (and years) since, Steve has heard nothing from his amended return. But he has heard plenty from the
collection division. He has contacted both the audit division and the collection division to no avail. The collection division
maintains they can't "make the audit division act on anything" and "all they know" is that Steve continues to owe $3800
plus more interest. Steve has managed to forestall levies by getting the collection people to continually extend deadlines.

Steve has been my client all along and continues to explain his fate. On his 2015 return, I plan to claim he has paid in
$1800 in estimated tax payments, which of course he has not. That way he recovers his $1800. Of course, IRS will notify
him that they have no record of his estimated tax payment, but at least he is able to get their attention. The discrepancy
is now on the plate of the dysfunctional audit division, and they will find it easier to resolve their mess than any other option.

What say ye? Bold confrontation to force the issue? Or unethical behavior?

[Uncle Sam]

A Bold Plan

Totally Unethical.

First of all- you didn't disclose whether or not he consulted you during this process.
Or whether you provided any services during this period of time.
Only that he acted on his own without documenting anything

What you're doing is compounding the problem.

[Roland Slugg]

You CAN'T be serious! Not only would that foolish ploy not work, it could very well subject YOU to preparer penalties under Code §6694.

Best plan is to continue what you've been doing and delay collection efforts while the IRS locates and processes the amended return. Remember, the taxpayer and his then-current tax preparer started this problem by not reporting that sale in the first place. The problem will eventually be resolved.

[geekgirldany]

Oh wow, no I would never think of doing such a thing. Yes the IRS is dragging it out but as Roland said keep putting it on hold. Better yet depending on how long it has gone on, contact the Taxpayer Advocates office to get involved.

[Corduroy Frog]

More on this

As bad as this may make me look, I've been his hypothetical preparer all along if that makes any difference for a hypothetical situation. The only thing done wrong was failure to report the sale in 2012. He neglected to give me the paperwork, but we summarily filed the amended return and even have a return mail receipt. The situation is fictitious, but let's pretend it's real for purposes of illustrating the problem.

Dany, the taxpayer advocate doesn't work anymore. They are even more backed up than the IRS. In defense of Nina Olsen, she has disclosed the plight of the taxpayer advocate office to congress every year, but congress responds by cutting the IRS staff even more.

Most of the responses (as I expected) think this is extremely unethical. But in the name of all that is fair, the IRS has no accountability and needs something to happen to get this fixed. What I propose is against the rules that are unfair to begin with, and I believe is not immoral any more than untying a fighter who has his hands tied behind his back.

Hypothetical, yes, but I have several real-life situations where the IRS is literally YEARS behind in their processing, and no one outside their walls can make them do a thing.

[DaveinTexas]

Amended Return

I've been scolded for this before, so I will commence with scolding you my friend.

Try not to forget this bit of advice as it may prevent these issues in the future. Don't file an amended return in response to a CP2000 letter. It will just confuse the IRS and, the processing of the amended return is up to the discretion of the IRS....so that means they can choose to process it or not. That may be what happened to your amended return.

I recommend only "preparing" the amended return, then include all of the affected schedules (Schedule D, Form 8949 and maybe Schedule A and B) with the CP2000 response. Write a simple letter (8th grade level only), be respectful in the letter, describe you don't agree with all of the changes, state the reasons why and what forms are affected. Include the forms affected with the CP2000 response and Fax the response to the IRS; this way you receive a confirmation of the receipt.

Don't go forward with your plan. Rather, call the IRS (the phone number on the CP2000). Ask for grace, tell them you tried to respond with an Amended Return and things got fouled up. You may be granted a 2nd opportunity to respond to the letter. If not, you will have to await the processing of the Amended Return OR file an Audit Reconsideration.

Good luck Mr or Mrs Frog.

[taxea]

If you are not getting or not liking the response from the IRS contact your hypothetical Advocate for help...Two wrongs don't make a right.

[Corduroy Frog]

I've been scolded for this before, so I will commence with scolding you my friend. Don't file an amended return in response to a CP2000 letter.
I recommend only "preparing" the amended return, then include all of the affected schedules (Schedule D, Form 8949 and maybe Schedule A and B) with the CP2000 response. Write a simple letter.

Rather, call the IRS (the phone number on the CP2000).
Good luck Mr or Mrs Frog.

The frog, as not told by the textile, is masculine. Thanks for your response, Dave, and no I don't mind the scolding - in fact I expected it.
But your post seems to assume I do none of your suggestions. For example, I never respond to a CP2000 without a letter to the point of origin and enclosure of an amended return, if appropriate. I do call the IRS phone # on the CP2000 and they may ask for a fax, at which point nothing further happens. I have employed all your suggestions at various points of my non-hypothetical issues.

And a modern phenomenon, which would not have occurred in the past: assessments are being turned over the collections after a sufficient time lapse, EVEN THOUGH we have raised objections with the audit division within the prescribed time period. The prescribed time periods seem to apply to taxpayers only -- they are not bound by ANY time limit.

[Gretel]

And a modern phenomenon, which would not have occurred in the past: assessments are being turned over the collections after a sufficient time lapse, EVEN THOUGH we have raised objections with the audit division within the prescribed time period. The prescribed time periods seem to apply to taxpayers only -- they are not bound by ANY time limit.

Frog, I do not have any further suggestions and I am not scolding you for your thoughts. I do understand your rage and I agree that something should be done.

[kathyc2]

I'd start w/ a call to the practitioner line to verify that amended return was received. It may be as simple as being lost in mail.

Unless you indicated on 1040X that you wanted the overpayment applied to 2014 return, showing it as such will overcomplicate the situation.

[JohnH]

Ron: I agree that the initial proposition is not workable, and could cause further problems. However, the true ethical lapse in this situation is the behavior of the IRS. Irrespective of budget cuts or any other interference by Congress, they are reacting by bringing the full force of their considerable power down on the taxpayers. They obviously want to create enough pain that a firestorm of complaints from taxpayers will demand that Congress restore (or increase) future budgets. These tactics and methods are beyond unethical - they are morally indefensible. This is a typical bureaucracy trying to assert its power when it is threatened.

If this behavior continues, our tax system is going to be perceived by most taxpayers as something worthy of a third world country rather than a developed nation. The tactic may actually backfire because it may actually create less compliance. Some people may come to the conclusion that it's better to avoid the system altogether rather than to get mistreated & abused once they are in its clutches.

[DaveinTexas]

Other Options

The frog, as not told by the textile, is masculine. Thanks for your response, Dave, and no I don't mind the scolding - in fact I expected it.
But your post seems to assume I do none of your suggestions. For example, I never respond to a CP2000 without a letter to the point of origin and enclosure of an amended return, if appropriate. I do call the IRS phone # on the CP2000 and they may ask for a fax, at which point nothing further happens. I have employed all your suggestions at various points of my non-hypothetical issues.

And a modern phenomenon, which would not have occurred in the past: assessments are being turned over the collections after a sufficient time lapse, EVEN THOUGH we have raised objections with the audit division within the prescribed time period. The prescribed time periods seem to apply to taxpayers only -- they are not bound by ANY time limit.

Here's your bold plan to stop IRS collection in its tracks:
1. File an OIC DATL (doubt as to collectibility); also a last resort. This is a more ethical approach to claiming estimated taxes that were never paid (akin to claiming federal income tax withheld on a W2 when the employee was responsible for paying over payroll taxes but didn't; responsible party). This could also be construed as fraud/theft, etc.

2. Audit Reconsideration. Usually, the IRS collection will be delayed during the Audit Recon process BUT it is not a guarantee. The OIC DATL will delay collection (not unreasonably or unetchically) and will provide the IRS with the facts necessary to rework the assessment.

1 of 2 things will happen.
1. The IRS will flip the OIC to the Audit Recon department. This may even cause the case to get turned over to a local RO, which would be handy so you can speak to a human within IRS you can reason with.
2. The IRS will work the OIC DATL (doubtful) and the assessment will be corrected.

Either way, you have slowed/stopped Collection activity whilst providing the IRS with the correct information. I know it is unacceptable that the IRS is not following proper protocol but who said life is fair? Plus, it will hammer into your head not to file an Amended Return in response to a CP2000. I hope that helps and no offense Mr. Frog.

[JohnH]

This is an interesting tactic. The OIC based on DATL is a reasonable response to an unreasonable practice by IRS. Plus, it gives the preparer more experience in dealing with OIC's, which might come in handyu when a true OIC situation presents itself.

One could make the offer for the tax liablity minus the cost of preparing the OIC. File and then wait & see what happens. If enough of these were subnmitted, IRS might get overhwelmed and start missing the 2-year deadline on some of them.

[Uncle Sam]

Another Suggestion

Why not present these facts to your IRS Stakeholder Liaison - not presenting the specific tax data -
but presenting the sequence of events that have occurred and the timeline involved?
Maybe then you'll get action.

[Corduroy Frog]

Thanks to all

These last few suggestions may really be helpful. For example, I didn't even know there was such a
thing as a "stakeholder liaison." Filing a DATL may get their attention as well, although if the taxpayer
is solvent it would probably serve as a device only.

Good suggestions.