While it sounds odd, agents of the Internal Revenue Service (IRS) sometimes assess tax penalties before checking with their supervisor first. The Taxpayer Advocate recently commented on the issue.
The process for assessment of tax penalties is a critical issue for taxpayers and businesses. In pursuit of its mandate to encourage accurate tax filings and the collection of federal revenue, the IRS can assess a penalty for any number of reasons, including the following:
- Failure to file tax returns, information returns, or offshore tax reports on time
- Filing a tax return that is not accurate
- Filing returns without the tax that is owed, or not submitting tax payments correctly
According to the IRS, when you have been assessed a penalty, you should receive a notice through the mail that identifies the event by number, describes the fine, and advises you of the next steps. It is your responsibility to review the letter and your tax situation carefully to ensure the penalty is appropriate. If you do not challenge the penalty or send the applied fine in full, you can be charged interest which continues to accrue until the total amount owing is paid.
Earlier this year, we talked about recommendations made by the Taxpayer Advocate Service (TAS) during their Annual Report to Congress. In August, TAS revisited a particularly egregious practice by the IRS of allowing the assessment of certain penalties without the approval of a supervisor. The courts have gone either way on the issue. The IRS recently proposed new rule-making around the issue and the TAS blogged its own comments in response:
- Under the proposed rules, the IRS would maintain considerable latitude in the timing of supervisory approval of penalties by IRS supervisors. TAS recommends that the IRS require approval of a proposed penalty before there is any communication with the taxpayer.
- If a taxpayer makes no reasonable effort to comply with tax laws, they may be charged a negligence penalty—which can be a stiff fine. Oftentimes, an IRS decision about whether a taxpayer makes an attempt to follow the rules is subjective. The IRS proposes that a supervisory review of negligence penalties only occurs if the taxpayer responds to a notice or challenges the penalty. TAS argues the IRS should require a baseline process for deciding on negligence penalties and that a supervisor review that process and decision.
A public hearing on the issue was held in early September of this year. The IRS will draw from hearing comments regarding its proposed rules. Although these processes are not well publicized, they are of importance to taxpayers of all income levels.
Disputing an action taken by the IRS requires a careful look at the action and any related penalties and interest. When large sums are disputed, getting the guidance and support of a tax attorney is a wise idea.
Contact our law firm if you are challenged by a tax litigation or charged with criminal tax fraud
The tax group at Robert J. Fedor, Esq., LLC helps you respond strategically to questions about taxes, failure to file tax returns, or your FBAR report. We serve local and international clients from offices in Chicago and Cleveland. Call 800-579-0997 or reach out to us today.
