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U.S. Taxpayers With Secret Offshore Money Face New Risks And Options

U.S. Taxpayers With Secret Offshore Money Face New Risks And Options

IRS OVDP vs. Streamlined: What To Do?

IRS OVDP vs. Streamlined: What To Do?

Robert E. McKenzie’s 2014 Speaking Engagements



January 22, 2014


Winning Strategies LLC


January 28, 2014


U. S. Tax Agent Program


May 1, 2014

Chicago, IL

College of Law


May 13-14, 2014

Las Vegas, NV

Society of Enrolled


May 22-23, 2014

Wrightsville Beach, NC

North Carolina Society
Enrolled Agents


May 24, 2014

Chicago, IL

Lawyers Network


May 29-30, 2014

Reno, NV

Society of Enrolled


June 3, 2014

Chicago, IL – Webinar

Society of Accountants


June 5, 2014

Park City, Utah

of Enrolled Agents


June 10, 2014

Chicago, IL – Webinar

Society of Accountants


June 12, 2014

Baltimore, MD

Society of Tax Problem


June 13, 2014

Lake Geneva, WI



June 17, 2014

Washington, DC

Tax Talk Today


June 18, 2014


Publishing, Inc.


June 20, 2014

New York, NY

New York
University – SCPS


June 23-24, 2014

Fridley, MN

of Enrolled Agents


June 26, 2014

Los Angeles, CA

Society of Tax Problem


July 3, 2014

Chicago, IL



July 16, 2014

Long Island, NY



August 3-4, 2014

Las Vegas, NV

Practice Institute (NAEA)


August 6, 2014

St. Louis, MO



October 2, 2014

Chicago, IL – Webinar

Society of Accountants


October 21, 2014

Chicago, IL



October 23, 2014

Honolulu, HI

of Enrolled Agents


October 25-26, 2014

Catskills, NY

New York State
Society of Enrolled


October 28, 2013

Los Angeles, CA

of California


October 30, 2014

Chicago, IL – Webinar

Society of Accountants



November 3, 2014

Washington, DC

American Institute of


November 7, 2014


Phoenix, AZ


Arizona Society of CPAs



November 13, 2014


San Francisco, CA


Golden Gate Chapter of







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2-24-14 Robert E. McKenzie Quoted in Forbes on Jail Terms for Offshore Accounts

2-24-14 Robert E. McKenzie Quoted in Forbes on Jail Terms for Offshore Accounts


2013 Representation Update



By: Robert E. McKenzie



IRS Workforce

1.10    Because of Congressional cuts
in IRS budgets its workforce continued to shrink until 2008. In 2009 and 2010
the IRS had its budgets grow and its workforce grew. In 2011 the IRS budget was
frozen and its workforce shrank. In 2012 Congress stupidly cut the IRS budget
and its workforce shrank again.


IRS Staffing for Key
Enforcement Personnel

 2005  2006  2007  2008  2009  2010  2011  2012
5,249 5,627 5,662 5,492 5,451 6,042 5,619 5,186
12,192 12,778 12,816 12,599 12,958 13,888 13,867 13,021
2,771 2,780 2,709 2,631 2,650 2,780 2,698 2,661
Total 20,211 21,185 21,187 20,722 21,059 22,710 22,184 20,868


Preparer Regulation

1.20    In
January, 2010 based on the results of the Return Preparer Review, the IRS
recommended several steps it planned to implement for future filing seasons.
These steps were not in effect for the 2010 filing season.  As of the 2011 filing season all paid
preparers had to register for a PTIN.


IRS’ Tax Preparer Regulation in Jeopardy

1.30    In 2011, the IRS began its new regulations
mandating certain tax-return preparers—those who were not licensed attorneys,
CPAs, enrolled actuaries, or enrolled retirement plan agents—complete 15 hours
of continuing education each year and pass an initial qualifying exam before
they may lawfully prepare and file federal income tax returns for clients.  However, a recent court decision out of the
United States District Court for the District of Columbia, Loving v. IRS,
No. 12-385 (JEB) (D.D.C. Jan. 18, 2012), threatens the IRS’ ability to continue
preparer regulation.


IRS Barred From
Enforcing Preparer Regulation

1.40    The court in Loving enjoined the IRS
from enforcing this specialized education mandate because the United States
Department of the Treasury (the administrative body that oversees the IRS) did
not have the statutory authority to create such a regulation.  The IRS had justified its new examination and
education requirements through a statute that allows the IRS to “regulate the
practice of representatives of persons before the Department of the Treasury.”  31 U.S.C. § 330(a).  This statute allows the IRS to require such
representatives to meet certain levels of character, reputation,
qualifications, and competence.  Id.  The IRS’ position was that “practice”
included “preparing and signing tax returns and claims for refund.”  See, e.g., 31 C.F.R. § 10.3(f); id. §
10.2(a)(4) (noting that “practice” includes preparing and filing
documents).  Yet the Loving court turned
that approach on its head by concluding tax preparers do not “practice” before
the IRS by filing, signing, and sending tax returns.  The court reasoned that applicable statutes
themselves insist the term “practice” cannot include simply preparing tax
returns; the court found the above statutory language not permissive of the
IRS’ education requirements Loving, No. 12-385 (JEB), *10-12.


Additional Opinion

1.50    The Loving court issued an additional
opinion and order on February 1, 2013, clarifying and modifying its previous
injunctionLoving v. IRS, No. 12-385 (JEB)
(D.D.C. Feb. 1, 2013).  This order denied
the IRS’ attempt to stay the injunction pending its appeal; however, the court
modified the injunction such that the PTIN application and assignment system,
at its core, is not implicated (citing 26 U.S.C. § 6109(a)(4) for support that
the IRS’ preparer numeration system is congressionally supported), and that the
injunction has no relation to tax preparers not previously required to complete
the IRS education requirements.


Subject  to Appeal

1.60    The Loving
decision is subject to an appeal, and the IRS has already announced it plans to
appeal the decision:  But, as it stands today, the IRS’
“registered tax return preparer” regulatory scheme developed by
Circular 230 of 76 Fed. Reg. 32,286 is invalid because the IRS lacks the
statutory authority to create it, and the IRS is also permanently enjoined from
enforcing the scheme against any tax preparers.
Loving, No 12-385 (JEB), *21-22. The decision focused only on the
regulations over tax preparers required to complete continuing education
credits, but the court’s reasoning suggests that aspects of the IRS’ regulation
overall tax preparers might be invalid.  The
Loving decision suggests that anyone, by simply preparing and filing tax
returns, is not “practicing” before the Department of the Treasury such that
the IRS can require application or fee requirements before that individual may
submit tax returns, which means aspects of the PTIN application and renewal
process could be at risk.


Exemption for CPA’s,
EA’s & Lawyers

1.70    While attorneys, certified public accountants, enrolled agents, enrolled
actuaries, and enrolled retirement plan agents were not subject to IRS
continuing education requirements or self-certification during the registration
renewal process, they must complete continuing education to retain their
professional credentials


E-file Mandate

1.80    Tax return preparers who prepare 100 or more individual or trust returns
in 2011 will be required to e-file. Tax return preparers who prepare 10 or more
individual or trust returns in 2012 were be required to e-file. The IRS has
created form 8948 to states reasons a form must be filed in paper format.



National Taxpayer Advocate Releases Report
to Congress

2.10    In January 2013 National Taxpayer Advocate
Nina E. Olson released a report to Congress. Internal Revenue Code (IRC) §
7803(c)(2)(B)(ii)(III) requires the NTA to describe at least 20 of the most
serious problems encountered by taxpayers. Each of the most serious problems
includes the NTA’s description of the problem, the IRS’s response, and the
NTA’s final comments and recommendations. This format provides a clear picture
of which steps have been taken to address the most serious problems and which
additional steps the NTA believes are required. The problems described in the
report are:


1.         The Complexity of the Tax Code



The most serious problem facing taxpayers and the IRS is the complexity
of the Internal Revenue Code.


2.         The Alternative Minimum Tax Corrodes
Both the Tax System and the Democratic Process



The individual Alternative Minimum Tax (AMT) was originally enacted to
ensure wealthy persons paid at least some tax. Because the AMT is not indexed
for inflation, limited to high income taxpayers, or focused on tax loopholes,
however, it increasingly penalizes middle income taxpayers for having children,
getting married, or paying state and local taxes while allowing thousands of
millionaires to pay no tax at all. The AMT is complicated and burdensome, even
for those who are not subject to it. Many taxpayers must fill out the lengthy
AMT form only to find they owe little or no AMT.


3.         The IRS Is Significantly Underfunded to
Serve Taxpayers and Collect Tax



The significant and chronic underfunding of the IRS poses one of the
most significant long-term risks to tax administration today. Because of
funding shortages, the IRS cannot answer millions of taxpayer telephone calls
or timely process letters; the tax gap (i.e., the amount of tax due but
uncollected) stands at nearly $400 billion each year; taxpayers believe the tax
laws are not being fairly enforced against others; and the federal deficit is
unnecessarily large. Some taxpayer problems identified in this report result
from poor planning or execution, and it is important that the IRS not use lack
of funding as a justification for failing to address those problems. However,
the lack of sufficient funding is the sole or significant cause of many
taxpayer problems.



The National Taxpayer Advocate recommends that Congress (1) consider
revising the budget rules so the IRS is “fenced off” from otherwise applicable
spending ceilings and is funded at a level designed to maximize tax compliance,
particularly voluntary compliance, with due regard for protecting taxpayer
rights and minimizing taxpayer burden; and (2) keep in mind in allocating IRS
resources that tax compliance requires an appropriate balance between high
quality taxpayer service and effective tax-law enforcement, and funding should
be in a manner that allows the IRS to maintain such a balance.


4.         The IRS Has Failed to Provide Effective
and Timely Assistance to Victims of Identity Theft



Over the last few years, the number of tax-related identity theft
incidents has been growing rapidly. Within TAS, identity theft case receipts
have increased 650 percent from fiscal year (FY) 2008 to FY 2012. Organized
criminal gangs steal the Social Security numbers (SSNs) of other taxpayers,
file tax returns using those taxpayers’ names and SSNs, and obtain tax refunds.
Then, when the real taxpayer files a return claiming the refund, that return is
rejected and the victim cannot get his or her refund. To compound the problem,
because the IRS takes over six months, on average, to resolve stolen identity
cases, many victims are left exposed to identity theft-related problems the
following filing season. The IRS reports it is making progress in blocking
fraudulent claims and assisting victims, but as the problem grows, the IRS is
falling further and further behind.


5.         The IRS Harms Victims of Return
Preparer Misconduct by Failing to Resolve Their Accounts Fully



Unscrupulous tax return preparers sometimes change their clients’
returns without the clients’ knowledge or consent to obtain inflated refunds
and divert the extra money into their own bank accounts.  Return preparer
misconduct ties up IRS resources, drains the public fisc, and harms taxpayers.
When a return preparer diverts a taxpayer’s refund using an altered bank
routing number and obtains the funds using direct deposit, the taxpayer is
harmed, yet the IRS will not issue a refund to the taxpayer. Instead, the IRS’s
position has been the taxpayer’s sole recourse is to seek relief from the
return preparer or bank.


6.         Despite Some Improvements, the IRS
Continues to Harm Taxpayers by Unreasonably Delaying the Processing of Valid
Refund Claims that Happen to Trigger Systemic Filters



To combat refund fraud, the IRS has expanded using automated screens to
filter out questionable refund claims. In recent years, the IRS has seen large
spikes in the Questionable Refund Program (QRP) inventory, which requires
manual review. However, the IRS has not provided the Accounts Management
Taxpayer Assurance Program (AMTAP) the resources it needs to complete the
reviews on a timely basis. The result is that increasing numbers of legitimate
taxpayers are waiting excessive amounts of time for their refunds. The number
of legitimate tax returns ensnared in IRS anti-fraud filters has increased by
75 percent over the last three years, from 58,013 in 2010 to 101,678 in 2012.


7.         The IRS’s Compliance Strategy for the
Expanded Adoption Credit Has Resulted in Excessive Delays to Taxpayers, Has
Increased Costs for the IRS, and Does Not Bode Well for Future Credit



The adoption tax credit was created in1996 to encourage adoption and
help offset the potentially onerous costs associated with it. The Patient
Protection and Affordable Care Act increased the maximum credit amount and made
the credit fully refundable for 2010 and 2011. The changes to the credit caused
the IRS to alter its compliance strategy to focus almost exclusively on
minimizing improper payments and stopping potentially fraudulent claims. During
the 2012 filing season, 90 percent of returns claiming the refundable adoption
credit were subject to additional review to determine if an examination was
necessary. Despite Congress’ express intent to target the credit to low and
middle income families, the IRS created income-based rules that were
responsible for over one-third of all additional reviews in fiscal year 2012.
Sixty-nine percent of all adoption credit claims during the 2012 filing season
were selected for audit. The median refund amount involved in these audits is
over $15,000 and the median adjusted gross income (AGI) of the taxpayers
involved is about 64,000 for tax year (TY) 2011. The average adoption credit
correspondence audit takes 126 days, causing a lengthy delay for taxpayers
waiting for refunds. Of the $668.1 million in adoption credit claims in TY 2011
because of adoption credit audits, the IRS only disallowed $11 million — or one
and one-half percent — in adoption credit claims. However, the IRS has also had
to pay out $2.1 million in interest in TY 2011 to taxpayers whose refunds were
held past the 45 days allowed by law.


8.         The IRS Offshore Voluntary Disclosure
Programs Discourage Voluntary Compliance by Those who Inadvertently Failed to
Report Foreign Accounts



The Bank Secrecy Act (BSA) requires U.S. citizens and residents to
report foreign accounts on Form TD F 90–22.1, Report of Foreign Bank and
Financial Accounts (FBAR) so the government can better detect “bad actors”
engaged in tax evasion, terrorism, and money laundering. Beginning in 2009, the
IRS initiated a series of offshore voluntary disclosure (OVD) programs to
settle with taxpayers who had failed to report offshore income and file any
related information return such as the FBAR. These programs applied a
resource-intensive, burdensome, punitive, one-size-fits-all approach designed
for “bad actors” to “benign actors” who inadvertently violated the rules.
Benign actors were required to “opt out” to get a fair result — at the risk of
facing draconian penalties. Afraid to opt out, some paid more than they should
— extortion in their view. Others declined to address the problem. While an
estimated five to seven million U.S. citizens reside abroad, and many more U.S.
residents have FBAR filing requirements, the IRS received only 741,249 FBAR filings
in 2011, and as of September 29, 2012, it had received fewer than 28,000 OVD
submissions. Thus, OVD programs have both infringed taxpayer rights and failed
to address significant FBAR compliance problems.


9.         The IRS’s Handling of ITIN Applications
Imposes an Onerous Burden on ITIN Applicants, Discourages Compliance, and
Negatively Affects the IRS’s Ability to Detect and Deter Fraud



Any individual who has a tax return filing obligation but is not
eligible to obtain a Social Security number (SSN) must apply to the IRS for an
Individual Taxpayer Identification Number (ITIN). For years, the National
Taxpayer Advocate has raised concerns about ITIN policies and procedures,
including the recurring bottlenecks of ITIN applications during the peak tax season
and the associated strain on IRS resources inhibiting the ability to timely
detect and deter fraud. The IRS has taken a rather reactive approach to the
problems with its ITIN program. On June 22, 2012, in response to a Treasury
Inspector for Tax Administration (TIGTA) report, it abruptly required applicants
to submit only original documents or documents certified by the issuing agency,
and it suspended the certifying acceptance agent (CAA) program. This policy
change created an unprecedented burden to ITIN taxpayers without addressing tax
compliance concerns.


10.       The Preservation of Fundamental Taxpayer
Rights Is Critical as the IRS Develops a Real-Time Tax System



In the 2009 and 2011 Annual Reports to Congress, the National Taxpayer
Advocate wrote about the benefits of accelerated third-party information
reporting to both taxpayers and tax administration. In late 2011 and early
2012, the IRS held two public meetings to solicit suggestions and concerns from
external stakeholder regarding a potential real-time tax system (RTTS). As the
IRS continues to evaluate the idea of an RTTS, the National Taxpayer Advocate
has concerns regarding the type of compliance contact the IRS would make to the
taxpayer upon identifying a mismatch in information. We caution against the
expansion of math error authority to cover mismatched third-party data. In
addition, we believe that the IRS should provide taxpayers with electronic
access to the third-party data to assist taxpayers in return preparation and
develop a pre-populated return option for taxpayers.


11.       Overextended IRS Resources and IRS Errors
in the Automatic Revocation and Reinstatement Process Are Burdening Tax-Exempt



Over the past 18 months, the IRS notified over 440,000 organizations
their tax-exempt status had been automatically revoked because they failed to
file returns for three consecutive years. Over 18,000 organizations have
applied for reinstatement of exempt status, yet the increased workload is being
handled by fewer IRS employees. It now takes nine months for the IRS to assign
a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3)
of the Internal Revenue Code, to a reviewer, and the application process is
unnecessarily burdensome.  The IRS erroneously
treated thousands of organizations as having had their exempt status revoked,
and has no administrative review system that might avert or lessen the impact
of these errors.


12.       The IRS Telephone and Correspondence
Services Have Deteriorated Over the Last Decade and Must Improve to Meet
Taxpayer Needs



The IRS mission statement — “[p]rovide America’s taxpayers top quality
service by helping them understand and meet their tax responsibilities and
enforce the law with integrity and fairness to all” — reflects the obligation
of the agency to provide the means for all taxpayers to meet their tax
obligations. When the IRS cannot adequately answer taxpayers’ telephone calls
or correspondence, and sets declining expectations for performance, it cannot
execute its mission.


13.       The IRS Has Failed to Make Free Return
Preparation and Free Electronic Filing Available to All Individual Taxpayers



The IRS has not developed a comprehensive plan to give all individual
taxpayers the option to prepare and e-file their returns for free, despite the
existing array of return filing options currently available to “eligible”
taxpayers. Taxpayer Assistance Centers (TACs) increasingly turn away taxpayers
seeking return preparation assistance, directing them to Volunteer Income Tax
Assistance (VITA) and Taxpayer Compliance for the Elderly (TCE) sites and
online products offered by the Free File Alliance. The IRS relies on VITA for
return preparation but continues to give taxpayers inaccurate or incomplete
information about site locations. The IRS also provides tax software to
volunteer preparers embedded with a costly a commercial debit card product.


14.       The IRS Is Striving to Meet Taxpayers’
Increasing Demand for Online Services, Yet More Needs To Be Done



Taxpayers increasingly use online services to perform financial
transactions (and other tasks) in their daily lives. The IRS is striving to
meet this demand by developing more online products. We applaud the IRS and its
Office of Online Services (OLS) for developing popular self-assist tools and
using a research-based strategy. However, the IRS still has a long way to go,
albeit with limited resources, to provide the type of services taxpayers demand
and are accustomed to receiving from other sources, such as online account
access. While such projects would involve upfront development and
implementation costs, the IRS would realize savings in the short term from
decreased call volume and in the long term from improved tax compliance and a
reduction in costly enforcement contacts for basic issues.


15.       Challenges Persist for International
Taxpayers as the IRS Moves Slowly to Address Their Needs



In recent years, the IRS has devoted substantial resources to improving
international tax administration and responding to the challenges of
globalization. However, the IRS continues to focus on stepped-up enforcement
without adequate coordination and with no corresponding increase in service to
millions of individual international taxpayers. While international taxpayers
grapple with compliance challenges and inadequate service, the IRS has been
slow in taking specific steps to meet their needs and ease their compliance
burdens, saving scarce enforcement resources to address egregious
noncompliance. Problems include delays in developing specific recommendations
to improve international taxpayer service; the lack of a strategic plan to
address persistent compliance challenges; the absence of a timeline to
implement recommendations from a 2012 IRS research study; the insufficient use
of technology as a more efficient method of delivering services and providing
information (including virtual face-to-face (VFTF) assistance and online
services); and the lack of simplified filing and self-correction options for
international taxpayers.


16.       IRS Processing Flaws and Service Delays
Continue to Undermine Fundamental Taxpayer Rights to Representation



Taxpayers have a right to representation before the IRS and use Form
2848, Power of Attorney and Declaration of Representative, to appoint certified
public accountants (CPAs), attorneys, enrolled agents (EAs), or other
authorized persons to act on their behalf. The IRS receives the forms by mail,
fax, or electronic submission and processes them in various departments or the
Centralized Authorization File (CAF) units. However, if the CAF units do not
timely process Forms 2848, systems and employees that generate notices to
taxpayers cannot send these notices to the right representatives or addresses.
IRS employees also may assume the taxpayer is unrepresented and contact him or
her directly, or disclose information to an unauthorized representative, both
of which violate taxpayers’ fundamental rights to representation and privacy.
When the IRS fails to process Form 2848 properly, it effectively shuts the door
to the right to representation in the Code. .


17.       The IRS Lacks a Servicewide Strategy that
Identifies Effective and Efficient Means of Delivering Face-To-Face Taxpayer



Taxpayer Assistance Centers (TACs) provide the main means by which
taxpayers interact in person with IRS employees. While technological advances allow
taxpayers to interact in a virtual face-to-face platform with the IRS, the IRS
knows that a segment of taxpayers will always need to receive IRS services in a
face-to-face environment. Access to these advances or an unwillingness to try
these service delivery methods ensure that the IRS must maintain in person
services through TACs. The taxpayers least likely to use these types of services,
and to have any Internet access overall, constitute extremely vulnerable groups
that most need face-to-face services.


18.       The IRS Is Substantially Reducing Both
the Amount and Scope of its Direct Education and Outreach to Taxpayers and Does
Not Measure the Effectiveness of its Remaining Outreach Activities, Thereby
Risking Increased Noncompliance



The IRS’s commitment to its outreach and education programs, Stakeholder
Partnerships, Education and Communication (SPEC) and Stakeholder Liaison, has
eroded since the agency’s congressionally-mandated reorganization in 1998.
Neither program was ever fully staffed, and neither one has the geographic
presence originally envisioned. SPEC devotes most of its resources to return
preparation and provides outreach not directly related to return filing only if
another IRS division agrees to provide the funding. Stakeholder Liaison now has
only about 150 field employees, and has no stakeholder liaisons in 12 states.
Less than a third of its outreach is targeted directly to small businesses.


19.       A Proactive Approach To Developing a
Government Issued Debit Card to Receive Tax Refunds Will Benefit Unbanked



At least 17 million U.S. adults are unbanked, lacking any type of bank
account, while 51 million others are underbanked. The unbanked have no free
option to receive their tax refunds electronically. The Treasury Department
attempted to address this problem in the 2011 filing season when it launched a
debit card pilot program to issue refunds via prepaid cards to over 800,000
unbanked or underbanked taxpayers. After analyzing preliminary results,
Treasury ended the program due to low participation rates. However, the
National Taxpayer Advocate believes it is in the best interest of taxpayers and
tax administration to make a government-sponsored tax refund debit card
available nationwide. The IRS should evaluate the methodology of the pilot,
with particular focus on the findings and conclusions in a report by the Urban
Institute, to develop a more effective strategy. The National Taxpayer Advocate
raised concerns about incorporating the Western Union MoneyWise prepaid card
into the TaxWise preparation software used volunteer tax preparation sites. In
response, the IRS has committed to block the product in the software during the
2013 filing season and prohibit any future incorporation in the 2014 contract
with CCH.


20.       The Diminishing Role of the Revenue
Officer Has Been Detrimental to the Overall Effectiveness of IRS Collection



An imbalanced focus within the IRS Collection operation on automation,
centralization, and enforcement has undermined the service and
compliance-oriented components of the field-based Revenue Officer job. The IRS
does little to identify segments of the taxpayer population that would benefit
from timely, face-to-face contacts with skilled collectors, specifically
trained to address their problems in a service-oriented manner. Particularly
with tax debts involving small business taxpayers, the Revenue Officer’s skill
set should be recognized as critical to case resolutions in the best interests
of the taxpayers and the United States.


21.       The Automated Collection System Must
Emphasize Taxpayer Service Initiatives to Resolve Collection Workload More



The Automated Collection System (ACS) is a computerized inventory system
and group of telephone call centers. It routinely issues levies and files
Notices of Federal Tax Lien to generate taxpayer contact, rather than
initiating personal contact with taxpayers before taking enforcement action.
ACS spends just two percent of its time on outgoing calls ACS’s success at
collecting outstanding tax liabilities is limited. In fiscal year (FY) 2012,
ACS collected only seven percent of its $42.7 billion inventory and closed only
41 percent of its inventory. (This includes full pay accounts, installment
agreements accounts, and accounts have been placed in Currently Not Collectable
status.) Further, the ACS transfers more taxpayer accounts to other IRS functions
than it resolves. In FY 2012, the ratio of delinquent tax dollars transferred
to the Queue, a holding place for cases the IRS is not working, to the amount
collected by ACS was 4 1/2 to one. That is, ACS collected $2.8 billion but
transferred 1.17 million cases valued at $12.9 billion to the Queue.


22.       Although the IRS “Fresh Start” Initiative
Has Reduced The Number of Liens Filed, the IRS Has Failed To Determine Whether
its Lien-Filing Policies Are Clearly Supported by Increases in Revenue and
Taxpayer Compliance



In 2011, the IRS announced a new effort to help financially struggling
taxpayers get a “fresh start,” which included several positive changes in how
it files and withdraws NFTLs. While the initiative has had a significant impact
on the number of NFTL filings and withdrawals, the IRS still has not evaluated
the effectiveness of its lien policies for collected revenue or impact on
future compliance. The IRS continues to file most Notices of Federal Tax Liens
(NFTLs) based on an arbitrary dollar threshold of the unpaid liability, rather
than on a thorough analysis of the taxpayer’s individual circumstances and
financial situation. While NFTLs establish the priority of the government’s
interest in a taxpayer’s property, they are generating significant downstream
costs for the government, often without attaching to any tangible or intangible
assets. These policies continue to unnecessarily harm the financial viability
of taxpayers, especially those experiencing hardship.


23.       Early Intervention, Offers in Compromise,
and Proactive Outreach Can Help Victims of Failed Payroll Service Providers and
Increase Employment Tax Compliance



Most payroll service providers (PSPs) are trustworthy and play an
important role helping taxpayers comply with their payroll tax
responsibilities. Although rare, PSP failures can cause grave financial harm to
multiple clients that may be required to pay their payroll taxes twice, once to
the PSPs and again to the IRS with interest and penalties. Some small businesses
may not recover from these setbacks and may be forced to cease operations and
lay off their employees. The IRS made significant progress in addressing the
related issues identified in previous Annual Reports to Congress. Still,
serious problems persist, including the absence of early detection and timely
intervention in PSP delinquencies, ambiguous policies and procedures that limit
using Effective Tax Administration (ETA) offers in compromise (OICs) as a
viable collection alternative for victims of PSP failures, and ineffective
communications and outreach about the risks of outsourcing payroll tax





The Most
Litigated Tax Issues

2.20    IRC§7803(c)(2)(B)(ii)(X)
requires the NTA to identify the ten tax issues most often litigated in the
federal courts and to classify those issues by the category of taxpayer
affected. The following is a table the most litigated in 2011 as determined by

Litigated Issues

Outcomes for Pro Se and Represented


Source: IRS







Highlights of 2012 Enforcement

3.10    As a result of budget cuts the IRS has
decreased its enforcement efforts.  Overall,
enforcement revenue was less at $50.2 billion in 2012 because of decreased staffing.
It had reached $57.6 billion in 2010. IRS collected $48.9 billion in
enforcement revenue in 2009, Audit enforcement revenue decreased from $16.90
billion to $12.4 billion; Collection enforcement revenue decreased from $31.1 billion to $30.44
billion from 2011 to 2012.



Enforcement Revenue Collected

(Dollars in






















































Individual Enforcement

3.20    The
total number of audits of individual returns decreased in 2012. Those who
earned less than $200,000 had less than a 1 percent chance of being audited.
Those with incomes of $200,000 and more had more than a 3 percent chance of
being audited.


Millionaire Audits

3.30    During last year’s tax season, 30% of multimillionaires
making more than $10 million were audited, the agency said. Overall, just 1.03%
of individual income tax returns were checked. Taxpayers making an adjusted
gross annual income of $1 million or more are increasingly on the IRS’ radar –
in 2010, just 3.1% of them faced audits, according to a report from the agency.
While in 2012 3.7% faced an audit.









3.40    Overall, some of our most common enforcement tools at the
IRS also showed increases. The IRS filed 3.6 million levies in 2010, 3.7
million in 2011 and 2.9 million in 2012. It filed 1,096,376 liens in 2010,
1,042,230 in 2011 and 707,768 in 2012 as a result relaxed lien filing rules
announced in February, 2011 and decreased staffing.



Criminal Enforcement

3.50    Criminal enforcement went up even though the
IRS had fewer Special Agents.



















& indictments












State Information

3.60    The IRS is engaged in extensive information sharing with state tax
authorities which allows it to more effectively discover nonfilers and other
tax omissions. The IRS Fed/State Program saves government resources by
partnering with state government agencies to enhance voluntary compliance with
tax laws. This includes facilitating the exchange of taxpayer data, leveraging
resources, and providing assistance to taxpayers to improve compliance and


Federal Tax Returns and Return Information.

3.70    “Tax returns” include Form 1040, U.S.
Individual Income Tax Return, and other income tax and information returns,
such as Form 941, Employer’s Quarterly Federal Tax Return; Form 730, Tax on
Wagering; Form 1120, U.S. Corporation Income Tax Return; various Forms 1099,
U.S. Information Returns; and Form W-2, Wage and Tax Statement. The states
share similar return information with the IRS. Since states have extensive
information on business revenue on sales tax returns info is a valuable
resource for discovering nonfiling and underreporting.


Return Information

3.80    “Return
information” includes everything else that has anything to do with a person’s
potential tax liability. Examples are any information extracted from a return
like names of dependents, business location, or bank account information; the
taxpayer’s name, mailing address, or identification number; information on
whether a return has been or will be examined or subject to any other
investigation; information on transcripts of accounts or on IRS computer
systems; the fact of filing a return; and whether a taxpayer has a balance due


IRS Study Provides Tax Gap Estimate

3.90    Internal
Revenue Service officials previously announced their estimates of the Tax Year
2001 tax gap based on the National Research Program (NRP). The estimate of the
overall gross tax gap for Tax Year 2001 – the difference between what taxpayers
should have paid and what they actually paid on a timely basis – comes to $345


On January 6, 2012
the Internal Revenue Service released a new set of tax gap estimates for
tax year 2006.  The tax gap is defined as
the amount of tax liability faced by taxpayers not paid on time.


The new tax gap estimate represents the first full update of
the report in five years, and it shows the nation’s compliance rate is
essentially unchanged from the last review covering tax year 2001.


The tax gap statistic is a helpful guide to
the scale of tax compliance and to the persisting sources of low compliance,
but it is not an adequate guide to year-to-year changes in IRS programs or to
year-to-year returns on IRS service and enforcement initiatives.


Study Summary

3.100  The
following table summarizes the new estimates released in 2011, as compared to
the 2001 estimates, with the total tax liabilities in each year.


Tax Year 2001

(billions)Tax Year 2006

Tax Liabilities$2,112$2,660Gross
Tax Gap$345
(83.7% compliance)$450
(83.1% compliance)Enforcement
and Late Payments$55$65Net
Tax Gap$290
(86.3% compliance)$385
(85.5% compliance)


The voluntary compliance rate – the percentage of total tax
revenues paid on a timely basis — for tax year 2006 is estimated to be 83.1
percent. The voluntary compliance rate for 2006 is statistically unchanged from
the most recent prior estimate of 83.7 percent calculated for tax year 2001.


In Line With Total Tax Liabilities

3.110  Relatively,
the tax gap is largely in line with the growth in total tax liabilities.  Some growth in the tax gap estimate is
attributed to better data and improved estimation methods. For example, the IRS
developed a new econometric model for estimating the tax gap attributable to
small corporations which was then applied to newer operational data. Also,
large corporation tax gap estimates for 2006 are based on improved statistical
methods and updated data. Finally, the data related to individual income
taxpayers continues to improve based on improved estimation techniques and
newer data.


Tax Gap Components

3.120  The
tax gap can be divided into three components: non-filing, underreporting and


As was the case in 2001, the underreporting of income
remained the biggest contributing factor to the tax gap in 2006.
Under-reporting across taxpayer categories accounted for an estimated $376
billion of the gross tax gap in 2006, up from $285 billion in 2001. Tax
non-filing accounted for $28 billion in 2006, up from $27 billion in 2001.
Underpayment of tax increased to $46 billion, up from $33 billion in the
previous study.


Overall, compliance
is highest where there is third-party information reporting and/or
withholding.  Most wages and salaries are
reported by employers to the IRS on Forms W-2 and are subject to withholding. A
net of only 1 percent of wage and salary income was misreported. But amounts
subject to little or no information reporting had a 56 percent net misreporting
rate in 2006.



Table 1: Tax Gap Statistic, Tax Year 2006 Compared to Tax
Year 2001
[Money amounts are in billions of dollars]

Tax Gap



Estimated Total Tax Liability



Gross Tax Gap



Overall Voluntary Compliance Rate



Net Tax Gap *



Overall Net Compliance Rate



Nonfiling Gap



Income Tax



Estate Tax



Underreporting Gap



Individual Income









Deductions, Exemptions






Income Tax



Corporations (assets under $10M)



Corporations (assets of $10M or more)









FICA and
Unemployment Tax



Estate Tax



Underpayment Gap



Income Tax



Income Tax






Estate Tax



Excise Tax



* Net tax gap is defined as tax liabilities, incurred in
that year, that remain outstanding after IRS enforcement efforts.

2012 Budget

deal reached by House Republicans and President Obama in 2011 actually increased
the deficit. The IRS allocation is over $500 million below Obama’s request and
is 2 ½% below 2011, better than an additional $600 million in cuts that the
House Budget Committee originally pushed for, and which IRS Commissioner Doug
Shulman said would rob the Treasury of $4 billion in revenue. But the cut was
still costly. The IRS collected $5 billion less through enforcement activities
as a result of the budget cut.


2013 Budget

The Administration’s Fiscal Year (FY) 2013 Budget request for the IRS was
approximately $12.8 billion, a $944.5 million increase (8%) over the FY 2012
enacted level but only a $639.3 million increase (5.3%) from the level enacted
for FY 2011. A significant portion of the increase from FY 2012 represented the
Administration’s request to restore lost revenue resulting from reductions in
IRS funding made over the past two years. Since we have an ineffective Congress
no 2013 budget has been enacted and the IRS has had cutbacks as a result of the
sequester. Because of Congressional incompetence the IRS will once again
collect less revenue from enforcement activities this year.


Overview – Abusive Return Preparer

3.140  The IRS continues to expand and enhance its
abusive preparer program. The program was developed to enhance compliance in
the return-preparer community by engaging in enforcement actions and/or
asserting appropriate civil penalties against unscrupulous or incompetent
return preparers. Bad preparers are a significant problem for both the IRS and


Return preparer
fraud involves the preparation and filing of false income tax returns by
preparers who claim inflated personal or business expenses, false deductions,
unallowable credits or excessive exemptions on returns prepared for their
clients. This includes inflated requests for the special one-time refund of the
long-distance telephone tax. Preparers may also manipulate income figures to
obtain tax credits, such as the Earned Income Tax Credit, fraudulently.


Abusive Preparer


 2012  2011  2010
443 371 397
276 233 202
Indictments/Informations 202 176 182
Convictions 178 163 145
Sentenced 172 163 132
84.3% 87.1% 88.6%
Months to Serve
29 25 24


Audits of 30 Clients

3.160  Another aspect of
the IRS preparer program is identifying suspect preparers and audited their
clients. If during an examination a revenue agent suspects that some
deficiencies on a return were caused by the preparer he/she can refer the matter
to an area coordinator. After review the coordinator can initiate a project on
the preparer. The preparer is sent a letter notifying her that she has been
selected for a project and 30 of her client’s returns are audited. If
significant deficiencies are found then the IRS may choose one of several
courses of action including:


  • Referral to
    Criminal investigation
  • Referral to
    the office of professional liability
  • Preparer
  • Referral to
    Department of justice to seek an injunction ordering the preparer to cease
    filing tax returns.


Promotion of Form to Report Abusive Preparers

3.170  The IRS website now directs taxpayers and
others who spot abusive preparers to file Form 3949-A with the Service.




Examination Using
Social Media

4.10    News outlets reported in the spring of 2010
that the IRS is now training its revenue agents to gather information on
Facebook and other social media sites. The IRS documents state that employees may
not use false identities to scour social networking accounts while conducting a
probe into a taxpayer. Social networks can also be used to “provide
location information,” to “prove and disprove alibis” or to
“establish crime or criminal enterprise.” Some people disclose a
surprising amount of information about their finances on the sites including
employment and income info.


IRS Guidelines

4.20    The
IRS has set up the following guidelines for internet research on taxpayers:


You are required to conduct internet searches to determine taxpayer
ecommerce activities.


Generally, you are allowed to review information from publicly
accessible, unrestricted websites.


You are not permitted to:


Disclose sensitive information, such as a TlN, without authorization
from your manager.


Misrepresent your identity or obtain information from a website using a
fictitious identity to register.


Sign contracts on behalf of the government by assenting to online agreements.

IRS Use of Corr Exams

4.25    The IRS has significantly increased using
corr exams over the last decade. It has achieved its higher audit rate of
individual taxpayers primarily through expansion of corr exams. Between fiscal
year (FY) 2000 and FY 2011, face-to-face audits increased by 56 percent, from
251,108 to 391,621. Corr exams increased by 220 percent, from 366,657 to
  Impact of ACE on Individual Tax Return


Note: ACE stands for Automated Correspondence Exam.



Correspondence Examination (CCE)

4.30    Tax professionals responding to
Campus Correspondence Examination (CCE) telephone calls and/or correspondence
can take advantage of a new service beginning April 2. Tax professionals can
access the CCE Practitioner Priority Service by calling the PPS toll-free
number and selecting the Correspondence Examination option.


Additional prompts, based on the telephone
number on the letter they are calling about, will direct the call to the Small
Business/Self Employed Examination or Wage & Investment Examination
line.  CCE PPS will address up to five
clients per call and transfer or refer issues outside the CCE scope to the
appropriate IRS functions.


The PPS prioritizes calls to improve tax
professionals’ experiences.


PPS toll-free number: (866) 860-4259

Business/Self-Employed:  M – F, 7:00 a.m.
– 7:00 p.m., local time

& Investment:     M – F, 8:00 a.m. –
8:00 p.m., local time

and Hawaii – Pacific time


The CCE PPS number is for tax professional
use only.

The Dirty Dozen

4.40    Each year the IRS announces its Dirty Dozen and urges people to avoid
these common schemes: The 2013 list is:


Identity Theft

Tax fraud through identity theft tops
this year’s Dirty Dozen list. Identity theft occurs when someone uses your
personal information such as your name, Social Security number (SSN) or other
identifying information, without your permission, to commit fraud or other
crimes. Often, an identity thief uses a legitimate taxpayer’s identity to
fraudulently file a tax return and claim a refund.

Combating identity theft and refund
fraud is a top priority for the IRS, and it is assist victims. For the 2013 tax
season, the IRS has put in place several additional steps to prevent identity
theft and detect refund fraud before it occurs


The IRS continues to increase its
efforts against refund fraud, which includes identity theft. During 2012, the
IRS prevented the issuance of $20 billion of fraudulent refunds, including those
related to identity theft, compared with $14 billion in 2011. This January, the
IRS also conducted a coordinated and highly successful identity theft
enforcement sweep. The coast-to-coast effort against identity theft suspects
led to 734 enforcement actions in January, including 298 indictments,
informations, complaints and arrests. The effort comes on top of a growing
identity theft effort that led to 2,400 other enforcement actions against
identity thieves during fiscal year 2012. The Criminal Investigation unit has
devoted over 500,000 staff-hours to fighting this issue. The IRS has 3,000
people working on identity theft related cases – more than double the number in
late 2011. IRS has trained 35,000 employees who work with taxpayers to help
with identity theft situations.


2. Phishing

Phishing is a scam typically carried
out with the help of unsolicited email or a fake website that poses as a
legitimate site to lure in potential victims and prompt them to provide
valuable personal and financial information. Armed with this information, a
criminal can commit identity theft or financial theft. If you receive an
unsolicited email that appears to be from either the IRS or an organization
closely linked to the IRS, such as the Electronic Federal Tax Payment System
(EFTPS), report it by sending it to


3. Return Preparer Fraud

About 60 percent of taxpayers will use
tax professionals this year to prepare their tax returns. Most return preparers
provide honest service to their clients. But, some unscrupulous preparers prey
on unsuspecting taxpayers, and the result can be refund fraud or identity
theft. It is important to choose carefully when hiring an individual or firm to
prepare your return. This year, the IRS wants to remind all taxpayers they
should use only preparers who sign the returns they prepare and enter their IRS
Preparer Tax Identification Numbers (PTINs).


4. Hiding Income Offshore

Over the years, numerous individuals
have been identified as evading U.S. taxes by hiding income in offshore banks,
brokerage accounts or nominee entities, using debit cards, credit cards or wire
transfers to access the funds. Others have employed foreign trusts,
employee-leasing schemes, private annuities or insurance plans for the same
purpose. The IRS uses information gained from its investigations to pursue
taxpayers with undeclared accounts, and the banks and bankers suspected of
helping clients hide their assets overseas. The IRS works closely with the
Department of Justice (DOJ) to prosecute tax evasion cases.


While there are legitimate reasons for
maintaining financial accounts abroad, reporting requirements need to be
fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with
reporting and disclosure requirements are breaking the law and risk significant
penalties and fines, and the possibility of criminal prosecution. The IRS has
collected $5.5 billion so far from people who participated in offshore
voluntary disclosure programs since 2009.


5. “Free Money” from the IRS & Tax
Scams Involving Social Security

Flyers and advertisements for free
money from the IRS, suggesting the taxpayer can file a tax return with little
or no documentation, have been appearing in community churches around the
country. These schemes promise refunds to people who have little or no income
and normally don’t have a tax filing requirement – and are also often spread by
word of mouth as unsuspecting and well-intentioned people tell their friends
and relatives. Scammers prey on low income individuals and the elderly and
members of church congregations with bogus promises of free money. They build
false hopes and charge people good money for bad advice including encouraging
taxpayers to make fictitious claims for refunds or rebates based on false
statements of entitlement to tax credits.


For example, some promoters claim they
can obtain for their victims, often senior citizens, a tax refund or
nonexistent stimulus payment based on the American Opportunity Tax Credit, even
if the victim was not enrolled in or paying for college. Con artists also
falsely claim that refunds are available even if the victim schooled decades
ago. The victims discover their claims are rejected. Meanwhile, the promoters
are long gone.  There are also several tax
scams involving Social Security. Scammers have lured the unsuspecting with
promises of non-existent Social Security refunds or rebates. In another
situation, a taxpayer may really be due a credit or refund but uses inflated
information to complete the return.


6. Impersonation of Charitable

Another long-standing type of abuse or
fraud is scams that occur in the wake of significant natural disasters.
Following major disasters, it’s common for scam artists to impersonate
charities to get money or private information from well-intentioned taxpayers.
Scam artists can use a variety of tactics. Some scammers operating bogus
charities may contact people by telephone or email to solicit money or
financial information. They may even directly contact disaster victims and
claim to be working for or for the IRS to help the victims file casualty loss
claims and get tax refunds.


7. False/Inflated Income and Expenses

Including income never earned, either
as wages or as self-employment income to maximize refundable credits, is
another popular scam. Claiming income you did not earn or expenses you did not
pay to secure larger refundable credits such as the Earned Income Tax Credit
could have serious repercussions. This could cause repaying the erroneous
refunds, including interest and penalties, and sometimes, even prosecution. Some
taxpayers are filing excessive claims for the fuel tax credit. Farmers and
other taxpayers who use fuel for off-highway business purposes may be eligible
for the fuel tax credit.


8. False Form 1099 Refund Claims

Sometimes, individuals have made refund
claims based on the bogus theory that the federal government maintains secret
accounts for U.S. citizens and that taxpayers can gain access to the accounts
by issuing 1099-OID forms to the IRS. In this ongoing scam, the perpetrator
files a fake information return, such as a Form 1099 Original Issue Discount
(OID), to justify a false refund claim on a corresponding tax return.


9. Frivolous Arguments

Promoters of frivolous schemes encourage
taxpayers to make unreasonable and outlandish claims to avoid paying the taxes
they owe. The IRS has a list of frivolous tax arguments that taxpayers should
avoid. These arguments are false and have been thrown out of court.


10. Falsely Claiming Zero Wages

Filing a phony information return is an
illegal way to lower the taxes an individual owes. Typically, a Form 4852
(Substitute Form W-2) or a “corrected” Form 1099 is a way to improperly reduce
taxable income to zero. The taxpayer may also submit a statement rebutting
wages and taxes reported by a payer to the IRS. Sometimes, fraudsters even
include an explanation on their Form 4852 that cites statutory language on the
definition of wages or may include some reference to a paying company that refuses
to issue a corrected Form W-2 for fear of IRS retaliation.


11. Disguised Corporate Ownership

Third parties are improperly used to
request employer identification numbers and form corporations that obscure the
true ownership of the business. These entities can be used to underreport
income, claim fictitious deductions, avoid filing tax returns, participate in
listed transactions and facilitate money laundering, and financial crimes. The
IRS is working with state authorities to identify these entities and bring the
owners into compliance with the law.


12. Misuse of Trusts

For years, unscrupulous promoters have
urged taxpayers to transfer assets into trusts. While there are legitimate uses
of trusts in tax and estate planning, some highly questionable transactions
promise reduction of income subject to tax, deductions for personal expenses
and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits
promised and are used primarily to avoid income tax liability and hiding assets
from creditors, including the IRS. IRS has seen an increase in the improper use
of private annuity trusts and foreign trusts to shift income and deduct
personal expenses. As with other arrangements, taxpayers should seek the advice
of a trusted professional before entering a trust arrangement.




Strategic Priorities:

has set forth the following as its strategic priorities for 2013:


  • Increase taxpayer awareness of the
    Appeals process and their rights within the process


  • Increase taxpayer awareness of
    alternative dispute resolution programs


  • Improve our processes to meet customer
    needs and expectations and to reduce the length of the Appeals process
    while spending the right amount of time with each taxpayer


  • Promote employee productivity,
    engagement, and satisfaction




Appeals Program

5.20    The
campus appeals program diminishes taxpayer rights. Any appeal from a compliance
generated notice is assigned to the campus appeals program. The campus appeals
personnel are poorly trained and lack field experience. Their incompetence
starkly contrasts with the well trained experienced former revenue agents and
revenue officers assigned to the local appeals offices. When your client
receives a notice from a campus allowing an appeal your protest should always
request your client be given a face to face conference in your local


In October, 2010
TIGTA issued the following findings:


Campus Strategies – The shifting of work from field operations
to campus operations appears to affect the quality of Appeals decisions due to
the reduced number of face-to-face conferences, a campus environment is less
conducive to a careful, candid assessment of the case, and taxpayers assigned
to Appeals campus sites might perceive they are receiving second-class treatment.



5.30    Arbitration
is available for certain cases within Appeals jurisdiction that meet the
operational requirements of the program. This program is available for cases in
which a few factual issues remain unresolved following settlement discussions
in Appeals. Appeals and the taxpayer will be bound by the arbitrator’s
findings. The arbitration procedure uses the services of an arbitrator either
from Appeals or from an outside organization.


Refer to the following for more information:


IRS Formalizes Appeals Arbitration

Revenue Procedure 2006-44

Announcement 2008-111

IRM 8.26.6

IRM 35.5.5

Publication 4167 – Appeals -
Introduction to Alternative Dispute Resolution






Ernst & Young Pays a 123 Million
Criminal Fine

6.05    On March 1, 2013 Ernst & Young LLP will pay $123
million to resolve a U.S. tax-fraud probe as part of a non-prosecution
agreement, according to a statement by the Manhattan U.S. Attorney’s Office.
The accounting firm “admitted wrongful conduct” by its partners and employees
in connection with four tax shelters from 1999 to 2004, according to
yesterday’s statement. About 200 Ernst & Young clients used the shelters to
try to avoid more than $2 billion in taxes, prosecutors said.  In addition to the money and the admissions,
Ernst & Young agreed to a series of permanent restrictions on its tax
practice and will continue to cooperate with the government’s tax-shelter
investigation. The firm’s cooperation began in 2003. In exchange, prosecutors
agreed not to charge the firm in connection with the case. The non-prosecution
agreement doesn’t cover individual Ernst & Young partners and employees,
according to the statement.



6.10    The IRS Whistleblower Office pays money to
people who blow the whistle on persons who fail to pay the tax they owe. If the
IRS uses information provided by the whistleblower, it can award the
whistleblower up to 30 percent of the additional tax, penalty and other amounts
it collects.


Who can get an award?

6.20    The IRS may pay awards to people who provide
specific and credible information to the IRS if the information results in the
collection of taxes, penalties, interest or other amounts from the noncompliant
taxpayer. The IRS is looking for solid information, not an “educated guess” or
unsupported speculation. We are also looking for a significant Federal tax
issue – this is not a program for resolving personal problems or disputes about
a business relationship.


What are the rules for getting an award?

6.30    The law provides for two types of awards. If
the taxes, penalties, interest and other amounts in dispute exceed $2 million,
and a few other qualifications are met, the IRS will pay 15 percent to 30
percent of the amount collected. If the case deals with an individual, his or
her annual gross income must be more than $200,000. If the whistleblower
disagrees with the outcome of the claim, he or she can appeal to the Tax Court.
These rules are found at Internal Revenue Code IRC Section 7623(b) -
Whistleblower Rules.


Awards for Lower Dollar Amounts

6.40    The
IRS also has an award program for other whistleblowers – those who do not meet
the dollar thresholds of $2 million in dispute or cases involving individual
taxpayers with gross income of less than $200,000. The awards through this
program are less, with a maximum award of 15 percent up to $10 million. The awards
are discretionary and the informant cannot dispute the outcome of the claim in
Tax Court.  If you submit information and
seek an award for doing so, use IRS Form 211.


Largest Award

6.45    In
fiscal 2012, the last year for which the tax agency made data public, it
collected $592.5 million from taxpayers under the whistleblower program and
paid a record $125.3 million to 128 informants who helped break cases. The
largest of these awards went to Bradley Birkenfeld who received an award of
$104 million. Birkenfeld provided crucial evidence against UBS, a Swiss bank
that entered into a plea bargain in 2009 that resulted in it paying a $780
million fine for its illegal assistance to Americans secreting money in secret
Swiss accounts. . It also admitted to assisting 17,000 clients
evade their taxes through the use of offshore accounts between 2000 and 2007.
In July 2009, to avoid additional fines, UBS agreed to provide the names of
5,000 Americans who had offshore accounts with UBS. On June 19, 2008,
Birkenfeld pleaded guilty to a single count of conspiracy to defraud the United
States. On August 21, 2009, although the prosecution recommended 30 months,
Birkenfeld was sentenced by U.S. District Judge William Zloch to 40 months in prison. He served his sentence on
January 8, 2010. According to Reuters, Birkenfeld was released from prison in
August 2012. Soon after his release the IRS announced its whistleblower award.



Submissions                           Taxpayers Identified




















All Amounts
Collected and Awards Paid under 7623 FY 2008-201230

  2008 2009
2010 2011                  2012
3,704 5,67831 7,577 7,471 8,634
198 110 97 97 128
over $2,000,000
8 5 9 4 12
Amount of Awards

paid as a percentage of amounts collected


Misclassified Workers

6.50    Employees working for employers who failed to
withhold Social Security and Medicare taxes should use new Form 8919 to report
and pay their share of these taxes. This includes section 530 employees — that
is, people who work for employers claiming relief from federal payroll taxes
under section 530 of the Revenue Act of 1978. It also includes employees
treated as independent contractors but who have received a determination letter
from the IRS which states they are employees.


Workers who believe they are misclassified as independent contractors can
file Form SS-8 with the IRS and request a determination of their worker
classification. For employees, the Social Security tax rate is 6.2 percent and
the Medicare tax rate is 1.45 percent. Normally, employers withhold these taxes
from workers’ pay, match these amounts and turn over the combined amounts to
the IRS. Workers, properly classified as independent contractors, should not use
Form 8919 but instead, continue to use Schedule SE. IRS Publication 1779 has
further details on employee versus independent contractor status.


NRP Audits

6.60    In February 2010, the Internal Revenue Service
began its first Employment Tax National Research Project in 25 years. Business
practices regarding employment tax issues may have changed significantly since
the last IRS employment tax study in the 1980s, necessitating the need for this
study. Examinations comprising the study will be conducted to collect data that
will allow the IRS to understand the compliance characteristics of employment
tax filers. The results will allow the IRS to gauge more accurately the extent
to which businesses properly comply with employment tax law and related
reporting requirements. When completed, this information will help the IRS
select and audit future employment tax returns with the greatest compliance

The main goals for the ET NRP:


  • To secure statistically valid information for
    computing the Employment Tax Gap, and
  • To determine compliance characteristics so IRS can
    focus on the most noncompliant employment tax areas.
  • To determine the level of employment tax compliance
    by businesses


The IRS will randomly select 2,000 taxpayers each year for the next three
years. The examinations will be comprehensive in scope. The IRS will review
employee compensation issues, employee and executive benefits, backup
withholding and the proper characterization of employees vs. independent


Voluntary Classification Settlement Program

6.70    The Voluntary Classification
Settlement Program (VCSP) is a voluntary program described in Announcement
2011-64 (PDF) that provides an opportunity for taxpayers to reclassify their
workers as employees for employment tax purposes for future tax periods with
partial relief from federal employment taxes. To participate in this new
voluntary program, the taxpayer must meet certain eligibility requirements,
apply to participate in VCSP by filing Form 8952, Application for Voluntary Classification
Settlement Program, and enter into a closing agreement with the IRS.  The VCSP allows eligible taxpayers to obtain
relief similar to that available through the Classification Settlement Program
for taxpayers under examination.



6.80    The VCSP is available for
taxpayers who want to voluntarily change the prospective classification of
their workers. The program applies to taxpayers currently treating their
workers (or a class or group of workers) as independent contractors or other
nonemployees and want to prospectively treat the workers as employees.


A taxpayer must have consistently treated the workers as
nonemployees, and must have filed all required Forms 1099 for the workers to be
reclassified under the VCSP for the previous three years to participate in
VCSP. The taxpayer cannot currently be under audit by the IRS and the taxpayer
cannot be under audit concerning the classification of the workers by the
Department of Labor or by a state government agency.


If the IRS or the Department of Labor has previously audited
a taxpayer concerning the classification of the workers, the taxpayer will be
eligible only if the taxpayer has complied with the results of that audit.


Exempt organizations and Government entities may participate
in VCSP if they meet all of the eligibility requirements.


VCSP Agreements

6.90    A taxpayer participating in the
VCSP will agree to prospectively treat the class or classes of workers as
employees for future tax periods. In exchange, the taxpayer:


  • Will
    pay 10 percent of the employment tax liability that may have been due on
    compensation paid to the workers for the most recent tax year, determined
    under the reduced rates of section 3509(a) of the Internal Revenue Code.
    See Instructions to Form 8952;


  • Will
    not be liable for any interest and penalties on the amount; and


  • Will
    not be subject to an employment tax audit regarding the worker
    classification of the workers being reclassified under the VCSP for prior


As part of the VCSP program, taxpayer will agree to extend
the period of limitations on assessment of employment taxes for three years for
the first, second and third calendar years beginning after the date on which
the taxpayer has agreed under the VCSP closing agreement to begin treating the
workers as employees.


Applying for VCSP

6.100  To participate in the VCSP, a
taxpayer must apply using Form 8952, Application for Voluntary Classification
Settlement Program. The application should be filed at least 60 days from the
date the taxpayer wants to begin treating its workers as employees.


Eligible taxpayers accepted into the VCSP will enter into a
closing agreement with the IRS to finalize the terms of the VCSP, and will
simultaneously make full and complete payment of any amount due under the
closing agreement.




December 2012 Modifications

6.105  The VCSP, originally released in
Announcement 2011-64, has been modified in Announcement 2012-45 to:


•Permit a taxpayer under IRS audit,
other than an employment tax audit, to be eligible to participate in the VCSP

•Clarify the current eligibility
requirement that a taxpayer who is a member of an affiliated group within the
meaning of section 1504(a) is not eligible to participate in the VCSP if any
member of the affiliated group is under employment tax audit

•Clarify a taxpayer is not eligible
to participate if the taxpayer is contesting in court the classification of the
class or classes of workers from a previous audit by the IRS or Department of
Labor; and

•Eliminate the requirement that a
taxpayer agree to extend the period of limitations on assessment of employment
taxes as part of the VCSP closing agreement with the IRS.


Announcement 2012-45 (2012-51 I.R.B. 724) provides notice
and information about the revised program.


Temporary Eligibility Expansion

6.110  Those
employers that would otherwise qualify for the VCSP, but have not filed all of
the required Forms 1099 for the previous three years for the workers to be
reclassified, are eligible for the VCSP Temporary Eligibility Expansion.
However, the Temporary Eligibility Expansion is only available through June 30,
2013, and the employer must file the requisite Forms 1099 for past open years.
After the employer submits the Temporary Eligibility Expansion application, the
IRS will review the application and confirm eligibility, then contact the
employer to enter into a closing agreement. The employer also must pay the full
amount due under the Temporary Eligibility Expansion when the employer returns
the signed Temporary Eligibility Expansion closing agreement to the IRS, and to
agree to treat the class of workers identified in the application as employees
for future tax periods. Employers that apply under the Temporary Eligibility
Expansion may obtain similar relief to those under the VCSP, but must instead
pay 25 percent of the employment tax liability along with certain other
requirements. The employer under either program is not liable for interest and
penalties on the employment tax liability and is not subject to an employment
tax audit regarding the worker classification for prior years.


Offshore Accounts

6.115  On February 18, 2009 UBS AG, Switzerland’s
largest bank, IRS announced it had entered into a deferred prosecution
agreement on charges of conspiring to defraud the United States by impeding the
Internal Revenue Service (IRS),.



6.120  As part of the deferred prosecution agreement
and in an unprecedented move, UBS, based on an order by the Swiss Financial
Markets Supervisory Authority (FINMA), has agreed to immediately provide the
United States government with the identities of, and account information for,
certain United States customers of UBS’s cross-border business. Under the
deferred prosecution agreement, UBS agreed to expeditiously exit the business
of providing banking services to United States clients with undeclared
accounts. As part of the deferred prosecution agreement, UBS further agreed to

pay $780 million in fines, penalties, interest and restitution.


Many Taxpayers and
Bankers Criminally Charged

6.130  Since the announcement of the UBS plea bargain
the IRS has indicted many taxpayers from all parts of the country for not
reporting their offshore accounts. Most have pleaded guilty and been sentenced.
Taxpayers with unreported foreign accounts continue to face prosecution absent
a voluntary disclosure of the accounts to the IRS. Latest IRS reports assert
that over 80 individuals have been indicted as a result of the new offshore
enforcement initiative.


Offshore Voluntary Disclosure Initiative

6.140  Since 2009, 40,000 individuals have
come forward voluntarily to disclose their foreign financial accounts, taking
advantage of special opportunities to bring their money back into the U.S. tax
system and resolve their tax obligations. And, with new foreign account
reporting requirements being phased in over the next few years, hiding income
offshore will become increasingly more difficult.


2012 Offshore Voluntary Disclosure Program

6.150  At the beginning of this year, the
IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following
continued strong interest from taxpayers and tax practitioners after the
closure of the 2011 and 2009 programs. The IRS has collected $3.4 billion so
far from people who participated in the 2009 offshore program, reflecting
closures of about 95 percent of the cases from the 2009 program. On top of
that, the IRS has collected an additional $1 billion from upfront payments
required under the 2011 program.  That
number will grow as the IRS processes the 2011 cases.


Avoid Criminal Charges

6.160  In exchange for participating in
the OVDP, taxpayers with undisclosed offshore accounts avoid criminal
prosecution for their unpaid taxes and were required to pay significant

penalties. [Generally, the civil penalty for willfully failing to file an FBAR
can be as high as the greater of $100,000 or 50 percent of the total balance of
the foreign account per violation. See 31 U.S.C. § 5321(a)(5).]



6.170  Under the 2012 OVDP, taxpayers
are subject to a 27.5 percent penalty on the highest aggregate account balance
on their undisclosed account(s) between the 2004 and 2011. If the value of the
undisclosed account(s) was less than $75,000 at all times during the tax years
in question, the penalty is reduced to 12.5 percent.  In limited situations, a penalty of 5% may be
imposed.  Taxpayers who believed they
could establish they were not willful may opt out of the penalty regime but if
their arguments are not accepted by the IRS they face higher penalties.


Opt Out Option

6.180  A taxpayer who opts out of OVDP
will be taking a risk. Upon opting out of OVDP the taxpayer’s case will be
assigned to another unit of the IRS. That unit will review the taxpayer’s
explanation of her failure to file and report foreign accounts. If the IRS
finds the taxpayer was merely negligent in her failure to report the accounts,
it will assert a much lower negligence penalty. If it finds that the taxpayer
willfully failed to report the account the IRS will assert a much higher 50%
fraudulent failure to file FBAR penalty. It might also assert the 75% fraud
penalty on the underreported income taxes due on the return. Therefore a
taxpayer should not opt out without first reviewing all of the facts and
circumstances that gave rise to her omission with your tax professional. If
there is any danger that the IRS might assert fraud the taxpayer should not opt



6.190  The OVDP is open to taxpayers,
including individuals, corporations, partnerships and trusts. Taxpayers under
examination or under criminal investigation, however, are ineligible to
participate in the program. Unlike its two prior disclosure programs the IRS
has not set a deadline for the 2012 OVDP.


Quiet Disclosures

6.200  Taxpayers that have made “quiet
disclosures” by filing amended returns and paying related tax and interest for
previously unreported offshore income without otherwise notifying the IRS are
encouraged to participate in the OVDI. Taxpayers that make quiet disclosures
without seeking the protection of the OVDI risk being examined and potentially criminally
prosecuted for all applicable years.


New Program for Non-Resident U. S. Nationals

6.201  The Service has announced a new
procedure for current non-residents including, but not limited to, dual
citizens who have not filed U.S. income tax and information returns to file
their delinquent returns. This procedure went in to effect on Sept. 1, 2012.


Description of New Procedure

6.202  Taxpayers utilizing the new
procedure must file delinquent tax returns, with appropriate related
information returns, for the past three years and to file delinquent FBARs for
the past six years. All submissions are reviewed, but, the intensity of review
will vary according to the level of compliance risk presented by the
submission. For those taxpayers presenting low compliance risk, are expedited
and the IRS will not assert penalties or pursue follow-up actions. Submissions
that present higher compliance risk are not eligible for the procedure and are
subject to a more thorough review and possibly a full examination, which sometimes
may include over three years, in a manner similar to opting out of the Offshore
Voluntary Disclosure Program. Tax, interest and penalties, if appropriate, are
imposed under U.S. federal tax laws based on a review of the submission.


Compliance Risk

6.203  The IRS will determine the level of
compliance risk presented by the submission based on certain information
provided on the returns filed, and based on certain additional information
required as part of the submission. Low risk determinations are predicated on
simple returns with little or no U.S. tax due. Absent high risk factors, if the
submitted returns and application show less than $1,500 in tax due in each of
the years, they are treated as low risk. The risk level will rise as the income
and assets of the taxpayer rise, if there are indications of sophisticated tax
planning or avoidance, or if there is material economic activity in the United
States. Additional risk factors include any additional history of noncompliance
with United States tax law and the amount and type of United States source
income. Additional information regarding the specific factors the IRS will use
to assess the level of compliance risk, and how information regarding those
factors should be in the submission, are released prior to the effective date
of the new procedure.


Procedure for New Program

6.204  Taxpayers wishing to use the new
procedure must submit:


(1)  delinquent
tax returns, with appropriate related information returns, for the past three


(2)  delinquent
FBARs for the past six years, and


(3)  any additional
information regarding compliance risk factors required by future instructions.
Payment of any federal tax and interest due must accompany the submission. More
information about the application process including where submissions should be
sent, are provided prior to the effective date.


Any taxpayer claiming reasonable cause for failure to file
tax returns, information returns, or FBARs must submit a dated statement,
signed under penalties of perjury, explaining why there is reasonable cause for
previous failures to file. See IRS Fact Sheet FS-2011-13 (December 2011) for
examples of reasonable cause. Any taxpayer seeking relief for failure to timely
elect deferral of income from certain retirement or savings plans where
deferral is permitted by relevant treaty must submit:


a statement requesting an extension of
time to make an election to defer income tax and identifying the pertinent
treaty position;


for relevant Canadian plans, a Form 8891
for each tax year and description of the type of plan covered by the
submission; and a statement describing:


  • the events that led to failing to make the
  • the events that led to the discovery of the
    failure, and
  • if the taxpayer relied on a professional
    advisor, the nature of the advisor’s engagement and responsibilities.



Other Considerations:

6.205  Taxpayers in a situation where they
are concerned about the risk of criminal prosecution should be advised this new
procedure does not provide protection from criminal prosecution if the IRS and
Department of Justice determine that the taxpayer’s particular circumstances
warrant such prosecution. Taxpayers concerned about criminal prosecution
because of their particular circumstances should be aware of and consult their
legal advisers about the Offshore Voluntary Disclosure Program (OVDP),
announced on January 9, 2012. Taxpayers ineligible to participate in OVDP are
also ineligible to participate in this procedure.


Identity Theft

6.210  Identity theft is becoming a huge problem for
the tax system. This year the IRS has established additional screening to
reduce identity theft. Many taxpayers’ refunds were delayed. The IRS has
established an office for reporting identity theft using stolen SSN’s. Their
employers report that income to the IRS on W-2’s and the income is attributed
to the theft victim.  Two scenarios are
most common:


  • The taxpayer receives an audit notice from the IRS
    showing he is working several jobs in many states or;
  • The taxpayer attempts to file a return and it is
    rejected by the IRS because someone has already filed a return using the
    taxpayers SSN.


The IRS website now gives taxpayers who are the victims of identity
theft the following advice:


Identity Theft and Your Tax Records

The IRS does not initiate communication with
taxpayers through e-mail. Before identity theft happens, safeguard your


What do I do if the IRS contacts me because of a tax issue that may have
been created by an identity theft?


If you receive a notice or letter in the mail from
the IRS that leads you to believe someone may have used your Social Security
number fraudulently, please respond immediately to the name, address, and/or
number printed on the IRS notice.


Be alert to possible identity theft if the IRS issued notice or letter:


  • states more than one tax return was filed for you,
  • indicates you received wages from an employer
    unknown to you.
  • An identity thief might also use your Social
    Security number to file a tax return to receive a refund. If the thief files
    the tax return before you do, the IRS will believe you already filed and
    received your refund if eligible.


If your Social Security number is stolen, it may be
used by another individual to get a job. That person’s employer would report
income earned to the IRS using your Social Security number, making it appear
you did not report all of your income on your tax return.


If you have previously been in contact with the IRS
and have not achieved a resolution, please contact the IRS Identity Protection
Specialized Unit, toll-free at 1-800-908-4490.


What do I do if I have not been contacted by IRS for a tax issue but
believe I am a victim of identity theft?


If your tax records are not currently affected by
identity theft, but you believe you may be at risk due to a lost/stolen purse
or wallet, questionable credit card activity, credit report, or other activity,
you need to provide the IRS with proof of your identity.


Submit a copy, not the original documents, of your
valid Federal or State issued identification, such as a social security card,
driver’s license, or passport, etc, with a copy of a police report or Federal
Trade Commission Identity Theft Affidavit. If the FTC Affidavit is not
notarized, a witness (non-relative) must sign it.


Please send these documents using one of the
following options:


Mailing address:

Internal Revenue

P.O. Box 9039

Andover, MA


FAX: Note this is not a toll-free FAX number



Form 14026 is available as a cover sheet for submitting
your documentation.


You may also contact the IRS Identity Protection
Specialized Unit
, toll-free 1-800-908-4490 for guidance.


Hours of Operation: Monday – Friday, 8:00 a.m. –
8:00 p.m. your local time (Alaska & Hawaii follow Pacific Time).


Redress number

6.220  Taxpayers who report an identity theft will be
given a redress number by the IRS to be used with filing future tax returns.


IRS Hotlines and
Toll-Free Numbers

IRS Telephone Lines and Hours of Operation

 Service Telephone number Hours of operation
Practitioner Priority
(866) 860-4259 M–F, 8:00 a.m.–8:00 p.m., local time
IRS Tax Help Line for
(800) 829-1040 M–F, 7:00 a.m.–10:00 p.m., local time
Business and Specialty
Tax Line
(800) 829-4933 M–F, 7:00 a.m.–10:00 p.m., local time
e-Help (Practitioners
(866) 255-0654 M–F, 6:30 a.m.–6:00 p.m., CT

(non-peak period)M-F, 6:30 a.m.–10:00 p.m, CT (1/12/2007 – 4/27/2007) and
Saturdays 6:30 a.m. – 4:00 p.m., CT (1/12/2007 – 4/27/2007)Identity Protection Specialized Unit1-800-908-4490M – F, 8:00 a.m. – 8:00 p.m. local timeRefund Hotline(800) 829-1954Automated service is available 24/7Forms and Publications(800) 829-3676M–F, 7:00 a.m–10:00 p.m., local timeNational Taxpayer
Advocate Help Line
(877) 777-4778M–F, 7:00 a.m.–10:00 p.m., local timeTelephone Device for the
Deaf (TDD): Forms, Tax Help, TAS
(800) 829-4059M–F, 7:00 a.m.–10:00 p.m., local timeElectronic Federal Tax
Payment System
(800) 555-447724/7Government Entities
(TEGE) Help Line
(877) 829-5500M–F, 8:30 a.m. – 4:30 p.m., ETTeleTax Topics and Refund
(800) 829-447724/7Forms 706 and 709 Help
(866) 699-4083M–F, 7:00 a.m.–7:00 p.m., local timeEmployer Identification
Number (EIN)
(800) 829-4933M–F, 7:00 a.m.–10:00 p.m., local timeExcise Tax and Form 2290
(866) 699-4096M–F, 8:00 a.m.–6:00 p.m., ETInformation Return
(866) 455-7438M–F, 8:30 a.m.–4:30 p.m., ET

More Resources Dedicated to Identity Theft

6.225  By late 2012, the IRS assigned over 3,000 IRS
employees — over double from 2011 — to work on identity theft-related issues.
IRS employees are working to prevent refund fraud, investigate identity
theft-related crimes and help taxpayers victimized by identity thieves. The IRS
has trained 35,000 employees who work with taxpayers to recognize identity
theft indicators and help people victimized by identity theft.


Form 8938 Statement of
Specified Foreign Financial Assets

6.230  Form
8938 (Statement of Specified Foreign Financial Assets) must be filed by
taxpayers with specific types and amounts of foreign financial assets or
foreign accounts. It is important for taxpayers to determine whether they are
subject to this new requirement because the law imposes significant penalties
for failing to comply.

Form 8938 filing requirement was enacted in 2010 to improve tax compliance by
U.S. taxpayers with offshore financial accounts. Individuals who may have to
file Form 8938 are U.S. citizens and residents, nonresidents who elect to file
a joint income tax return and certain nonresidents who live in a U.S.

8938 is required when the total value of specified foreign assets exceeds
certain thresholds.  For example, a married couple living in the U.S. and
filing a joint tax return would not file Form 8938 unless their total specified
foreign assets exceed $100,000 on the last day of the tax year or more than
$150,000 at any time during the tax year.

thresholds for taxpayers who reside abroad are higher. For example in this
case, a married couple residing abroad and filing a joint return would not file
Form 8938 unless the value of specified foreign assets exceeds $400,000 on the
last day of the tax year or more than $600,000 at any time during the year.

New Preparer Complaint

6.240  In
2011IRS has released a new preparer complaint Form 14157.


Supreme Court
Rules for Taxpayer on 3 Year Statute of Limitations for Audits

6.250  In April 2012 the U.S. Supreme Court affirmed
the Fourth Circuit’s decision in Home Concrete & Supply, LLC, which had
ruled that the extended six-year statute of limitation under Sec.
6501(e)(1)(A), which applies when a taxpayer “omits from gross income an amount
properly includible” in excess of 25% of gross income does not apply when a
taxpayer overstates its basis in property it has sold (Home Concrete &
Supply, LLC, Sup. Ct. Dkt. No. 11-139 (U.S. 4/25/12), aff’g 634 F.3d 249 (4th
Cir. 2011)). The Supreme Court’s decision resolves a split in the courts, with
most appellate courts and the Tax Court having held that overstating basis does
not extend the statute. It does not answer clearly, however, the more
controversial question involved in the case: whether courts should defer to
administrative interpretations of the law. In 2010, the IRS issued Regs. Sec.
301.6501(e)-1(a)(1)(iii), which states that “an understated amount of gross
income resulting from an overstatement of unrecovered cost or other basis
constitutes an omission from gross income.” The regulation has been widely
criticized as an overreach by the IRS in its attempt to overrule the courts’
interpretation of the statute.




New Collection Procedures Announced

7.10    On February 24, 2011 IRS announced new policies and programs to
help taxpayers pay back taxes and avoid tax liens. IRS’s stated goal is to help
individuals and small businesses meet their tax obligations, without adding an
unnecessary burden to taxpayers.


Over the past several years as taxpayers have endured the Great
Recession the IRS has escalated the number of federal tax liens filed against
delinquent taxpayers. The IRS aggressive use of liens has been criticized by
the National Taxpayer Advocate in her annual report to congress and the IRS
Advisory Council in its annual report to the Commissioner.


More Flexible Attitude

7.20    The newly announced policy represents a new, more flexible
attitude by the IRS. The IRS making important changes to its lien filing
practices that will lessen the negative impact on taxpayers. The changes


  • Significantly
    increasing the dollar threshold when liens are issued, resulting in fewer
    tax liens.


  • Making
    it easier for taxpayers to obtain lien withdrawals after paying a tax


  • Withdrawing
    liens where a taxpayer enters into a Direct Debit Installment Agreement.


  • Creating
    easier access to Installment Agreements for more struggling small


  • Expanding
    a streamlined Offer in Compromise program to cover more taxpayers.


Higher Lien Thresholds

7.30    The IRS stated it will significantly increase the dollar
thresholds when liens are filed. The new dollar amount is in keeping with
inflationary changes since the number was last revised. Currently, liens are
automatically filed at certain dollar levels for people with past-due balances.
The new lien thresholds raise the amount from $5,000 to $10,000. T


Easier Lien Withdrawals

7.40    The IRS will also modify procedures that will make it easier for
taxpayers to obtain lien withdrawals. Liens will now be withdrawn once full
payment of taxes is made if the taxpayer requests it. The IRS has determined
this approach is in the best interest of the government. To speed the
withdrawal process, the IRS will also streamline its internal procedures to
allow collection personnel to withdraw the liens.


Debit Installment Agreements and Liens

7.50    The IRS is making other fundamental changes to liens where taxpayers
enter into a Direct Debit Installment Agreement (DDIA). For taxpayers with
unpaid assessments of $25,000 or less, the IRS will now allow lien withdrawals
under several scenarios:


  • Lien
    withdrawals for taxpayers entering into a Direct Debit Installment


  • The
    IRS will withdraw a lien if a taxpayer on a regular Installment Agreement
    converts to a Direct Debit Installment Agreement.


  • The
    IRS will also withdraw liens on existing Direct Debit Installment
    Agreements upon taxpayer request.


Liens will be withdrawn after a probationary period demonstrating
direct debit payments will be honored. Taxpayers can use the Online Payment
Agreement application on to set-up with Direct Debit Installment


Rules For Installment Agreements For Small Businesses

7.60    The IRS will also provide streamlined Installment Agreements to
more small businesses. The payment program will raise the dollar limit to allow
additional small businesses to participate. Small businesses with $25,000 or
less in unpaid tax can participate.  Previously, only small businesses with under
$10,000 in liabilities can participate. Small businesses will have 24 months to


The streamlined Installment Agreements will be available for small
businesses that file either as an individual or as a business. Small businesses
with an unpaid assessment balance greater than $25,000 would qualify for the
streamlined Installment Agreement if they pay down the balance to $25,000 or


in Compromise

7.70    The IRS is also expanding a new streamlined Offer in Compromise
(OIC) program to cover a larger group of struggling taxpayers. This streamlined
OIC is being expanded to allow taxpayers with annual incomes up to $100,000 to
participate. Participants must have tax liability of less than $50,000,
doubling the current limit of $25,000 or less.


OICs are subject to acceptance based on legal requirements. .An offer
will not be accepted if the IRS believes that the liability can be paid in full
as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s
income and assets to determine the taxpayer’s ability to pay.


Revised Rules for Streamlined Installment Agreements

7.75    In
January 2012 the RS relaxed its
rules for payment of smaller tax liabilities. The revised procedures now allow
taxpayers up to 72 months to pay
their tax obligations. The new procedures also increase the maximum amount
subject to the relaxed streamlined agreements from $25,000 to $50,000.

could request a monthly installment plan by submitting Form 9465-FS if your
liability was greater than $25,000 but not more than $50,000. The Form 9465-FS
was meant to be used by taxpayers with liabilities greater than $25,000 but not
more than $50,000, it could be used by all taxpayers to request an installment
agreement for any amount less than $50,000. You may request up to 72 months to
pay. In certain circumstances, you can have longer to pay or your agreement can
be approved for an amount less than the tax you owe.

April, 2013 the IRS eliminated Form 9465-FS and replaced it with a revised Form
9465 for any liability less than $50,000. If you have already filed your return
and you are sending in Form 9465 on its own, mail it to the address shown below
for the type of return filed. However, before requesting an installment
agreement, consider other less costly alternatives, such as getting a bank loan
or using available credit on a credit card.

Online For a Payment Agreement.

7.80    If your balance due is not more than
$50,000, you can also apply online for a payment agreement instead of filing
Form 9465. To do that, go to and click on “More…” under Tools.


new rules for revised Form 9465 only to individuals who:


  • Who owes
    income tax on Form 1040,
  • Who may be
    responsible for a Trust Fund Recovery Penalty,
  • Who was
    self-employed and owes self-employment or unemployment taxes and is no
    longer operating the business,
  • Who is
    personally responsible for a partnership liability and the partnership is
    no longer operating, or
  • Owner who
    is personally responsible for taxes in the name of a limited liability
    company (LLC) and the LLC is no longer operating.

not use revised Form 9465 if:


  • If you can pay the full amount you owe within
    120 days, call 1-800-829-1040 to establish your request to pay in full. If you
    can do this, you can avoid paying the fee to set up an installment agreement.
    Instead of calling, you can apply online.
  • You want to request an online payment agreement


installment agreement

7.110  Your request for an installment
agreement cannot be turned down if the tax you owe is not more than $10,000 and
all three of the following apply.

  • During the
    past 5 tax years, taxpayer (and their spouse if filing a joint return)
    have timely filed all income tax returns and paid any income tax due, and
    have not entered into an installment agreement for payment of income tax.
  • The IRS
    determines that the taxpayer cannot pay the tax owed in full when it is
    due and she gives the IRS any information needed to make that
  • Taxpayer
    agrees to pay the full amount owed within 3 years and to comply with the
    tax laws while the agreement is in effect.


7.120  A Notice of Federal Tax Lien may be
filed to protect the government’s interests until you pay in full.


the Process Works

7.130  IRS will usually let you know within 30
days after IRS receive your request whether it is approved or denied. However,
if this request is for tax due on a return you filed after March 31, it may
take us longer than 30 days to reply. If IRS approves your request, IRS will
send you a notice detailing your agreement and requesting a fee of $105 ($52 if
you make your payments by electronic funds withdrawal). However, you may
qualify to pay a reduced fee of $43 if your income is below a certain level.
The IRS will let you know whether you qualify for the reduced fee. If the IRS
does not say you qualify for the reduced fee, you can request the reduced fee
using Form 13844, Application For Reduced User Fee For Installment Agreements.

will also be charged interest and may be charged a late payment penalty on any
tax not paid by its due date, even if your request to pay in installments is
granted. Interest and any applicable penalties will be charged until the
balance is paid in full. Current interest rates are 3% per annum and you also
will be charged a late payment penalty of ¼% per month.

approving your request, IRS agrees to let you pay the tax you owe in monthly
installments instead of immediately paying the amount in full. In return, you
agree to make your monthly payments on time. You also agree to meet all your
future tax liabilities. This means you must have enough withholding or
estimated tax payments so your tax liability for future years is paid in full
when you timely file your return. Your request for an installment agreement
will be denied if all required tax returns have not been filed. Any refund due
you in a future year will be applied against the amount you owe. If your refund
is applied to your balance, you are still required to make your regular monthly
installment payment.


7.140  You can make your payments by check,
money order, credit card, or one of the other payment methods shown next. The
fee for each payment method is also shown.

Payment method Applicable fee
Check, money order, or credit card


Electronic funds withdrawal

$ 52

Payroll deduction installment agreement



IRS receives each payment, IRS will send you a notice showing the remaining
amount you owe, and the due date and amount of your next payment. But if you have
your payments automatically withdrawn from your checking account, you will not
receive a notice. Your bank statement is your record of payment. IRS will also
send you an annual statement showing the amount you owed at the beginning of
the year, all payments made during the year, and the amount you owe at the end
of the year.


you do not make your payments on time or do not pay any balance due on a return
you file later, you will be in default on your agreement and IRS may take
enforcement actions, such as filing a Notice of Federal Tax Lien or an IRS levy
action, to collect the entire amount you owe. To ensure your payments are made
timely, you may make them by electronic funds withdrawal


to Modify or Terminate An Installment Agreement.

7.150  After an installment agreement is
approved, you may submit a request to modify or terminate an installment
agreement. This request will not suspend the statute of limitations on
collection. While the IRS considers your request to modify or terminate the
installment agreement, you must comply with the existing agreement. An
installment agreement may be terminated if you provide materially incomplete or
inaccurate information in response to an IRS request for a financial update.


IRS Offers New Penalty Relief and Expanded Installment Agreements to
Taxpayers under Expanded Fresh Start Initiative

7.160  On
March 7, 2012 the Internal Revenue Service announced a major expansion of its
“Fresh Start” initiative to help struggling taxpayers by trying to provide new
penalty relief to the unemployed and providing Installment Agreements to more
people. Under the new Fresh Start provisions, part of a broader effort started
at the IRS in 2008, certain taxpayers who have been unemployed for 30 days or
longer can avoid failure-to-pay penalties. The IRS is doubling the dollar
threshold for taxpayers eligible for Installment Agreements to help more people
qualify for the program.

have an obligation to work with taxpayers who are struggling to make ends
meet,” said IRS Commissioner Doug Shulman.  ”This new approach makes sense for taxpayers
and for the nation’s tax system, and it is part of a wider effort we have
underway to help struggling taxpayers.”


Income Limits

7.161  This
penalty relief is subject to income limits. A taxpayer’s income must not exceed
$200,000 if he or she files as married filing jointly or not exceed $100,000 if
he or she files as single or head of household. This penalty relief is also
restricted to taxpayers whose calendar year 2011 balance due does not exceed


Form 1127A

7.162  Taxpayers
meeting the eligibility criteria will need to complete a new Form
seek the 2011 penalty relief.


Past Promises

7.170  In 2009, the IRS announced lien relief for people trying to
refinance or sell a home. In 2010, the IRS announced new flexibility for
taxpayers facing payment or collection problems. Those announced changes did
not result in a relaxation of IRS enforced collection efforts. During both 2009
and 2010 the IRS increased the number of liens and levies it served against


Help for People Who Owe Taxes

7.180  With many
people facing additional financial difficulties, in February 2009 the IRS took several
additional steps to help people who owe back taxes.


On a wide range of
situations, IRS employees have flexibility to work with struggling taxpayers to
assist them with their situation. Depending on the circumstances, taxpayers in
hardship situations may adjust payments for back taxes, avoid defaulting on
payment agreements or possibly defer collection action.



7.190  Among the areas
where the IRS can provide assistance:


Postponement of Collection
IRS employees will
have greater authority to suspend collection actions in certain hardship cases
where taxpayers cannot pay. This includes instances when the taxpayer has
recently lost a job, is relying solely on Social Security or welfare income or
is facing devastating illness or significant medical bills. If an individual
has recently encountered this type of financial problem, IRS assistors may
suspend collection without documentation to minimize burden on the taxpayer.


Added Flexibility for Missed
The IRS is
allowing more flexibility for previously compliant individuals in existing
Installment Agreements who have difficulty making payments because of a job
loss or other financial hardship. The IRS may allow a skipped payment or a
reduced monthly payment amount without automatically suspending the Installment
Agreement. Taxpayers in a difficult financial situation should contact the IRS.


Additional Review for Offers
in Compromise on Home Values:

The equity taxpayers have in real property can be a barrier to an OIC being
accepted. With the uncertainty in the housing market, the IRS recognizes that
the real-estate valuations used to assess ability to pay may not be accurate.
So where the accuracy of local real-estate valuations is in question or other
unusual hardships exist, the IRS is creating a new second review of the
information to determine if accepting an offer is appropriate.


Prevention of Offer in
Compromise Defaults
Taxpayers unable to meet the periodic payment terms of an accepted OIC can contact
the IRS office handling the offer for available options to help them avoid


Expedited Levy Releases: The IRS will speed the delivery of levy
releases by easing requirements on taxpayers who request expedited levy
releases for hardship reasons. Taxpayers seeking expedited releases for levies
to an employer or bank should contact the IRS number on the notice of levy to
discuss available options. When calling, taxpayers requesting a levy release
due to hardship should be prepared to provide the IRS with the fax number of
the bank or employer processing the levy.


2010 IRS Outlined Additional Steps to Assist Unemployed Taxpayers
and Others

7.200  The Internal Revenue Service announced on
March 9, 2010 several additional steps it was taking this tax season to help
people having difficulties meeting their tax obligations because of
unemployment or other financial problems.


Online Payment
Agreement (OPA)

The Internal
Revenue Service introduced several new features to the interactive Online
Payment Agreement application, which will make it easier for taxpayers and
their authorized representatives to change existing installment agreements.

The system now permits:


  • Individuals to revise their payment due dates and/or
    amounts on existing agreements.
  • Individuals to revise existing extensions to regular
    installment agreements and direct debit installment agreements.
  • Individuals to revise existing regular installment
    agreements to a payroll deduction installment agreement or a direct debit
    installment agreement.


Practitioners with valid authorizations to use the signature date found
on their approved Form 2848, Power of Attorney and Declaration of
Representative, or the caller ID as an alternate way to authenticate when
requesting agreements for clients.,,id=149373,00.html


Onerous Allowable Expense Standards

7.250  In March, 2012 the IRS again revised the
standards. Instead of establishing national standards which recognized the need
for higher living expense for higher income families it began a system of one
size fits all. It continued to fail to recognize the varying cost of living in
different regions and communities and eliminated differentials for Hawaii and
Alaska. It also added a new category of expenses for out-of-pocket health care


Total allowable expenses
include those expenses that meet the necessary expense test. The necessary
expense test is defined as expenses that are necessary to provide for a
taxpayer’s and his or her family’s health and welfare and/or production of
income.  The expenses must be reasonable.
The total necessary expenses establish the minimum a taxpayer and family must


There are four
types of necessary expenses:


  • National Standards
  • Out-of-Pocket Health Care
  • Local Standards
  • Other Expenses


National Standards:
These establish standards for reasonable amounts for five necessary expenses.
Four of them come from the Bureau of Labor Statistics (BLS) Consumer
Expenditure Survey: food, housekeeping supplies, apparel and services, and
personal care products and services. The fifth category, miscellaneous, is a
discretionary amount established by the Service. It is $116 for one person up
to $300 for 4 persons. The IRS allows $281 per month for each member of the
household above 4.


Note: All five
standards are included in one total national standard expense.


Out-of-Pocket Health Care
health care expenses include medical services, prescription drugs, and medical
supplies (e.g. eyeglasses, contact lenses, etc.). Elective procedures such as
plastic surgery or elective dental work are not allowed. Taxpayers and their
dependents are allowed the standard amount monthly on a per person basis,
without questioning the amounts they spend. If the amount claimed is more than
the total allowed by the health care standards, the taxpayer must provide
documentation to substantiate those expenses are necessary living expenses.  The number of persons allowed should be the
same as those allowed as exemptions on the taxpayer’s most recent year income
tax return. The out-of-pocket health care standard amount is allowed besides the
amount taxpayers pay for health insurance.


Local Standards:
These establish standards for two necessary expenses: housing and
transportation. Taxpayers will be allowed the local standard or the amount
actually paid, whichever is less.


  1. A.
    Housing – Standards are established for each county
    within a state. When deciding if a deviation is appropriate, consider the cost
    of moving to a new residence; the increased cost of transportation to work and
    school that will result from moving to lower-cost housing and the tax
    consequences. The tax consequence is the difference between the benefit the
    taxpayer derives from the interest and property tax deductions on Schedule A to
    the benefit the taxpayer would derive without the same or adjusted expense.
    Housing costs include rent and/or house payments, taxes, repairs and utilities
    the IRM provides as follows:


The utilities include gas, electricity, water, fuel, oil, bottled gas,
trash and garbage collection, wood and other fuels, septic cleaning, and
telephone. Housing expenses include: mortgage or rent, property taxes,
interest, parking, necessary maintenance and repair, homeowner’s or renter’s
insurance, homeowner dues and condominium fees. Usually, this is considered
necessary only for the place of residence. Any other housing expenses should be
allowed only if, based on a taxpayer’s individual facts and circumstances,
disallowance will cause the taxpayer economic hardship. [IRM]


  1. B.
    - The transportation
    standards comprise nationwide figures for loan or lease payments called ownership
    cost, and additional amounts for operating costs broken down by Census Region
    and Metropolitan Statistical Area. Operating costs were derived from BLS data.
    If a taxpayer has a car payment, the allowable ownership cost added to the
    allowable operating cost equals the allowable transportation expense. If a
    taxpayer has no car payment only the operating cost portion of the
    transportation standard is used to figure the allowable transportation expense.
    Under ownership costs, separate caps are provided for the first car and second
    car. If the taxpayer does not own a car a standard public transportation amount
    is allowed.


Vehicle insurance, vehicle payment (lease or purchase), maintenance,
fuel, state and local registration, required inspection, parking fees, tolls,
driver’s license, public transportation. Transportation costs not required to
produce income or ensure the health and welfare of the family are not considered
necessary. Consider availability of public transportation if car payments
(purchase or lease) will prevent the tax liability from being paid in part or
full. Public transportation costs could be an option if it does not
significantly increase commuting time and inconvenience the taxpayer.


Note: If the
taxpayer has no car payment, or no car, question how the taxpayer travels to
and from work, grocer, medical care, etc. The taxpayer is only allowed the
operating cost or the cost of transportation. [IRM]


  1. C.
    Other expenses may be considered if they
    meet the necessary expense test – they must provide for the health and welfare
    of the taxpayer and/or his or her family or they must be for the production of
    income. This is determined based on the facts and circumstances of each case.
    If other expenses are determined to be necessary and, therefore allowable,
    document the reasons for the decision in your history.


  1. D.
    These expenses do
    not meet the necessary expenses test. However, they are allowable if the
    tax liability, including projected accruals, can be fully paid within five


  1. E.
    and local expense standards are guidelines
    . If it is determined a standard amount is inadequate to provide for a
    specific taxpayer’s basic living expenses, allow a deviation. Require
    the taxpayer to provide reasonable substantiation and document the case file.


  1. F.
    total number of persons allowed for national standard expenses should be the
    same as those allowed as dependents on the taxpayer’s current year income tax
    return. Verify exemptions claimed on taxpayer’s income tax return meet the
    dependency requirements of the IRC. There may be reasonable exceptions.
    Fully document the reasons for any exceptions. For example, foster children or
    children for whom adoption is pending.


  1. G.
    from the
    local standard is not allowed merely because it is inconvenient for the
    taxpayer to dispose of valued assets.


  1. H.
    Revenue officers
    should consider the length of the payments. Although it may be appropriate to
    allow for payments made on the secured debts that meet the necessary expense
    test, if the debt will be fully repaid in one year only allow those payments
    for one year. [ IRM ]


Five Year Test

7.260  The amount allowed for necessary or
conditional expenses depends on the taxpayer’s ability to full pay the
liability within five years and on the taxpayer’s individual facts and
circumstances. If the liability can be paid within 5 years, it may be
appropriate to allow the taxpayer the excessive necessary and conditional
expenses. If the taxpayer cannot pay within 5 years, it may be appropriate to
allow the taxpayer the excessive necessary and conditional expenses for up to
one year in order to modify or eliminate the expense. (See IRM 5.14,
Installment Agreements) [IRM]






New Fresh Start Initiative For offers in Compromise


Higher User fee

8.05    The 2013 fee for an Offer in Compromise was $150.  IRS has
determined that the full cost of processing an Offer in Compromise is
$2,718.  The new fee beginning January 1, 2014, for an Offer in Compromise
is $186.  The “no fee” for low-income taxpayers continues to apply.


8.10    On
May 21, 2012 the Internal Revenue Service announced another expansion of its
“Fresh Start” initiative by offering more flexible terms to its Offer
in Compromise (OIC) program that will enable some of the most financially
distressed taxpayers clear up their tax problems and often more quickly than in
the past. In 2013 the IRS created a new website for taxpayers and their
representatives to review and compute eligibility for an OIC. .  The IRS’s new Offer in Compromise
Pre-qualifier tool helps tax professionals determine a taxpayer’s eligibility
for an offer in compromise and calculates a preliminary offer amount before
they start on the paperwork.  It is at:


of OIC Policies

8.11    Over
the years the IRS offer in compromise program has been the subject of much criticism
by Congress, the National Taxpayer Advocate and taxpayer representatives. The
new initiative represents the most dramatic liberalization of IRS settlement
policies ever announced. It represents a welcome change from an agency which
has always placed substantial roadblocks to those seeking to compromise their
tax obligations.

announcement focused on the financial analysis used to determine which
taxpayers qualify for an OIC. This announcement also enables some taxpayers to
resolve their tax problems in as little as two years compared to four or five
years in the past.

2011              2012




8.12    The
changes announced  included:

•           Revising the calculation for the
taxpayer’s future income.

•           Allowing taxpayers to repay their
student loans.

•           Allowing taxpayers to pay state and
local delinquent taxes.

•           Expanding the Allowable Living
Expense allowance category and amount.


Can Liability Be Paid

8.13    In
general, an OIC is an agreement between a taxpayer and the IRS that settles the
taxpayer’s tax liabilities for less than the amount owed.  An OIC is not accepted if the IRS believes
the liability can be paid in full as a lump sum or a through payment agreement.
The IRS looks at the taxpayer’s income and assets to determine the taxpayer’s
reasonable collection potential. OICs are subject to acceptance on legal


Past Reluctance to
Accept OIC’s

8.14    In
the past IRS strictly applied its rules regarding taxpayers’ budgets and
valuation of assets. Most taxpayers who sought a compromise received a
rejection from the Internal Revenue Service. Below are the statistics for offer
acceptances during the past several years:


Reasonable Collection

8.15    Under
the new policy when the IRS calculates a taxpayer’s reasonable collection
potential, it will now look at only one year of future income for offers paid
in five or fewer months, down from four years; and two years of future income
for offers paid in six to 24 months, down from five years. All offers must be
fully paid within 24 months of the date the offer is accepted. The prior policy
resulted in IRS demands for large compromise payments even when the taxpayer had
few assets. The revisions will cause a 75% reduction in the amount required to
settle tax obligations in five or fewer months. They will cause a 60% reduction
in the amount required to be fully paid within 24 months.


Dissipated Assets

8.16    Other
changes to the program include narrowed parameters and clarification of when a
dissipated asset will be included in the calculation of reasonable collection
potential. Over the past several years the IRS has used the concept of dissipated
assets to demand substantial amounts in compromise of taxes even after the
taxpayer had lost assets. For example in one matter a taxpayer had lost
substantial amounts of money in the 2008 and 2009 stock market collapse.
Notwithstanding that loss the IRS offer in compromise examiner claimed that the
taxpayer would have to include the value of those losses in his total assets to
receive a compromise. The IRS also aggressively claimed that taxpayers who
lived an upper-middle-class lifestyle after their tax problems arose would be
subject to its draconian dissipated asset theory.


Exclusion of Income
Producing Property

8.17    The
IRS also announced that equity in income producing assets generally will not be
included in the calculation of reasonable collection potential for on-going businesses.


Allowable Living Expenses

8.18    When
reviewing a taxpayer’s budget the IRS applies Allowable Living Expense
standards to determine a taxpayer’s ability to pay.  The standard allowances impose strict budgets
upon a taxpayer in collection determinations by incorporating average
expenditures for basic necessities. Notwithstanding substantial criticism of
the IRS over the years it is insisted upon applying the same standards for food
and clothing in all areas of the country whether high cost locales like Alaska,
Hawaii, and New York City or lower cost Midwestern areas. These standards are
used when evaluating offer in compromise requests.



Expanded Allowable

8.19    In
response to criticisms from the national taxpayer advocate and taxpayer representatives
the IRS expanded the National Standard miscellaneous allowance to include
additional items.  Taxpayers can use the
miscellaneous allowance for expenses such as credit card payments and bank fees
and charges.

the past the IRS refused to recognize taxpayer obligations to pay student loans
and state tax delinquencies. The new guidance now allows payments for loans
guaranteed by the federal government for the taxpayer’s post-high school
education.  In addition, payments for
delinquent state and local taxes may be allowed based on percentage basis of
tax owed to the state and IRS.


Expanding Universe of Eligible Taxpayers

8.20    The
new offer in compromise policies should dramatically expand the universe of
taxpayers eligible to compromise their outstanding tax obligations. In the past
taxpayers had to pay the IRS the total value of all their assets plus 60 times
their net monthly income after using the IRS strict allowable expense
standards. The greater flexibility of the new policies will reduce the valuation
of taxpayer assets and reduce the value of the future income component used to
determine acceptable offers.


Income for Offers in Compromise

8.30    The Internal
Revenue Service on March 10, 2011 revised its guidance to employees on figuring
the value of a taxpayer’s future income in evaluating an offer in compromise,
with specific instructions to consider a variety of issues for unemployed or
underemployed workers. The memorandum (SBSE 05-0310-012) noted future income is
defined as an estimate of the taxpayer’s ability to pay based on an analysis of
gross income, less necessary living expenses, for a specific number of months
into the future.

As a general rule, the guidance said, the taxpayer’s current
income will be used in the analysis of future ability to pay. “Consideration
should be given to the taxpayer’s overall general situation, including such
factors as age, marital status, number and age of dependents, level of
education or occupational training, and work experience,” the document said.


Notes Variety of Situations

8.40    IRS noted some situations
may warrant placing a different value on future income than on current or past
income. Such situations include those where income will increase or decrease,
or current necessary expenses will increase or decrease, the agency said.


Other situations
may include those where a taxpayer:


  • is
    temporarily or recently unemployed or underemployed,
  • is
    unemployed and is not expected to return to a previous occupation or previous
    level of earnings,
  • is
    long-term unemployed,
  • is
    long-term underemployed, has an irregular employment history or fluctuating
  • is in
    poor health and the ability to continue working is questionable,
  • is
    close to retirement and has indicated he or she will be retiring, or will file
    for bankruptcy.


Averaging Addressed

8.50    IRS told its
field personnel that judgment should be used in determining the appropriate
time to apply income averaging on a case-by-case basis. “All circumstances of
the taxpayer should be considered” in making this decision, the agency said.


IRS said, where the taxpayer’s income does not appear to meet stated living
expenses, the difference should not be included as additional income to the
taxpayer. Such inclusion should only be done if there are clear indications
that the taxpayer is receiving, and will continue to receive, additional income
not included on the collection information statement, according to the


a general rule, the guidance said, “Employees need to exercise good judgment
when determining future income.” The history must be clearly documented and
support the known facts and circumstances of the case, and include analysis of
the supporting documents, IRS noted.


Facts and Circumstances Approach Directed

8.60    The memo
directed IRS workers to evaluate each case on the facts and circumstances, and
said the history “must clearly explain the reasoning behind our actions.” The
agency said there are cases where it may be appropriate to use the taxpayer’s current
income and secure a future income collateral agreement, particularly where the
future income is uncertain, but where it is reasonably expected that the income
will increase.


Tax Increase Prevention and Reconciliation
Act of 2005

8.70    The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA),
section 509, made major changes to the IRS OIC program. These changes affect
all offers received by the IRS on or after July 16, 2006.  TIPRA section 509 amends IRC section 7122 by
adding a new subsection (c) “Rules for Submission of Offers-in-Compromise.”


Payments With

8.80    A taxpayer filing a lump-sum offer must pay 20% of the offer amount with
the application (IRC 7122(c)(1)(A)). A lump-sum offer means any offer of
payments made in five or fewer installments. A taxpayer filing a
periodic-payment offer must pay the first proposed installment payment with the
application and pay additional installments while the IRS is evaluating the
offer (IRC section 7122(c)(1)(B)). A periodic-payment offer means any offer of
payments made in six or more installments.


Failure to Make

8.90    Taxpayers can avoid delays in processing their OIC applications by
making all required payments in full and on time. Failure to pay the 20 percent
on a lump-sum offer, or the first installment payment on a periodic-payment
offer, will cause the IRS returning the offer to the taxpayer as nonprocessable
(IRC §7122(d)(3)(C) as amended by TIPRA).


Not Refundable

8.100  The 20 percent payment for a lump-sum offer and the installment payments
on a periodic-payment offer are “payments on tax” and are not refundable
deposits (IRC section 7809(b) and Treasury Regulation 301.7122-1(h)).


Failure to Make Installment Payments

8.110  Taxpayers failing to make installment payments on periodic-payment
offers after providing the initial payment will cause the IRS to treat the
offer as a withdrawal. The IRS will return the offer application to the
taxpayer (IRC section 7122(c)(1)(B)(ii)).A lump-sum offer accompanied by a
payment below the required 20 percent threshold will be deemed processable.
However, the taxpayer will be asked to pay the remaining balance to avoid
having the offer returned. Failure to submit the remaining balance will cause
the IRS to return the offer and retain the $150 application fee.


Taxpayers filing
periodic-payment offers must submit the full amount of their first installment
payment to meet the processability criteria. Otherwise, the IRS will deem the
offer as unprocessable and will return the application to the taxpayer with the
$150 fee.


Low Income Taxpayers

8.120  Under TIPRA, taxpayers qualifying as low-income or filing an offer
solely based on doubt as to liability qualify for a waiver of the new partial
payment requirements. Taxpayers qualifying for the low-income exemption or
filing a doubt-as-to- liability offer only are not liable for paying the
application fee, or the payments imposed by TIPRA section 509.  A taxpayer seeking a waiver must submit Form
656-A with the offer. The monthly income levels to qualify are listed below:


IRS OIC Low Income Guidelines


Size of family

48 contiguous
states and D.C.



































For each additional
person, add







8.150  An offer in compromise is a settlement of a
delinquent tax account for less than the amount due.  Sec. 7122 states that the IRS may compromise
any civil or criminal case arising under the Internal Revenue Laws prior to
reference to the Department of Justice for prosecution or defense


Supporting Documents

8.160  The financial statements require the
proponent to supply documentation for each item on the forms, i.e. pay stubs,
car payment book, mortgages, pay stubs, charge account statements, and bank
statements. The IRS considers smaller liability offers without conducting a
field investigation, therefore it is requiring the proponent to supply all the
info to decide without field verification.


$150 Processing Fee

8.170  The Internal Revenue Service now charges a
$150 application fee for the processing of offers in compromise. The law
authorizes federal agencies to charge fees to defray the costs of providing
certain services. Guidelines encourage such fees for benefits beyond those
provided to the general public. The IRS anticipates the fee also will reduce
the number of offers that are filed inappropriately — for example, solely to
delay collection — enabling the agency to redirect resources to the processing
of acceptable offers. Offers based solely on hardship may seek a fee waiver.


Computation of Offer Amount

8.180  The IRS uses different methods for determining the adequacy of an offer
depending on the time the taxpayer proposes for payment of the offer
amount.  The methods are:


  • Cash
    (paid in 5 installment or less), or


  • Deferred
    Payment (paid in over 5 installments


NOTE: In all cases, the IRS will release any
filed Notice of Federal Tax Lien once you have fully paid the offer amount and
any interest that has accrued.


Cash Offer

8.190  You must pay cash offers in 5 installments or less after acceptance. Offer
the realizable value of your assets (quick sale value) plus the total amount
the IRS could collect over twelve months of payments represent value of
income). When the ten-year statutory period for collection expires in less than
twelve months, you must use the Deferred Payment Chart in the instructions to
Form 656. The Internal Revenue Service’s method of determining the adequacy of
an offer could be best expressed by:


Sale Value Plus Present Value of Income Equals Offer In Compromise             (QSV + PVI = OIC)


In applying this formula, the IRS determines
the Quick Sale Value of all of the client’s assets and then adds the present
value of the taxpayer’s ability to pay. It aggregates the two numbers to arrive
at an Offer in Compromise amount.


Show Deferred Payment Offer

8.200  This payment option requires you to pay the offer within two years of
acceptance. The offer must include the realizable value of your assets besides the
total amount the IRS could secure over twenty four months (or the remainder of
the ten-year statutory period for collection, whichever is less) through
monthly payments.  The IRS may file a
Notice of Federal Tax Lien on tax liabilities compromised under short-term
payment offers.


Corporate Trust Fund Liabilities

8.210  The IRS has recently changed its
rules regarding in business offers in compromise. It now requires that each
potentially responsible officer of the company sign an agreement to assessment
of the trust fund recovery penalty in advance of consideration of any corporate
or LLC offer. The new system is extremely unfair because the IRS is requiring
even those who should not be held liable for the TFRP to agree to liability and
assessment. Only after the liability has been assessed against a
non-responsible person may she file a claim for refund and defend against the
penalty. The system is extremely unfair and represents an attempt to deprive
officers of their statutory due process rights.


Promote Effective Tax Administration

8.220  As part of the IRS Restructuring and Reform
Act of 1998 (RRA 98), Congress added section 7122(c) to the Internal Revenue
Code. That section provides that the Service shall set forth guidelines for
determining when an offer in compromise should be accepted. Congress explained
these guidelines should allow the Service to consider:


  • Hardship,
  • Public
    policy, and
  • Equity


Treasury Regulation
301.7122-1 authorizes the Service to consider offers raising these issues.  These offers are called Effective Tax
Administration (ETA) offers.


Encourage Compliance

8.230  The availability of an Effective Tax
Administration (ETA) offer encourages taxpayers to comply with the tax laws
because taxpayers will:


  • Believe
    the laws are fair and equitable, and
  • Gain
    confidence that the laws will apply to everyone in the same manner.


The Effective Tax
Administration (ETA) offer allows for situations where tax liabilities


  • The tax
    is legally owed, and
  • The
    taxpayer has the ability to pay it in full


Rules for Evaluating Offers to Promote
Effective Tax Administration

8.240  The determination to accept or reject an offer to compromise made because
acceptance would promote effective tax administration within the meaning of
this section will be based upon consideration of all the facts and
circumstances, including the taxpayer’s record of overall compliance with the
tax laws.



8.250  Factors
supporting (but not conclusive of) determining economic hardship include:


  • Taxpayer
    is incapable of earning a living because of a long term illness, medical
    condition, or disability and it is reasonably foreseeable that taxpayer’s
    financial resources will be exhausted providing for care and support during the
    course of the condition;
  • Although
    taxpayer has certain assets, liquidation of those assets to pay outstanding tax
    liabilities would render the taxpayer unable to meet basic living expenses; and
  • Although
    taxpayer has certain assets, the taxpayer is unable to borrow against the
    equity in those assets and disposition by seizure or sale of the assets would
    have sufficient adverse consequences such that enforced collection is unlikely
    Temp Reg 301.7122-1T(b)(4)(iv)(B)]


Undermine Compliance

8.310  Factors supporting (but not conclusive of) a determination that
compromise would not undermine compliance by taxpayers with the tax laws


  • Taxpayer
    does not have a history of noncompliance with the filing and payment
    requirements of the Internal Revenue Code;


  • Taxpayer
    has not taken deliberate actions to avoid the payment of taxes; and


  • Taxpayer
    has not encouraged others to refuse to comply with the tax laws.[Temp Reg.

































National Standards: Food, Clothing and Other Items
















& services





care products & services















than four persons

Persons Amount

each additional person, add to four-person total allowance:


National Standards: Out-of-Pocket Health Care
The table for health care expenses, based on Medical
Expenditure Panel Survey data, has been established for minimum allowances
for out-of-pocket health care expenses.

Out-of-pocket health care expenses include medical
services, prescription drugs, and medical supplies (e.g. eyeglasses, contact
lenses, etc.). Elective procedures such as plastic surgery or elective dental
work are generally not allowed.

Taxpayers and their dependents are allowed the
standard amount monthly on a per person basis, without questioning the
amounts they actually spend. If the amount claimed is more than the total
allowed by the health care standards, the taxpayer must provide documentation
to substantiate those expenses are necessary living expenses.

The out-of-pocket health care standard amount is
allowed in addition to the amount taxpayers pay for health insurance.


Out-of-Pocket Costs


Under 65



65 and Older


















Northeast Region












Midwest Region















South Region





















West Region



















California Housing & Utilities


Family of 1

Family of 2

Family of 3

Family of 4

5 or more





































Contra Costa






Del Norte






El Dorado




























































Los Angeles
































































































San Benito






San Bernardino






San Diego






San Francisco






San Joaquin






San Luis Obispo






San Mateo






Santa Barbara






Santa Clara






Santa Cruz





























































































Portions Reprinted from












Robert E. McKenzie






Rochester, NY


All Rights Reserved




2-7-14 Robert E. McKenzie Quoted By Random House on Offshore Bank Secrecy

2-7-14 Robert E. McKenzie Quoted By Random House on Offshore Bank Secrecy

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Nominee Liens And Alter Ego Liens

Nominee Liens & Alter Ego Liens

By Robert E. McKenzie ©2012



Depriving Taxpayers of Administrative
Due Process of Law

practitioners have observed the aggressive approach that the IRS has recently
taken to collect taxes from alleged nominees and alter egos of delinquent
taxpayers. This summary collection approach deprives the alleged nominees of
administrative due process of law. In most cases the alleged nominee must
initiate litigation to contest erroneous collection actions against the alleged
nominees. In some cases the IRS moves beyond the mere filing of liens and
initiates enforced collection measures against the alleged nominee or alter


Internal Revenue Manual Procedures

respect to transactions where property is transferred to a third party merely
to hold for the benefit of the transferor, the IRS position, as stated in the
Internal Revenue Manual [IRM] is:


and Nominee Cases

(1) A
transferee Notice of Federal Tax Lien (NFTL) may be used to subject property to
the government’s Federal Tax Lien (FTL) when property has been transferred or
acquired in the name of a third party with the taxpayer’s funds. Some state laws
may not recognize transferee NFTL without the judicial process or it may not be possible to show
that the taxpayer acquired the property.

(2) If the
transferee NFTL is not possible, but facts show that the taxpayer treats the
property as his or her own, a nominee NFTL may be filed. District Counsel will
advise which type of NFTL to file. Consider the following circumstances in developing your case:

the taxpayer is paying maintenance expenses,

using the property as collateral for loans,

paying state and local taxes on the property.

(3) You
may not file a nominee or transferee NFTL without the written approval of District Counsel.

a)    Cases
should be developed to withstand court challenge.

b)    Focus on
the conveyance of the title.

Requests should be for advice as to the need for a
supplemental assess­ment, a new notice and demand and the language to be
incorporated in the NFTL or levy.

Prepare a report containing all of the facts of the
case to accompany the request.

(4) Subsequent
enforcement action is at the district’s discretion once District Counsel
has approved application of the nominee or transferee theory in a case.

(5) In
determining what additional enforcement action should be taken, consideration much given to the confusion
in the chain of title and redemption rights by the taxpayer. These
circumstances may depress the sale of the property.

(6) A
judicial lien foreclosure or seizure followed by suit to foreclose the NFTL
will generally
bring a greater sale price particularly for real property.

(7) The
administrative seizure and sale process may be used if prompt action is needed
to protect the government’s interest. If there is any doubt, request an opinion from District
Counsel.” [IRM]

Process for Filing Nominee

Manual provides procedures for the filing of nominee liens without the require­ment
of a court order. The Collection Division must secure the prior approval of
Area Counsel. Subsequent to the approval of Area Counsel, the IRS files a lien
against the putative nominee. The IRS may also proceed to seize assets held by
an alleged nominee.


28 USC § 2410

alleged nominee is then forced to bring a quiet title action for his or her
property if the IRS re­fuses to administratively release the lien. [28 U.S.C.A.
§ 2410] If you believe that the owner of the property is not a nominee, force
the IRS to carry its burden of proving that property is not held as a nominee
by bringing a quiet title action. The IRS has abused the nominee lien on many
occasions and prior to the enactment of the Taxpayer Bill of Rights, effective
November 10, 1988, could do so without fear of judicial sanctions. In one case
the IRS er­roneously seized assets from the taxpayer’s girlfriend, and the
Appellate Court found that she was not entitled to attorneys’ fees or damages
even though the IRS had erred in its nominee determination.”[a]


Alter Ego

Internal Revenue Service might also file a lien alleging that one entity was
the alter ego of the other. This can occur in cases when the taxpayer fails to
follow corporate formalities with her corporation. For example, if the taxpayer
pays personal expenses with corporation assets, she might be found to be the
alter ego of the corporation, or visa versa.[b]


Wrongful Levy

If the
Internal Revenue Service has wrongfully levied on the property of a third
person (not the taxpayer), the Code allows for an injunction to prohibit the
enforcement of such levy or to prohibit the sale of the property if the levy or
sale would cause irreparable injury to that person’s rights and property. [IRC
§ 7426] Such a suit must be brought within nine months from the date of the
levy, except in the case where the owner makes a timely written request for the
return of the property pursuant to IRC § 6532(c). If a request is made, the
period is extended for a period of 12 months from the filing of the request or
six months from the date the IRS rejects the request, whichever is earlier.
Entitled to relief under Section 7426 is any person (other than the taxpayer
against whom the taxes are assessed) who claims an interest in or lien on such
property superior to that of the Government.


Time to file

action to contest a levy or to recover any proceeds from the sale of property
must be filed within nine months after the date of levy, or in the case of an
action to recover substitute sale proceeds the date of agreement giving rise to
the action. The short period of limitations is strictly enforced. The Service
is under no duty to notify any persons of a levy other than a person in
possession of the property subject to levy and the taxpayer. As a consequence,
a third party may not know of seizure or sale of the property in which it has
an interest will be foreclosed from recovering any amount from the IRS
regardless of the merits or equities of the third party’s position The
nine-month period of limitations is extended when a person claiming that the
Service has wrongfully levied upon property timely files a written request for
the Service to return the property. [IRC § 6343(b)] The filing of such an
administrative request extends the nine-month period of limitations for an additional
period that is the shorter of twelve months from the date of filing the
request, or six months from the date of mailing by registered or certified mail
of a Notice of Disallowance of the request for which the action relates. [IRC §
6532(c)(2)] For the administrative request to extend the period of limitations
for bringing suit, it must have been made within the nine-month period.


Erroneous seizure

Internal Revenue Service has occasionally erroneously seized property belonging
to others because its employees have failed to accurately check public records
to determine legal ownership of the property or have erroneously asserted
nominee liens. Taxpayers have been forced to initiate litigation to prevent
sale of their assets to pay liabilities of another taxpayer. The mere threat of
such a suit is sufficient, in some instances, to convince the Internal Revenue
Service to release an erroneous seizure without the necessity of actually
initiating suit. This action is also appropriate if the complaining party holds
a partial interest with the taxpayer, i.e. a joint tenant or security interest


Third-party recovery for
wrongful seizures

prior law, a party other than the taxpayer could only bring a wrongful levy
action pursuant to IRC § 7426(b) which did not provide the same statutory
damages and relief as Section 7433. Therefore, the third-party who had his
property wrongfully seized by the Internal Revenue Service had fewer remedies
available than the taxpayer who was subject to reckless or intentional
disregard of the Internal Revenue Code by an IRS employee. Under the RRA 1998,
if in any third-party action against the IRS for wrongful levy there is a
finding that any officer or employee of the IRS recklessly or intentionally or
by reason of negligence disregarded any provision of the Internal Revenue Code,
the IRS can be held liable for an amount equal to the lesser of one million
dollars ($100,000 in the case of negligence) or the sum of money due under IRC
§ 7426(h). A third party may receive actual, direct economic damages sustained
as a proximate result of reckless, or intentional or negligent disregard of any
provision of the IRC by an IRS officer, reduced by any amount of damages which
would be awarded by IRC § 7426(b), IRC § 7426(h)(1)(A) and the cost of the
action. The new action must be brought within two years of the occurrence as
opposed to the nine months required by the IRC § 7426. Therefore, a third-party
who has failed to bring a third-party action pursuant to IRC § 7426 may still
have a cause of action pursuant to IRC § 7433. The third-party must also have
exhausted administrative remedies to qualify for damages. [Act § 3102(b); IRC §
7426(h); IRC § 7433(d)]


Wrongful collection action

TBR1, effective November 10, 1988, created an entirely new cause of action
against collection officers who abuse their authority. [IRC § 7433] The Act
provides that a taxpayer may sue the United States
if a collection employee “recklessly or intentionally” violates the
Internal Revenue Code. [IRC § 7433(a)] Mere negligent conduct under that Act,
however, was not sufficient to justify a cause of action.

EXAMPLE 1 – A Revenue Officer seizes the assets of the taxpayer’s girlfriend to pay
his taxes. The seizure is made without justification based upon the belief of
the Revenue Officer that the girlfriend holds the property as a nominee of the
taxpayer. The Revenue Officer is guilty of reckless conduct in seizing the
girlfriend’s assets.

EXAMPLE 2 – A Revenue Officer seizes the personal residence of the taxpayer without
prior approval of the Area Director as required by the Code; [IRC § 6334(e)]
The Revenue Officer may be guilty of reckless conduct in failing to obtain the
Area Director’s approval for seizure of the personal residence.

EXAMPLE 3 – A Revenue Officer seizes a business premises without the prior consent
of the owner or a writ of entry issued by a Federal court. The Revenue Officer
may be guilty of reckless conduct for failing to follow proper procedures in
seizing taxpayer’s business premises.


1998 Act revised IRC § 7433 to allow suits for negligent violation of the
Internal Revenue Code in the collection of tax. Prior to this amendment, it had
been very difficult for taxpayers to prove that an IRS employee had
intentionally or recklessly disregarded the Code.




In general

taxpayers may attempt to avoid IRS collection measures by conveying their
property to a third party or “encumbering” it with purported liens or
mortgages. To forestall such actions, the IRS has both statutory and judicial
remedies. Fraudulent conveyances are defined by the Internal Revenue Manual as

A conveyance is deemed fraudulent when real or personal
property is transferred with the object,
intent, or result of such transfer being to place it beyond the reach of the
transferor’s creditors and which operates to prejudice the
rights of such creditors. [IRM 57(16)0.8211



In general

6901 provides that the Service may assess and collect income, estate and gift
taxes from the recipient of a transfer for less than adequate consideration.
IRC § 6901 may not be used to assert liability for collected taxes or excise
taxes unless the transfer was incident to a liquidation. Litigation is not required
to obtain assessments under the provisions of IRC § 6901. Such liabilities may
be assessed and collected in the same manner as the taxes that generated the
transferee assessment. Thus, the liability of a transferee may be made the
subject of a jeopardy assessment. The running of the statu­tory assessment
period is suspended in the same manner as the original tax, and such li­abilities,
including accrued interest thereon, are subject to collection under
administrative collection procedures.


Proposal of liability

transferee cases, the IRS proposes an assessment equal to the lesser of the
value of the property received or the amount of taxes due against a transferee
by merely sending the party a notice similar to an audit deficiency notice. The
putative transferee has the same appeal rights concerning the proposed
liability as a taxpayer confronted with an audit deficiency. In order to assert
the liability, the IRS must meet the tests for fraud in fact or fraud in law.
[See §§ 5:95 to 5:97 of this work]


Issue of state law

6901 provides a method of collecting the unpaid tax liability “at law or
in equity” of a transferee of property. As a general rule, the liability
of the transferee “at law and in equity” is a question of state, not
federal, law.” State law normally governs whether there is a transferee
liability and the extent of liability, but this general principle is subject to
certain qualifications. First, state law may not answer all questions relating
to a transferee’s liability, and second, where a question is not definitively
answered by state law, federal law is consulted. Third, certain transferee
liability issues are not controlled by state law because the supremacy of the
federal government prevents the application of state law. For example, IRC §
6901(c) establishes a Statute of Limitations for the asser­tion of transferee
liability. The Statute of Limitation applies to a claim by the Service, instead
of the shorter state Statute of Limitations required of other creditors to
proceed under the state’s law. Finally, the government need not proceed under
state law to assert statutory transferee liability in all situations.

EXAMPLE 1 – If the Service wished to
collect an estate and gift tax liability, it can proceed under Section 6324, which creates its own transferee liability,
rather than state law. Similarly, where a fraudulent conveyance by a
bankrupt taxpayer is at issue, the Bankruptcy Code would be applicable.




In general

respect to tax liabilities for other than income, estate and gift taxes, the
IRS must initiate a lawsuit against the alleged recipient. The IRS may also
elect to litigate income, estate and gift taxes. The IRS may choose one of two
types of suit.

(1)    A suit to
set aside a fraudulent conveyance; or

(2)    A suit to
establish transferee liability.

In the
former suit, the government merely asks the court to set aside the conveyance
and allow the IRS to proceed against the asset. In the latter suit, the IRS
seeks a judg­ment against the recipient for the value of the property at the
time of the alleged fraudu­lent transfer.


Basis of suit

is no specific federal statute providing for either type of fraudulent
conveyance suit. Each suit is based on the law of the state in which the action
is brought. Governing law is generally that of actual situs of the property.
[C.J.S. page 852] The IRS will litigate its rights in the local United States
District Court. Many states have adopted the Uniform Fraudulent Conveyance Act
and, in such states, the IRS uses it extensively to establish the elements of
its case.”


Types of fraud

In most
jurisdictions, before a transaction may be attacked as fraudulent, prejudice to
the rights of creditors must result therefrom. Two types of fraud in conveyance
are recognized:

  1. Fraud in Fact [see
    §§ 5:100 to 5:102 of this work]—where actual fraudulent intent to hinder and
    delay creditors exists.
  2. Fraud in Law or in
    [see §§ 5:98 to 5:99 of this work]—where the terms of
    any agreement or the nature of the transaction itself
    evidence a conclusive presumption in law that the conveyance is fraudulent.

there is insufficient consideration for the debtor’s transfer of property, even
though there is no proof of intent to defraud, it is presumed “fraud in
law,” which is fraud that is presumed from the circumstances. Even if
there is apparent sufficient consideration for the transfer, “fraud in
fact” may be established if there was a specific intent to defraud




In general

the terms of any agreement or the nature of the transaction itself evidence a
conclusive presumption in law then the conveyance is fraudulent. If there is
insufficient consideration for the Debtor’s transfer of property (which exists
in any transfer to a ben­eficiary from an estate), even though there is no
proof of intent to defraud, it is presumed “fraud in law or in
equity,” which is fraud that is presumed from the circumstances. Even if
there is apparent sufficient consideration for the transfer, “fraud in
fact” may be established if there is a specific intent to defraud

Generally, the elements of fraud in law which
constitute a fraudulent conveyance are: (a)
a gift or sale for less than fair market value, (b) a then-existing or
contemplated indebtedness against the transferor (i.e., accrual of a liability
not assessment), and (c) a retention
of insufficient property by the transferor to pay his indebtedness
(insolvency). There is no need for the Service to establish an evil motive to
assert fraud in law. The Service is
not required to prove intent but merely the three elements. The transferee may in fact have been an innocent recipient, but if
the elements exist, the IRS will prevail.

EXAMPLE 1 – An example would be a father who transfers most of
his assets to a trust
for his children and is later audited and
assessed with a large deficiency for taxes which
had accrued prior to transfer. In such an instance the IRS could attack the
trust because the transfer meets the three tests, even though the father
had no intent to defraud the IRS.


Evil motive

is no need for the Service to establish an evil motive to assert fraud in law.
The Service is not required to prove intent but merely the three elements. The
transferee may, in fact, have been an innocent recipient via a bequest in a
will, but if the three elements exist, the IRS will prevail. An example would
be a father who transfers most of his assets to a trust for his children and is
later audited and assessed’ with a large deficiency for taxes which had accrued
prior to transfer in such an instance, the IRS could attack the trust because
the transfer meets the three tests, even though the father has no intent to
defraud the IRS. Obviously, this could occur in many estate situations where
the decedent had used aggressive estate planning techniques to avoid estate

In a case where husband and
wife, after tax assessments had been made against them, gratuitously conveyed
certain real estate to a trust company as trustee and named the wife the beneficial owner, after which the wife
transferred her beneficial interest to their son, the transfer was held
void and was set aside as against the United States!’



In general

must prove an actual intent to defraud when relying upon fraud in fact to set
aside a conveyance. Courts will look for “badges of fraud” in making
a determination with respect to fraud in fact. Although the badges may amount
to little more than suspicious circumstances, they may be used by a court to
infer a fraudulent conveyance.


Badges of fraud

following is a list of “badges of fraud” which have been used by
various courts to infer a fraudulent conveyance. FIRM 56(16)0.831 et seq.


Inadequacy of Consideration

This is
one of the most important “badges” of fraud. It is generally accepted
that a person cannot give property away if it is to the detriment of creditors.
If some consideration has changed hands, it may be necessary to determine
whether the alleged inadequacy was due to an honest difference or dispute as to
value, or if the consideration was a “cover” for a fraudulent
conveyance. Although the possibility exists of proving that a conveyance was
fraudulent even if consideration did change hands, the presence of adequate
consideration is a strong defense.


Insolvency of Transferor

(1)  It is
important to show that the transferor was either insolvent or heavily indebted.
Any transfer
made in contemplation of insolvency is invalid in the same manner as if there were actual insolvency. Some
authorities feel that a transfer without consideration is presumptive
proof of fraud subject to rebuttal by evidence of honest intent or by evidence
of solvency.

(2)  Insolvency
need not always be proved to establish a fraudulent conveyance. It is usually
sufficient to establish that the transfer did serve to hinder, delay, or defeat
the payment of creditors. However, insolvency is a more important ele­ment of proof, if
constructive rather than actual fraud is being proved.

(3)  Insolvency,
for purposes of this Chapter, means that the transferor’s liabilities
exceed his or her assets.

Transfer of All or Nearly
All of Debtor’s Property

In most
cases this action would leave the transferor without any means of paying
creditors and would be highly indicative of fraud. However, it must be
determined whether this property was transferred in an attempt to pay the
transferor’s debts. If so, there may be no basis to invalidate the transfer
without a showing that the government had legal priority over the cred­itor


Close Relationship Between
Parties to the Transfer

fact that the parties are related does not render the conveyance void per se.
In jurisdic­tions where it would ordinarily be necessary to prove insolvency,
if the transfer is between closely related parties the burden will be on the
grantee to prove solvency. Moreover, the burden of dispelling the implication
of fraud as against pre-existing creditors will be on the grantee if it can be
proved that the grantor is insolvent after having made a voluntary convey­ance
to his or her spouse or child.


Transfer Made in
Anticipation of a Tax or During Investigation of a Deficiency

the law assumes that the transferor should be aware of the existence of his or
her debts. Accordingly, the fact that the tax liability has accrued at the time
of transfer is evi­dence of the debt; furthermore, it is not necessary for an
assessment to have been made.


Transaction Not in the Usual
Course of Business

attempting to void a transfer, it will be helpful to show that the transaction
was not made in the usual course of business. Examples of this would be sales
made outside of usual busi­ness hours; failure of creditor to surrender the
evidence of indebtedness; transferor request­ing cash prior to an inventory of
the goods; failure to record an instrument that would normally be recorded; the
extension of credit for an unusually long period of time to a purchaser without
security; and failure of the transferee to properly inventory goods transferred
to him or her.


Reservation of Any Interest
in the Property Transferred

would be inconsistent with a bona tide transfer. The same is true if the debtor
continues to enjoy the use of the property transferred. It should also be
determined whether there were any promises made by the transferee that could be
of future benefit to the transferor.


Retention of Possession

of possession is important to show a bona tide transfer. Retention of posses­sion
may lead creditors to extend additional credit based on the retained assets.
Retention of personal property is more indicative of fraud than retention of
real property since the docu­ment transferring real property can be recorded.

“Badges” or “Earmarks” That Are Self Explanatory

(1) Transaction surrounded by secrecy.

(2) False or incorrect recital
of consideration.

(3) Failure of transferee to
produce evidence to rebut an accusation of fraud.

(4) False entries in books of transferor or transferee.

(5) Unusual
disposition of the consideration received for the property.

(6) Assessment
of the property for state tax purposes to transferor rather than transferee.

Other factors

addition to the particular badges of fraud set out above, various other
circumstances, singly or collectively, may constitute badges of fraud, such as
the concealment of an alteration in the attestation laws of the conveyance; the
transferee’s failure to keep a rec­ord of the dates and amounts of the loans or
advances made by him to the transferor; failure to demand repayment;
misdescription or insufficient description of the property transferred; sending
the money received from the transfer out of the country; assignment of the
property to the seller rather than the purchaser; and the fact that the
purchaser, soon after the transfer, offered to resell the property at a much
higher price.



In general

order for the IRS to pursue either a judicial or administrative transferee
based on fraud in law, the conveyance must have occurred subsequent to the
accrual of a tax liability. If the taxpayer has conveyed property prior to the
accrual of the tax, the IRS has no cause of action against the transferee
unless it can prove fraud in fact.






Plaintiff, )
vs. )  No.:
)  Plaintiff demands trial by jury.
) Filed Electronically
Defendant. )




Plaintiff, LINDA STONE, by and
through her attorneys, Robert E. McKenzie and Kathleen M. Lach, (Arnstein &
Lehr LLP, of counsel) and for her
action against UNITED STATES
OF AMERICA, to quiet title to certain
property, states as follows:


  1. This is an action to quiet title to certain real
    property on which Defendant United States has claimed a “Nominee or Alter-Ego”
  2. Linda K. Stone (“Plaintiff”) is a resident ofLake County,Illinois.
  3. The subject property is located inLake County,Illinois.
  4. Plaintiff is the owner of the property, and
    currently resides on the property.
  5. Defendant is theUnited States of America.

Jurisdiction and Venue

  1. This Court has jurisdiction over the subject
    matter of this action pursuant to 28 U.S.C. §1340.  The United States has consented to be
    sued in this action by virtue of 28 U.S.C. § 2410(a).
  2. Venue in this Court is proper pursuant to 28
    U.S.C. §1402(c) which provides that any civil action against the United States
    may be brought in the judicial district where the property is located or where
    the event which gave rise to the cause of action occurred.


  1. Plaintiff is the legal and record owner of the
    property (the “Property”) described and located at:


Plaintiff’s ownership is
evidenced by a Quit Claim Deed, dated April 20, 1993, recorded with the Lake
County, Illinois Recorder of Deeds, as Document No. 3317812, attached as
“Exhibit A”.

  1. Defendant has claimed an interest in the
    Property, adverse to Plaintiff.
  2. On June 22, 2011, Defendant filed a Notice of
    Federal Tax Lien (the “Lien”) on the Property described in Paragraph 8.  The Lien was filed against this specific
    asset of Linda Stone, as nominee of Jack Stone.
  3. The Lien was prepared and filed in Schiller Park, Illinois,
    by Revenue Officer Lawrence M. Kagan, an employee of the Internal Revenue
  4. Plaintiff received a copy of the Notice of
    Federal Tax Lien Filing – Nominee or Alter Ego, in a letter dated June 22,
  5. Copies of the Notice of Federal Tax Lien and
    Lien are attached as “Exhibit  B”.
  6. Defendant’s claim is a cloud on Plaintiff’s
    title to the Property; having no force and effect.
  7. The basis of Defendant’s improper Lien filed
    against Plaintiff is the unpaid federal income taxes of Jack Stone, Plaintiff’s
    husband, for tax years 2001, 2002, 2003, 2005, 2006, 2007 and 2008.
  8. Jack Stone transferred to Plaintiff by a quit
    claim deed all right, title and interest in the Property, recorded with the
    Lake County Recorder of Deeds on April 20, 1993. The Property had been held by
    Plaintiff and Jack Stone in joint tenancy since its purchase in 1977.
  9. Prior to
    the transfer, Plaintiff provided Jack Stone with funds to pay older debts,
    including tax debts.
  10. From 1994 forward, Jack and Linda Stone filed
    separate federal income tax returns.
  11. Jack and Linda Stone have been careful about
    keeping their financial affairs separate since Jack Stone has children from a
    previous marriage, and they did not want any legal issues arising in connection
    with estate inheritance matters.
  12. Plaintiff had an independent source of funds in
    the form of inherited monies.  A portion
    of Plaintiff’s inherited funds was used to make improvements on the home.
  13. Plaintiff also loaned funds to Jack Stone, which
    he repaid in part by quit claiming the home to Plaintiff, and also by making
    payments on the home mortgage.
  14. The nominee Lien claimed by the United States
    on the Property is without validity.
  15. Plaintiff, as legal owner of the Property, seeks
    a declaration the United
    States has no right, title, or interest in
    the property which legally belongs to Plaintiff.


WHEREFORE, Plaintiff requests that this Court:

1.         Declare
that the claims of the United
States against the Property are of no

2.         Declare
that Plaintiff is the owner in fee simple of the Property, and that Defendant
United States has no right, title, or interest in the property.

3.         Award
Plaintiff attorneys’ fees and costs of this action pursuant to Internal Revenue
Code §7430.

4.         Award
Plaintiff such other and further relief as the Court deems proper.







    /s/ _______________

By one of her



Robert E. McKenzie

Kathleen M. Lach


Of Counsel:

Arnstein & Lehr LLP

120 South Riverside


Chicago,Illinois 60606

(312) 876-7100

Firm No.  25188








T & Z MEAT INC., ))
Plaintiff, )
vs. )  No.:
)  Plaintiff demands trial by jury.
Defendant. )




NOW COMES, the Plaintiff, T & Z
MEAT INC., by and through their attorneys, Robert E. McKenzie and Kathleen M.
Lach, (Arnstein & Lehr LLP, of counsel) complains against Defendant, the UNITED STATES OF AMERICA,
as follows:


  1. The action arises under 28 U.S.C. §1346(e) and 26 U.S.C. §7426, as herein more
    fully described herein.
  2. Plaintiff
    is T & Z MEAT INC., which operates in Chicago,
    County of Cook,
    State of Illinois.


  1. This cause of action is a wrongful levy suit
    brought pursuant to Internal Revenue Code (“IRC”) §7426(a)(1) which provides
    that any person (other than the person against whom is assessed the tax out of
    which such levy arose) who claims an interest in property and that such
    property was wrongfully levied upon may bring a civil action against the United
    States in a district court of the United States.
  2. Jurisdiction is based upon 28 U.S.C. §1346(e),
    which provides that the District Court shall have original jurisdiction of any
    civil action arising under IRC §7426.
  3. Venue in this Court is proper pursuant to 28
    U.S.C. §1402(c) which provides that any civil action against the United States
    may be brought in the judicial district where the property is located or where
    the event which gave rise to the cause of action occurred.


  1. Vasiliki
    Tountas, d/b/a Chicago Meats, ran a retail market in Chicago through 2009, which failed to meet
    its obligations with MidWest Bank and Trust .
  2. Vasiliki
    Tountas, d/b/a Chicago Meats, also failed to pay its federal employment tax
    obligations for tax periods 9/30.2008 through 3/31/2010.
  3. MidWest
    Bank and Trust filed a foreclosure suit against Vasiliki Tountas d/b/a/ Chicago
    Meats on __.  See Complaint attached
    hereto and made a part hereof as Exhibit A.
  4. A
    receiver, High Ridge Partners, was appointed to step in and run the business
    during the foreclosure proceeding.
  5. During
    the period of time in which the foreclosure proceeding was pending, Anastasios
    Ziabaras contacted MidWest Bank, interested in purchasing the assets of the
  6. Anastasios
    Ziabaras worked out an arrangement with High Ridge Partners to manage the
    business during the foreclosure process.
    See the Management Agreement attached as Exhibit __.  The management agreement took effect on May
    18, 2009.
  7. In
    December, 2009, Anastasios Ziabaras reached an agreement with MidWest Bank to
    purchase the foreclosed assets of Vasiliki Tountas d/b/a/ Chicago Meats from
    MidWest Bank.  The closing binder from
    this transaction is attached hereto and made a part hereof as Exhibit _
  8. Anastasios
    Ziabaras purchased the assest of Vasiliki Tountas d/b/a/ Chicago Meats from
    MidWest Bank.
  9. On April 14, 2011, Defendant United States of
    America by its agency, the Internal Revenue Service (hereinafter, the
    “Service”) issued a levy to Integrity Payment Systems, alleging T & Z Meats
    was an alter-ego of Vasiliki Tountas d/b/a Chicago Meats, for its unpaid federal
    employment tax liabilities, a copy of which is attached hereto as Exhibit A.
  10. The levy
    was issued for unpaid federal employment taxes of Vasiliki Tountas, d/b/a
    Chicago Meat Market.
  11. The levy and/or other potential unknown levies
    continue in effect.
  12. There may be other levies that have been issued,
    but Defendant has refused to provide counsel with copies of those documents.
  13. Further, on April 14, 2011, Defendant issued to
    Plaintiff a Notice of Federal Tax Lien Filing-Nominee Lien or Alter –Ego.  A copy of the Notice is attached hereto and
    made part hereof as Exhibit __.
  14. Plaintiff
    is entitled to and is the rightful owner of the funds in its accounts.
  15. Payments
    are utilized and relied upon to pay, among other things, its employees, payroll
    tax obligations, and vendors.
  16. The
    levy has caused irreparable harm not only to Plaintiff but also to its
    employees, and the continued levy puts its employees at risk of losing their
  17. Defendant has failed and refused to release the
    levied funds.
  18. Defendant has refused to even explain the basis
    of its attempt to claim Plaintiff is an alter-ego of Defendant.
  19. The revenue officer assigned to this case is Mr.
    Rogers, from the 230 S. Dearborn, Chicago, IRS
    collection division.
  20. The acting manager approving the Revenue
    Officer’s decision is Ms. Hallas of the same office.
  21. Both Mr. Rogers and Ms. Hallas, after having
    been presented the closing binder for the sale of the property from MidWest
    Bank to Plaintiff, stated that the material was irrelevant, and the transaction
    was not an “arms length” transaction.
  22. Defendant has appealed to the assigned Internal
    Revenue Service revenue collection officer, his manager, the Territory manager,
    and the Internal Revenue Service Taxpayer Advocate, and its requests for
    release of the levy have been repeatedly denied.
  23. The Plaintiff has no adequate remedy at law to
    prevent the purported seizure and the Plaintiff will continue to suffer
    irreparable harm if the funds are not immediately returned, and no further levy
    action is taken.
  24. Each day that the funds in Plaintiff’s account
    are frozen represents a day wherein it is prevented from paying its ongoing
    obligations including payroll, taxes, utilities, landlord, and vendors.


the Plaintiff prays that this Honorable Court grant the following relief:


  1. Enter a preliminary injunction enjoining the
    Internal Revenue Service from issuing any further levies during the pendency of
    this suit.
  2. Enter a judgment ordering a release of the levy
    on the above-described property and ordering Defendant to return the any levied
    property/funds to Plaintiff.
  3. Award the Plaintiff’s attorney’s fees and costs
    pursuant to IRC §7430.
  4. Such other and further relief as this Court
    deems just.


Respectfully Submitted,




One of its Attorneys



Robert E. McKenzie

Kathleen M. Lach


Of Counsel:

Arnstein & Lehr LLP

120 South Riverside


Chicago,Illinois 60606

(312) 876-7100

Firm No.  25188







T & Z MEAT INC., ))
Plaintiff, Plaintiff, )
vs. )  No.:
) Honorable Ronald A. Guzman
) Magistrate Young B. Kim
Defendant. )




TO:      See attached Service List


            PLEASE TAKE NOTICE that on Tuesday,
May 3, 2011 at 9:30 a.m. or as soon thereafter as counsel may be heard, we will
appear before the Honorable Ronald A. Guzman, or any judge sitting in his
stead, in Courtroom 1219 of the Dirksen Federal Building, 219 S. Dearborn St.,
Chicago, Illinois, and then and there present the attached Emergency Motion for
Temporary Restraining Order and Permanent Injunction.

Respectfully Submitted,


T & Z Meats INC.

    /s/ ______________

By:   One of its Attorneys

Robert E. McKenzie

Kathleen M. Lach

Of Counsel:

Arnstein & Lehr LLP

120 South Riverside


Chicago,Illinois 60606



The undersigned, ____________, an attorney, certify that I served a copy of the
attached Notice of Motion and Plaintiff’s Emergency Motion for Temporary
Restraining Order and Permanent Injunction upon the attached Service List by
serving a copy of the aforementioned upon the persons listed by using the
CM/ECF system or by placing same in the U.S. Mail via Certified Mail as
specified on the attached Service List before the hour of 5:00 p.m. on this the
28th, April, 2011.


Mr. Patrick Fitzgerald

United StatesAttorney for the Northern
District of Illinois

219 South Dearborn Street


Chicago,Illinois 60604


Via Certified Mail:

Mr. Eric H. Holder

U.S. Attorney General

U.S.Department of Justice

950 Pennsylvania Avenue, NW

Washington,D.C. 20530-0001

Mr. Eric H. Holder

U.S.Department of Justice

P.O. Box 55

Ben Franklin Station


Revenue Service


Washington,D.C.  20224

Ms. Miriam Howe

Office of Area Counsel

Internal Revenue Service

200 West Adams Street

Chicago,Illinois 60606

Also by email and facsimile to:

L. Strup


U.S.Department of Justice,
Tax Division

P.O. Box55

Washington, D.C.

514-6058/Fax: (202) 514-5238







Mr. Eric H. Holder

U.S. Attorney General

U.S.Department of Justice

950 Pennsylvania Avenue, NW

Washington,D.C. 20530-0001


Mr. Eric H. Holder

U.S.Department of Justice

P.O. Box55

Ben Franklin Station

Washington, D.C. 20044


Internal Revenue Service

Chief Counsel

Washington,D.C.  20224


Ms. Miriam Howe

Office of Area Counsel

Internal Revenue Service

200 West Adams Street

Chicago,Illinois 60606


Mr. Patrick Fitzgerald

United StatesAttorney for the Northern
District of Illinois

219 South Dearborn Street


Chicago,Illinois 60604


Nathan L. Strup

Trial Attorney

U.S.Department of Justice, Tax Division

P.O. Box55

Washington, D.C.

(202) 514-6058/Fax: (202)








)Plaintiff,Plaintiff,)  )vs. )  No.:
11-cv-02699  )  ) Honorable Ronald A. GuzmanUNITED
STATES OF AMERICA)  ) Magistrate Young B. Kim Defendant.)







NOW COMES, the Plaintiff, T & Z
Meat Inc., by and through its attorneys, Robert E. McKenzie and Kathleen M.
Lach, (Arnstein & Lehr LLP, of counsel) and for this Motion for Temporary
Restraining Order and Permanent Injunction, states as follows:


  1. The action arises under 28 U.S.C. §1346(e) and 26
    U.S.C. §7426 for wrongful levy by the Internal Revenue Service (the “Service”)
    of Plaintiff’s funds.
  2. The Complaint was filed on April 22, 2011.
  3. Funds (credit card payments) due to Plaintiff have
    already been taken by Defendant, and Plaintiff’s bank accounts are frozen.
  4. The continued levy threatens the ongoing viability
    of this small business.





  1. Plaintiff purchased the assets of Vasiliki Tountas,
    d/b/a Chicago Meats (hereinafter “Tountas”) following the initiation of a
    foreclosure action by Midwest Bank and Trust Company (“Midwest”).
  2. Plaintiff purchased the assets fromMidwest.
  3. Tountas ran into financial difficulties while
    running the business, causing the foreclosure action by Midwest,
    and also incurring significant federal tax liabilities.
  4. During the period of time in which the foreclosure
    proceeding was pending, Anastasios Ziabaras, contacted Midwest,
    and expressed an interest in purchasing the assets of the business.
  5. Anastasios Ziabaras worked out an arrangement with
    the receiver appointed by the Court, High Ridge Partners, to manage the
    business during the foreclosure process.
  6. In December, 2009, Anastasios Ziabaras reached an
    agreement with Midwest to purchase the foreclosed assets of Tountas fromMidwest, and later formed T & Z Meats Inc.
  7. Defendant has improperly issued the
    nominee/alter-ego lien and levy, causing significant harm to Plaintiff and its
    ability to continue in business.


the Plaintiff prays that this Honorable Court grant the following relief:


  1. Enter a temporary restraining order enjoining the
    Internal Revenue Service from issuing any further levies or receiving any
    levied funds during the pendency of this suit.
  2. Enter an order of permanent injunction against
    Defendant for funds due to Plaintiff.
  3. Such other and further relief as this Court deems



Respectfully Submitted,


T & Z Meats INC.

    /s/ ___________


By:   One of its Attorneys



Robert E. McKenzie

Kathleen M. Lach


Of Counsel:

Arnstein & Lehr LLP

120 South Riverside


Chicago,Illinois 60606

(312) 876-7100

Firm No.  25188




The undersigned, Kathleen M. Lach, an
attorney, certifies that a true and correct copy of the foregoing was served by
with the clerk
of the United States District Court for the Northern District of Illinois using
the CM/ECF system which will send notification of such filing to the following:


Mr. Eric H. Holder

U.S. Attorney General

U.S.Department of Justice

950 Pennsylvania Avenue, NW

Washington,D.C. 20530-0001


Mr. Eric H. Holder

U.S.Department of Justice

P.O. Box 55

Ben Franklin Station



Internal Revenue Service

Chief Counsel

Washington,D.C.  20224


Ms. Miriam Howe

Office of Area Counsel

Internal Revenue Service

200 West Adams Street

Chicago,Illinois 60606


Mr. Patrick Fitzgerald

United StatesAttorney for the Northern
District of Illinois

219 South Dearborn Street


Chicago,Illinois 60604



    /s/ _____________









) Plaintiff,)  )vs. )  No.: 11-cv-02699  )  ) Honorable Ronald A. GuzmanUNITED STATES OF AMERICA)  ) Magistrate Young B. Kim Defendant.)




matter coming before the Court on Plaintiff T & Z Meat Inc.’s Emergency
Motion for Temporary Restraining Order and Permanent Injunction, and Defendant
United States of America’s opposition thereto, counsel for Plaintiff and Defendant appearing in open court; the Court
having heard oral argument from both parties and the Court finding the
requirement for issuance of this Temporary Restraining Order have been met by


  1. Plaintiff’s request  for Temporary Restraining Order is granted as
    provided herein;
  2. Defendant is enjoined for 14 days, beginning on
    the date this order is entered, from the issuance or filing of any further
    notices of federal tax liens or levies against of T & Z Meat Inc. as the
    alter-ego of Vasiliki Tountas d/b/a Chicago Meat Market;
  3. Defendant, through the Internal Revenue Service,
    shall issue releases of all outstanding levies and property subject to levy
    issued against the assets of T & Z Meat Inc. as alter-ego of Vasiliki
    Tountas d/b/a Chicago Meat Market, and contact, by telephone, the recipient of
    such levies and advise them of such releases; and,
  4. Plaintiff shall, by no later than close of
    business on Monday, May 9, 2011, and on an ongoing basis going forward during
    the pendency of this action, disclose and produce to Defendant’s counsel
    complete and accurate copies of its books and records, whether in paper or
    digital form, including, but not limited to, all financial statements, balance
    sheets, income statements, accounting ledgers, accounting journals, and any
    other accounting documents, payroll records, checks received by Plaintiff,
    checks issued by Plaintiff, bank account statements, merchant payment accounts,
    loan documents and account statements, online payment accounts, and state,
    local, and federal tax returns.
    Plaintiff shall not wait or withhold such disclosures and productions
    until all the aforementioned materials are gathered, but rather shall
    immediately begin complying with the requirements set forth in this
    paragraph.  Plaintiff on an ongoing basis
    going forward, during the pendency of this action, shall provide Defendant’s
    counsel with monthly updates of the above referenced books and records.





____________                                 ________________

Date                                                    Judge
Ronald A. Guzman






Robert E. McKenzie

Kathleen M. Lach

Of Counsel:

Arnstein & Lehr LLP

120 South Riverside


Chicago,Illinois 60606

(312) 876-7100

Firm No.  25188








Portions Reprinted from








Robert E. McKenzie








All Rights Reserved





Lojeski v. Boandl, 788 F.2d 196 (3ed
Cir. 1986)

Horton Dairy, Inc. v. U.S.,
986 F.2d 286 (8th Cir. 1994); Miller v. Tony and Elizbeth Alamo
Foundation, 924 F.2d 143 (8th Cir. 1991)

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