A blog post

The Collections Appeal and Pace

Posted on the 27 July, 2012 at 1:23 pm Written by in Taxes

This past Tuesday I submitted financial and other information regarding a collections appeal with an IRS officer in California. We have several clients with unpredictable income streams, and this client is one of them. We are pursuing something called a “manually monitored installment agreement,” which allows for changes in an IRS payment plan as one’s income varies. It can be difficult to obtain. In fact, a revenue officer I often work with informed me that this type of agreement was “above his grade.” That comment struck me as odd and is something I intend to follow-up on.

Back to our client. I was concerned as time was running out, and the client did not seem to register the urgency of the matter. I am working within a compressed time period. To her credit, the IRS officer showed patience and goodwill. She was within her rights to be much stricter with me, but she agreed to move the file and hearing back to Cincinnati. I was greatly relieved, as Rick wanted the file here.

“How much more do they want?” “They have everything.” “What are they going to do if I don’t?” These are all common questions. So much so I should just post the questions and answers on my office wall to save time.   

Today let’s talk about this part of IRS representation: the collections appeal. Let’s also talk about Pace v Commissioner, who got himself into collections appeal and perhaps should have been less confrontational and more forthcoming.

Your entry into the IRS will likely be through Examinations. This step is what we consider the “audit”, although these days the whole matter may be handled through the mail. The IRS is becoming fond of computerized matching, for example, as Congress provides it with ever-more tax reporting for anything that you do. Such is the new audit, I guess.

If you owe money your file will be transferred to Collections. Collections will send you a bill, and you will be working with Collections if you want a payment program, a cannot-collect status or an offer in compromise. The problem with Collections is that they are not really interested in the how-and-whys of you getting there, but they are very interested in getting money from you. They can back this up by garnishing your wages, liening your assets, levying your bank account or terminating your installment plan. Collections appeal exists as a safety valve for these more-aggressive collection actions. It takes your file out of Collections and gives it to an appeals officer. You have a chance to present information – geared to writing the IRS a check, of course – to someone who may be less “eager” to separate you from your last dollar at the earliest possible chance.

Perhaps you are talking to the appeals officer about delaying payments while you look for work, about setting up a payment plan, or having the IRS restart a payment plan they decided to terminate. Understandably, that appeals officer is going to want to know your finances. You will be sending him/her a Form 433-A or B, which is a listing of your assets and your earnings and expenses for (at least) the last three months. He/she will also want copies of bank statements as well as of significant bills, like your mortgage or car payments. You may have to send them a copy of your broker statement, for example, if you have a few dollars invested in the market. None of this is surprising. What if you don’t provide what he/she wants? Well, he/she can stop working with you and throw you back into the Collections pool. For you to do this seems self-defeating, doesn’t it? With that, let’s talk about Pace.

Pace operated a chiropractic business through a corporation (Dauntless). Pace fell behind on his 2006 and 2007 taxes. The IRS sent a Final Notice of Intent to Levy.  Pace did the right thing and requested a collection due process (CDP) hearing to discuss a collection alternative. The appeals officer requested a 433-A and B. During this process the officer learns that Pace is associated with two more entities – Achievement Therapeutic Services LLC (Achievement) and Kenneth D. Pace LLC (KDP). The officer requests a 433-B for them, as well as evidence that they are up-to-date on their tax filings. Pretty routine.

Pace provides none of it. He does have an argument. Whereas he is the registered agent for both, he has derived no income from these two entities, and he does not think producing any information regarding them is appropriate.

NOTE: Me? I think I can still play linebacker for the Bengals this upcoming football season.

The collections appeal hearing takes place.  Tell me, if you were the appeals officer, what would you do?

The appeals officer threw Pace back into Collections for their tender mercies, that is what he did. Pace next goes to Tax Court.

My Take: Pace is bonkers. I would have provided the IRS with copies of tax returns for Achievement and KDP, if tax returns existed. If the entities were dormant, then I would have discussed that fact with the appeals officer and asked what he considered a reasonable next step.  By not doing so, the Tax Court decided that Pace was the one being unreasonable.  Being unreasonable, Pace lost his case.