Stubborn People - Gotta Love Them

Originally Published on forbes.com on September 3rd,2011

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Welcome to Collection

One of my persistent themes is that there are two distinct areas of tax administration and practice – tax determination and collection.  (There is actually a third area which involves agents who carry guns and can arrest you, but I stay away from that area).  In collection matters there is rarely a question of what the correct tax is.  It is about RCP – reasonable collection potential.  Most of us file timely returns and make timely payments.  Have you ever wondered what would happen if you chose to file but not pay.  Will a team of IRS commandos parachute into your back yard and loot your house to stage a yard sale till the balance is recovered ? Perhaps they will subject you to the “treatment” that Montgomery Clift received for refusing to box in From Here to Eternity.  The latter is a little more like it, but it probably won’t end with Burt Lancasterstanding over your dead body talking about what a hard head you were.

Annoying Mail

First off, you will get a lot of annoying mail.  I suggest that you not throw any of it away.  At some point you are going to need help.  You will help your helper greatly by providing her with a copy (not the originals – keep those) of everything the IRS has mailed you in reverse chronological order.  If the balance including accumulated interest and penalties does not go above $10,000 and you don’t act like an asshole by mailing in copies of the Constitution and the Articles of Confederation and your statement that you are a sovereign or some other nonsense, there is a good chance nothing else will happen beyond the annoying mail.  Hold out for ten years and the statute of limitations on collections will expire and you are done. 

Liens and levies

Interest and penalties can add up though particularly over 10 years.  Even if you start small there is a good chance that you will get over $10,000 and the $10,000 is a guideline, not a bright line test, so you have to watch the annoying mail carefully.  At some point you will get something more ominous. Included along with it will be a notice of your rights, which will look something like this. Collections people don’t carry guns and can’t arrest you (Don’t plan your tax resistance strategy around this apparent weakness on their part.  They can request an armed escort from CID).  They can make your life pretty miserable though with two tools – liens and levies.  Liens publicly record yourdebt to the IRS so you won’t be able to sell your property and even Suze Orman will have a hard time fixing your FICO score.  Levies are even worse.  They actually take your stuff and tell people that owe you money to pay them instead, including your employer.  It is a very bad idea for those people to keep paying you what the IRS says it is theirs, because then your problem will become their problem.

Form 12153 – Favorite Form of the Hard Head

Before they can do any of that stuff though, you have the right to a hearing.  You only have thirty days to file for the hearing from the time you get notice, which makes it critical that you monitor the annoying mail.  You get your hearing by filing Form 12153.  This is where you might need help although many people do it themselves.  If you don’t like the result of the hearing, you can appeal to Tax Court.  Remember you are not arguing about the correct tax.  You are arguing about how much you are going to pay. A hearing officer offered to let John Churchill out of half of his $250,000 tax debt accumulated over 13 years and pay the balance over 8 years.  Too much.  He wanted to pay $2,500 and be done.  The Tax Court remanded the case back to the IRS because he had divorced in the interim.  If you are a stubborn person and just don’t want to pay be sure to keep a Form 12153 handy.

Developments

I follow developments in the collections area for two reasons.  One is that I occasionally practice in that area because it is possible for compliant taxpayers to fall into it either through inattention, IRS snafus or financial disaster.  The other is that it provides great stories with much matter for reflection and often humor.  The most disturbing thing about collections cases is that they sometimes make me think that the income tax really is voluntary – at least for hard heads  The most extreme case I have seen was an innocent spouse case of a deceased spouse of a deceased hard head.  Her estate was relieved of liability for income taxes dating back 40 years (The ten year statute of limitations on collections can be suspended in a variety of ways).  I wrote about that case in a guest post on 21st Century Taxation.

What’s The Latest ?

Some stubborn people don’t like to use the mail.  If you don’t want to pay the tax, are you going to let them make you pay for a GD stamp ?  Besides you want to be able to look them in the eye when you tell them you are not paying.  In PMTA 2011-14 the IRS ruled that even though they tell you to mail Form 12153 to a specific IRS address (one of their “campuses”) hand delivering the form to a Taxpayer Assistance Center will constitute timely filing:

TAC employees have even been authorized to receive tax returns that have been hand delivered. IRM 21.3.4.8(1). Therefore, when a CDP hearing request is required to be filed at a campus, but is instead hand carried to a local TAC employee, the request should be deemed timely so long as the date of delivery is not after the applicable 30-day filing period, even though the hearing request is not actually filed with the campus as directed on the CDP Notice. Upon receiving a hand carried request, the TAC employee should date stamp and initial the hearing request, and then forward the hearing request, preferably by fax, to the proper filing location. All CDP hearing requests received by the local IRS TAC should be promptly forwarded to the campus in order to ensure that unauthorized collection action is not taken.

It is generally not a good idea to get close to deadlines particularly in this area.  I don’t know all the ins and outs of your FICO score, but I suspect that an IRS lien, that is issued in error and then withdrawn, will still louse it up.  I’ll have to ask Suze Orman about that next time I see her.

Warning – Don’t Try This at Home

I know that some people get in tax jams from disasters of one sort of another, but, quite often, tax problems are the tip of the iceberg of other forms of financial irresponsibility.  Income taxes are roughly progressive until you get into Warren Buffett’s realm when they go down.  You should be able to organize your life to live on your after-tax income as most people do.  Reading collections cases makes me a little upset that the Taxpayer Bill of Rights has turned the IRS into something of a paper tiger so that some of the hard heads end up not paying.  Don’t forget about that third group of agents that carry guns and can arrest you.  Tax evasion is a crime.