The Internal Revenue Service (IRS) recently announced that it updated the Dirty Dozen, the agency’s list of consumer alerts for scams designed to target innocent taxpayers with fraudulent schemes. Historically, the list included obviously illegal plots to defraud taxpayers in various ways, including IRS impersonation scams, email attacks, ID theft, and Social Security Numbers, etc.
The news release announcing a change to the Dirty Dozen list goes well beyond merely alerting taxpayers to illegal schemes. The statement blatantly encourages citizens to avoid consulting counsel with regard to a delinquent tax problem.
Is the IRS attempting to chill one’s constitutional right to counsel?
For reference, there are millions of people facing assessments of unpaid taxes. When such assessments are not immediately paid, citizens face enforced collection, including wage and bank levies, property seizures and tax liens. These citizens also face the assessment of penalties and interest, which often double or triple the amount of the original tax.
Most people are unaware of the various programs available to mitigate enforcement action and in certain cases, reduce or eliminate one’s debt. Such programs include, among other things, an installment agreement, penalty abatement relief, audit reconsideration appeals, etc.
The IRS’s flagship settlement program is known as the Offer in Compromise (OIC). An OIC allows a qualifying citizen to reduce one’s tax debt in any one of four circumstances. Most commonly, an OIC is used when the tax cannot be paid due to lack of sufficient income or equity in assets.
This is the program the IRS specifically targeted when encouraging delinquent citizens to avoid consulting counsel. The news release headline says it all: “IRS urges anyone having trouble paying their taxes to avoid anyone claiming they can settle tax debt for pennies on the dollar…” This plainly suggests that a claim of the ability to settle one’s debt for less than is owed is fraudulent.
But it’s the headline itself that’s misleading. The IRS’s own website plainly states that the OIC program “…allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability or doing so creates a financial hardship. * * *”
This language defies the news release’s allegation that tax pros offering OIC representation “make outlandish claims” that they are able to “settle a person’s tax debt for pennies on the dollar.” But that’s exactly what the program allows one to do, as explained by the IRS’s own website. If one owes $100,000, but can pay just $10,000, he may can settle through an OIC for ten cents on the dollar—i.,e., “pennies on the dollar.”
Even worse than suggesting that OIC settlement claims are per se bogus is the claim regarding the IRS’s ability to help. Commissioner Rettig is quoted as saying, “No one can get a better deal for taxpayers, than they can usually get for themselves by working directly with the IRS to solve their tax issues.” Does anybody really believe that the IRS is going to “get you a deal” if you just ask for it? In other words, Rettig suggests that people should avoid getting independent professional help. Instead, they should take to heart the old adage that promises, “I’m from the government and I’m here to help.”
Imagine the outrage of the A.C.L.U. if any state or local law enforcement agency issued an announcement saying nobody ever need consult counsel when dealing with such agency, because no lawyer can get them a better deal than “they can get for themselves.”
Rettig goes on to say that, “Taxpayers can check online for their best deal…” And though it’s true that the OIC is discussed on the IRS’s website, it’s equally true that the site provides no specific instructions on how to prepare, submit, argue, negotiate, or appeal an OIC. Moreover, it is impossible to submit an OIC online because one must be filed in writing only with the IRS’s Centralized Offer in Compromise (COIC) Unit, which is a specialized group of examiners who work only Offer cases. Thus, the idea that one can win an OIC online is completely inaccurate and misleading.
The commissioner follows with a statement lacking any credibility whatsoever. He says that (in additional to checking on line), taxpayers can call a “…specialized collection line where they can get fast service by using voice and chat bots or opting to speak with a live phone assister.”
We all know there’s no such thing as “fast service” when it comes to calling the IRS. Wait times for collection representatives are just about as bad as they can be. But even you were able to get a call answered quickly, there’s no such thing as a “specialized collection line” for OICs. As stated, they must be submitted in writing and are handled exclusively by COIC Unit examiners. It is simply impossible to get an OIC accepted over the phone of through the website.
How about the claim that taxpayers can get their best deal “by using voice and chat bots”? Is the commissioner suggesting that citizens can use the agency’s artificial intelligence tools to win acceptance of an OIC? This too is simply impossible, not just for the reasons already stated, but because every person’s financial facts and circumstances are unique. OICs take into account the totality of one’s personal and business financial circumstances as reflected in a lengthy financial statement that must be submitted with the OIC application. Most citizens are unable to navigate the byzantine financial statement without experienced counsel.
People in tax trouble generally find out the hard way that the IRS does not work like other law enforcement agencies. When dealing with the IRS, the burden of proof is on you. When it comes to an OIC, you must prove you qualify for the program and that the amount offered is the most you can reasonably expect to pay under the circumstances. The IRS doesn’t have to prove you don’t qualify.
And there’s the rub. The OIC program is controlled by Internal Revenue Code section 7122 and regulations thereunder, along with the massive Internal Revenue Manual, which has a lengthy chapter dedicated to the processing, evaluation, investigation, and acceptance or rejection of an OIC—plus the appeal rights associated therewith. This means that people often need professional help to get through the IRS’s labyrinth of rules, regulations, procedures, forms, and instructions.
To suggest that one can get an OIC using “voice and chat bots” controlled by artificial intelligence is, at best, a farce.
One might ask what might be driving the IRS’s effort to chill the right to counsel. After all, the right to counsel is one your ten essential taxpayer rights, as expressed in code section 7803(a)(3). My answer is to point to the tax gap. The IRS and the Treasury Department are apoplectic over the reported tax gap of $400-plus billion. They’re promising more agents, increased audits, and more aggressive enforcement to get the money.
On the other hand, an accepted OIC means the citizen actually pays less in taxes than he otherwise might. In 2020 and 2021 respectively, the IRS accepted just about 15,000 OICs. In every single case, the settlement meant the taxpayer paid less than was owed. The IRS does not tell us how much was written off, but it must have been billions of dollars. And they want the money.
By chilling the right of representation, and in turn inducing people to simply call the IRS to “make their best deal,” the IRS will force more people into long term installment agreements which they often cannot afford. Such agreements often make matters worse because people end up using current tax revenue to pay their back tax debt, which only leads to more delinquent years.
Make no mistake about it. The IRS is working to chill your right to counsel by branding all tax pros as frauds and scammers. They’re doing it because they intend to make every effort to squeeze blood from a turnip.
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