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IRS Written Advice Abatement Procedures | IRS Tax Lawyer

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This is the concluding article in our series of articles on the topic of the IRS Written Advice Defense. In prior articles, we have outlined the general legal test of the IRS Written Advice Defense and described each of the three prongs of this test. In this article, I would like to discuss the IRS Written Advice Abatement Procedures – i.e. the actual administrative process for requesting abatement of penalties based on this defense.

This article is for educational purposes only and I strongly encourage you to retain the services of an experienced tax attorney before engaging in the IRS Written Advice Abatement Procedures.

IRS Written Advice Abatement Procedures: Form 843

The centerpiece of the IRS Written Advice Abatement Procedures is Form 843. Taxpayers who are entitled to an abatement of penalties pursuant to 26 U.S.C. §6404(f) should complete and file Form 843. At the top of Form 843, taxpayers should write: “Abatement of penalty or addition to tax pursuant to section 6404(f).” Furthermore, taxpayers should state on Form 843 whether the penalty or addition to tax has been paid.

IRS Written Advice Abatement Procedures: Documents to Be Submitted with Form 843

The taxpayers must submit copies of the following documents together with their Form 843 (note that these documents are directly related to the three-prong legal test for the IRS Written Advice Defense):

1. A copy of the taxpayer’s written request for the IRS advice (with a statement of adequate and accurate facts);

2. A copy of the erroneous written advice provided by the IRS to the taxpayer and relied upon by the taxpayer; and

3. A copy of a report (if any) of tax adjustments (the report should identify the penalty or addition to tax and the item for which the erroneous IRS written advice was requested).

In addition to these required documents, I recommend that most of Form 843 abatement requests be accompanied by a detailed description of facts, the erroneous IRS written advice, the taxpayer’s reliance on this advice and how this reliance led to the imposition of a penalty.

IRS Written Advice Abatement Procedures: Time Limitations for Filing Form 843

The IRS regulations also address the issue when Form 843 should be submitted in order to be considered a timely request for abatement. The regulations specified that any abatement of a penalty or addition to tax pursuant to 26 U.S.C. §6404(f) will be permitted only if the request for such an abatement “is submitted within the period allowed for collection of such penalty or addition to tax, or, if the penalty or addition to tax has been paid, the period allowed for claiming a credit or refund of such penalty or addition to tax.” Treas. Reg. §301.6404-3(e).

IRS Written Advice Abatement Procedures: Where to File Form 843

The mailing address of Form 843 depends on whether the incorrect IRS advice is related to an item on a federal tax return. If the advice is related to an item on the taxpayer’s tax return, then Form 843 should be submitted to the IRS center where the tax return was originally filed. On the other hand, if the erroneous IRS advice is not concerning any item of the taxpayer’s federal tax return, then the taxpayer should submit Form 843 to the IRS Center where the taxpayer’s return was filed for the taxable year in which the taxpayer relied on the erroneous advice.

Contact Sherayzen Law Office for Professional Help With Respect to Abatement or Reduction of IRS Penalties

If the IRS imposed a penalty with respect to your prior noncompliance with US international tax returns, such as FBAR, Forms 926, 3520, 5471, 5472, 8621, 8865, 8938, et cetera, contact Sherayzen Law Office to explore your IRS penalty reduction options. Sherayzen Law Office is an international tax law firm that has helped US taxpayers around the world to deal with these penalties. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

IRS Written Advice Defense & The Written Request | Tax Lawyers MN

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This article is a continuation of the series of articles on the IRS Written Advice Defense. In the first article of this series, I outlined the legal test for the Defense. The second article of the series focused on the first prong of that test. In this essay, I would like to briefly highlight the second prong of this legal test: the IRS written Advice must be issued in response to a taxpayer’s written request.

IRS Written Advice Issued in Response to Written Request by the Taxpayer

This second prong of the IRS Written Advice Defense is not as simple as it seems at first. The main issue here is when a specific written request is considered to be made by a taxpayer. Obviously, if the taxpayer writes a written request himself, it was made “by a taxpayer”. What about a request made by a taxpayer’s representative?

The IRS regulations state that a written request from a taxpayer’s representative shall be considered a “written request by the taxpayer” only if two conditions are met. First, a taxpayer’s representative must be “an attorney, a certified public accountant, an enrolled agent, an enrolled actuary, or any other person permitted to represent the taxpayer before the Service and who is not disbarred or suspended from practice before the Service.” Treas. Reg. §301.6404-3(b)(3).

Second, “the written request for advice either is accompanied by a power of attorney that is signed by the taxpayer and that authorizes the representative to represent the taxpayer for purposes of the request, or such a power of attorney is currently on file with the Service.” Id.

The Written Request for the IRS Written Advice Must Be Properly Made

In a future article, I will describe the property abatement procedure with which the taxpayer’s written request must comply. For the purposes of this essay, I just wish to point out that this is the second major issue concerning written requests for the IRS Written Advice.

Contact Sherayzen Law Office for Professional Help With Your IRS Written Advice Defense And Any Other Reasonable Cause Defense

If the IRS has imposed penalties as a result of an audit of your tax return or FBAR, contact Sherayzen Law Office for professional help. We have helped US taxpayers around the world to deal with their IRS penalties, and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

IRS Written Advice Defense: Reasonable Reliance | International Tax Lawyer

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In a previous article, I outlined the three-prong legal test of the IRS Written Advice Defense. This article aims to explore the first prong of that test: the IRS written advice was reasonably relied upon by the taxpayer. In particular, I would like to explain two important concepts of this part of the test: “advice”and “reasonable reliance”.

IRS Written Advice Defense: Advice

In the context of the IRS Written Advice Defense, “advice” is not just any written response provided by the IRS. Rather, for purposes of the IRC section 6404(f), a written response issued to a taxpayer by the IRS “shall constitute ‘advice’ if, and only if, the response applies the tax laws to the specific facts submitted in writing by the taxpayer and provides a conclusion regarding the tax treatment to be accorded the taxpayer upon the application of the tax law to those facts.” Treas. Reg. § 301.6404-3(c)(1).

IRS Written Advice Defense: Reasonably Relied Upon

The IRS Written Advice Defense can only work if the taxpayer actually reasonably relied upon the advice furnished by the IRS – i.e. the taxpayer took an action or failed to act in response to the advice. One of the main issues here is the timing of the taxpayer’s reliance.

In situations related to an item on a taxpayer’s federal tax return, if an IRS advice was received after the taxpayer already filed his original return, the IRS Written Advice Defense is likely to fail because the IRS will not consider the taxpayer’s post factum reliance on its advice as reasonable.

There is an exception, however, with respect to situations where the taxpayer took action in response to the IRS advice and filed an amended tax return. As long as the amended return conforms with the IRS written advice, “the taxpayer will be considered to have reasonably relied upon the advice for purposes of the position set forth in the amended return.” Treas. Reg. §301.6404-3(b)(2)(iii).

Similarly, in cases where an IRS written advice is furnished with respect to an item unrelated to a federal tax return (e.g. estimated tax payments) and it is furnished before the taxpayer acted or failed to act on the item that caused the imposition of IRS penalties, the IRS will again not consider the taxpayer’s reliance as reasonable or timely.

IRS Written Advice Defense: Duration of the Period of Reliance

It is also important to remember that a period of reliance on the IRS written advice only lasts until the taxpayer is put on notice that the advice no longer corresponds to the IRS position. The question is: what does being “put on notice” mean?

There are five situations which will end the taxpayer’s period of reasonable reliance on the IRS advice as long as they occur subsequent to the issuance of the advice by the IRS:

(a) the taxpayer receives a letter from the IRS stating that the advice no longer reflects the IRS position;

(b) a tax treaty is enacted or a new tax law was passed and both of these events concern the item with respect to which the IRS advice was issued;

(c) A decision of the United States Supreme Court;

(d) The issuance of temporary or final regulations by the IRS ; or

(e) The issuance of a revenue ruling, a revenue procedure, or other statement by the IRS that was published in the Internal Revenue Bulletin.

Contact Sherayzen Law Office for Professional Help With Your IRS Written Advice Defense And Any Other Reasonable Cause Defense

If the IRS imposed penalties as a result of a tax return or FBAR audit, contact Sherayzen Law Office for professional help. Taxpayers around the world have learned to trust Sherayzen Law Office to bring their US tax affairs in order and rigorously defend them against the imposition of FBAR and other penalties related to the US international information returns. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

4th Quarter 2017 Underpayment, Overpayment & PFIC Interest Rates

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On September 8, 2017, the IRS announced that the 4th Quarter 2017 underpayment and overpayment interest rates will remain the same as they were in the third quarter of 2017. The IRS underpayment interests also govern the PFIC interest rates under the default Section 1291 method of calculation. PFIC interest rates are very important not only to taxpayers who currently hold PFICs, but also to the US taxpayers who are participating in the Streamlined Domestic Offshore Procedures and, to a lesser extent, the IRS Offshore Voluntary Disclosure Program (“OVDP”) now closed.

Recent History of the IRS Underpayment, Overpayment and PFIC Interest Rates

Following the global financial meltdown, the Federal Reserve quickly dropped its interest rates to almost zero. The IRS underpayment, overpayment and PFIC interest rates are set to follow the Federal Reserve short-term rates on a quarterly basis.

For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

Hence, from the 4th quarter of 2011 through the first quarter of 2016, the IRS underpayment, overpayment and PFIC interest rates remained at 3%. Once the Federal Reserve started to raise its short-term rates, however, the IRS raised the interest rates in the second quarter of 2016, from 3% to 4%. Since then, the rates remained the same.

4th Quarter 2017 IRS Underpayment, Overpayment and PFIC Interest Rates

4th quarter 2017 IRS underpayment, overpayment and PFIC interest rates will be as follows:

four (4) percent for overpayments (two (3) percent in the case of a corporation);
four (4) percent for underpayments;
six (6) percent for large corporate underpayments; and
one and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000.

These interest rates were computed based on the federal short-term rate determined during July of 2017 to take effect on August 1, 2017, plus daily compounding. The 4th Quarter IRS underpayment, overpayment and PFIC interest rates will apply during the period of October 1, 2017, through December 31, 2017.

IRS International Tax Campaigns | International Tax Attorney Houston

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Five of the thirteen new IRS Campaigns directly target US international tax noncompliance. In this essay, I would like to provide a brief overview of these five IRS International Tax Campaigns. In the future articles, I will explain each of these campaigns in more detail.

IRS International Tax Campaigns: Background Information

After multiple years of preparation and reorganization, the IRS Large Business and International Division announced a new way to enforce US corporate and international tax laws – issue-focused IRS campaigns. An IRS campaign is basically an approach to tax enforcement which allows the IRS to allocate its scarce resources to a specific issue that the IRS believes to be a major noncompliance concern. This is very different from the previous IRS approaches which focused more on specific types of taxpayers.

On January 31, 2017, the IRS outlined the first thirteen campaigns and claimed that many more campaigns are in the process of being developed and finalized. Five of the first thirteen campaigns focus on international tax compliance issues.

IRS International Tax Campaigns: General Description

These five IRS International Tax Campaigns are: Offshore Voluntary Disclosure Program (“OVDP”) (closed 2018). Declines-Withdrawals Campaign, Repatriation Campaign, Form 1120-F Non-Filer Campaign, Inbound Distributor Campaign and Related Party Transactions Campaign.

The international focus of the OVDP, Repatriation, Form 1120-F and Inbound Distribution Campaigns is fairly obvious. The Related-Party Transactions is listed among the IRS International Tax Campaigns because of the IRS focus on the transfer of funds from a controlled foreign corporation to its related pass-through entities (US or foreign) or shareholders.

IRS International Tax Campaigns: What Taxpayers are at Risk

Among the IRS International Tax Campaigns, the OVDP Declines-Withdrawal Campaign and Form 1120-F Non-Filer Campaign can apply to small, mid-market and high net-worth taxpayers. It appears that the Inbound Distributor Campaign is likely to apply to any mid-market to large taxpayers. The rest of the IRS International Tax Campaigns, the Repatriation Campaign and the Related Party Transactions Campaign, specifically identify “mid-market taxpayers” as a targeted group. It should be stated, however, that the Repatriation Campaign will also indiscriminately target failures to state taxable transactions on US tax returns.

From the description above, it is obvious that the IRS is increasing its focus on mid-market taxpayers. Who is considered to be a “mid-market” taxpayer? The IRS defined this category during its first webinar on March 7, 2017 as taxpayers with assets between $10 million and $250 million. If you or your company fall within this category, you are at a high risk of IRS examination.

What Should Taxpayers Exposed to the IRS International Tax Campaigns Do?

If you are taxpayer with tax issues identified in the IRS International Tax Campaigns, you should contact Sherayzen Law Office as soon as possible. Our team of tax professionals, headed by an international tax attorney, Mr. Eugene Sherayzen, will: thoroughly analyze your case to determine if you are currently in compliance with US tax laws, determine the options for proceeding forward with bringing your tax affairs into full compliance and preparing for an issue-based examination, and implement the preferred option (including the preparation of all legal documents and tax forms).

Contact Us Today to Schedule Your Confidential Consultation!