Thursday, January 13, 2011
IRS MISCONDUCT - TAX LEVIES The tax policy of section 6343(a)(2)(D) to prevent or stop a levy in the case of an “economic hardship” is explicit and unqualified. Under 301.6343-1(b)(4) of the regulations, there is “economic hardship” for individuals if the if the levy denies a family, food, housing transportation, medicine, health insurance, child care, court ordered payments, and other reasonable and necessary living expenses. The problem is that the IRS DOES NOT make an economic hardship decision before they file the levy. This hardship is exacerbated because levies on income are continuous. The IRS does something quite disingenuous to deceive employers. The IRS does not give the employer any instructions on the need to prevent an economic hardship on the employee. Employers do not know anything about the limitations of 6343(a)(2)(D), and they hand over most of the employee’s income to the IRS. There is one other openly “dirty trick” of the IRS in wage levy cases. The IRS gives the employer Publication 1494 which lists the amount exempt from income under section 6634. http://www.irs.gov/pub/irs-pdf/p1494_09.pdf For a a married person with a wife and one child, that amount excluded from levy is $1,387.50 per month. No family of 3 can live on that amount per month. That is poverty level income. I view this as an IRS MISCONDUCT because it suggests to the employer that the balance of the paycheck can be paid over to the IRS. It is IRS “misconduct” because it violates the 6343(a)(2)(D) limit on tax levies (i.e., it always creates an economic hardship). Misconduct is grounds for mandatory discharge of the IRS employee under section 7214(a)(4). The National Taxpayer Advocate knows about this misconduct and has refused to stop this misconduct and had refused to disclose this misconduct in her report to Congress. In these circumstances taxpayers often elect to work in the underground economy and avoid future tax compliance. From a tax policy point of view, the excessive levies convert taxpaying employees into non-filers. Levies are also continuous on business accounts receivable. Almost all businesses will fail if the IRS files a continuous levy on accounts receivable. Gross income is needed for taxes, payroll, and other administrative and operating expenses. A levy on gross income will usually force a business discharge all employees and cease operations leaving an unpaid tax debt. A levy can be appealed but the business will normally be irreparably damaged before the three to six months it takes to schedule a levy appeal. Levies on bank accounts can also be economically counterproductive. Although the bank account levies are one-time only levies and capture only the amount in the account at the time of the levy, levies can be made on the same account repeatedly at the discretion of the IRS Revenue Officer. In the case of a business bank account, the levy often takes money deposited for payroll, taxes and other necessary business administrative and operational expenses. A bank account levy on a business bank account can put it out of business resulting in a loss of jobs and taxable income. The NTA and the IRS have also taken the position that a business cannot have an “economic hardship” within the meaning of section 6343(a)(2)(D). This position apparently came from TD 9007 that published the final OIC regulations on July 23, 2002. TD 9997 states that the economic hardship standard of section 301.6343-1 if the regulations “specifically applies only to individuals.” The IRS position in TD 9007 is technically wrong because section 6343(a)(2)(D) does not distinguish between individual and business “economic hardship” and further because §301.6343-1(a) is expressly limited by the term In general. The “in general” preface does not exclude a business hardship. It is patently absurd for the IRS and the NTA to take a position that a business cannot have an economic hardship. Does anyone other than the IRS and the NTA believe that a business cannot have an economic hardship in this economy? It is my view that Congress should consider eliminating the office of the National Taxpayer Advocate because if inept administration of the law. That would eliminate the thousands of local taxpayer advocate jobs and offices, a significant reduction in IRS jobs, and save a great deal of money that the IRS can use for other purposes. In the case of levies, that abuse can be stopped with legislation with legislative limitations on levies for housing, food, medical expenses, etc. The legislative fix can be done under section 6664. Unfortunately, thousands of taxpayers have suffered because of this misconduct by the IRS. I would like to see both the Senate and House hold IRS misconduct hearings in this 112th Congress. There are other IRS abuses and misconduct that need to be brought to the attention of Congress. I also believe that if Congress wants to consider tax simplification, it needs to first identify all of the instances where the IRS is abusing its power and all other instances of misconduct. Consideration of abolishing the NTA should also be considered at these hearings. It is far easier to justify tax simplification if Congress concludes that the IRS in its present form is ineffective and not living up to its Mission Statement to apply the tax law with “integrity” and “fairness.” One of the reasons there is little publicity about IRS abuses of power, abuses of discretion and misconduct is the fact that there are statutory limitations on the ability of the IRS to disclose private taxpayer information. The solution is to encourage taxpayers to voluntarily upload their IRS experiences to an internet site where the data can be aggregated and viewed by the public, the media and Congress. Taxpayers do not have to disclose their identity if they choose to keep their IRS experience private. With “transparency” from data on this web page, it would be impossible for the IRS to abuses its powers. I have created a model for that site at www.irsforum.org. It is a start-up and basically dormant at this time because it is unfunded with no staff. The only purpose of The IRS Forum would be to contain taxpayer experiences with the IRS. There has been no previous attempt to collect taxpayer IRS complaint data. The IRS complaint traffic sent by constituents to members of Congress is largely wasted data. If that data is collected in one location, it will facilitate IRS oversight because of the data transparent in that web site. Alvin S. Brown, Esq.