Tuesday, October 8, 2013

damages for unlawful collection action

A couple’s claim for damages for the IRS’s alleged unlawful collection actions and for failure to timely release a tax lien was not timely filed within the two-year limitations period. They had a reasonable opportunity to discover the elements of their cause of action when the IRS first issued a levy against them which was more than three and a half years prior to the filing of their administrative claim. In addition, their complaint was filed less than six months after their administrative claim was filed with the IRS. Their argument that their administrative claim was properly filed within the last six months before expiration of the two-year statute of limitations was rejected. Using the date claimed by the taxpayers as the accrual date of the cause of action, their complaint was filed more than six months prior to the expiration of the limitations period. Further, the couple’s claim for damages for failure to release a lien failed to explicitly allege a cause of action arising under Code Sec. 7432 and they failed to file an administrative claim with the IRS under Code Sec. 7432 prior to filing the complaint. 

USTC Cases, Alan Zinstein and Jane Silk, Plaintiffs v. United States of America, Defendant., U.S. District Court, E.D. Virginia, 2013-2 U.S.T.C. ¶50,532, (Oct. 2, 2013)

Alan Zinstein and Jane Silk, Plaintiffs v. United States of America, Defendant.
U.S. District Court, E.D. Virginia, Alexandria Div.; 1:13cv633 (JCC/IDD), October 2, 2013.
Code Secs. 7432 and 7433]
Cacheris, United States District Court Judge: For the reasons stated in the accompanying Memorandum Opinion, it is hereby ORDERED that:
(1) United States' Motion to Dismiss [5] is GRANTED;
(2) accordingly Plaintiffs Alan Zinstein and Jane Silk's Complaint [1] is DISMISSED WITHOUT PREJUDICE pursuant to Federal Rule of Civil Procedure 12(b)(1);
(3) the Clerk of the Court shall forward copies of this Order to all counsel of record.
October 2, 2013
Alexandria, Virginia


This matter is before the Court on the United States' (“Defendant” or “United States”) Motion to Dismiss Plaintiffs' Complaint (“Motion”). [Dkt. 5.] The Court granted Defendant's Motion during oral argument for the reasons set forth below.

I. Background

This case arises out of the Internal Revenue Service's (“IRS”) alleged failure to timely release a tax lien in violation of 26 U.S.C. §6325(a)(1), and the IRS's allegedly wrongful levies in violation of 26 U.S.C. §6331.

A. Factual Background

Plaintiffs Allen Zinstein and Jane Silk (“Plaintiffs”) are United States Citizens who reside in Virginia. (Compl. ¶ ¶15-16.) Plaintiffs allege that on March 18, 2008, they received a “payoff calculator” from the IRS listing balances due on various tax years. (Compl. ¶3.) The “payoff calculator” listed the following balances due: $7,487.39 for tax year 1999; $4276.60 for tax year 2002; $14,259.26 for tax year 2003; $405.68 for tax year 2004; and $13,173.76 for tax year 2005. (Compl. ¶4.)
Plaintiffs allege that prior to March 21, 2008 they filed their 2007 Federal Income Tax Return, Form 1040. (Compl. ¶5.) Plaintiffs allege that this return reflected an overpayment - a refund due - of $15,330.00. (Compl. ¶5.) Plaintiffs aver that they designated this overpayment towards outstanding tax liabilities as follows: $13,179.76 towards their liability for tax year 2005; and $1,774.58 towards their liability for tax year 2003. (Compl. ¶6.) On March 21, 2008, Plaintiffs allege that they hand-delivered a cashier's check in the amount of $24,278.89 to the IRS office in Washington, D.C. (Compl. ¶7.) This check was designated towards outstanding tax liabilities as follows: $7,487.39 towards Plaintiffs' liability for tax year 1999; $4,276.60 towards Plaintiffs' liability for tax year 2002; and $12,514.90 towards Plaintiffs' liability for tax year 2003. (Compl. ¶8.) Plaintiffs allege that based on the designation in their 2007 tax return and the March 21, 2008 payment, the outstanding balances for tax years 1999, 2002, 2003 and 2005 were reduced to zero. (Compl. ¶9.)payment, the outstanding balances for tax years 1999, 2002, 2003 and 2005 were reduced to zero. (Compl. ¶9.)payment, the outstanding balances for tax years 1999, 2002, 2003 and 2005 were reduced to zero. (Compl. ¶9.) 1
Plaintiffs allege that despite having paid off the outstanding balances the IRS continued to take collection actions against them. (Compl. ¶27.) This collection action included levies issued against Plaintiffs between April 7, 2008 and September 27, 2011 and the failure to timely release tax liens. (Compl. ¶ ¶10, 12). Plaintiffs allege that the IRS did not issue a release of lien for tax years 2002, 2003 and 2004 until July 7, 2011. (Compl. ¶19.) Likewise, the lien for tax years 1999 and 2005 was allegedly not released until October 7, 2011. (Compl. ¶19.) 2 Plaintiffs allege that they attempted to discuss these collection efforts with the Taxpayer Advocate, and that on August 31, 2011 they met with IRS counsel to discuss the matter. (Compl. ¶ ¶31-32.)
On March 8, 2013, Plaintiffs filed an administrative complaint with the IRS under 26 U.S.C. §7433. (Mem. Ex. 1 [Dkt. 6-1].) As of the date of Plaintiffs' Complaint, May 23, 2013, the IRS had not processed their administrative complaint. (Mem. Ex. 1.) Likewise, as of August 14, 2013, the IRS had not issued a determination on Plaintiffs' administrative action. (Mem. Ex. 1.)
Plaintiffs allege that as a result of the IRS's improper actions they incurred over $1,000,000.00 in losses and expenses. (Compl. ¶29.) Plaintiffs' alleged losses include: (1) $25,000.00 in legal fees; (2) $250,000.00 in CPA, accounting and consulting fees; (3) $15,000.00 in travel fees; (4) $1,000.00 in postage; and (5) $1,000.00 in courier fees. (Compl. ¶29.) Additionally, Plaintiffs claim losses stemming from “loss of credit, higher interest expenses, lost time from work, loss of income, and deterioration of health.” (Compl. ¶29.)

B. Procedural Background

On May 23, 2013, Plaintiffs filed their Complaint against the United States. [Dkt. 1.] On August 19, 2013, Defendant filed its Motion to Dismiss Plaintiffs' Complaint and accompanying memorandum of law. [Dkts. 5-6.] Plaintiffs filed their opposition on September 4, 2013. [Dkt. 7.] On September 10, 2013, Defendant filed its reply. [Dkt. 8.] On September 27, 2013, the Court heard oral arguments on Defendant's Motion to Dismiss. Plaintiffs' counsel was not present. The Court granted Defendant's motion for the reasons provided below.

II. Standard of Review

Pursuant to Rule 12(b)(1), a claim may be dismissed for lack of subject matter jurisdiction. Fed. R. Civ. P. 12(b)(1). Defendants may attack subject matter jurisdiction in one of two ways. First, defendants may contend that the complaint fails to allege facts upon which subject matter jurisdiction may be based. See Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982); King v. Riverside Reg'l Med. Ctr., 211 F. Supp. 2d 779, 780 (E.D. Va. 2002). In such instances, all facts alleged in the complaint are presumed to be true. Adams, 697 F.2d at 1219; Virginia v. United States, 926 F. Supp. 537, 540 (E.D. Va. 1995).
Alternatively, defendants may argue that the jurisdictional facts alleged in the complaint are untrue. Adams, 697 F.2d at 1219; King, 211 F. Supp. 2d at 780. In that situation, “the Court may ‘look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists.’” Virginia v. United States, 926 F. Supp. at 540 (quoting Capitol Leasing Co. v. FDIC, 999 F.2d 188, 191 (7th Cir. 1993)); see also Velasco v. Gov't of Indon., 370 F.3d 393, 398 (4th Cir. 2004) (holding that “the district court may regard the pleadings as mere evidence on the issue and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment” (citations omitted)).

III. Analysis

A. Administrative Exhaustion

1. Claims Under Section 7433

Plaintiffs assert a claim under 26 U.S.C. §7433, which provides a civil damages remedy for unauthorized collection actions taken by an officer or employee of the IRS. (Compl. ¶17.) Defendant argues that the claim should be dismissed for failure to exhaust administrative remedies as required under §7433(d)(1). (Mem. at 2.)
Through 26 U.S.C. §7433(a), the United States has waived sovereign immunity for “misconduct by the IRS.” Dawveed v. Belkin, Civil Action Nos. DKC 12-0711, DKC 12-2935, 2013 WL 497990, at *2 (D. Md. Feb. 7, 2013). A plaintiff bringing suit against the United States must comply with the terms of the Government's waiver of sovereign immunity. See Smith v. United States, 507 U.S. 197, 203 (1993). To maintain a suit for damages against the United States for unauthorized collection actions by the IRS, a plaintiff must exhaust administrative remedies. 26 U.S.C. §7433(d)(1). Importantly, “a plaintiff's failure to comply with this prerequisite deprives the court of jurisdiction over the claim.” Marcello v. IRS, Civil Action No. RDB-08-2796, 2010 WL 1663994, at *2 (D. Md. Apr. 21, 2010).
The “administration and enforcement of the Internal Revenue Code is delegated by statute to the Secretary of the Treasury who may prescribe regulations in furtherance the purposes of the code.” Bennett v. United States, 361 F. Supp. 2d 510, 516 (W.D. Va. 2005) (citing 26 U.S.C. §7801(a)(1)). The regulations provide that a plaintiff may not maintain a suit in a federal district court
before the earlier of the following dates: (i) the date the decision is rendered on a claim filed in accordance with paragraph (e) of this section; or (ii) the date six months after the date an administrative claim is filed in accordance with paragraph (e) of this section.
26 C.F.R. §301.7433-1(d). Paragraph (e) details the procedures that a taxpayer must follow in filing an administrative claim and the information that must be included on the form filed with the I RS. 26 C.F.R. §301.7433-1(e).
In the instant case, Plaintiffs filed their administrative claim on March 8, 2013. 3 (Mem. Ex. 1.) Plaintiffs filed their Complaint in this Court on May 23, 2013. [Dkt. 1.] As of the date Plaintiffs' filed their Complaint, a decision had not been rendered on the claim, as under C.F.R. §301.7433(d)(i). (Mem. Ex. 1 (“As of the date plaintiffs filed their complaint … the IRS has not issued any determination on plaintiffs' section 7433 administrative claim.”).) Likewise, six months had not passed between Plaintiffs' filing of their administrative claim - March 8, 2013 - and Plaintiffs' filing a complaint in this Court - May 23, 2013 - as under C.F.R. §301.7433(d)(ii).
Plaintiffs argue that despite not waiting the requisite six months before filing suit in this Court, they may maintain an action pursuant to C.F.R. §301.7433-1(d)(2). This regulation provides:
[I]f an administrative claim is filed in accordance with paragraph (e) of this section during the last six months of the period of limitations described in paragraph (g) of this section, the taxpayer may file an action in federal district court any time after the administrative claim is filed and before the expiration of the period of limitations.
C.F.R. §301.7433-1(d)(2). Plaintiffs argue that their cause of action accrued in September, 2011 and that the applicable statute of limitations would therefore expire in September, 2013. (Opp. at 2.) Therefore, Plaintiffs claim that their administrative complaint, filed on March 8, 2013, was filed within the “last six months of the period of limitations” as provided in §301.7433-1(d)(2).
Plaintiffs' arguments are based on a misunderstanding of the accrual date of their cause of action. Plaintiffs argue that “the government's failure to properly release a levy is a continuing violation and the statute of limitations does not run until the improper levy is released.” (Opp. at 2.) The Court rejects Plaintiffs' attempts to invoke a continuing violation theory in the tax levy context.
As Plaintiffs acknowledge, their claim under §7433 is governed by a two-year statute of limitations. 26 U.S.C. §7433(d)(3). “A tax collection right of action accrues ‘when the taxpayer has had a reasonable opportunity to discover all essential elements of a possible cause of action.’” Richard v. United States, 746 F. Supp. 2d 778, 782 (E.D. Va. 2010) (quoting 26 C.F.R. 301.7433-1(g)(2)). Courts have interpreted this provision to mean that a cause of action accrues when plaintiffs “possess sufficient ‘critical facts’ to understand their potential injury without knowledge of the appropriate legal remedy.” Id. Additionally, most courts have rejected the application of a continuing violation theory in this context. 4 See Dziura v. United States, 168 F.3d 581, 583 (1st Cir. 1999) (holding that taxpayers' cause of action accrued when they “knew the essential elements of their potential claim” and rejecting a continuing violation theory); Keohane v. United States, 669 F.3d 325, 330 (Fed. Cir. 2012) (once [plaintiff] “knew of the levy, ‘nothing prevented him from recognizing the potential injury at that time, nor would later events provide greater insight into his possible cause of action.’” (citations omitted)). 5
Here, Plaintiffs had a “reasonable opportunity” to know of the essential elements of their claim on April 7, 2008, when the IRS first issued a levy against the Plaintiffs for tax years allegedly already paid off on March 21, 2008. (Compl. ¶ ¶10-11). See Simmons v. United States, 875 F. Supp. 318, 320 (W.D.N.C. 1994) (stating that a plaintiff's cause of action challenging the IRS's levy “accrued when a collection action began. ‘A notice and demand for payment constitutes a collection action, as does the filing of a notice of tax lien.’”) (citations omitted). Indeed, Plaintiffs emphasize that they were subjected to collection actions for “over three and a half years.” (Compl. ¶28.) Thus, Plaintiffs were aware of the IRS's collection actions when they first began in April 2008 and had a “reasonable opportunity” to discover the elements of their cause of action at that time. Richard, 746 F. Supp. 2d at 782. Accordingly, because plaintiffs did not file their administrative claim “during the last six months of the period of limitations,” Plaintiffs cannot rely on the six-month period provided for in C.F.R. §301.7433-1(d)(2).
Moreover, even if Plaintiffs' claims as to the accrual date of their cause of action were correct - which they are not - they would still not be able to rely upon the six-month period provided for in C.F.R. §301.7433-1(d)(2). Plaintiffs allege that the IRS improperly issued levies against them from April 8, 2008 to September 27, 2011. Even if their cause of action accrued on September 27, 2011, as Plaintiffs apparently argue, their administrative complaint was filed on March 8, 2013 - more than six months prior. (Opp. at 2 (“As alleged in the complaint, the cause of action accrued in September of 2011.”).) 6
Thus, because Plaintiffs filed suit in this Court before either of the permitted dates provided in C.F.R. §301.7433(d)(1) and cannot invoke the six-month period provided for in C.F.R. §301.7433-1(d)(2), Plaintiffs failed to properly exhaust administrative remedies before the IRS. The Court is therefore without subject matter jurisdiction over Plaintiffs' §7433 claim. Accordingly, Plaintiffs' claim arising under §7433 will be dismissed.

2. Claims Under Section 7432

Additionally, Defendant argues that to the extent that Plaintiffs assert a claim arising under 26 U.S.C. §7432, such a claim would likewise be barred for failure to exhaust administrative remedies. (Mem. at 7.) Section 7432 provides a cause of action for damages for failure to release a lien under §6325 of the Internal Revenue Code. Like§7433§7432 contains an administrative exhaustion requirement. 26 U.S.C. §7432(d)(1).
Plaintiffs allege that the IRS wrongfully failed to issue a release of lien as to tax years 1999, 2002, 2003, 2004, and 2005 in violation of §6325(a)(1). (Compl. ¶ ¶2, 12.) Plaintiffs do not, however, explicitly allege a cause of action arising under §7432. Moreover, Plaintiffs have not filed a §7432 administrative claim. (Mem. Ex. 1.) Therefore, Plaintiffs have not properly exhausted administrative remedies as to any claim for failure to timely release a lien. See Bennett, 361 F. Supp. 2d at 517 (finding in the context of a tax refund claim under 26 U.S.C. §7422 that a claim under §7433 “was not intended to supplement or supersede or allow taxpayers to circumvent proper procedures” under another section (citations omitted)). Accordingly, any §7432 claim will be dismissed.

B. Statute of Limitations

Defendant argues that even had Plaintiffs properly exhausted administrative remedies, their claims would be time barred. (Mem. at 5.) As noted above, any suit against the Government requires a waiver of sovereign immunity, and the terms of the waiver define the court's jurisdiction to entertain the suit. See United States v. Dalm, 494 U.S. 596, 608 (1990) (citations omitted). One such condition on the terms of the Government's waiver of immunity is a statute of limitations. See United States v. Mottaz, 476 U.S. 834, 841 (1986). In the tax context, the limitations period of U.S.C. §7433(d)(3) serves as a restriction on the Government's consent to be sued. “Accordingly, this Court does not have jurisdiction over suits filed outside the limitations period… .” Young v. U.S. Dep't of Treasury, No. 02-1644-A, 2003 WL 1909005, at *3 (E.D. Va. Mar. 7, 2003).
As discussed above, Plaintiffs' §7433 claims accrued on April 7, 2008, when the IRS began to levy against Plaintiffs. (Compl. ¶10.) Plaintiffs filed their Complaint on March 23, 2012, outside the two-year statute of limitations. Therefore, Plaintiffs' claims under §7433 would be time-barred even if they had properly exhausted administrative remedies. Accordingly, Plaintiffs' failure to timely file their Complaint provides an alternative grounds for dismissal pursuant to 12(b)(1).
Because the Court finds that Plaintiffs did not exhaust administrative remedies as to any purported §7432 claim, it declines to consider the timeliness of such an action.

IV. Conclusion

For the foregoing reasons, the Court will grant Defendant's Motion to Dismiss.
An appropriate Order will issue.


    Plaintiffs' Complaint states that the payoff calculator listed a balance of $405.68 for tax year 2004. (Compl. ¶4.) Plaintiffs allege that the IRS engaged in wrongful collection activities with regards to tax year 2004 (Compl. ¶ ¶10, 12, 30) but fail to allege that they ever paid the balance for tax year 2004.
    Plaintiffs' Complaint states “… the IRS failed to issue a release of lien for years 2002, 2003 and 2004 until July 7, 2001. The IRS failed to issue a release of lien for tax years 1999 and 2005 until October 7, 2001.” (Compl. ¶12.) Subsequently, the Complaint states that the dates the liens were released were July 7, 2011 and October 7, 2011 respectively. (Compl. ¶19.) Reading the Complaint in the light most favorable to Plaintiffs, Court will use the 2011 dates as they fall after the tax years listed in the Complaint.
    In considering a motion to dismiss for lack of subject matter jurisdiction, the court may "view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists." Virginia v. United States, 926 F. Supp. at 540. The Court may consider such evidence without converting the motion to one for summary judgment. Velasco, 370 F.3d at 398. Defendant has submitted the Declaration of Barbara Allen, a Revenue Officer Advisory Reviewer for the IRS on the question of the filing date and status of Plaintiffs' administrative claim. (Mem. Ex. 1.) Plaintiffs in their Complaint allege that "the IRS denied Plaintiffs administrative claim for damages under 26 U.S.C. §7433 and notified Plaintiff that no administrative appeal was available." (Compl. ¶39.) Plaintiffs have provided no evidentiary support for this allegation nor do they discuss it further in their opposition brief. The Court therefore finds Defendant's evidence on the filing dates and the status of the administrative claim is not disputed and will conduct its administrative exhaustion inquiry accordingly.
    "‘Continuing violation’ jurisprudence is drawn from tort law. The doctrine is generally thought to be inapposite when an injury is definite, readily discoverable, and accessible in the sense that nothing impedes the injured party from seeking to redress it." Dziura v. United States, 168 F.3d 581, 583 (1st Cir. 1999).
    Plaintiffs cite to Claitor v. United States, CIV. 97-20524 SW, 1999 WL 67533 at *4 (N.D. Cal. July 29, 1990); Page v. United States, 729 F.2d 818, 821 (D.C. Cir. 1984); and Wallace v. United States, 557 F. Supp. 2d 100, 104 (D.C. Cir. 2008) in support of their continuing violation argument. Page concerned a tort cause of action stemming from continuing treatment by the Veterans Administration; its logic is not persuasive in the context of tax levies or liens. Page, 729 F.2d at 819. Moreover, Wallace - which relied on Claitor - was quickly rejected by the United States District Court for the District of Columbia. Long v. United States, 604 F. Supp. 2d 119, 122 (D.D.C. 2009) ( "In view of the decision in Macklin, Dziura and Nesovic - all of which were tax cases - the Court is not convinced that [the Wallacecourt's] analysis is correct.") As the court in Long noted, the attachment of a lien "constitutes a single act." Long, 604 F. Supp. 2d at 122. Therefore, “[t]the liens are not subject to the continuing violation doctrine. Id. (citing Macklin v. United States, 300 F.3d 814, 824 (7th Cir. 2002); Dzuira v. United States, 168 F.3d 581, 583 (1st Cir. 1999); Nesovic v. United States, 71 F.3d 776, 778 (9th Cir. 1995)).
    Plaintiffs' Complaint states that their cause of action accrued "on May 11, 2010 and September 27, 2011, the dates of the last [levies] issued by the IRS." (Compl. ¶19.) Additionally, the Complaint states that "the right of action also accrued on July 7, 2011 and October 7, 2011, the dates of the releases of lien issued by the IRS." (Compl. ¶19.) Plaintiffs' opposition brief, however, argues only that the "cause of action accrued in September of 2011." (Opp. at 2.) Moreover, all of the accrual dates alleged by Plaintiff rely on a misapplication of the continuing violation theory.

    www.irstaxattorney.com (212) 588-1113 ab@irstaxattorney.com

    Friday, October 4, 2013

    Treasury letter to Boehner

    Treasury Secretary Jack Lew: Letter to House Speaker John Boehner: Debt-limit

    October 1, 2013
    The Honorable John A. Boehner
    U.S. House of Representatives
    Washington, DC 20515
    Dear Mr. Speaker:
    I am writing to follow up on my previous letters regarding the Department of the Treasury's responsibility to finance the government and to protect the full faith and credit of the United States.
    In May of this year, the U.S. government reached the statutory debt limit, and Treasury began taking certain extraordinary measures to be able to continue, on a temporary basis, to pay the nation's bills. Today, I am writing to inform Congress that as of today Treasury has begun using the final extraordinary measures. There are no other legal and prudent options to extend the nation's borrowing authority. The impact of these measures was incorporated into the forecast that I shared with you last week, and Treasury continues to believe that extraordinary measures will be exhausted no later than October 17, 2013.
    Each of these measures is authorized by law, and each has been used by previous Secretaries of the Treasury during past debt limit impasses:
    • Treasury will suspend, as necessary, the daily reinvestment of the portion of the Exchange Stabilization Fund that is invested in Treasury securities.
    • Treasury will enter into a debt swap with the Federal Financing Bank and the Civil Service Retirement and Disability Fund (CSRDF), which will lead to the elimination of a limited amount of debt that counts against the debt limit. Although this measure is of limited value, I have determined that it should be used given the urgency of the situation.
    • With regard to the CSRDF, I have previously determined that a “debt issuance suspension period” exists through October 11. I have now determined that, by reason of the statutory debt limit, I will continue to be unable to fully invest the portion of the CSRDF not immediately required to pay beneficiaries, and that the debt issuance suspension period will continue through October 17.
    As previously noted, all of these measures were incorporated into the estimate that I provided last week and do not provide Congress with more time to act. It is important to note that once the final extraordinary measures are exhausted, no later than October 17, we will be left to meet our country's commitments at that time with only approximately $30 billion. This amount would be far short of net expenditures on certain days, which can be as high as $60 billion. Although the current lapse in appropriations creates some additional uncertainty, we do not believe it will impact our projections materially unless it continues for an extended period of time. If we have insufficient cash on hand, it would be impossible for the United States of America to meet all of its obligations for the first time in our history. For this reason, I respectfully urge Congress to act immediately to meet its responsibility by extending the nation's borrowing authority.
    Jacob J. Lew
    Identical letter sent to:
    The Honorable Nancy Pelosi, House Democratic Leader
    The Honorable Harry Reid, Senate Majority Leader
    The Honorable Mitch McConnell, Senate Republican Leader
    cc: The Honorable Dave Camp, Chairman, House Committee on Ways and Means
    The Honorable Sander M. Levin, Ranking Member, House Committee on Ways and Means
    The Honorable Max Baucus, Chairman, Senate Committee on Finance
    The Honorable Orrin G. Hatch, Ranking Member, Senate Committee on Finance
    All other Members of the 113 th Congress

    www.irstaxattorney.com (212) 588-1113 ab@irstaxattorney.com

    Thursday, October 3, 2013

    irs shutdown

     IRS Services Available at Start of Shutdown,(Oct. 3, 2013)

    On day two of the federal government shutdown, taxpayers and tax professionals discovered most IRS employees furloughed and unavailable to answer questions, hold meetings or conduct business . Other offices of the Service are open with minimal staffing and limited interfacing with customers. Some online and automated functions, including Free File and the Electronic Federal Tax Payment System (EFTPS), are operating as usual.

    Looming Deadline

    The government shutdown comes just two weeks before the October 15 filing deadline for taxpayers who requested a filing extension. A few days before the shutdown, the IRS reported that many of the more than 12-million taxpayers who requested an automatic six-month extension had yet to file (IR-2013-77; .
    When government operations resume, it would be very helpful for the IRS to offer extended hours for the practitioner hotline and dedicate additional staff for the hotline, Melissa Labant, CPA, director of Tax Advocacy, American Institute of Certified Public Accountants (AICPA), told CCH. "October 15 is a significant deadline for CPAs and taxpayers."

    Customer Service

    The Service’s toll-free telephone assistance numbers for individuals (800-829-1040) and businesses (800-829-4933) are not being staffed during the lapse in appropriations. Voice messages explain that, because of the current budget situation, all IRS offices are closed and the Service will resume normal operations as soon as possible. The voice messages also remind taxpayers on extension that they have an October 15 deadline to file returns and pay any taxes due. Similar voice messages are heard on the toll-free number for assistance for exempt organizations, retirement plan administrators and government entities (877-829-5500), and the toll-free e-Help Desk number (866-255-0654).

    Before the lapse in appropriations, the IRS instructed taxpayers to keep filing returns and making deposits as they are required to do so by law. The IRS will accept and process all tax returns with payments, but will be unable to issue refunds during the government shutdown, the Service reported on its website. The IRS also encouraged taxpayers to file returns electronically.
    "I am keeping my fingers crossed that IRS Modernized eFile [MeF] operates smoothly during this busy season," Labant told CCH. "It is very problematic for practitioners when MeF is down."

    Taxpayer Assistance Centers

    All IRS taxpayer assistance centers are closed during the lapse in appropriations. Taxpayers going to assistance centers in person and contacting assistance centers by telephone are informed that the offices are closed and employees will resume work when funding is available.

    Free File Alliance

    The IRS Free File Alliance (a consortium of tax return-preparation companies) is available during the shutdown, the IRS reported. Free File is generally open to taxpayers with adjusted gross incomes of $57,000 or less for 2012. The customer service functions of the return-preparation companies would presumably be unaffected by the government shutdown.


    EFTPS is operating without interruption, the Treasury Department reported. The department advised taxpayers to make their tax deposits and payments according to their normal schedule. Taxpayers can schedule payments 24/7 and can enter payment instructions up to 120 days in advance for businesses and 365 days for individuals.

    Social Media

    The IRS news and tax pros feeds on Twitter both appear to be offline. No new postings have been made to the feeds since the start of the government shutdown. The IRS Return Preparer Office’s social media page was updated on October 1 to inform practitioners about the lapse in appropriations and also the continuing availability of the PTIN online registration system (TAXDAY, 2013/10/01, I.1).


    In 2011, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) developed an electronic filing system for Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). On its website, FinCEN reported FinCEN E-Filing, FinCEN Query and many programs will operate as usual during the lapse in appropriations. However, updates to the website will be delayed or infrequent, FinCEN added.

    Five Days

    The IRS is currently operating under a Contingency Plan developed by the Treasury Department . The Contingency Plan describes IRS actions and activities for one to five business days triggered by a lapse in appropriations. If the government shutdown continues beyond five days, the IRS Deputy Commissioner for Operations Support will (through the IRS Human Capital Officer) reassess activities and make any necessary adjustments of personnel, the Treasury Department explained.

    www.irstaxattorney.com (212) 588-1113 ab@irstaxattorney.com

    Tuesday, October 1, 2013


    Letter from Sen. Grassley to IRS Commissioner Nominee Koskinen

    2013ARD 190-4113th Congress
    September 26, 2013
    The Honorable John A. Koskinen
    Nominee, Commissioner of Internal Revenue
    Internal Revenue Service
    111 Constitution Avenue NW, Room 1519
    Washington, DC 20224
    Dear Mr. Koskinen:
    I congratulate you on your nomination as Commissioner of the Internal Revenue Service (IRS). I am writing to bring to your attention the need for greater focus by the IRS on legitimate enforcement and collection activities. There is much the IRS can do in this area by taking full advantage of two important initiatives that will help the IRS fulfill its mission - without the need for additional appropriations. These two initiatives are: the IRS' authority to use private debt collectors; and, the IRS whistleblower program - both programs that I have long championed.
    On August 23, 2013, the Treasury Inspector General for Tax Administration (TIGTA) released a report that examined IRS' collection and enforcement activities. According to TIGTA, enforcement revenue has decreased for two straight years and is 13 percent less than the amount in Fiscal Year 2010. 1 There were mixed results in IRS Collection function, but Tax Delinquent Accounts continue to increase with the amount in the Queue growing by 46% over the past 5 years. Additionally, accounts receivable have increased by approximately $100 billion in last ten years.
    As TIGTA notes, the IRS has been faced with many challenges these past years due to the fiscal realities we currently face, as well as its role in implementing and enforcing the Affordable Care Act. The primary role of the IRS is to collect the revenue necessary to fund the government. While the IRS' role has been expanded over the years, and vastly so with the implementation of the Affordable Care Act, it is important the chief mission of the IRS is not degraded.
    As is evident from recent news reports, whether it's over indulgent spending on conferences or paying out unnecessary bonuses, there are opportunities for the IRS to better use its resources. In the grand scheme of things the additional dollars saved by curtailing these excesses may not be enough to cover all the challenges on the IRS' plate. Yet, given the current fiscal imbalance, the answer cannot solely be ever larger appropriations from Congress. It is incumbent on the IRS to work smarter and utilize all the resources currently at its disposal.
    Over the past decade I have sought to provide the IRS with additional tools to track down tax cheats and collect funds through the enactment of the Private Debt Collection (PDC) program and the expansion of the IRS whistleblower program. Unfortunately, both programs have been fought every step of the way by some within Treasury and IRS who have an ideological disposition to oppose any program that seeks to utilize “private” or non-government resources to reduce the burden on the IRS.
    As part of the 2004 American Jobs Creation Act, Congress added an arrow to IRS' quiver with the authorization of the PDC Program. This program authorized the IRS to contract with private agencies to collect owed taxes that the IRS wasn't collecting on its own. For two and a half years private agencies were contracted by the IRS to work cases the IRS wouldn't work because they were deemed low yield. In this short time, this fledgling program collected nearly $100 million in revenue that otherwise would have gone uncollected. 2Additionally, IRS' own information showed the private employees' quality ratings were consistently higher than that of IRS employees. However, those with a vested interest in seeing the PDC program fail got their wish in March of 2009 when the IRS chose not to renew contracts with the private debt collecting agencies.
    IRS' decision was based on a study it claimed showed IRS employees could collect the tax debts cheaper and better than private employees. However, it is evident from a 2010 Government Accountability Office (GAO) study that IRS cooked the books to get the result it wanted. GAO found the IRS study contained numerous flaws and “was not a soundly designed cost-effectiveness comparison for supporting IRS's decision.” 3 GAO made several suggestions on how to fix the study and any future studies. Yet, the IRS doggedly refused to reevaluate the PDC program in light of GAO's findings.
    The IRS decision was further undermined by a 2011 TIGTA report. TIGTA unequivocally found that it was “clear that the Federal Government benefited from PCAs working these…cases.” 4 Despite IRS' assertion that its employees would work the cases and do so more effectively, TIGTA found that IRS worked only 47% of cases that were reassigned to the IRS in 2009 as a result of the cancellation of the PDC. TIGTA further estimated that as much as $516 million could have been collected over the next five years if similar cases would have been assigned to the PDC collection program. This is consistent with Treasury Department's own analysis from 2004 that estimated the program would collect approximately $1.4 billion over ten years.
    The PDC Program remains authorized and is a proven tool currently at this Administration's disposal. The IRS has not shown that it has the resources or willingness to go after the “low priority” cases that are eligible to be assigned to PDCs. Thus, as TIGTA recommended in 2011, “the IRS should consider reinstituting the PDC Program and funding all Program costs through Program collections.” 5
    I encourage you to show the leadership necessary to set aside narrow-minded ideology that grips some at Treasury and the IRS and put good tax administration first - and reinstate the PDC Program immediately. I ask that you familiarize yourself with the program, provide me your detailed views prior to your confirmation and commit to a decision on this matter within your first 60 days as Commissioner.
    The expanded IRS Whistleblower program I authored in 2006 is an additional tool I fear the IRS is not using to its full capability. This program has the potential to be an excellent enforcement tool for tracking down high dollar tax fraud and evasion. Its potential has already been shown by the billions of dollars that have been brought in from illegal offshore accounts. The key for these billions is the work of whistleblowers coming forward and opening the curtain to secret bank accounts.
    Yet, despite this success, many at the IRS, and especially Treasury and Chief Counsel have undermined the program and have discouraged whistleblowers from coming forward. Payouts under the program are few and far between and IRS agents refuse to fully utilize the whistleblower's knowledge and expertise to identify and expose tax cheats. Moreover, whistleblowers who often are putting their whole career on the line frequently have to wait for years in the dark with no information as to whether or when the IRS will act on their claim. Finally, Treasury is proposing regulations that will further undercut the whistleblower program - with a shortsighted view that will save a penny today and lose the Treasury much more in the future due to discouraged whistleblowers' not coming forward.
    The statute gives the IRS Whistleblower Office clear authority to not only award whistleblowers, but to also enter into contracts with whistleblowers and their attorneys to assist the IRS in its work (while at the same time protecting taxpayer confidentiality). 6 The Department of Justice has found success to the tune of billions of dollars recovered under the False Claims Act (FCA), working with whistleblowers and their representatives. The IRS would find similar success working with whistleblowers and their attorneys - if it would only get out of its own way. Unfortunately, the IRS has taken this opportunity to partner with whistleblowers and buried it. It is my understanding that the IRS has delegated the authority to request whistleblower assistance solely to IRS field offices. To my knowledge, such contracting with whistleblowers has never happened because of the reality that the field has no understanding, guidance or support for such an undertaking. This is inexcusable. Whistleblowers and their representatives stand at the ready to assist the IRS, cutting down enormously the time and effort needed by the IRS to conduct an examination - and instead the naysayers at the IRS find ways to gum up the works. I ask for your commitment to affirm the IRS Whistleblower Office's authority to contract with whistleblowers and their representatives and to provide clear direction that contracting is encouraged and should be a priority.
    For the whistleblower program to reach its full potential, the IRS must reassure whistleblowers that they are valued and will be treated fairly. In December of 2012 the IRS issued proposed whistleblower regulations that continue to await finalization. I, as well as many in the whistleblower community, have expressed deep concerns that the regulations as proposed will hamstring the program by limiting whistleblower awards and discouraging knowledgeable insiders from coming forward. Treasury and IRS should work expeditiously to finalize the regulations taking into account all the comments and concerns they have received. The final regulations must assure whistleblowers that it's worth risking their career to come forward to expose those who are skirting our tax laws.
    These regulations require your approval before they are made final. I ask that you review closely these proposed regulations, as well as all my correspondence with the Treasury and IRS on this matter overall as well as the regulations, and also the comments on the regulations by the leading whistleblower representatives. Additionally, please provide me your thoughts on the whistleblower program overall, the steps you intend to take to ensure its success is realized - particularly those steps you can take under your own authority such as improved communication with whistleblowers during the process — and your views on the proposed regulations - especially on the issues of “related action,” “collected proceeds,” and “planned and initiated.”
    The impact of the proposed regulations as they are written would be to greatly discourage whistleblowers and to give comfort to tax cheats. Time and time again the writers of the proposed regulation turn a blind eye to the plain meaning of the statute I wrote, the policy of the statute of rewarding whistleblowers, and the precedence of the False Claims Act.
    Certain actions by the IRS have further fostered a level of distrust between whistleblowers and the IRS. One glaring example is the case of Anonymous 1 and Anonymous 2 v. Commissioner , in which the IRS whistleblower office denied a whistleblower's claim, yet another branch of the IRS opened its own investigation into the same company identified by the whistleblower. 7 This case resulted in the Tax Court Judge admonishing the IRS for misleading the court to believe the new investigation was independent and did not rely on information provided by the whistleblower. While this case may be an isolated incident, it gives pause to any whistleblower who may be debating whether it's worth coming forward.
    In this light, I ask for you to review the work and role of the IRS Whistleblower Office. The office has excellent staff. However, the Whistleblower Office is small and needs you to support it in the battles at the IRS and Treasury. I suggest this is especially the case where I am hearing more and more of first-rate cases being submitted by whistleblowers - from whistleblowers who are knowledgeable and well-placed and often involving tens of millions if not hundreds of millions of tax dollars — who are being ignored by IRS field offices as well as Large Business and International Division senior managers.
    The IRS Whistleblower Office was given the statutory authority to investigate these good cases itself, or at a minimum to raise them to your attention and review. We cannot have good whistleblower cases go unworked because IRS field agents don't want to be bothered or because senior managers are resistant. And again, staffing is not an excuse when the IRS has the authority to work with the whistleblower and her representatives to assist. I ask for your commitment that you will put in place procedures that will allow the IRS whistleblower office to work cases itself and/or to have good cases that aren't being worked to be subject to review by the most senior management at the IRS. In addition, I ask for your commitment that the work of the IRS whistleblower office will be a priority in your time as Commissioner.
    Lastly, let me note that there are a good number of IRS agents that do work well with whistleblowers - and the honest taxpayers have benefitted enormously from those efforts. I ask that the IRS look to recognize and reward those IRS agents and examiners who have had superior accomplishments thanks to working with whistleblowers. Changing the culture at the IRS as it relates to whistleblowers will do much to address the current problems I've cataloged.
    The President has made it quite clear that he believes the federal government needs more revenue. But, before increasing taxes on the millions of law-abiding Americans who voluntarily comply with the tax law, Treasury and IRS should make every effort to collect the billions of dollars in taxes that currently go uncollected. The PDC program and the expanded whistleblower program are available tools that the IRS can better utilize to handle its enforcement and collection case load without requiring additional funding from Congress. If this Administration is serious about making individuals “pay their fair share,” and closing the tax gap, it will heed my call to embrace both of these programs.
    I look forward to your reply prior to your confirmation hearing.
    Charles E. Grassley
    U.S. Senator
    cc: The Honorable Jacob Lew, Secretary of the Treasury
    cc: The Honorable Danny Werfel, Acting IRS Commissioner


      TIGTA, Trends in Compliance Activities Through Fiscal Year 2012 , Ref. Num.: 2012-30-078, August 23, 2013
      TIGTA, Collection Actions Were Not Always Pursued on Cases Returned From the Private Debt Collection Program , Ref. Num.: 2011-30-114, September 27,2011
      GAO, Tax Debt Collection: IRS Could Improve Future Studies By Establishing Appropriate Guidance , GAO-10-963, September 2010. ( "We continue to believe that the study was not a soundly designed cost-effectiveness comparison for supporting IRS's decision. Our report discusses our reasoning in detail, focusing on the study's methodological errors, narrow scope, and lack of adherence to guidance for doing such studies." )
      TIGTA 2011, Supra
      Id. ( "The Director, Collection, Small Business/Self-Employed Division, should ensure collection policy and procedures are reviewed for inventory assignment practices to determine if cases that otherwise would have been assigned to the PDC Program can be worked. Alternatively, the IRS should consider reinstituting the PDC Program and funding all Program costs through Program collections." Emphasis added)
      Pub.L. 109-432, Div. A, Title IV, §406(b)(1)(C), ( "[The Whistleblower Office] in its sole discretion, may ask for additional assistance from such individual or any legal representative of such individual." )
      Anonymous 1 and Anonymous 2 v. Commissioner , United States Tax Court, Docket No. 12471-11w ( "Respondent's statement is misleading. The Court was aware that respondent opened a subsequent investigation, however, respondent assured the Court that the SB/SE investigation was independent and that the information petitioners provided in their original Forms 211 was not being used." )

      www.irstaxattorney.com (212) 588-1113 ab@irstaxattorney.com

      IRS - Treasury & courts shut down

      Treasury Announces Shutdown  Plans for IRS and Other Agencies,(Sep. 30, 2013)
      The Treasury Department announced on September 27 procedures for the IRS and other agencies under its jurisdiction in the event of a government shutdown after the end of fiscal year (FY) 2013. However, the federal courts have announced they will remain open for approximately 10 days after September 30, 2013, if the federal government shuts down because of a lapse in appropriations.
      Shutdown Nears
      The federal government’s current fiscal year ended after September 30, 2013. The Obama Administration and Republicans in Congress appear far apart on any agreement for a short-term fix or an FY 2014 budget
      The Treasury Department explained that many taxpayer services, including the IRS’s telephone customer service functions, would cease during a government shutdown. The IRS would halt nonautomated collections and tax-processing activities but would continue activities necessary for the protection of government property. Additionally, the Treasury Department noted that taxpayers with appointments related to examinations (audits), collection, Appeals or Taxpayer Advocate cases should assume their meetings are cancelled during a government shutdown.
      Activities at other Treasury Department agencies would also be reduced in the event of a shutdown. The Financial Crimes Enforcement Network (FinCEN) would provide some support for its domestic and foreign law enforcement customers but would halt other Bank Secrecy Act regulatory and foreign and domestic law enforcement support functions. The Treasury Inspector General for Tax Administration (TIGTA) would cease its audits.
      Federal Judiciary
      The federal judiciary will remain open for business for approximately 10 business days," the Administrative Offices of the U.S. Courts (AO) posted on its website on September 26. AO added that it will reassess the situation around October 15, 2013, and provide more guidance if necessary. "All proceedings and deadlines remain in effect as scheduled, unless otherwise advised. Case Management/Electronic Case Files (CM/ECF) will remain in operation for the electronic filing of documents with courts," AO explained.
      Orderly Shutdown
      Following a shutdown, nonexcepted federal employees cannot perform work activities other than orderly shutdown activities. On September 17, the Office of Management and Budget (OMB) instructed federal agencies that an orderly shutdown of furloughed employees should take no more than three or four hours to provide necessary notices and contact information, secure their files, complete time and attendance records, and otherwise make preparations to preserve their work.
      Websites, Mobile Devices
      All federal departments and agencies maintain websites. The Office of Management and Budget (OMB) has instructed that, if an agency’s website is shut down, users should be directed to a standard notice that the website is offline and the information on the website may be out-of-date. The OMB also instructed furloughed employees not to use mobile devices or remote computer connections. In some cases, furloughed employees may be asked to turn in their mobile devices until they return to work, the OMB noted.

      www.irstaxattorney.com (212) 588-1113 ab@irstaxattorney.com