Tax Brake with Robert G. Nath, Esq.

This proposal was predictably (and justly) denounced in strong terms by the private tax practitioner community. After all, here were people who only wanted a good settlement, and the IRS was going to charge a hefty fee simply for the offer to be heard. The IRS may back off and charge only for accepted offers. However, a final decision has not yet been made.

There is unfairness in this proposal from many perspectives. The government's costs for administering the tax laws are not generally charged in that specific a way. We don't pay a direct fee for tax return processing, for refund issuance, and for many other tax services that are “free.” We do, however, pay a $43 fee for accepted installment agreements to pay back taxes. And, large companies that obtain “private letter rulings” pay a fee.

There are other examples, but simply because the IRS charges a specific fee in one matter does not justify it in all. Every government service has an inherent cost. But to discourage offers by those who may most need them, simply because the IRS' “costs” are high is counter-intuitive. Moreover, the IRS makes the taxpayer do most of the work anyway - providing documents, justifying expenses. If an offer is well prepared, an agent could finish it in a short time. For those not well documented, the agent's job is more complex, but often the agent spends time asking for more information.

Bankruptcy. Q. When is a discharged tax debt not discharged? A. When the IRS can get more money. In one case, the IRS abated tax liabilities pursuant to the taxpayer's Chapter 7 bankruptcy petition. The trustee distributed some money to the IRS in the proceeding, but since the assessments had been abated, the IRS issued a refund to the taxpayer. So the IRS reversed the abatements. The Chief Counsel's office has attempted to justify that position, in part by making the following breathtaking statement: “Assessments do not create tax liabilities, but rather reflect the judgment of the IRS as to how much tax is owed,” according to a Tax Management Report. It remains to be seen whether someone will hold the IRS in contempt of court for violation of the permanent injunction against collecting discharged debts. The IRS will say “This is a new debt,” but the substance is to the contrary.

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