ACEs & the TRUTH about “Pennies on the Dollar” IRS Offer in Compromise (OIC) Promises.

ACEs & the TRUTH about “Pennies on the Dollar” IRS Offer in Compromise (OIC) Promises.

TaxMaster’s August 2012 bankruptcy court filing, listed it had less than $5,000 in assets, and about 5,000 creditors.

Roni Deutch, in 2011 filed for bankruptcy and surrendered her law license after being sued by California’s Attorney General.

JK Harris & Co., October 2011 who operated in multiple States, after suits by States and unhappy clients filed for bankruptcy, leaving over 5,000 clients with unresolved IRS problems; whose customer list was promptly bought by a firm that is currently similarly advertising

Resolute Tax Services.

As far back as 2004 The IRS issued a consumer alert (IR-2004-130) warning taxpayers to beware of unscrupulous promoters’ charging excessive fees, inappropriately advising indebted taxpayers to file an (OIC) application with the IRS, promising unrealistic results to taxpayers who had no chance of meeting the requirements. It had little effect, and seven years later, with its Sept. 28, 2011  consumer alert update (IR-2004-17) then IRS Commissioner Mark W. Everson, stated  “We are increasingly concerned about unscrupulous promoters …  We urge taxpayers not to be duped by high-priced promises.”

While over time, such (typically out of area) firms that spend millions in TV ads to grossly overstate their ability to gain IRS concessions appear to be handled by the economy (to be quickly replaced by others) … bilking desperate Taxpayer’s.

Employ an ACE ([Tax] Attorney; Certified Public Accountant; or Enrolled Agent). They know, while some people do qualify for the program, in 2010 less than 25% of the applicants were approved. We recommend you hire an IRS Experienced, local ACE, that you can sit down and talk with, to see if the OIC, or a different alternative would best suit your needs, and to represent you before the I.R.S.

In these difficult economic times, can the Taxpayer Advocate still effectively aid TP's who believe they are being unjustly

treated ? 

#A : In January 2012, The I.R.S. published the Highlights Of The TIGTA’s [Treasury Inspector General for Tax Administration] Report

On The Overall  Independents Of Appeals, which said that one of his concerns was  “The shifting of work from field operations to

[IRS] campus operations appears to affect the quality of appeals decisions due to the reduced number of face-to-face conferences,

a [IRS] campus environment is less conducive to a careful, candid assessment of the case, and taxpayers assigned to Appeals

campus sites might perceive they are receiving second-class treatment“.

Not surprisingly, the IRS' Findings were that the Appeals Employees "at both locations received similar training, and historical data establishes that more and more taxpayers/represent is prefer telephone conferences over the traditional face-to-face conferences due to the time saved …  However, Appeals will continue to monitor…“

FRANK’s (& Apparently The National Taxpayer Advocate's) VIEW: In my considerable experience, I have always found that a

properly documented face-to-face meeting was infinitely more factually productive than a potentially quickly disposed of telephone

conference (even when I  was the IRS Appeals Officer). WHAT HAS YOUR EXPERIENCE SHOWN ???

#B:  July 19, 2012 in Kenny v. U.S., 2012 PTC 205 (3d Cir. 7/19/2012) District Court found: From 2004 to 2007, Robert Kenny, a Tax Attorney [POA] authorized to practice before the IRS, filed three administrative complaints with the Treasury Inspector General for Tax Administration (TIGTA) against IRS Collection Officer (R/O) Steven Wald, alleging interference with taxpayers' representation.

The TIGTA sent them to the R/O's Supervisor, who dismissed them, and per the POA  recommended that the R/O file a practitioner misconduct complaint against the POA, which he did.The Office of Professional Responsibility (OPR) then opened an investigation into the POA's potential misconduct, and found the POA had filed late twice, without an extension. In May 2008, it sent POA a letter alleging he committed misconductunder Circular 230, Section 10.51(a) by

• failing to file timely returns, and
• by giving false information and attempting to coerce an IRS officer through false accusations in connection with his complaints against The R/O.

In August 2008, POA filed suit in a District Court seeking monetary and injunctive relief, alleging

     (1) retaliation in violation of Code Sec. 7804,

     (2) an unauthorized collection action in violation of Code Sec. 7433,

     (3) unauthorized inspections of return information in violation of Code Sec. 7431, and

     (4) violation of his First and Fourth Amendment rights.

The District Court dismissed all counts. After numerous procedural filings and hearing, POA appealed to the Third Circuit, citing Code Sec. 7431, and asked for damages under Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, 403 U.S. 388 (1971) (i.e., Bivens).

Under Code Sec. 7431, a taxpayer can sue for damages for unauthorized access to tax return information. To establish a claim, a taxpayer must demonstrate 

     (1)  a violation of Code Sec. 6103 which specifies that tax returns and return information are confidential and bars disclosure by U.S. employees, but provides a number of exceptions. One permits inspection by, or disclosure of returns to, officers and employees of the Treasury Department

• whose official duties require such inspection or disclosure for tax administration purposes, another,
• For use in any action or proceeding relating to legal practice before the Department is permitted to the extent necessary to advance or protect the interests of the United Statesand

    (2) that the violation resulted from knowing or negligent conduct.

The Third Circuit affirmed the District Court because

• the OPR is responsible for matters related to POA conduct and discipline, including disciplinary proceedings and sanctions under Section 10.1(a)(1) of Circular 230, and
• because POA's failure to comply with federal tax law, including late filing, could constitute disreputable conduct subject to sanction and disbarment under Section 10.51(a)(6) of Circular 230,

the investigation of POA's returns by OPR employees fell within their official tax administration duties under Code Sec. 6103(h).

• The Court stated, the investigation was permitted under Code Sec. 6103(l)(4)(B) because OPR employees investigated POA's returns in preparation for a proceeding under 31 U.S.C. Section 330(b) to suspend disbar . . . or censure a representative who . . . is disreputable.

The Court noted that POA suggested that because the OPR employees acted with a retaliatory motive, they could not have acted within the scope of their official duties. However, the Court observed, the plain text of Code Sec. 6103 does not provide such a limitation. It  also noted that, in CCM 201001019, the IRS Chief Counsel has suggested that compliance checks on practitioners by IRS Collection employees may exceed their official duties.

With respect to POA's Bivens claim, the Court noted that the provisions governing potential disbarment or suspension before the IRS create a comprehensive remedial scheme for addressing allegations of practitioner misconduct, including any constitutional concerns raised by practitioners.

Since Congress and the Treasury Department elected to provide this manner to regulate the relationship between IRS and POAs, the Court declined to infer a Bivens remedy in this instance.

The Fact that OPR Employees Acted with a Retaliatory Motive Didn't Mean They Weren't Acting Within Scope of Official Duties. Thus, the investigation of a tax attorney's returns after he filed complaints against an IRS Revenue Officer did not violate Code Sec. 6103 thus were not unconstitutional. 

EMAIL US YOUR VIEWS OF THE PROFESSIONALISM (OR LACK THEREOF) OF THE PARTIES INVOLVED. 

#C: On January 11, 2012 the IRS issued IR-2012-6 entitled “National Taxpayer Advocate Delivers Annual Report to Congress; Focuses on

IRS Taxpayer Rights” in which she predicted certain concerns, including her continuing concern that the

IRS’s expanding use of automated processes to adjust tax liabilities is causing harm to taxpayers”…

“TAXPAYER BILL OF RIGHTS The report urges Congress to codify a Taxpayer Bill of Rights that would clearly list the major rights and responsibilities of taxpayers. ‘The U.S. tax system is based on a social contract between the government and its taxpayers,’ [She] wrote. “Taxpayers agree to report and pay the taxes they owe and the government agrees to provide the service and oversight necessary to ensure that taxpayers can and will do so.”

It also states: “The IRS’s current examination strategy that discusses the IRS’s increasing use of automated

procedures not technically classified as audits to adjust tax liabilities. The report argues that these

procedures deprive taxpayers of traditional audit rights and make it difficult for taxpayers to

discuss their cases directly with an IRS examiner”.

YOUR VIEW?:

When I was assigned to Miami, decades ago several times I met Nancy Olson, in passing. This

was before she founded the Taxpayer Advocates' Office. While I am not in the habit of touting

services the IRS may (rightfully) provide, recognizing that the excessiveuse of power, per some

complicated, irrational perversion of Tax Law can convert compliant taxpayers into protesters,

I was impressed, even then, by Nancy’s intense motivation, and fighting spirit. Through the

years she has waged an uphill battle FOR our Clients, despite conversion of line authority to staff

authority, decreasing her budget, and every other conceivable obstacle set in her way, She still

has the courage to face-down the IRS, and report to Congress "Telling It like it is". Thus I

believe her Taxpayers Advocates Office is the best (& perhaps smartest) thing for public

relations the I.R.S. has ever done, to assure Taxpayers that some degree of reasonableness  may

still sometimes be heard, despite the limitless power the IRS wields.

Much More importantly, however, are your views!

How do you, as reputable tax preparers & representatives feel about the above items ?

Now that Government is energetically seeking funds, is the Kenny case meant to modify your

representation zeal, or just  Coincidencidental? Will it affect your Client Representation efforts?

Share your thoughts at Frank@CPA–xIRS.com; & we will publish some of the more interesting

comments, anonymously. 

Your viewpoint is sought!

The American Institute of CPAs in a March 31 letter to House of Representatives voiced its “strong support” for a series of tax administration bills passed in recent days.

The American Institute of CPAs in a March 31 letter to House of Representatives voiced its “strong support” for a series of tax administration bills passed in recent days.

The four bills highlighted in the letter include the Electronic Filing and Payment Fairness Act (H.R. 1152), the Internal Revenue Service Math and Taxpayer Help Act (H.R. 998), the Filing Relief for Natural Disasters Act (H.R. 517), and the Disaster Related Extension of Deadlines Act (H.R. 1491).

All four bills passed unanimously.

H.R. 1152 would apply the “mailbox” rule to electronically submitted tax returns and payments. Currently, a paper return or payment is counted as “received” based on the postmark of the envelope, but its electronic equivalent is counted as “received” when the electronic submission arrived or is reviewed. This bill would change all payment and tax form submissions to follow the mailbox rule, regardless of mode of delivery.

“The AICPA has previously recommended this change and thinks it would offer clarity and simplification to the payment and document submission process,” the organization said in the letter.

H.R. 998 “would require notices describing a mathematical or clerical error be made in plain language, and require the Treasury Secretary to provide additional procedures for requesting an abatement of a math or clerical adjustment, including by telephone or in person, among other provisions,” the letter states.

H.R. 517 would allow the IRS to grant federal tax relief once a state governor declares a state of emergency following a natural disaster, which is quicker than waiting for the federal government to declare a state of emergency as directed under current law, which could take weeks after the state disaster declaration. This bill “would also expand the mandatory federal filing extension under section 7508(d) from 60 days to 120 days, providing taxpayers with additional time to file tax returns following a disaster,” the letter notes, adding that increasing the period “would provide taxpayers and tax practitioners much needed relief, even before a disaster strikes.”

H.R. 1491 would extend deadlines for disaster victims to file for a tax refund or tax credit. The legislative solution “granting an automatic extension to the refund or credit lookback period would place taxpayers affected my major disasters on equal footing as taxpayers not impacted by major disasters and would afford greater clarity and certainty to taxpayers and tax practitioners regarding this lookback period,” AICPA said.

Also passed by the House was the National Taxpayer Advocate Enhancement Act (H.R. 997) which, according to a summary of the bill on Congress.gov, “authorizes the National Taxpayer Advocate to appoint legal counsel within the Taxpayer Advocate Service (TAS) to report directly to the National Taxpayer Advocate. The bill also expands the authority of the National Taxpayer Advocate to take personnel actions with respect to local taxpayer advocates (located in each state) to include actions with respect to any employee of TAS.”

Finally, the House passed H.R. 1155, the Recovery of Stolen Checks Act, which would require the Treasury to establish procedures that would allow a taxpayer to elect to receive replacement funds electronically from a physical check that was lost or stolen.

All bills passed unanimously. The passed legislation mirrors some of the provisions included in a discussion draft legislation issued by the Senate Finance Committee in January 2025. A section-by-section summary of the Senate discussion draft legislation can be found here.

AICPA’s tax policy and advocacy comment letters for 2025 can be found here.

By Gregory Twachtman, Washington News Editor

The Tax Court ruled that the value claimed on a taxpayer’s return exceeded the value of a conversation easement by 7,694 percent. The taxpayer was a limited liability company, classified as a TEFRA partnership. The Tax Court used the comparable sales method, as backstopped by the price actually paid to acquire the property.

The Tax Court ruled that the value claimed on a taxpayer’s return exceeded the value of a conversation easement by 7,694 percent. The taxpayer was a limited liability company, classified as a TEFRA partnership. The Tax Court used the comparable sales method, as backstopped by the price actually paid to acquire the property.

The taxpayer was entitled to a charitable contribution deduction based on its fair market value. The easement was granted upon rural land in Alabama. The property was zoned A–1 Agricultural, which permitted agricultural and light residential use only. The property transaction at occurred at arm’s length between a willing seller and a willing buyer.

Rezoning

The taxpayer failed to establish that the highest and best use of the property before the granting of the easement was limestone mining. The taxpayer failed to prove that rezoning to permit mining use was reasonably probable.

Land Value

The taxpayer’s experts erroneously equated the value of raw land with the net present value of a hypothetical limestone business conducted on the land. It would not be profitable to pay the entire projected value of the business.

Penalty Imposed

The claimed value of the easement exceeded the correct value by 7,694 percent. Therefore, the taxpayer was liable for a 40 percent penalty for a gross valuation misstatement under Code Sec. 6662(h).

Ranch Springs, LLC, 164 TC No. 6, Dec. 62,636

State and local housing credit agencies that allocate low-income housing tax credits and states and other issuers of tax-exempt private activity bonds have been provided with a listing of the proper population figures to be used when calculating the 2025:

State and local housing credit agencies that allocate low-income housing tax credits and states and other issuers of tax-exempt private activity bonds have been provided with a listing of the proper population figures to be used when calculating the 2025:

• calendar-year population-based component of the state housing credit ceiling under Code Sec. 42(h)(3)(C)(ii);
• calendar-year private activity bond volume cap under Code Sec. 146; and
• exempt facility bond volume limit under Code Sec. 142(k)(5)

These figures are derived from the estimates of the resident populations of the 50 states, the District of Columbia and Puerto Rico, which were released by the Bureau of the Census on December 19, 2024. The figures for the insular areas of American Samoa, Guam, the Northern Mariana Islands and the U.S. Virgin Islands are the midyear population figures in the U.S. Census Bureau’s International Database.

Notice 2025-18

The value of assets of a qualified terminable interest property (QTIP) trust includible in a decedent's gross estate was not reduced by the amount of a settlement intended to compensate the decedent for undistributed income.

The value of assets of a qualified terminable interest property (QTIP) trust includible in a decedent's gross estate was not reduced by the amount of a settlement intended to compensate the decedent for undistributed income.

The trust property consisted of an interest in a family limited partnership (FLP), which held title to ten rental properties, and cash and marketable securities. To resolve a claim by the decedent's estate that the trustees failed to pay the decedent the full amount of income generated by the FLP, the trust and the decedent's children's trusts agreed to be jointly and severally liable for a settlement payment to her estate. The Tax Court found an estate tax deficiency, rejecting the estate's claim that the trust assets should be reduced by the settlement amount and alternatively, that the settlement claim was deductible from the gross estate as an administration expense (P. Kalikow Est., Dec. 62,167(M), TC Memo. 2023-21).

Trust Not Property of the Estate

The estate presented no support for the argument that the liability affected the fair market value of the trust assets on the decedent's date of death. The trust, according to the court, was a legal entity that was not itself an asset of the estate. Thus, a liability that belonged to the trust but had no impact on the value of the underlying assets did not change the value of the gross estate. Furthermore, the settlement did not burden the trust assets. A hypothetical purchaser of the FLP interest, the largest asset of the trust, would not assume the liability and, therefore, would not regard the liability as affecting the price. When the parties stipulated the value of the FLP interest, the estate was aware of the undistributed income claim. Consequently, the value of the assets included in the gross estate was not diminished by the amount of the undistributed income claim.

Claim Not an Estate Expense

The claim was owed to the estate by the trust to correct the trustees' failure to distribute income from the rental properties during the decedent's lifetime. As such, the claim was property included in the gross estate, not an expense of the estate. The court explained that even though the liability was owed by an entity that held assets included within the taxable estate, the claim itself was not an estate expense. The court did not address the estate's theoretical argument that the estate would be taxed twice on the underlying assets held in the trust and the amount of the settlement because the settlement was part of the decedent's residuary estate, which was distributed to a charity. As a result, the claim was not a deductible administration expense of the estate.

P.B. Kalikow, Est., CA-2

An individual was not entitled to deduct flowthrough loss from the forfeiture of his S Corporation’s portion of funds seized by the U.S. Marshals Service for public policy reasons. The taxpayer pleaded guilty to charges of bribery, fraud and money laundering. Subsequently, the U.S. Marshals Service seized money from several bank accounts held in the taxpayer’s name or his wholly owned corporation. 

An individual was not entitled to deduct flowthrough loss from the forfeiture of his S Corporation’s portion of funds seized by the U.S. Marshals Service for public policy reasons. The taxpayer pleaded guilty to charges of bribery, fraud and money laundering. Subsequently, the U.S. Marshals Service seized money from several bank accounts held in the taxpayer’s name or his wholly owned corporation. The S corporation claimed a loss deduction related to its portion of the asset seizures on its return and the taxpayer reported a corresponding passthrough loss on his return.

However, Courts have uniformly held that loss deductions for forfeitures in connection with a criminal conviction frustrate public policy by reducing the "sting" of the penalty. The taxpayer maintained that the public policy doctrine did not apply here, primarily because the S corporation was never indicted or charged with wrongdoing. However, even if the S corporation was entitled to claim a deduction for the asset seizures, the public policy doctrine barred the taxpayer from reporting his passthrough share. The public policy doctrine was not so rigid or formulaic that it may apply only when the convicted person himself hands over a fine or penalty.

Hampton, TC Memo. 2025-32, Dec. 62,642(M)