As mentioned in the prior two posts, here and here, I participated in a panel at last week’s ABA Tax Section meeting on which we discussed the notices sent out with computer generated dates going back to the beginning of the IRS shut down due to the pandemic. In addition to discussing those notices, the panel discussed a variety of additional collection issues worth their own post. In this post I will go over the additional collection issues worth consideration.
Premature assessment of Tax Court Cases
I wrote a post on this issue in June when the issue first caught my eye. Read that post if you need to come to an understanding of premature assessments. Here, I seek only to provide an update on what Chief Counsel’s office has done to address the problem. As I mentioned in that post, Chief Counsel attorneys do a great job of fixing premature assessments brought to their attention. Because they know of the scope of the problem caused by the pandemic, Chief Counsel’s office has taken proactive measures to find and fix any premature assessments. They are watching the new petitions to try to catch these assessments. They have also created an email address that taxpayers can use to send in a problem regarding premature assessments that will cause the case to be worked immediately. The address is firstname.lastname@example.org. They ask that this address only be used to report a problem with a premature assessment and not to report other systemic or case related problems.
Suspension of Collection Notices
On August 21, 2020, the IRS temporarily stopped sending balance due notices and announced the scope of this temporary halt. The notice does not say how long the stop will last but this is a welcome development. As I wrote previously, even though many in the IRS collection function went back to work in mid-July, these collection individuals do not know what a taxpayer might have done during the period of the IRS closure since the IRS continues to work through its backlog of correspondence including checks, requests for an OIC and other correspondence that could impact the need for collection action or the type of collection action. It makes sense to hold off on many types of collection action until the IRS catches up with the correspondence and knows if anything happened during the period of closure that could impact the need for collection or the type of collection needed.
Offers in Compromise
One of the areas of greatest concern to me was offers, because the tax clinic where I work submitted offers during the pandemic and as much as we try to explain to our clients the potential impact of the pandemic on IRS actions, we cannot sufficiently comfort them regarding the collection action the IRS might take while such action should be suspended during the period of the offer. The basic problem for these clients is that the offer will not suspend collection until the IRS knows an offer exists. It will not know of the existence of an offer until it can process its mail. Just in the past week, the clinic has received notification of the receipt of offers mailed to the IRS six months ago. Fortunately, in those cases no collection action occurred before the IRS opened its mail and input the receipt of the offers.
We have written before about offers timing out due to the 24-month provision in IRC 7122. I have wondered how this period is impacted by the pandemic. If a taxpayer mailed an offer in April 2020 that the IRS opens in October 2020, have six of the 24 months run or does the time period only start in October? This is more of an academic question than practical one because few offers get even close to the 24-month period, but it is the kind of thing professors can debate. A related issue is whether the statute of limitations on collection ran during the six-month period while the IRS had the offer but had not opened its mail. My guess is that the IRS would not treat the statute as suspended during period and that it would not start the 24-month clock running until it opened the mail.
Last week the panel discussed some of the other pandemic issues with offers. On March 30, 2020, the Director, Headquarters Collection issued a memo providing: 1) taxpayers had until July 15, 2020 to provide information to support pending offers; 2) Pending OIC requests would not be closed before July 15 without taxpayer’s consent; 3) OICs would not be defaulted if the 2018 return was not filed prior to July 15, 2020; and 4) taxpayer could suspend payments on accepted and pending OICs until July 15. I did not see the OIC unit pushing during the period leading up to July 15. Since that date I have been contacted by offer examiners on cases. The examiners have been more generous than usual in the time frames for submission of additional documentation. Frank Agostino suggested during our panel that the OIC unit had loosened its standards a bit because of the pandemic. I have not seen enough cases to have an opinion on any change in standards, but it’s a nice thought.
Posting of Payments
The IRS had adopted a taxpayer beneficial position regarding the posting of payments received during the pandemic. As it opens the vast backlog of mail, it gives taxpayers a payment posting date of date received by the IRS and not the date of opening. It is also providing relief from the bad check penalty for dishonored checks received between March 1 and July 15, 2020. It is easy to imagine that someone who sent the IRS a check in April might not be able to cover that check when processed in September or October, 2020.
The panel briefly discussed equitable tolling and the prospect that the pandemic has brought on many opportunities for arguing equitable tolling. Perhaps a more accurate description would be to say I used the panel as an opportunity to discuss this issue. My fellow panelists sat politely while I talked about equitable tolling.
There are two pending cases worth watching both of which involve an effort to have the Tax Court accept late filed CDP cases. The Castillo case is just getting underway in the Second Circuit. We wrote briefly about this case here (if you follow the link don’t stop just because the heading of the post concerns grand jury issues.) So far the amicus brief filed by the tax clinic at Harvard is the only filing of substance in that appeal. The other case to watch is in the Eighth Circuit where a petition for rehearing en banc was filed in Boechler which we discussed here. The Eighth Circuit did not dismiss the petition out of hand but has ordered the Department of Justice to respond to the request filed by the petitioner (supported by an amicus brief from the tax clinic at Harvard.)