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When Clients Need Extra Help Dealing with the IRS

Taxpayer Assistance Orders

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Have you ever had a problem with a bill that took months of phone calls and letters to resolve? Unfortunately, as you are probably well aware, taxpayers can run into the same kind of logjams at the IRS—often with dire consequences. The taxpayer may be served with a notice of levy, property may be seized and sold to satisfy the unpaid tax liability—and the taxpayer may run up massive bills for professional help in resolving the problem.

So what’s a taxpayer to do? When resolving a problem through normal channels fails, one option is to ask the National Taxpayer Advocate (NTA) for “extra help.”

The IRS has just released proposed regulations that provide guidance on the scope of the NTA’s authority to issue Taxpayer Assistance Orders (TAOs) [Prop. Reg. Sec. 301.7811-1].

Code Section 7811 authorizes the NTA to issue a TAO when a taxpayer is suffering or is about to suffer a significant hardship and the laws and facts support relief.

What Is a Significant Hardship?

According to the proposed regulations, a significant hardship means “serious privation caused or about to be caused to the taxpayer as a result of the particular manner in which the internal revenue laws are being administered by the Internal Revenue Service.” Significant hardship includes situations in which a system or procedure fails to operate as intended or fails to resolve a taxpayer’s problem or dispute with the IRS.

Significant hardship includes, but is not limited to:

• An immediate threat of adverse action
• A delay of more than 30 days in resolving taxpayer account problems
• Incurring of significant costs—including fees for professional representation—by the taxpayer if relief is not granted
• Irreparable injury  or long-term adverse impact on the taxpayer if relief is not granted

Let’s see how this would work in several different scenarios::

Example 1. The IRS serves a levy on your client’s bank account. Your client needs the funds to pay for medically necessary surgery that is scheduled to take place in one week. If the levy is not released, your client will not have the necessary funds to have the procedure. According to the proposed regulations, your client is facing an immediate threat of adverse action.

Example 2. The IRS sends your client, XYZ, Inc., several notices requesting payment of outstanding employment taxes owed by XYZ and four of its subsidiaries. The notices indicated that XYZ and the subs owe employment taxes spanning 12 quarters totaling $10,000. XYZ provides documentation showing that if all payments were applied correctly to each entity, there would be no balance due. The IRS asks for additional records and documents. To comply with the request, XYZ will need your services to organize the records for 60 tax periods (12 quarters for five entities) and provide a detailed analysis of how the tax payments should be applied. You estimate your services will cost $5,000. XYZ is facing significant costs.

Example 3. Your client, David Donner, needs to refinance his mortgage to lower his monthly payment. Unless the refinancing goes through, Donner will lose his home because he cannot afford the monthly payments. However, the bank will not approve the refinancing because the IRS has refused to subordinate a tax lien on the property or release the lien on the property. Donner is facing an irreparable injury if relief is not granted.

What Is a TAO?

The proposed regulations make it clear that the fact that a taxpayer is suffering significant hardship won’t automatically guarantee a TAO. After making a determination that a taxpayer is facing significant hardship, the NTA must decide whether both the facts and the law support relief for the taxpayer.

The NTA cannot make a substantive determination of the taxpayer’s tax liability.

However, once the NTA has determined that significant hardship exists and that the facts and law support relief, a TAO can release a levy, stop IRS actions such as collection or bankruptcy proceeding, or order the IRS to take other actions related to the taxpayer’s problem. A TAO can also require the IRS to expedite, reconsider, or further review any action.

Example 1. You contact the local taxpayer advocate on behalf of your client, Jim Jacobs, because a wage levy is causing Jacobs to experience financial difficulties. A TAO can order the IRS to release the levy in whole or in part by a specified date.

Example 2. You prepare an offer in compromise on behalf of a client, but the IRS rejects the offer. You then request a TAO on behalf of the client. A TAO can order the IRS to reconsider the rejection of the offer or to review the offer at a higher level. Although the taxpayer advocate cannot make a substantive determination, the TAO can include an analysis and recommendations for resolving the case.

Nuts and Bolts

If your clients are in need of “extra help,” a TAO  can be requested by filing Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), or a written statement that provides sufficient information to determination the nature of the harm and the need for assistance. If you wish to act on a client’s behalf in seeking a TAO, Form 2848, Power of Attorney and Declaration of Representative, must be filed with the IRS.  A request for a TAO should be filed with the local Taxpayer Advocate for your client’s state.

Terence M. Myers, J.D. and Dorinda D. DeScherer, J.D. are nationally renowned writers on tax topics for such publications as Accountants Tax Weekly, Tax Return Preparer's Letter, Nonprofit Tax and Financial Strategies, and Executive's Tax and Management Report. For many years Myers was Managing Editor and DeScherer Assistant Managing Editor for many Prentice Hall tax newsletters. Myers and DeScherer have published books and other publications with Harcourt Professional Publishing, Aspen Publishers, Prentice Hall, and the AICPA.

Last Updated: 09/04/2009