For most businesses, about 22% of personal service companies, consulting companies, attorneys, accountants, professional service providers are subjects of audit which I found really interesting. It just proves that the IRS tends to focus on categories that they find the highest propensity of errors. If you actually go to the IRS website, there’s a series of audit technique acts. The IRS will publish the techniques that they use to audit certain types of individuals. They’ve got one for cash businesses. They’ve got one for construction. They’ve got one for partnerships. One of the really interesting ones is they’ve got one for attorneys. In my PowerPoint slide, I have included the link for the IRS audit technique guide for attorneys. So you can go on and see what the highest used categories are for attorneys and how attorneys get audited, which happens quite frequently. I have several attorney clients. Attorneys by the way make the worst clients.
Key Takeaways
For most businesses, about 22% of personal service companies, consulting companies, attorneys, accountants, professional service providers are subjects of audit which I found really interesting.
It just proves that the IRS tends to focus on categories that they find the highest propensity of errors.
If you actually go to the IRS website, there’s a series of audit technique acts.
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As a result of that, there are some things that you should note about ACS. Number one is that most of their collections agents do not handle the same case twice. Because they don’t handle the same case twice, you’re often relying on the ACS agent to take very detailed notes about the call, discuss time tables and actions. Unfortunately, sometimes they don’t keep the best notes. It’s really important as a practitioner to keep notes and records every time you all ACS so that you can best document your case, so that you have an understanding of what was said. That way, if there’s any dispute later, if the IRS levies your client or if there’s any other negative action taken, you’ve got the name of the ACS agent, you’ve got their ID number, you got the date and time of your call. And by having those pieces of information when dealing with their supervisor saying, “Hey, so and so told me that we weren’t going to levy and they went ahead and levied.”
Key Takeaways
As a result of that, there are some things that you should note about ACS. Number one is that most of their collections agents do not handle the same case twice.
Then, you’ve got a record that you can go back to the IRS and have them pull tape and resolve the issue. ACS agents, in addition to handling taxpayer compliance, they can also issue liens. They can issue levies. They can refer cases out to the field.
Now I’d like to talk a little bit about Revenue Officers. A revenue officer is a local IRS agent. One of the local field officers in the IRS, there has quite a few across the country. We have two here in San Diego. A revenue officer is an individual collection agent. Most offices have anywhere between 10 and 50 revenue agents. Some have more. Some of the bigger IRS offices in California. Or some of the other ones who have more agents. Some will have less. An IRS revenue officer is a specially-trained collection agent. We’ve pull the IRS’s job description for revenue agents: They conduct face-to-face interviews with taxpayers. They analyze financial information. They collect moneys. They seize assets and property. They try to resolve tax issues. They garnish bank accounts and they educate taxpayers as to their filing and paying obligations. Those are the principal jobs of a revenue officer. As a practical manner, a revenue officer is assigned about 40 collection cases and gives each one of those cases special attention. Special attention when it comes to the IRS is not a good thing. Revenue officers – by their job description – are mandated to try and make personal field contact with the taxpayers.
Key Takeaways
Now I’d like to talk a little bit about Revenue Officers. A revenue officer is a local IRS agent. One of the local field officers in the IRS, there has quite a few across the country. We have two here in San Diego.
They’re the ones that go around knocking on people’s doors, going to their jobs leaving cards or otherwise, coming around and scaring people.
Let’s talk a little bit briefly about IRS revenue officers’ specific collection actions.
All collection agents within the IRS can either lien or levy.
But revenue officers have a couple of things that they can do that are particularly unique to their style or classes.
Let’s talk a little bit briefly about IRS revenue officers’ specific collection actions. All collection agents within the IRS can either lien or levy. They can seize assets. They can garnish wages. But revenue officers have a couple of things that they can do that are particularly unique to their style or classes. The first thing I mentioned was field visits. IRS personnel can visit your client or they can investigate third-party sources. They can go knock on neighbor’s doors. They can knock on employer’s doors. They can track down former employer. If the taxpayer on a business, they can go after your customers. The IRS revenue officers have broad latitude in contacting third parties for information on tax payers. No, they do not have to provide you with notice before they make those calls. When dealing with a revenue officer, if you’ve got a client who is particularly concerned about their business or their privacy, it is important to make contact with that revenue officer and dissuade those face-to-face visits as soon as possible. The second thing that revenue officers tend to do is enforce things called IRS administrative summons. The IRS will issue a summons for records, oftentimes to banks or to taxpayers or to other parties requesting information or face-to-face interviews.
Briefly I want to talk to you about differences between the federal tax system and the state tax system.
Most FTV actions are initiated from the Sacramento office whether they are levis, phone calls, contacts with tax payers, or any sort of collection actions.
The states have limited resources at the local level.
Briefly I want to talk to you about differences between the federal tax system and the state tax system. As I mentioned, due to limited resources state are usually more aggressive in their collection tactics and their examination tactics than the federal government and the principal reason for this is because taxation for the states is the principal source of revenue racing. A lot of times when there is a budget shortfall the state will lean on their self tax and the federal tax bureau will lean on the income tax to help mandate collections priorities and help raise revenues either through collecting past due liabilities or examining returns and finding new ones. In general, the states because of their limited resources will rely more on in voluntary collections actions than field representatives so there’s much greater reliance at the state level for collections processes that are instituted from a remote location so for example in California the main center of operation for the FTV which is the Franchise Tax for the State of California income tax bureau is in Sacramento. Most FTV actions are initiated from the Sacramento office whether they are levis, phone calls, contacts with tax payers, or any sort of collection actions. The states have limited resources at the local level.
So now I’d like to talk to you about some issues with regarding that the states have specifically.
In California, we have a number of challenges in dealing with the state taxis that are either less of an issue or non-existent at federal level.
The first as I’ve kind of touched down earlier is overside.
So now I’d like to talk to you about some issues with regarding that the states have specifically. In California, we have a number of challenges in dealing with the state taxis that are either less of an issue or non-existent at federal level. The first as I’ve kind of touched down earlier is overside. There is usually less overside on cases than there is at the federal level. And I mean by that, is the auditor or the collection agent is given a lot more latitude in most cases to handle the cases as they see fit as long as it falls within the administrative guidelines. This particularly has an impact on the examinations process so a lot of the times the auditors are kind of given free rein to define the scope of what the audit is in sales tax or in particular they can do a really detail investigation and go through a number steps that you may not find in the federal process. As a result of this and as a result of the states having fewer resources, there is often times administrative delay when dealing with the state cases. For example, the time frame in California right now is if I were to represent a client in a sales tax audit and me and the auditor just agreed on the result and I filed and appeal, it would take anywhere from 8 to 12 months under the current structure to hear that appeal.
So, the first thing I’d like to talk about is I’d like to talk about some of the collection tools that the state uses to enforce collection against tax payers.
The state operates very much like the federal government.
It resorts to voluntary compliance whenever possible and uses involuntary compliance measures is kind of a step for dealing with tax payers that are not complying with what the states priorities are.
So, the first thing I’d like to talk about is I’d like to talk about some of the collection tools that the state uses to enforce collection against tax payers. The state operates very much like the federal government. It resorts to voluntary compliance whenever possible and uses involuntary compliance measures is kind of a step for dealing with tax payers that are not complying with what the states priorities are. In the case of California, the state will use voluntary compliance measures like letters to encourage tax payers contact, collection agents to Sacramento reach out to tax payers through phone calls, occasionally utilizing the local office to conduct field visits when they feel as appropriate and then try and encourage some sort of resolution of the tax account at hand. So, resolution from a state perspective means that all returns are filed and paid on time and in cases where there are missing returns they want the tax payer to file them. In cases where the tax payer hasn’t paid their balance then they want the tax payer to enter them to a satisfactory payment arrangement. Payment arrangements at the state level are a little stricter than they are at the federal level. As I mentioned, the tax payer doesn’t have the same set of rights that they do at the federal level so the state is generally more aggressive towards revenue collection than you will find at the federal level.
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Topic: California Collection Tools Part Two – Involuntary Compliance
Warrants or seizures of property and levies are actions taken against bank accounts and things like that..
On the involuntary side of things when the tax payer does not get in the compliance or refuses to pay the state can do a number of negative actions so it means against any personal real property or common, earnings withholding orders, garnishments against wages are another common thing and finally, levies and warrants. Warrants or seizures of property and levies are actions taken against bank accounts and things like that.
The state has a variety of collection tools at their disposure that they can utilize tax payers and in the manuals that the collection agent received what you’ll find is you’ll find a list of assets that they have and an appropriate designated action that the representative is supposed to take. For example, when they have a bank account or cash the state will mandate that the collection agent go after those assets first because those are the easiest to reach. Second to bank accounts and cash are wages that are reported consistently by the tax payer. From there they go towards accounts receivable, they go towards sources of independent contractor income and then finally moving on to physical assets or assets that may be a little bit more difficult to seize at a later day.
Key Takeaways
For example, when they have a bank account or cash the state will mandate that the collection agent go after those assets first because those are the easiest to reach.
Second to bank accounts and cash are wages that are reported consistently by the tax payer.
From there they go towards accounts receivable, they go towards sources of independent contractor income and then finally moving on to physical assets or assets that may be a little bit more diffic…
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The next thing I would like to talk to you about is how the State of California locates taxpayers and their assets.
State collection agents have gotten a lot more creative and have access to a lot more information than they did in the past.
So first, the principal collection tool that the state uses for collections is the internet.
The next thing I would like to talk to you about is how the State of California locates taxpayers and their assets. State collection agents have gotten a lot more creative and have access to a lot more information than they did in the past. Part of the reason they have access to this information is because most of the records now within the state are electronic and there is a lot more information sharing between agencies, both within the State of California government and outside of the State of California. So first, the principal collection tool that the state uses for collections is the internet. So, the very first thing they do is usually run a Google search on you or your business, to try and locate the – they try and locate any information that they can on you. Interesting to note that state collection agents use a lot of social media. So, Facebook is common. Twitter is common. Yelp is common for businesses and some states can pull a variety of information that is publicly available on the internet and use that for collections purposes, which is really interesting. The next source of information that the state usually goes to is the internal databases that both the collection agency itself and the broader State of California main tax. So, for example, you’ve got a Franchise Tax Board state income tax person collecting on a delinquent liability. They can go to the Employment Development Department in California to get a copy of taxpayer’s wages and work information. They can go to the California DMV to get a copy of their driver’s license and last known address. They can look through the California voter registration system. All of this information is really easily available and really easily accessible to state collection agents. The other information they can pull is they can pull information from credit reporting agencies. So, a lot of the times, what state collection agents will do to locate assets in particular is they will pull your most recent credit report. So, if you’ve applied for a credit card recently or listed an address or things like that, the state agent can pull all of that off the credit card information. When state records fail or when the credit report doesn’t reveal anything, a lot of the times, the state collection agent will do a records request through the Internal Revenue Service. So, anything that is reported to the Internal Revenue Service is fair game for state collection agents. This includes wage information. This includes information from 1099s or state tax refunds in other states. It includes interest associated with bank accounts. So, banks will file third party 1099-INTs for interest that is earned; 1098s for student loan information and a variety of – the treasure trove of information that the IRS collects on taxpayers. The state through interagency records requests can get a hold of that information and often uses it to locate taxpayers and their assets. In addition to the IRS and gaining information through them, the state also uses the federal postal system as a means of getting updated addresses and things like that. So, a lot of the times, state collection agents can request to do a mail cover, which is where they – the post office keeps track of any letters that you have mailed with any forwarding address on. The state can obtain updated address information through the post office as a means of tracking you down. In addition, the state has something – has access to something called the Financial Institution Records Match Program. So, the state can send out a request with your first name and your last name or your business name or the last four or your Social Security number and try and run that through a database of banks in order to track down any financial institution accounts that you might have. So, they do that, number one, to locate assets; and number two, to locate you physically and track you down. So, all these sources of information are readily available to state collection agents and it’s one of the ways they help try and close the tax gap. They do pretty thorough asset investigations on most taxpayers and that’s why a lot of the times down the road, even if the taxpayer has moved out of state or hasn’t had any work history or anything like that, that’s how the state is able to locate them and track down their assets for collections purposes. Up next
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