If a taxpayer doesn’t file required tax returns, or files false tax returns, the IRS has the authority to prepare returns for the taxpayer and assess taxes. This authority applies to both individual and business tax returns. The IRS has specific programs for each type of taxpayer. The program for businesses is covered under Internal Revenue Code Section 6020(b) (“6020(b)”); however a new report issued September 2012 reveals the IRS is not always following procedures correctly.
The IRS prepares business returns and assesses taxes when 1) the business appears to be liable for the return, 2) the person required to file the business return does not file it, and 3) attempts by the IRS to secure the tax return fail. Assessments can either be proposed through an automated program, or manually by Revenue Officers (“ROs”) and other IRS collection agents. ROs may obtain information from the business taxpayer or third parties to establish a basis for the proposed assessment. Letter 1085, 30 Day Letter Proposed IRS 6020(b) Assessment, is sent to a taxpayer when all other efforts to secure a business return have failed. The letter states IRS authority to prepare and file tax returns on the taxpayer’s behalf. It also advise that if the IRS does not hear from the taxpayer within 30 calendar days from the date of the letter, the IRS will process the enclosed tax returns prepared for the taxpayer.
- $1.64 billion of 6020(b) assessments were entered into the IRS collection system for the 2011 fiscal tax year. These assessments have increased dramatically over the past few years. This increase prompted the Treasury Inspector General for Tax Administration (“TIGTA”) to evaluate whether IRS employees were using correct procedures to assess tax liabilities. TIGTA used a statistical sample of 96 cases, and the results are startling.
- In approximately 20% of the sampled cases, there was no evidence of the basis for assessments. The IRS explained there is no specific review process for 6020(b) assessments, or internal controls to make sure ROs follow the correct procedure. When attempting to recreate the basis for making the assessment in the identified cases, IRS management could not do so.
In 10% of the cases, ROs did not allow, or there was no evidence to support allowance of, the required 30 calendar days for taxpayers to respond to proposed assessments before IRS-prepared returns were processed. Once again, the IRS explained there is no specific review process or internal controls to deal with the 30 day response time procedure.
IRS procedures do state the importance for the agency to make full documentation of the basis for making a 6202(b) assessment. The documentation can be used if the taxpayer requests an appeal or requests Taxpayer Advocate Service assistance.
TIGTA made official recommendations to the IRS Director, Enterprise Collection Strategy, Small Business/Self-Employed Division, namely: develop internal controls for proper documentation preparation and allowance of 30 days for taxpayers to respond to proposed assessments before processing. The IRS agreed with the recommendations and plans to make some changes.
If you are a business who recently received an IRS notice, you must ask yourself: Do I want to face the IRS alone? You’ll need an advocate who is knowledgeable and experienced in dealing with Revenue Officers. Gary Kaplan is a licensed C.P.A. who can represent you before the IRS. Call Gary with your concerns if you received an IRS tax notice.
