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IRS Collections Stance on Economic Hardship

Submitted by admin on Fri, 8/13/2010 - 12:00 am

It is well known that the IRS Appeals will issue unfavorable determinations on over 46% of all Tax Levy CDP (Collection Due Process) cases when a taxpayer is not in compliance with filing all of their tax returns, regardless of how “dire” the “Economic Hardship” is to the taxpayer, even though the IRS is supposed to consider all collection alternatives, such as Installment Agreements, CNC status, or the Offer in Compromise, in all Levy circumstances, even when the levy presents an undue economic hardship, if the taxpayer is not in compliance with filing of their tax returns.

There was a US Tax Court case in December of 2009, Kathleen Vinatieri vs Commissioner of Internal Revenue, where Ms. Vinatieri encountered such a levy that presented an undue economic hardship. The US Tax Court found in favor of Ms. Vinatieri, and stated that the IRS determination to proceed with the levy and collection action given the circumstances of Ms. Vinatieri, was wrong as a matter of law, and therefore an abuse of discretion regardless of tax filing compliance. The tax court effectively overturned Sections of the IRM and IRC on this matter (Sec. 6343(a)(1)(D), I.R.C., and sec.301.6343-1(b)(4), Proced. & Admin. Regs.) and (Sec.6343(a)(1)(D), I.R.C., and sec. 301.6343-1(b)(4), Proced. & Admin. Regs.)

How does this change things?

Well, the courts ruled that if the taxpayer at a CDP hearing has provided information that confirms an economic hardship would occur if the proposed IRS levy and collection action were to take place, then the IRS Appeals Officer CANNOT proceed forward with a levy and MUST consider an alternative, even if the taxpayer has neglected to file current or delinquent tax returns.

Now, most IRS personnel will not be familiar with this case, or the IRS stance on the matter, but you now know something to put into your arsenal.