Statute of Limitations for Federal Income Tax

[marbol]

What is the name of your state? TX

I had wage income in 1994 and some self employment income. I filed a 1994 tax return. I owed nothing because my employer took out the correct amount of witholding for the wage income. But I forgot to report the 1099 income in 1994 to IRS. This 1099 income was about 12 thousand dollars. I forgot about it.

They sent me a deficiency demand or so they say, in 1996. I must have ignored it. They must have also.

Now, come 2007, and the IRS shows up on my doorstep and demands playment of 24 thousand dollars. Apparently, the deficiency had asked for me to pay 6000 in taxes on the 12 thousand dollars, and now the penalties and interest has brought the total to 24 thousand dollars. I said you can't expect me to pay it because it's outside of the SOL. They are holding my returns money (about 20 thousand dollars from 2004-2006) as payment for 1994 - or so they say.

I asked them to let me re-calculate my tax liability for the 12K 1099 money - because I have direct expenses against it, my tax liability for it would be very near 400 since I made only about 1000 dollars as profit on the deal. I paid someone else in Mexico for doing the work, and bought software and hardware myself to produce the product that I sold for 12 thousand dollars - and didn't use that software or hardware for anything else except this product.

So the IRS says I cannot re-calculate it - they say it's too late - but that the SOL isn't up until 2008. So they kept my returns money.

I sued them so that I could recalculate the deficiency, and they filed in tax court saying that the tax court is out of jurisdiction since I didn't complain about the deficiency in thee 1990's - I responded saying that this (2007) is the first I've heard of it.

I have asked them for information about my 1994 taxes so that I could file an ammended return. I have kept no information myself. Any information would be from memory. They refused to give me the trasncript - or any information.

I have filed the forms to get my information - both my returns and copies of it, plus a transcript for 1994. This was 3 months ago. I have not heard anything back - but I do have the green card for the certifiied mail/return receipt.

So my situation is:
1) IRS has my money
2) IRS won't give me any information so that I can re-file an ammended return
3) IRS refuses to agree to the 10 year SOL on collections and erase the debt (saying they have collected because they kept my return money)
4) IRS refuses to let my lawsuit progress saying the tax court is out of jurisdiction
5) IRS refuses to settle instead just keeping all of my return money for 1994.

What should I do?

I have considered:

1) Refiling the 1994 return anyway with what I can remember from my memory (maybe they don't know either - or can't find the information) - which should force them to give back the money they collected for 1994 recently.

2) File a suit in NORMAL court (not US Tax court) and ask that they be forced to return the money sue to being outside of the 10 year SOL when they collected the monies.

3) Sue them so they have to give me the information they have now (the transcript) so that I can file the 1994 taxes

4) Since I already have an ongoing lawsuit in US Tax court, can I file a subpoena that forces them to release the transcript to me?

5) Something else?

From my calculations, my profit for the 1099 income was nearly on 1 thousand dollars out of the 12 thousand gross. Taxes on that would be near 440 dollars. 440 dollars over the years would be around 3900 dollars total with penalties and interest until 2007. I wouldn't mind paying that much. (of course, I'd rather it be dismissed in the SOL) - but they won't consider that - since they'd have to give me back quite a bit of money.

Thanks in advance...

MB

 

[tecate]

Are you DIY for this? It looks like you know quite a bit about federal tax procedure. You are at a point, however, that you will need a tax litigator to consult over strategy. Find someone who actually does the courtroom work and paperwork that leads up to it. This should be a basic yes or no on whether the IRS is within its rights to collect. I don't think an amended return will help eleven years later.

Do you have a copy of the Notice of Deficiency, better known as a 90-day letter? If so, did the IRS use your proper address? They are usually sent return receipt requested. Just because you didn't get it doesn't mean it wasn't served properly. But the burden of proof is on them to show it was.

You might pull up the IRS material about this part of tax procedure. Even though it may be worded their way, you will learn a lot. You should find that it was up to you to respond within 90 days with a petition to the Tax Court IF they sent the letter to the proper address. Otherwise, the Tax Court doesn't have jurisdiction. It was up to them to serve the 90 day letter before the statute of limitations ran, or they are SOL. If they served it properly, then they can "assess" and collect after 90 days. Then you need to pay, and afterwards sue for a refund in District Court.

My guess is that after all this time, you will need to follow the procedure to demand a refund for the withheld taxes and sue in the District Court (normal court, in your lingo.) for lack of authority to grab the $$$$. Again, an experienced tax litigator should be able to help IF you have a case.

Good luck.

 

[tranquility]

Obviously, no one can answer without viewing all the paperwork in detail. SOL issues are very difficult. First, collections SOL are based on the assessment of the tax and not the filing of the return. There are many things that can keep the SOL from running. That you have another case in Tax court may have some effect. If the IRS got a levy may have some effect. Many others.

It is very possible the collection period is still within the statute--even without much heavy lifting. For the 1994 tax year, you file in 1995. The IRS back then (they are much better now) would not have made a matching for a year at least, so you got your first letter in 1996 or 1997. (Or, they sent it at that time.) They then assess the tax sometime in 1997 or 1998. Ten years from that date, assuming the SOL is not tolled for some reason or, because of a substantial underreporting they didn't wait past the three year SOL to assess, you still may be collectable today. Check your dates as the court is getting very touchy about frivolous lawsuits agains the IRS.

1) Refiling the 1994 return anyway with what I can remember from my memory (maybe they don't know either - or can't find the information) - which should force them to give back the money they collected for 1994 recently.

Unless the due date of the return has not passed, the IRS does not need to accept an amended return. Unless you can show you did not receive any correspondence regarding this in the past, I find it unlikely they will accept an amended return this far past the statute. They will not even consider it unless you consent to extend the collections statute, something which I bet you will not do. You can try, but I think it is wasted effort.

2) File a suit in NORMAL court (not US Tax court) and ask that they be forced to return the money sue to being outside of the 10 year SOL when they collected the monies.

Suing for a refund in District Court is possible if you have exausted all your administrative remedies. As discussed above, make sure you are correct before taking this action.

3) Sue them so they have to give me the information they have now (the transcript) so that I can file the 1994 taxes

Suing them for discovery so you can file is not worth your time, as they don't have to accept your ameded return. If you're going to sue, sue to win.

4) Since I already have an ongoing lawsuit in US Tax court, can I file a subpoena that forces them to release the transcript to me?

You can try, but you might get sanctions if the subpoena is not designed to discover relevant evidence in the case you are using for discovery.

5) Something else?

You might try an OIC. I forget specific text of the reason, but there is a reason of unfairness. You would make the argument it is unfair because you never had a chance to respond and the SOL is past to file a return which would substantially reduce your assessment as all the money was not income. You would have the disadvantage of paying for the OIC and the filing would toll the collections SOL.

You have a long uphill battle in front of you no matter what you choose. I don't think your chances are great, but I don't have all the paperwork in front of me. Remember the genesis of the entire problem started when you forgot to report $12,000 in income. I guess you didn't get the 1099 reminder that year either. The IRS didn't send out letters appropriately and so on and so forth. With another case in Tax court currently, it seems like you are a very unlucky guy. Extremely, unusually, unlucky. Juries either love or hate EUU's and the IRS is very suspicious of them. The *best* I think you can hope for is to get it in front of a jury some day years hence, polish up your smile (Best would be a true effort of happiness tinged with a slight frown of difficult circumstances. A little buckeroo soldering on kind of thing.)--you're going to need it.

 

[marbol]

New Information

Wow! Thank you all so MUCH!! Those replies were very well thought out and informative. THat's very nice of you to donate your time - when so many other posts on this board are full of spiteful nasties!

Anyway, last week, I got a call from a revenue officer who is "handling" my "case" - he said that he knows the person handling the lawsuit had filed a motion to dismiss. I filed a response. He knows that.

But he said that I should file an amended return. He said it was my "right" to do that since my signature was not on the assessment, and that since it would be on the amended return, they would have to accept it.

Well, I asked him if he could send me a copy of his "transcript" of the return and he said he cannot give that information to me. He did tell me that I should requst a copy of my return and that they did indeed have a "transcript" at least and that I would get that.

So that's interesting and "good" news - at least I think so. I wonder if this guy is truly wanting to be helpful - I think he is, because he is the same guy that took my late returns that did have returns due on them (of course, he wanted me to file those) and those are the ones that they kept the return money.

So - I have re-filed a request for a copy of my return this time - and am going to wait some more. I haven't heard anything about my lawsuit progression other than it's on the docket search at the USTaxCourt web site page. It says it received my response to the motion - and that's all it says.

I wonder how those progress. - Since I saw on the web site that the US tax court "encourages" people to contact the other side's attorney in "S" cases, I wonder if I should send the opposing counsel a letter and ask to settle? Or would that seem to anxious?

This is actually fun! I want to go back to school and become a lawyer. - However, you are right - if this becomes more nasty, I will go ahead and bite the bullet and hire an attorney in the Dallas area. I'm just not sure if it's worth it for what would amount to essentially only around 10K for me if I prevailed.

Thanks for all of your help in advance.

I'll continue to post my luck- (by the way, I'm not really unlucky - I usually have good luck) - in this ordeal. At least you can see how people fare when they try their hands at DIY.

 

[LdiJ]

DO NOT file an amended return at this point....at least not without consulting a tax attorney.

They are assessing you 24k, and they have only collected part of it. The SOL is going to run out on the rest probably sometime this year or next year.

Filing an amended return may extend the SOL. I think its possible that is the reason that the agent is encouraging you to do so.

 

[tranquility]

I have done nothing more than a quick scan so am not sure, but I don't believe an amended return will toll or extend the SOL for collections. However, my educated guess is based on an absence of evidence to the contrary and not a statement to that effect.

In that quick review, I did see an error in my previous post I need to correct now. The OP will *not* be able to sue for a refund. This is true for two reasons. The first, as I mentioned, he needs to avail himself to all administrative remedies before the court will have jurisdiction. Second, and the real problem, the OP must have first paid the full amount of the tax and penalty in question. I don't think he has done so. This is not just a regulaton or law, but a pronouncement from the Supreme Court in Flora v. United States, 362 U.S. 145. (But, Shore v. United States, 26 Cl. Ct. 829, rev'd and remended 9 F.3d 1524 states Flora does not require prepayment of interest and penalties when the taxpayer only disputes the tax assessment. I did not read the cases to see how they apply to the OP's situation.)

 

[marbol]

thank you all for the help

... Second, and the real problem, the OP must have first paid the full amount of the tax and penalty in question. I don't think he has done so.

Once I file my 2006 taxes, I will have paid the entire tax, interest and penalty in the 1994 matter. They even applied my refunds to my 1997 tax first before they started applying it to the 1994 one. I thought that was odd. They even told me they always apply it to the oldest tax first. But I had asked them to apply them to the 1997 taxes, and they did. So I'm not really sure they are working against me here. I do think that they know that my 1994 taxes should have been expired by SOL. And they are still just taking it.

That's why I filed an extension to file for 2006. I have calculated that I will get 5K back for 2006 which will pay up the 1994 tax in totality.

Should I go ahead and file it - and let them keep that too- or wait until the extension time is up on October 15th, 2007?

Thank you for all your help. It's been really great reading past case law and your opinions.

I believe I will just wait and see how the case turns out. I really wish I knew when it was going to court. I suppose I can just call the clerk and ask them - so I'll do that. If the court grants me the right to re-file the 1994 return, I believe I'll be home free.

 

[tecate]

Did you ever get a copy of the 90 day letter? Was it sent to the correct address?

 

[marbol]

Did you ever get a copy of the 90 day letter? Was it sent to the correct address?

If a 90 day letter is a notice of assessment or deficiency, then no. I did not ever get a copy of the 90 day letter. Not even to this day do I have a copy of it. A revenue officer (collections officer) showed up on my doorstep one day to tell me that he was collecting for 1997 taxes which were late - which I paid - and kind of said "Oh, also you owe us 24 K for 1994 taxes. I'm here to collect it. No letter, he just had a letter that said I owe it. This was the first they tried to collect it (outside of the 10 years, I think) and I have never gotten a notice of defiiciency. They cannot produce it to the best of my knowledge. I guess I'll see what they come up with at the trial.

 

[tecate]

So the IRS wouldn't give you a copy? Ask the collection agent for a copy or a contact to find one. Since you are DIY, I strongly suggest that you learn more about this aspect of tax procedure and the importance of the 90 day letter. From what you have said, I don't believe the Tax Court has jurisdiction to hear your case, because you didn't file your petition during the 90 day period. In other words, it won't have the power to help you even if the judge feels sorry for you or senses a big IRS mistake. For that reason, I expect that the IRS' motion to dismiss will be granted, and if so, there won't be a trial. If it turns out that the IRS botched the 90 day letter, show the collection agent that it was incorrectly sent, if at all. If he is really helpful, he will stop what he is doing and contact the 90 day letter department for more information, but don't count on it. If the IRS sent it properly, it can assess the tax after the 90 day period and collect for the next 10 years.

Good luck

 

[marbol]

So the IRS wouldn't give you a copy? Ask the collection agent for a copy or a contact to find one. [...] I strongly suggest that you learn more about this aspect of tax procedure and the importance of the 90 day letter. From what you have said, I don't believe the Tax Court has jurisdiction to hear your case, [...] For that reason, I expect that the IRS' motion to dismiss will be granted, and if so, there won't be a trial. If it turns out that the IRS botched the 90 day letter, show the collection agent that it was incorrectly sent, if at all. If he is really helpful, he will stop what he is doing and contact the 90 day letter department for more information, but don't count on it. If the IRS sent it properly, it can assess the tax after the 90 day period and collect for the next 10 years.

Good luck

Thanks.

I never got the 90 day letter. So I don't think they sent it - or didn't send it correctly. However, I don't think I can prove a negative very well.

If the motion is granted anyway, what recourse would I have? I just want to file a proper adjustment - so what court would have jurisdiction?

Can I just ask the revenue officer for the information? Can I ask him if he will accept the 1994 tax return? Or do I need to submit it to the court since that's where it is now.

 

[tecate]

1. See above. The 90 day letter is not for you to prove, its for them to prove. From your initial post, its looks like you and the agent covered this, but ask him again, once you feel comfortable with what constitutes valid service of a 90 day letter. (What is valid can be long subject; its why I said you should buy an hour of a tax litigator's time to review what you have.)

2. Assuming the 90 day letter was validly served, the District Court will have jurisdiction once you pay the tax and the IRS rejects a claim in whole or in part. Since you filed your 1994 return, the claim takes the form of a 1040X. It covers taxes paid within two years of filing. This is what the collection agent (revenue officer) was talking about. If he will accept the claim with your additional deductions, and adjust the assessment, then your troubles are over. If not, then you need to pay the tax, file the claim separately, wait for their decision, and if you don't like it, sue the IRS in District Court.

 

[marbol]

1. See above. The 90 day letter is not for you to prove, its for them to prove. [...] its why I said you should buy an hour of a tax litigator's time to review what you have.).

Ah, ok - I got the idea finally

2. [...] If he will accept the claim with your additional deductions, and adjust the assessment, then your troubles are over. If not, then you need to pay the tax, file the claim separately, wait for their decision, and if you don't like it, sue the IRS in District Court.

Good ideas --- Now that you put it so plainly; I'll see if he will accept the claim directly. If he won't, I'll buy the time from the tax litigator. If he won't accept the claim while the lawsuit is ongoing in USTaxcourt, I suppose I'll have to drop it myself. Ah - again..., a question for the litigator...

Sounds good - excellent advice.

Thank you! And thank you for not leaving sarcastic answers like so many others do in other parts of this forum. The well-thought advice is very much appreciated.

 

[marbol]

what does this mean

On the docket in my case, I see this:

No. Date Filings and Proceedings Action/Status Date Served Cer.M
0001 04/09/2007 PETITION Filed:Fee Paid
R 04/11/2007
0002 04/09/2007 DESIGNATION of Trial at xxxxxxx, TX
R 04/11/2007
0003 05/18/2007 MOTION by resp. to dismiss for LOJ (not timely) w/Ex. (C/S

0004 05/21/2007 NOTICE of Filing mot to dismiss. Obj to be filed: 6/11/07

B 05/21/2007
C
0005 05/29/2007 RESPONSE by petr. to mot. to dismiss. (C/S 5/21/07)

0006 07/02/2007 ORDER resp. by 7/23/07 file suppl. to mot. to dismiss.

B 07/03/2007

-- so what does the last line mean? Does it mean the court gave the IRS until July 23rd to file a response to my response? What does "suppl." mean?

Thanks

 

[marbol]

all worked out

This all worked out - I didn't get much money back - but I got some.