The Realities of Working with the IRS….

Most taxpayers are never contacted by the IRS and they never have any IRS tax troubles. Those lucky taxpayers really cannot understand how frustrating it can be to try to resolve IRS tax troubles. Take the case of Kuhl v. United States.

Kuhl owed the IRS approximately $100,000 in taxes. Because the taxes were sufficiently old and a tax return was filed, Kuhl decided to file bankruptcy to discharge or eliminate the IRS tax liability. After the bankruptcy proceeding was closed, the IRS imposed a wage levy to garnish Kuhl’s wages to satisfy the then discharged tax debt.

The IRS took the position that Kuhl’s timely filed tax return was not sufficient to count as a tax return, because Ms. Kuhl’s then ex-spouse claimed that he never signed the joint filed tax return. It appears that the IRS pursued this argument because the IRS statute of limitations to collect this tax debt had expired, as a tax return was filed more than ten years prior to the IRS imposing the wage levy.

Ms. Kuhl then sent the following letter to the IRS:

In regard to the attached notice requesting payment of $92055.10 in unpaid taxes, please be advised, again, that I filed bankruptcy. I have enclosed copies of the Bankruptcy Discharge Papers, again.

I am writing you because calling the IRS is very time consuming and I have never gotten any results. I have faxed the Bankruptcy Discharged Papers directly to an IRS agent with no results.

Let’s try this one more time. Please release the levy sent to my employer, Belesi & Donovan, PC, requesting a salary garnishment.

Please call me at [telephone number] to clear up this matter. Thank you.

According to the court, Ms. Kuhl then had to reopen the bankruptcy proceedings and have the bankruptcy court order that the tax liabilities were in fact discharged. The IRS initially appealed the discharge.

So at the end of the day the IRS had violated the bankruptcy automatic stay laws, it used a questionable position on whether a tax return was timely filed to keep the statute of limitations open, and it continued to contest the fact that the tax liabilities were discharged in bankruptcy.

This is what it is like in dealing with the IRS. Most taxpayers have some belief that this is what it is like to deal with the IRS, but I think they doubt whether it is actually true.

The Revenue Restructuring Act of 1998 put the IRS on notice that this type of IRS abusive behavior is not acceptable; however, the increased emphasis on IRS tax collection efforts cited by the President, Congress and the media has emboldened the IRS once again to engage in these types of activities.

I cannot help but reflect on my own practice. I myself have noticed a growing indifference with IRS employees as to our tax laws and their role in resolving tax controversies.