If you do any type of representation work, you will applaud a recent revenue procedure from the IRS.
I had a trust fund issue with a client. He was having his Trust Fund Penalty hearing and the IRS had requested his appearance. This is the one time when you must accompany the client. I called the client to my office to coach him on the questions that were going to be asked. I told him if the IRS deviated from any of the questions that we practiced, to defer those questions to me.
The hearing was pretty typical. My client was not responsible for the trust fund. However, the revenue officer asked this one question: Was there ever a moment in time that my client signed a 941? The answer to this question was yes. The client was my point of contact, so of course he signed the 941’s. My client looked at me and I confirmed to the RO that the client did. I explained that my client didn’t really know what he was signing, but he was my only contact within the business, and I had sent him the payroll and tax forms to sign in his capacity as Secretary of the Corporation.
Ah ha! The IRS thought they had my client. He either knew, or should have known, there was a liability and that it wasn’t paid. The Service then assessed the TFP against my client. However, I had no idea that the president of the company had been embezzling money and the 941 taxes weren’t being paid. Each 941 showed the liability, but the balance owed was zero. He wasn’t the contact for the IRS, so he didn’t get the notices. He was a true passive officer. He didn’t own any percentage, he didn’t have any financial control, he was simply an officer. What was my recourse? A slow and painful appeals process that cost my client a small fortune.
Rev. Proc. 2016-57, 2016-49 IRB786, the IRS issued guidance about a new fast-track mediation (FTM) program that provides small businesses and self-employed individuals an opportunity to resolve some offer in compromise and trust fund recovery penalty disputes on an expedited basis with an Office of Appeals mediator serving as a neutral party. The IRS is replacing the Small Business/Self-Employed Division Appeals FTM program with an SB/SE fast-track mediation collection program. According to the revenue procedure, FTM requests were infrequent throughout the program and became more so after fast-track settlement (FTS) was implemented nationwide. However, FTS is available only to taxpayers in examination and does not provide an expedited appeals alternative dispute resolution opportunity for taxpayers in collection.
By replacing FTM with FTMC, the IRS is seeking to ensure that taxpayers in collection continue to have an early opportunity for expedited case resolution through mediation. However, the program is limited to certain issues, as described in the revenue procedure, and FTMC mediators do not have settlement authority so they cannot render a decision regarding any issue in dispute.
ROs can be egotistical because they have just a touch of power. This case was cut and dried; however, it was stuck in the queue for a year before it was resolved. It was simple. My client had no financial control. He was only on the board because his friend asked him to be and didn’t know anything about taxes or liability. He signed a total of eight 941 forms. His “friend” left town and the IRS couldn’t find him. The RO was desperate to hang this liability on someone, so they found my client.
While we were waiting a year for our appeals hearing, the client was nervous, and I had to talk him off the ledge several times. The RO tried to scare him with tales of seizing his assets to cover the $256,000 debt. My client was wealthy. He had several assets the IRS would surely attach if this ruling stood. Several times my client told me he wanted to just pay the tax and get it over with. I told him that would be absurd and the case would be overturned in Appeals. There was no way that an appeals officer would let this stand once the hazards of litigation were weighed.
The point is, if we had fast track mediation, the wait time would have been cut by 75 percent. We already have fast track with audit, so why not with collections? I congratulate the IRS for getting this done. We have been clamoring for it for several years now.
So, what happened to my client? The IRS found his friend three months into our waiting period. When we finally had our hearing, the Trust Fund Penalty had been assessed against the friend and the Service was getting payments, so they dropped the case against my client.
Craig W. Smalley, MST, EA, is the founder and CEO of CWSEAPA, LLP, and Tax Crisis Center, LLC.