You should be able to talk with someone at the IRS and work it out over the phone.”
I have lost track of how many times I have heard that
over the years.
I do not disagree, and sometimes it works out. Many
times it does not, and we recently went through a multi-year period when the
IRS was barely working at all.
There are areas of tax practice that are riddled with
landmines. Procedure - when certain things have to be done in a certain way or
within a certain timeframe – is one of them. Ignore those letters long enough
and you have an invitation to Tax Court. You do not have to go, but the IRS
will – and automatically win.
I was looking at a case recently involving a claim.
Tax practitioners generally know claims under a
different term – an amended return. If you amend your individual tax return for
a refund, you use Form 1040X, for example.
There are certain taxes, including penalties and interest, however, for which you will use a different form.
Frankly, one can have a lengthy career and rarely use this
form. It depends – of course – on one’s clients and their tax situations.
And yes, there is a serious procedural trap here –
two, in fact. If you use this form but the IRS has instructed use of a different
form, the 843 claim will be invalid. You will be requested to resubmit the
claim using the correct form. By itself it is little more than an annoyance,
unless one is close to the expiration of the statute of limitations. If that
statute expires before you file the correct form, you are out of luck.
There is another trap.
Let’s look at the Vensure case.
Vensure is a professional employer organization, or
PEO. This means that they perform HR, including payroll responsibilities, for
their clients. They will, for example, issue your paycheck and send you a W-2 at
the end of the tax year.
Vensure had a client that stiffed them for
approximately $4 million. As you can imagine, this put Vensure in a precarious financial
situation, and they had trouble making timely payroll tax deposits in later
quarters.
I bet.
Vensure did two things:
(1) They filed amended payroll tax returns (Forms
941X) for refund of payroll taxes remitted to the IRS on behalf of their
deadbeat client.
(2) They submitted Forms 843 for refund of penalties
paid over the span of six quarters (payroll taxes are filed quarterly).
Notice two things:
(1) The claim for refund of the payroll taxes
themselves was filed on Form 941X, as the IRS has said that is the proper form
to use.
(2) The claim for refund of the penalties on those
taxes was filed on Form 843, as the IRS has said that is the proper form for
the refund or abatement of penalties, interest, and other additions to tax.
Vensure’s attorney prepared the 843s. Having a power of
attorney on file with the IRS, the attorney signed the forms on behalf of the taxpayer,
as well as signing as the paid preparer. He did not attach a copy of the power
to the 843, however, figuring that the IRS already had it on file.
Makes sense.
But procedure sometimes makes no sense.
Take a look at the following instructions to Form 843:
You
can file Form 843 or your authorized representative can file it for you. If
your authorized representative files Form 843, the original or copy of Form
2848, Power of Attorney and Declaration of Representative, must be attached.
You must sign Form 2848 and authorize the representative to act on your behalf
for the purposes of the request.”
The IRS bounced the claims.
The taxpayer took the IRS to court.
The IRS had a two-step argument:
(1) For a refund claim to be duly filed, the claim’s statement of the facts and grounds for refund must be verified by a written declaration that it is made under penalties of perjury. A claim which does not comply with this requirement will not be considered for any purpose as a claim for refund or credit.
(2) Next take a look at Reg 301.6402-2(c):
Form for filing claim. If a particular
form is prescribed on which the claim must be made, then the claim must be made
on the form so prescribed. For special rules applicable to refunds of income
taxes, see §301.6402-3. For provisions relating to credits and refunds of taxes
other than income tax, see the regulations relating to the particular tax. All
claims by taxpayers for the refund of taxes, interest, penalties, and additions
to tax that are not otherwise provided for must be made on Form 843, "Claim
for Refund and Request for Abatement."
Cutting through
the legalese, claims made on Form 843 must follow the instructions for Form
843, one of which is the requirement for an original or copy of Form 2848 to be
attached.
Vensure of course argued
that it substantially complied, as a copy of the power was on file with the IRS.
Not good enough, said the
Court:
The court agrees with the defendant that the signature and verification requirements for Form 843 claims for refund are statutory.”
Vensure lost on grounds of procedure.
Is it fair?
There are areas in tax practice where things must be
done in a certain way, in a certain order and within a certain time.
Fair has nothing to do with it.
Our case this time was Vensure HR, Inc v The United
States, No 20-728T, 2023 U.S. Claims.
