Government Forces Sale to Cover Partner’s Tax Debt

 I was reading a case recently that bothered me. It involves something that – fortunately – I rarely see in practice.

Here is the Code section:

§ 7403 - Action to enforce lien or to subject property to payment of tax

(a) Filing. In any case where there has been a refusal or neglect to pay any tax, or to discharge any liability in respect thereof, whether or not levy has been made, the Attorney General or his delegate, at the request of the Secretary, may direct a civil action to be filed in a district court of the United States to enforce the lien of the United States under this title with respect to such tax or liability or to subject any property, of whatever nature, of the delinquent, or in which he has any right, title, or interest, to the payment of such tax or liability. For purposes of the preceding sentence, any acceleration of payment under section 6166(g) shall be treated as a neglect to pay tax.

(b) Parties. All persons having liens upon or claiming any interest in the property involved in such action shall be made parties thereto.

(c) Adjudication and decree. The court shall, after the parties have been duly notified of the action, proceed to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property, and, in all cases where a claim or interest of the United States therein is established, may decree a sale of such property, by the proper officer of the court, and a distribution of the proceeds of such sale according to the findings of the court in respect to the interests of the parties and of the United States. If the property is sold to satisfy a first lien held by the United States, the United States may bid at the sale such sum, not exceeding the amount of such lien with expenses of sale, as the Secretary directs.

(d) Receivership. In any such proceeding, at the instance of the United States, the court may appoint a receiver to enforce the lien, or, upon certification by the Secretary during the pendency of such proceedings that it is in the public interest, may appoint a receiver with all the powers of a receiver in equity.

And here is where you leave your tax CPA and hire a tax attorney.

Section 7403 permits a court to authorize the sale of property when a delinquent person owns property with a nondelinquent person. The IRS cannot do this on its own power, however; it must first go to district court and obtain approval.

To be fair, one is deep into the IRS Collection machinery before Section 7403 is even an issue. I would be screaming at you – and likely fired you as a client – long before we got here, unless bad fortune was involved. If there was bad fortune, we likely would be submitting an offer in compromise.

The heavyweight case in this area is United States v Rodgers. Rodgers was a Texas gambler who died, leaving a $900,000 tax debt. He (well, now his estate) and his wife owned their home. Under Texas law the surviving spouse had a lifetime right to live in the home. The government of course wanted its money.

The case went all the way to the Supreme Court, which identified four issues before the government could force any sale to collect taxes.

 (1) Statutory authority

Does the taxpayer have any “right, title or interest” to the property in question?

 

In Rodgers, yes. The deceased had the same rights to the entire home as did the widow.

 

The type of ownership can have a drastic effect on the government’s ability to reach the asset. A tenancy by the entirety, for example, might result in a different answer from a tenancy in common (which we will see below). 

            (2) Constitutional authority

This goes back to eminent domain. The government is not an ordinary creditor in this situation; rather it is exercising the prerogatives of a sovereign. Think of the government as a super creditor.

            (3) Practical undercompensation

Think actuarial calculations. For example, one could think that a 50/50 split of marital assets is fair. However, the value of a life estate to a surviving spouse aged fifty can be up to 95% of the home’s sales price. The spread between 95% and 50% is referred to as “practical undercompensation.”

            (4) Four-factor balancing test

             (a)  Will a non-sale prejudice the government?

   (b) Does the spouse have a legally recognized expectation of the house not being sold?

   (c)  Will the spouse suffer prejudice from practical undercompensation and dislocation costs?

   (d)  What are the relative characters and values of the two ownership interests?

Subsequent application of Rodgers focuses on these four factors.

Let’s move on to Driscoll.

Thomas Driscoll was a dentist. He owned a dental practice with Dr Vockroth. Together they also owned the building in which the dental practice was located.

Common enough.

Dr Driscoll became substantially delinquent with his tax obligations.

In April 2023, the government filed a motion for forced sale of both the practice and the building.

Meanwhile. Dr V had no tax issues. He may have made the mistake of partnering with someone who did, but that was the extent of his culpability.

The government – to its credit – allowed additional time to sell both assets.

But there were issues: trying to sell a dental practice in a small town and a building housing said practice in said small town. Let’s just say there was limited interest in buying either.

The government now wanted a forced sale.

Let’s go through the Rodgers four factors:

One

The Court decided Dr V could not show that the government would not be prejudiced by going after 50% rather than 100% of the practice and building.

Yes, the double negative is a bit difficult to follow.

This was a practice in a small town. It was going to be tough enough to sell without trying to sell half rather than the whole.

         The court decided that factor one weighed in favor of a sale.

         Two

Was Dr V as a tenant in common subject to a forced sale?

Here is the Court discussing the real estate:

This conclusion is also supported by the fact that, unlike tenants by the entirety or joint tenants, tenants in common enjoy no protections from forced sales or partition actions.”

Tough to be a tenant in common in New Jersey.

The court decided factor two weighed in favor of a sale.

Three

 Was there prejudice to Dr V in terms of personal dislocation of costs and undercompensation of interest?

Here is the Court:

 Dr Vockroth asserts that he will be ‘forced to lay off all of [his] employees,’ and that he will ‘no longer be able to see [his]  patients.'”

OK, Dr V may be laying it on thick, but that does not mean there is no truth here. Relocating a practice costs money. There are – for example - additional electrical and plumbing needs before a building can house a dental practice. Patients may not follow. Employees may not follow. The court is playing cavalierly with other people’s lives.

Here is the court in its best Frasier Crane voice:

 Furthermore, even if Dr Vockroth is negatively affected by the LLC in some way, this is not an undue prejudice of a magnitude to prevent a forced sale. It is axiomatic that LLCs and partnerships change, fail, dissolve and are bought and sold with regularity. Partners die or sell their shares The reality is simply part of being in business, and Dr. Vockroth is not exempt from this fact, especially when he fails to offer any reliable evidence to support his contentions.”

What is Dr V to do: poll his patients and employees to see whether they would follow? Oh, that will go swimmingly.

BTW the sale of a dental practice will certainly include a noncompete, meaning that Dr V could not open a dental practice within so many miles of the existing practice. Well, he could, but he would be sued.

One would think a judge would know that.

Four

  The relative character and value of the property owned by the two owners.

There was not much play here as both doctors owned 50%.

The court decided that the government could foreclose on both the practice and the real estate.

Technically right, but lousy law. Consider this menacement from Rodgers:

We do emphasize, however, that the limited discretion accorded by § 7403 should be exercised rigorously and sparingly, keeping in mind the Government's paramount interest in prompt and certain collection of delinquent taxes.

Section 7403 is not taxpayer friendly.

Our case this time was United States v Driscoll, 2025 BL 2655, D.N.J. No. 3:18-cv-11762, 1/6/25.

The IRS Changes An In - Person Visit Policy

 

This afternoon I was reading the following:

As part of a larger transformation effort, the Internal Revenue Service today announced a major policy change that will end most unannounced visits to taxpayers by agency revenue officers to reduce public confusion and enhance overall safety measures for taxpayers and employees.”

One can spend a lifetime and never interact with a Revenue Officer. We are more familiar with Revenue Agents, who examine or audit tax returns and filings. Revenue Officers, on the other hand, are more specialized: they collect money.

I deal with ROs often enough, but – then again – consider what I do. I rarely meet with one in person, though. The last time I met an RO was one late afternoon at northern Galactic Command. I was the only person in the office, until I realized that I was not. I encountered someone who claimed to be an RO, which I immediately and expressly disbelieved. He presented identification, which gave me pause. He then asked about a specific client, giving me grounds to believe him. The IRS could not contact a taxpayer, so the next step was to contact the last preparer associated with that taxpayer.

I was – BTW – not amused.

I wonder if the above IRS policy change has something to do with an event that occurred recently in Marion, Ohio. The following is cited from a recent House Judiciary Committee letter to IRS Commissioner Danny Werfel:

On April 25, 2023, an IRS agent—who identified himself as 'Bill Haus' with the IRS’s Criminal Division—visited the home of a taxpayer in Marion, Ohio. Agent 'Haus' informed the taxpayer he was at her home to discuss issues concerning an estate for which the taxpayer was the fiduciary. After Agent 'Haus' shared details about the estate only the IRS would know, the taxpayer let him in. Agent 'Haus' told the taxpayer that she did not properly complete the filings for the estate and that she owed the IRS 'a substantial amount.' Prior to the visit, however, the taxpayer had not received any notice from the IRS of an outstanding balance on the estate.
 
"During the visit, the taxpayer told Agent 'Haus' that the estate was resolved in January 2023, and provided him with proof that she had paid all taxes for the decedent's estate. At this point, Agent 'Haus' revealed that the true purpose of his visit was not due to any issue with the decedent’s estate, but rather because the decedent allegedly had several delinquent tax return filings. Agent 'Haus' provided several documents to the taxpayer for her to fill out, which included sensitive information about the decedent.
 
"The taxpayer called her attorney who immediately and repeatedly asked Agent 'Haus' to leave the taxpayer's home. Agent 'Haus' responded aggressively, insisting: 'I am an IRS agent, I can be at and go into anyone's house at any time I want to be.' Before finally leaving the taxpayer’s property, Agent 'Haus' said he would mail paperwork to the taxpayer, and threatened that she had one week to satisfy the remaining balance or he would freeze all her assets and put a lean [sic] on her house.
 
"On May 4, 2023, the taxpayer spoke with the supervisor of Agent 'Haus,' who clarified nothing was owed on the estate. The supervisor even admitted to the taxpayer that 'things never should have gotten this far.' On May 5, 2023, however, the taxpayer received a letter from the IRS— the first and only written notice the taxpayer received of the decedent’s delinquent tax filings—addressed to the decedent, which stated the decedent was delinquent on several 1040 filings. On May 15, 2023, the taxpayer spoke again with supervisor of Agent 'Haus,' who told the taxpayer to disregard the May 5 letter because nothing was due. On May 30, 2023, the taxpayer received a letter from the IRS that the case had been closed.”

Yeah, someone needs to be fired.

The IRS did point out the following in today’s release:

For IRS revenue officers, these unannounced visits to homes and businesses presented risks.

No doubt, especially for those who think they can go into “anyone’s house at any time.”

What will the IRS do instead?

In place of the unannounced visits, revenue officers will instead make contact with taxpayers through an appointment letter, known as a 725-B, and schedule a follow-up meeting. This will help taxpayers feel more prepared when it is time to meet.

Taxpayers whose cases are assigned to a revenue officer will now be able to schedule face-to-face meetings at a set place and time, with the necessary information and documents in hand to reach resolution of their cases more quickly and eliminate the burden of multiple future meetings.

There will be situations where the IRS simply must appear in person, of course:

The IRS noted there will still be extremely limited situations where unannounced visits will occur. These rare instances include service of summonses and subpoenas; and also sensitive enforcement activities involving seizure of assets, especially those at risk of being placed beyond the reach of the government.

These situations should be a fraction of the number under the previous policy, however.

Owing Partnership Tax As A Partner

 

We have wrapped-up (almost) another filing season here at Galactic Command. I include “almost” as we have nonprofit 990s due next month, but for the most part the heavy lifting is done.

Tax seasons 2020 and 2021 have been a real peach.

I am looking at a tax case that mirrors a conversation I was having with one of our CPAs two or three days ago. He was preparing a return for someone with significant partnership investments. The two I looked at are commonly described as “trader” partnerships.

The tax reporting for trader partnerships can be confusing, especially for younger practitioners. A normal investment partnership buys and sells stocks and securities, collects interest and dividends and has capital gains or losses along the way. The tax reporting shows interest and dividends and capital gains and losses – in short, it makes sense.

The trader partnership adds one more thing: it actively buys and sells stocks and securities as a business activity, so to speak. Think of it as a day trader as opposed to a long-term investor. The tax issue is that one has interest, dividends and capital gains and losses from the trader side as well as the nontrader side. The trader partnership separates the two, with the result that trading dividends (as an example) might be reported somewhere different on the Schedule K-1 from nontrading dividends. If you don’t know the theory, it doesn’t make sense.

The two partnerships pumped out meaningful taxable income.

What they did not do was pump out equivalent cash distributions. In fact, I would say that the partnerships distributed approximately enough cash to pay the taxes thereon, assuming that the partner was near the highest tax bracket.

The client had issues with the draft tax return.

Why?

There was no way he could have that much income as he did not receive that much cash.

And therein is a lesson in partnership taxation.

Let’s take a look at the Dodd case.

Dodd was the office manager at a D.C. law firm. The firm specialized in real estate and construction law.

She in turn became a 33.5% member in a partnership (Cadillac) transacting in – wait on it – the purchase, leasing and sale of real property. The other 66.5% partner was an attorney-partner in the law firm.

Routine so far.

Cadillac did well in 2013. Her share of gains from property sales was over a $1 million. Her cash distributions were approximately $200 grand.

Got it: 20 cents on the dollar.

When she prepared her individual return, she included that $1 million-plus gain as well as partnership losses. She owed around $170 grand with the return.

She did not send a check for the amount due.

The case has been bogged-down in tax procedure for several years. The IRS wanted its tax, and Dodd in turn requested Collections (CDP) hearings. We have had three rounds of back-and-forth, with the result that we are still talking about the case in 2021.

Her argument?

Simple. She had never received the $1 million. The money instead went to the bank to pay down a line of credit.

This is going to turn out badly for Dodd.

At 30 thousand feet, partnership taxation is relatively intuitive. A partnership does not pay taxes itself. Rather it files a tax return, and the partners in the partnership are allocated their share of the income and are themselves responsible for paying taxes on that share.

The complexity in partnership taxation comes primarily from how one allocates the income, as tax attorneys and CPAs have had decades to bend the rules.

Notice that I did not say anything about cash distributions.

Mind you, it is bad business to pump-out taxable income without distributing cash to cover the tax, but it is unlikely that a partnership will distribute cash exactly equal to its income. Why? Here are a couple of reasons that come immediately to mind:

·      Depreciation

The partnership buys something and depreciates it. It is likely that the depreciation (which follows tax rules) will not equal the cash payments for whatever was bought.

·      Debt

Any cash used to repay the bank is cash not available to distribute to the partners.

There is, by the way, a technique to discourage creditors of a partner from taking a partner’s partnership interest. Why would a creditor do this? To get to those distributions, of course.

There is a legal issue here, however. Let’s say that you, me and Lucy decided to form a partnership. Lucy has financial difficulties, and one of her creditors takes over her partnership interest. You and I did not form a partnership with Lucy’s creditor; we formed a partnership with Lucy. That creditor cannot just come in and force you and me to be partners with him/her. The best the creditor can do is get a “charging order,” which means the creditor receives only the right to Lucy’s distributions. The creditor cannot otherwise vote, demand the sale of assets or force the termination of the partnership.

What do you and I do in response to the new guy?

The creditor will have to report Lucy’s share of the partnership income, of course.

We in turn make no distributions to Lucy - or to the new guy. The partnership distributes to you and me, but that creditor is on his/her own. Sorry. Not. Go away.

As you can guess, creditors are not big fans of going after debtor partnership interests.

Back to Dodd.

What did the Court say?

No matter the reason for nondistribution, each partner must pay taxes on his distributive share.”

To restate:

Each partner is taxed on the its distributive share of partnership income without regard to whether the income is actually distributed.”

Dodd had no hope with this argument.

Maybe she would have better luck with her Collections appeal, but that is not the topic of our discussion this time.

We have been discussing Dodd v Commissioner, T.C. Memo 2021-118.

Memphian Appeals An Offer In Compromise

I am looking at a case dealing with an offer in compromise.

You know these from the late-night television and radio advertisements to “settle your IRS debts for pennies on the dollar.”

Yeah, right.

If it were so easy, I would use it myself.

Don’t get me wrong, there are fact patterns where you probably could settle for pennies on the dollar. Unfortunately, these fact patterns tend to involve permanent injury, loss of earning power, a debilitating illness or something similar.

I will just pay my dollar on the dollar, thank you.

What caught my attention is that the case involves a Memphian and was tried in Memphis, Tennessee. I have an interest in Memphis these days.

Let’s set it up.

Taxpayer filed tax returns for 2012 through 2014 but did not pay the full amount of tax due, which was about $40 grand. A big chunk of tax was for 2014, when he withdrew almost $90,000 from his retirement account.

Why did he do this?

He was sending his kids to a private high school.

I get it. I cannot tell you how many times I have heard from Memphians that one simply cannot send their kids to a public school, unless one lives in the suburbs.

In December, 2016 he received a letter from the IRS that they were going to lien.

He put the brakes on that by requesting a Collection Due Process (CDP) hearing.

Well done.

In January he sent an installment agreement to the IRS requesting payments of $300 per month until both sides could arrive at a settlement.

The following month (February) he submitted an Offer in Compromise (OIC) for $1,500.

That went to a hearing in April. The IRS transferred the OIC request to the appropriate unit.

In late August the IRS denied the OIC.

Let’s talk about an OIC for a moment. I am thinking about a full post (or two) about OICs in the future, but let’s hit a couple of high spots right now.

The IRS takes a look at a couple of things when reviewing an OIC:

(1)  Your net worth, defined as the value of assets less any liabilities thereon.

There are certain arcane rules. For example, the IRS will probably allow you to use 80% of an asset’s otherwise fair market value. The reason is that it is considered a forced sale, meaning that you might accept a lower price than otherwise.

(2) Your earning power

This is where those late-night IRS settlement mills dwell. Have no earning power and near-zero net worth and you get pennies on the dollar.

There are twists here. For example, the IRS is probably not going to spot you a monthly Lexus payment. That is not how it works. The IRS provides tables for certain categories of living expenses, and that is the number you use when calculating how much you have “left over” to pay the IRS.

Let’s elaborate what the above means. If the IRS spots you a lower amount than you are actually spending, then the IRS sees an ability to pay that you do not have in real life.

You can ask for more than the table amount, but you have to document and advocate your cause. It is far from automatic, and, in fact, I would say that the IRS is more inclined to turn you down than to approve any increase from the table amount. I had a client several years ago who was denied veterinary bills and prescriptions for his dog, for example.

The IRS workup showed that the taxpayer had monthly income of approximately $12,700 and allowable monthly expenses of approximately $11,000. That left approximately $1,700 monthly, and the IRS wanted to get paid.

But there was one expense that made up the largest share of the IRS difference. Can you guess what it was?

It was the private school.

The IRS will not spot you private school tuition, unless there is something about your child’s needs that requires that private school. A special school for the deaf, for example, would likely qualify.

That is not what we have here.

The IRS saw an ability to pay that the taxpayer did not have in real life.

Taxpayer proposed a one-time OIC of $5,000.

The IRS said No.

They went back and forth and agreed to $200 per month, eventually increasing to $700 per month.

COMMENT: This is not uncommon for OICs. The IRS will often give you a year to rework your finances, with the expectation that you will then be able to pay more.

The taxpayer then requested abatement of interest and penalties, which was denied. Generally, those requests require the taxpayer to have a clean filing history, and that was not the case here.

The mess ended up in Tax Court.

Being a court, there are rules. The rule at play here is that the Court was limited to reviewing whether the IRS exercised abuse of discretion.

Folks, that is a nearly impossible standard to meet.

Let me give you one fact: he had net assets worth approximately $43 thousand.

His tax was approximately $40 thousand.

Let’s set aside the 80% thing. It would not take a lot of earning power for the IRS to expect him to be able to repay the full $40 grand.

He lost. There really was no surprise, as least to me.

I do have a question, though.

His monthly income was closer to $13 grand than to $12 grand.

It fair to say that is well above the average American monthly household income.

Private school is expensive, granted.

But where was the money going?

Our case this time was Love v Commissioner, T.C. Memo 2019-92.

Tattletaling on Sales Taxes

There is a tax case coming before the Supreme Court. It involves Wayfair, the online home goods company, and sales taxes.

The issue can be summarized as follows: if I do not have a building or inventory or employees in your state, can you force me to collect your taxes?

The Wayfair case is an evolution of the Quill case, decided by the Supreme Court in 1992. Quill is an office-supply company, and in 1992 the issue was whether North Dakota could tax Quill just because it sent catalogues to residents of the state.

North Dakota was adamant: Quill was regularly and systematically soliciting its citizenry. It did not care that Quill had no presence in the state. By that reasoning Norway could have also taxed Quill, but let’s not introduce common sense into this argument.

The Supreme Court was unwilling to go that far, recognizing that sales taxation was (and is) the wild west of taxation. Each state has its own rules and - depending upon the state - there can also be counties and cities imposing sales tax.  

What has changed since Quill? The internet, of course.

The new argument is that the internet has revolutionized how business is done.

But sales taxes are still eccentric, often cryptic and frustratingly inconsistent. The internet has not revolutionized that. Perhaps Amazon can wield the accounting staff necessary to comply, but a small business may have a different result.

I have a client that got mugged by the “tattletale” statutes that some states are now implementing.

Let’s look at Washington’s tattletale law.

It applies if you do not otherwise collect Washington sales tax.  

Let’s say that you sell promotional materials for old-time movies. You have a modest warehouse in a nondescript part of town, You sell exclusively over the internet, and you get paid almost exclusively through PayPal.

You have a sale in Washington state. Then two, four, ten…. You get the idea.

Washington is watching you.

Get to $10,000 in Washington sales and you have issues.

Oh, they cannot force you to collect sales taxes, but they can force you to:

(1) Conspicuously post on your website that sales taxes are due and that the purchaser must file a use tax return.

Fail to do so and there is an immediate penalty of $20,000.

Ouch.

Are we done?

Of course not.

Let’s say that you actually sell something.

(2) You must provide a notice with every sale that no sales tax is being collected, that the purchaser should file a use tax, and instructions on how to pay the use tax. The notice must be “prominently” displayed.

You write a standard notice and keep copies.

Are we done?

(3) At year end you must send the purchaser a list of everything they bought, by date. You again must provide the usual gospel on use tax and how to get information on its filing.

This starting to get expensive. Who has time for this nonsense?

Make time. The penalties begin at $5,000 and can increase exponentially.

(4) You must send a copy of that list to the state of Washington.

Fail to do so and penalties begin at $20,000.

By my math, if you sell $10,001 into Washington and do not become an unpaid agent of the Department of Revenue, you are exposed to $45,000 in penalties.

Washington of course says that it can waive penalties.

Fairy tales used to be for children. 

And the fairy tale is a one-off only. There is no second chance at a waiver.

Mind you, Washington’s state sales tax rate is 6.5%. Go to Seattle and you pick up a city sales tax, making the combined rate 9.6%

What pathological bureaucrat sets the bar at $650 in sales tax?

This is the standard structure of the tattletale laws: resistance is futile.

In ancient times – say the 1980s – there was a concept in state taxation called the Commerce Clause. This refers to the Constitution and its restriction on states to not so burden and fetter their laws so as to interfere with interstate commerce.

Seems to me that the Supreme Court should consider the Commerce Clause implications of a $45,000 penalty on $10,001 in sales when considering the Wayfair decision.

I know.

Fairy tales used to be for children.

Can The IRS Use A Private Debt Collector Against You?

On December 4, 2015 the President signed into law a five- year $305 billion highway bill.

One of the contentious issues was the 18.4 cents per gallon gasoline tax. You know the politics: one side wanted to increase it and the other did not.  Unable to come to agreement, Congress looked elsewhere for the money.

One place they looked was the use of private debt collectors for IRS debt.

Ohio routinely farms out its tax collection to private agencies. Does it work? Well, let me answer the question this way: I usually request the file be returned to the Ohio Department of Taxation. Why? Because the collection agency could not care less whether the debt is accurate or not, whether the penalties are correctly calculated, or whether there is even a tax case to be collected. I have, for example, seen Ohio farm out collection on cases where the appeal period was still open. Although Ohio is not especially friendly to work with, they are better than dealing with a debt collector. You would be pressed to find too many Ohio tax CPAs that have positive opinions about this arrangement.

Congress has gone down this path before. The most recent collection program started in 2006 and ended in 2009. The program was widely considered a failure, as was its predecessor in 1996-1997. After accounting for commissions paid as well as internal IRS costs to administer, both programs actually caused losses for the Treasury.  

The National Taxpayer Advocate, Nina Olsen, expressed her feelings clearly to Congress:

Based on what I saw, I concluded the program undermined effective tax administration, jeopardized taxpayer rights protections, and did not accomplish its intended objective of raising revenue. Indeed, despite projections by the Treasury Department and the Joint Committee on Taxation that the program would raise more than $1 billion in revenue, the program wound up losing money. We have no reason to believe the result would be any different this time.”

The Federal Trade Commission routinely reports more complaints about debt collectors than any other industry. FTC chairwoman Edith Ramirez stated that over 280,000 federal complaints were filed in 2014 alone.

You know that Congress would not care.

Section 6306 of the highway bill requires the IRS to enter into collection contracts for the collection of certain inactive tax receivables, defined as:

·        A receivable removed from active inventory for lack of resources or because the taxpayer cannot be located;

·         A receivable where at least one-half of the statute of limitations period has expired and no IRS employee has been assigned; or

·        A receivable assigned for collection but at least one year has passed since taxpayer contact

Did you catch the use of the word “requires?” That is quite the departure from pre-existing law, which “authorizes” the IRS to use private debt collection agencies.

There are some exceptions, such as:

·        Pending or active offers in compromise or installment agreements

·        Innocent spouse

·        Deceased taxpayers

·        Minors

·        Taxpayers in designated combat zones

·        Taxpayers in examination or appeal

·        Victims of identity theft

The last one is disconcerting, especially after the Treasury Inspector General for Tax Administration reported in 2014 that it received over 90,000 complaints about scam telephone calls demanding payment from impostors claiming to be the IRS.  IRS Commissioner Koskinen cited the TIGTA report and reminded taxpayers that:

Taxpayers should remember their first contact with the IRS will not be a call from out of the blue, but through official correspondence sent through the mail.”

Well, that used to be true.