Taxation Information

Does attorney experience really make a difference in the outcomes of tax controversies?

In most cases, yes.  According to Tax Professors Leandra Lederman and Stephen W. Mazza, in their treatise Tax Controversies: Practice and Procedure (3rd Ed.):

“One study of a sample of tax court cases found that the presence of an attorney for the taxpayer decreased the government’s recovery rate by 17.9 percentage points on average. . . Moreover, the taxpayer’s results improved with the years of experience of the attorney. . . [E]ach additional year of attorney experience decreases the IRS’s recovery ratio by approximately 9/10 of a percentage point, and this is statistically significant [citing Leandra Lederman & Warren B. Hrung, Do Attorneys Do Their Clients Justice? An Empirical Study of Lawyers’ Effects on Tax Court Litigation Outcomes, 41 Wake Forest L. Rev. 1235, 1255 (2006)].”

Am I personally liable for the tax liabilities of my corporation?

Generally no as to corporate income taxes, with the exception of S corporations.  But as to payroll taxes, maybe.  The Internal Revenue Code requires employers to withhold from employees’ wages both federal income tax and the employees’ share of FICA (Social Security) contributions.  The employer is required to hold these funds withheld from its employees in a “special fund in trust” for the government until such time as the employer actually pays them over to the government.  The failure of the employer to pay such “trust fund taxes” over to the government can subject a responsible person of the employer to personal liability for a civil “trust fund recovery penalty” equal to 100% of the tax not accounted for and paid over (colloquially known as the “100-percent penalty”).

Who is a “responsible person?”

A responsible person is any person who is required on behalf of an employer to collect, account for and pay over the “trust fund taxes” to the government who willfully fails to do so.  Responsible persons are jointly and severally liable for the 100-percent penalty although the government as a matter of public policy does not collect more than 100-percent of the unpaid trust fund taxes.  Officers, directors or partners as well as certain types of employees can be personally liable as responsible persons.

What kinds of tax disputes can a person have with the IRS?

Tax disputes with the IRS most commonly arise in two settings.  The first is when the IRS determines that a person owes more tax than he or she reported on his or her tax return.  This additional amount of tax is called a deficiency.  The IRS provides individuals with several different levels of administrative review to challenge its deficiency determinations.  If the dispute involving the IRS determination of a deficiency cannot be resolved administratively, individuals can challenge the determination in the United States Tax Court, the Federal District Court, or the United States Court of Federal Claims.

The second setting is where there is no dispute about the amount of tax a person owes, but the IRS is seeking to collect the tax owed by seizing assets or foreclosing liens it has filed against specific property belonging to that person.  The IRS tries to resolve collection disputes administratively to avoid having to pursue involuntary collection action against a person’s assets, especially if the activities of an ongoing business may be placed in jeopardy.  The administrative resolution of collection disputes is generally at the discretion of the IRS, making it essential to have the guidance of a person with expertise in this area.