J.B.; P.B., Pеtitioners-Appellees, v. UNITED STATES OF AMERICA, Respondent-Appellant.
No. 16-15999
United States Court of Appeals for the Ninth Circuit
February 26, 2019
D.C. No. 4:15-cv-04764-YGR. Argued and Submitted April 12, 2018 San Francisco, California. Before: Kim McLane
FOR PUBLICATION
Appeal from the United States District Court for the Northern District of California Yvonne Gonzalez Rogers, District Judge, Presiding
Opinion by Judge Wardlaw
* The Honorable Solomon Oliver, Jr., United States District Judge for the Northern District of Ohio, sitting by designation.
SUMMARY**
Tax
The panel affirmed the district court‘s order quashing the Internal Revenue Service‘s subpoena to the California Supreme Court, seeking documents in connection with a tax audit.
Taxpayers J.B and P.B. are an elderly married couple who were selected at random for a compliance research examination, as part of the IRS‘s National Research Program. In connection with the audit, the IRS issued a summons to the California Supreme Court seeking various documents, and taxpayers filed a petition to quash. The district court concluded that the IRS had not provided sufficient notice to taxpayers that it would contact the California Supreme Court, in violation of
The panel concluded that “reasonable notice in advance” means notice reasonably calculated, under all the relevant circumstances, to apprise interested parties of the possibility that the IRS may contact third parties, and that affords interested parties a meaningful opportunity to resolve issues and volunteer information before third-party contacts are made. Although the IRS argued that its Publication 1 provided adequate notice, reviewing the totality of the circumstances, the panel agreed with the district court that
Publication 1 did not provide the requisite reasonable advance notice. The panel explained that a reasonable notice must provide the taxpayer with a meaningful opportunity to volunteer records on his own, so that third-party contacts may be avoided if the taxpayer complies with the IRS‘s demand.
** This summary constitutes no part of the opinion of the court. It has been prepared by court staff for the convenience of the reader.
COUNSEL
Nathaniel S. Pollock (argued), Robert W. Metzler, and Michael J. Huangs, Attorneys; Caroline D. Ciraolo, Principal Deputy Assistant Attorney General; David A. Hubbert, Acting Assistant Attorney General; Brian Stretch, United States Attorney; United States Department of Justice, Washington, D.C.; for Respondent-Appellant.
Norren Evans (argued), O‘Brien Watters & Davis LLP, Santa Rosa, California; Sara Baxter and Joseph Baxter, Santa Rosa, California; for Petitioners-Appellees.
Felipe S. Bohnet-Gomez, Steven T. Miller, and Dean A. Zerbe, Zerbe Miller Fingeret Frank & Jadav LLP, Washington, D.C., for Amicus Curiae Zerbe Miller Fingeret Frank & Jadav LLP.
OPINION
WARDLAW, Circuit Judge:
Before the Internal Revenue Service (IRS) summons a taxpayer‘s financial
We reject a categorical approach to this question. We conclude that “reasonable notice in advance” means notice reasonably calculated, under all the relevant circumstances, to apprise interested parties of the possibility that the IRS may contact third parties, and that affords interested parties a meaningful opportunity to resolve issues and volunteer information before third-party cоntacts are made. See Jones
v. Flowers, 547 U.S. 220, 226 (2006) (citing Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950) (discussing notice due to mortgagee)). Reviewing the totality of the circumstances here, we affirm the district court‘s order quashing the IRS‘s 2011 subpoena to the California Supreme Court.3
I.
J.B. and P.B. are an elderly married couple living in northern California. J.B. is an attorney who accepts appointments from the California Supreme Court to represent indigent criminal defendants in capital cases. On July 25, 2013, J.B. and P.B. received a letter in the mail from the IRS, indicating that they had been “selected at random for a compliance research examination.” J.B. and P.B., who had already been selected for audits in 2008 and 2009, recognized that the 2011 audit was unlike the 2008 and 2009 audits. The 2011 audit was part of the IRS‘s National Research Program (NRP), which randomly selects taxpayers for exhaustive audits to help the IRS “better understand tax compliance and improve the fairness of the tax system.”4 Because the NRP is so demanding
NRP, known as the Taxpayer Compliance Measurement Program, in 1988. A Closer Look at the Size and Sources of the Tax Gap: Hearing Before the Subcomm. on Taxation and IRS Oversight of the Senate Comm. on Finance, 109th Cong. 3 (2006) (statement of Mark J. Mazur, director of research, analysis, and statistics, IRS). The IRS reinstated the program under its current name in 1998. Internal Revenue Manual (hereinafter IRM) 4.22.1.1.1 (Sept. 6, 2017).
The IRS letter instructed J.B. and P.B. to contact a revenue agent at the IRS to discuss items on their 2011 tax return, as well as the “examination process” and “[a]ny concerns or questions you may have.” In the same mailing, the IRS enclosed a two-page notice entitled “Your Rights as a Taxpayer.” The IRS refers to this notice as “Publication 1” or “The Taxpayer Bill of Rights.” On the second page of the notice, under a heading entitled “Potential Third Party Contacts,” the notice warns:
Generally, the IRS will deal directly with you or your duly authorized representative. However, we sometimes talk with other persons if we neеd information that you have been unable to provide, or to verify information we have received. If we do contact other persons, such as a neighbor, bank, employer, or employees, we will generally need to tell them limited information, such as your name.... Our need to contact other persons may continue as long as there is activity in your case. If we do contact other persons, you have a right to request a list of those contacted.
Two months later, in September 2013, the IRS requested documents from J.B. and P.B. J.B. and P.B. asked the IRS to excuse them from the NRP audit because of J.B.‘s poor health and the couples’ advanced age. J.B. remitted doctor‘s declarations to the IRS showing that the NRP audit would worsen his hypertension and contribute to hypertensive retinopathy, a deteriorating eye condition, as well as his serious hearing loss. The IRS refused the couple‘s request for an exemption, leading J.B. and P.B. to file a separate suit to stop the audit in the Northern District of California in May 2015. See No. CV 15-2138 (YGR) (N.D. Cal.).
Even after J.B. and P.B. filed suit, however, the IRS marched forward with its NRP audit. In September 2015, the IRS issued a summons to the California Supreme Court seeking “copies of billing statements, invoices, or other documents... that resulted in payment to” J.B. for the 2011 calendar year.5 The second page of the four-page summons warned that the IRS had the power to “enforce obedience to the requirements of the summons and to punish such person for his default or disobedience.” The penalties for noncompliance included a fine of “not more than $1,000” or imprisonment “not more than 1 year, or both, together with costs of prosecution.”
J.B. and P.B. did not learn that the IRS had issued the summons until after-the-fact, when J.B. and P.B.‘s daughter, whom they had listed as a personal representative,
The district court evaluated J.B. and P.B.‘s petition under Powell v. United States, 379 U.S. 48 (1964), which sets forth four requirements that the IRS must satisfy to enforce an administrative summons. Under Powell, the IRS must establish a prima facie case of good faith by showing that: (1) the underlying investigation is for a legitimate purpose, (2) the inquiry requested is relevant to that purpose, (3) the information sought is not already in the government‘s possession, and (4) the IRS followed the administrative requirements of the Internal Revenue Code (I.R.C.). Id. at 57-58. A court may quash a summons if the resisting party disproves any of the four Powell elements or successfully challenges the summons on “any appropriate ground.” Id. at 58.
Although the district court concluded that the government had satisfied the first three steps of the Powell
test, it found the last step unsatisfied. The IRS, it concluded, had not provided sufficient notice to J.B. and P.B. that it would contact the California Supreme Court, in violation of
Because the district court‘s decision conflicts with the decisions of other district courts in our Circuit, see Estate of Chaiken, 2016 WL 8255575, at *6, we must clarify
II.
In connection with the IRS powers to review tax returns and liabilities,
(c) Notice of contact of third parties.—
(1) General notice.—An officer or employee of the Internal Revenue Service may not contact any person other than the taxpayer with respect to the determination or collection of the tax liability of such taxpayer without providing reasonable notice in advance to the taxpayer that contacts with persons other than the taxpayer may be made. (2) Notice of specific contacts.—The Secretary shall periodically provide to a taxpayer a record of persons contacted during such period by the Secretary with respect to the determination or collection of the tax liability of such taxpayer. Such record shall also be provided upon request of the taxpayer.
(3) Exceptions.—This subsection shall not apply—
(A) to any contact which the taxpayer has authorized;
(B) if the Secretary determines for good cause shown that such notice would jeopardize collection of any tax or such notice may involve reprisal against any person; or
(C) with respect to any pending criminal investigation.
We must determine the meaning of the phrase “reasonable notice in advance.” We begin the task of statutory interpretation with the text of the statute. See Yokeno v. Sekiguchi, 754 F.3d 649, 653 (9th Cir. 2014). “Where the statute‘s language is plain, the sole function of the courts is to enforce it according to its terms.” Int‘l Ass‘n of Machinists & Aerospace Workers v. BF Goodrich Aerospace Aerostructurers Grp., 387 F.3d 1046, 1051 (9th Cir. 2004) (quoting United States v. Ron Pair Enters., 489 U.S. 235, 241 (1989)) (citation and internal quotation marks omitted). “Only if this approach leaves or reveals ambiguity may we turn to extrinsic evidence such as legislative history.” Yokeno, 754 F.3d at 653; see also Satterfield v. Simon & Schuster, Inc., 569 F.3d 946, 951 (9th Cir. 2009) (“[O]ur inquiry begins with the statutory text, and ends there as well if the text is unambiguous.” (citations omitted)).
To start, the phrase “reasonable notice in advance” in
(9th Cir. 2017) (quoting Alaska Wilderness League v. EPA, 727 F.3d 934, 938 (9th Cir. 2013)), and “reasonable notice in advance” does not have more than one meaning. The Supreme Court has interpreted “notice” to mean “notice reasonably calculated, under all circumstances, to apprise interested parties” and “afford them an opportunity to present their objections.” See, e.g., Jones, 547 U.S. at 226. The Court has used the same test to evaluate the adequacy of notice in various circumstances. See, e.g., id. (notice due to property owner in advance of tax sale); Dusenbery v. United States, 534 U.S. 161, 170 (2002) (notice due to owners of seized cash and automobiles); Greene v. Lindsey, 456 U.S. 444 (1982) (notice due to tenants living in public housing); Mullane, 339 U.S. at 314-15 (notice due to mortgagee); accord Low v. Trump University, 881 F.3d 1111, 1117-22 (9th Cir. 2018) (sufficiency of class notice).
Our interpretation of the phrase “reasonable notice in advance” is supported by the “specific context in which that language is used, and the broader context of the statute as a whole.” Yates v. United States, 135 S. Ct. 1074, 1082 (2015) (quoting Robinson v. Shell Oil, Co., 519 U.S. 337, 341 (1997)).
The exceptions to
the taxpayer a meaningful opportunity to respond to the IRS‘s request; it is only if the taxpayer knows who the IRS plans to contact or the documents that thе IRS plans to request that the taxpayer may authorize the contact, or more cynically, impede the contact by jeopardizing tax collection efforts, retaliating against third parties, or interfering in a pending criminal investigation. Publication 1, alone, does not offer this level of specificity. It simply tells the taxpayer that the IRS may “sometimes talk with other persons if we need information that you have been unable to provide . . .“; it does not reference specific documents or people, or even categories of documents or people.
The IRS counters that
the post-contact notice provision,
specific contacts.” We are unpersuaded, however, that the subsection titles render the actual text of the statute ambiguous. Not only are the titles themselves unclear, but they also contradict the plain meaning of the statute‘s text, as well as the specific context in which that language is used and the broader context of the statute. Because the statutory text is clear, there is no need to rely on ambiguous subsection headings or other evidence of legislative intent. See Or. Public Utility Comm‘n v. ICC, 979 F.2d 778, 780 (9th Cir. 1992) (“[While] [t]he title of a statute can be used to resolved [sic] ambiguity,” “the title cannot control the plain
Even if we were to consider legislative intent, however, we would find ample support for the proposition that Congress intended that the IRS provide notice reasonably calculated to apprise taxpayers that the IRS may contact third parties. Congress added the third-party contact notice requirement to the I.R.C. as part of the Internal Revenue Service Restructuring and Reform Act of 1998 (1998 Restructuring Act), Pub. L. No. 105-206, 112 Stat. 685, 757-58. The notice requirement‘s proponents were the members of the Senate Finance Committee, which adopted an amendment that prohibited the IRS from contacting “any person other than the taxpayer” unless the IRS provided “reasonable notice to the taxpayer that such contact will be made.” H.R. 2676, 105th Cong. § 3417 (as passed by Senate May 7, 1998). The Committee recognized that taxpayеr protections needed to be robust because “[s]uch contacts may have a chilling effect on the taxpayer‘s business and
could damage the taxpayer‘s reputation in the community.” S. Rep. No. 105-174, at 77 (1998), reprinted in 1998-3 C.B. 537, 613 (1998).
The joint Conference Committee that considered the different versions of the House and Senate bills preserved the Senate Finance Committee‘s amendment, but bifurcated it into an advance notice and post-contact notice requirement. The Conference Committee clarified that “in general,” the IRS could provide advance notice to the taxpayer “as part of an existing IRS notice provided to taxpayers,”8 but the Conference Committee did not refer to Publication 1 by name. H.R. Conf. Rep. No. 105-599, at 277 (1998).
The IRS insists that the “existing IRS notice” is Publication 1, but in July 1998, at the time Congress passed the Restructuring Act, the IRS had not yet determined what method it would use to notify taxpayers of potential third-party contacts. See Status of IRS Reform: Hearing Before the S. Fin. Comm., 106th Cong. 69 (Feb. 2, 2000). Tellingly, Congress knew how to refer to Publication 1 by name in the 1998 Restructuring Act when it wished to do so. Congress specifically referred to Publication 1 three times in the 1998 Restructuring Act to, among other things, instruct the Treasury Department to notify taxpayers of their rights in interviews with the IRS. Pub. L. No. 105-206, §§ 1102, 3501-3503; 112 Stat. 685, 703, 770, 771. However, it did not refer to Publication 1 by name in
The timeline for the development of Publication 1 and related forms of notice further illustrates the implausibility of the IRS‘s insistence that Publication 1 provides “reasonable notice in advance” in all circumstances. After the 1998 Restructuring Act, IRS staff worked with Senate Finance Committee members, all twenty of whom had voted in favor of the Restructuring Act, to implement
adequate notification of third-party contacts. It must be attached to another letter that contains the required information found in Lettеr 3164.” IRM 4.10.1.6.12.2.1(5) (May 14, 1999); see also IRM 13.1.10.2.3(1) (August 21, 2000) (“Under [§ 7602(c)] you must provide taxpayers with prior notification that third parties may be contacted during the determination or collection of that specific taxpayer‘s federal tax liability.” (emphasis added)). When the IRS started using Letter 3164 more regularly,12 it developed more than twenty versions of Letter 3164 to meet “specific functional requirements.” IRM 25.27.1.3.1 (Oct. 19, 2017). Some versions of the letter notify the taxpayer, specifically, that the IRS would contact third parties because the taxpayer had not provided certain documents requested in an audit.13 See IRM 4.11.57.4.1.1 (Dec. 20, 2011). The IRS manual instructs IRS agents to prepare the appropriate letter,14 include the IRS employee‘s identification number and telephone number, and deliver the letter to the taxpayer. IRM 25.27.1.3.1(6) (Oct. 19, 2017).
Although they do not say so explicitly, the Treasury Department regulations also support an interpretation of “reasonable notice” that requires meaningful notice to the
taxpayer. See Treas. Reg. § 301.7602-2 (2002). The regulations state that “the pre-contact notice may be given either orally or in writing,” and if written notice is given, it may be given by mail, in person, by delivery to the taxpayer‘s address, or by confirming receipt by the taxpayer. Id. § 301.7602-2(d)(i)-(iv). And, contrary to the IRS‘s position in this litigation, the regulations nowhere suggest that the IRS satisfies its pre-contact notice requirement by simply mailing Publication 1 to the taxpayer. See Thompson v. United States, No. CIV.A. H-08-1277, 2008 WL 4279474, at *6 (S.D. Tex. Sept. 11, 2008) (“These documents are various methods of providing the ‘reasonable advance notice’ required by Section 7602(c). No method is specified in the Code.“).
Citing to out-of-circuit district court decisions, the IRS nonetheless insists that the district court‘s decision in this case is an outlier because every court to have considered the issue has held that “IRS Publication 1 satisfied the pre-contact notice requirement.” But while courts have generally approved of Publication 1, see, e.g., Gandrup v. United States, No. MC 14-123-SLR, 2014 WL 5861719, at *2 (D. Del. Nov. 12, 2014); Gangi v. United States, 2 F. Supp. 3d 12, 21 (D. Mass. 2014), several courts have recognized that
Nor does our decision conflict with the Second Circuit‘s unpublished summary order in Highland Capital Management L.P. v. United States, 626 F. App‘x 324 (2d
Cir. 2015), representing the sole other instance of a circuit court‘s grappling with
We understand that one result of adopting a context-specific rule may be to make it more difficult for IRS officers, and district courts, to determine whether
avoid the potential embarrassment of IRS contact with third parties, such as their employers.
We therefore hold that Publication 1 did not provide the J.B. and P.B. with reasonable advance notice.15 A reasonable
III.
The district court concluded that the IRS had failed to satisfy its “administrative duty” of giving J.B. and P.B. a meaningful opportunity to respond before contacting the California Supreme Court, as required by
Drawing on our case law in this area, we conclude that the IRS does not satisfy the pre-contact notice requirement,
administering an effective auditing system against “the individual interest” in receiving notice of the potential third-party contact and an opportunity to respond. Mullane, 339 U.S. at 314. The government must consider “unique information about an intended recipient regardless of whether a statutory scheme is reasonably calculated to provide notice in the ordinary case.” Jones, 547 U.S. at 230; see also Robinson v. Hanrahan, 409 U.S. 38, 40 (1972) (per curiam); Covey v. Town of Somers, 351 U.S. 141, 146-47 (1956). And if the government receives information that the notice was not received, the government must take additional reasonable steps to ensure that it provides notice. Jones, 547 U.S. at 234.
In this case, the sole notice that the government provided J.B. and P.B. that it might contact the California Supreme Court is Publication 1. The IRS sent J.B. and P.B. Publication 1 as part of its initial, introductory letter to the couple explaining that they had been selected for an audit; an audit the couple sought to stop. The Publication did not accompany a specific request for documents, nor is there any evidence that the IRS revisited the notice later in the audit when it knew that J.B. and P.B. had requested an exemption from the research audit and had not provided documents for the audit. More than two years elapsed between when the IRS sent Publication 1 to J.B. and P.B., and when the IRS subpoenaed the billing records and invoices from the California Supreme Court. We do not think that an agency that actually desired to inform a taxpayer of an impending third-party contact would consider Publication 1 adequate notice in these circumstances.
Nothing about the audit required the government to move quickly. The IRS issued the summons to the California Supreme Court as part of its National Research
Program audit, not an audit in the normal course. The research program is designed to help the IRS improve its tax collection system, but unlike an audit in the normal course where the subjects are selected because of red flags in their tax returns, the subjects of a research program audit are randomly selected, without any reason to believe that they are deficient on their taxes. The IRS had no reason to believe that J.B. and P.B. might evade its review, hide assets, or abscond. Nor was the California Supreme Court going anywhere soon.
Indeed, with a research audit, where the taxpayer is offering information to help the United States in its tax collection efforts, the IRS has every reason to proceed cautiously,
Moreover, the IRS should have known that it was requesting information from a particularly sensitive source. The IRS sent the summons to J.B.‘s employer, not a remote third party like a bank or financial institution. A taxpayer‘s reputational interests is heightened when the IRS requests information from an employer, which knows the taxpayer intimately and upon which the taxpayer relies for decisions about hiring and firing, and promotion. And, the IRS did not just request this information from any employer. The IRS sought billing records and invoices for J.B.‘s work representing capital defendants for the state government. The IRS should have known that these materials were potentially covered by the attorney-client privilege and other
litigation-related privileges, and could have revealed J.B.‘s litigation strategy representing persons on death row. Issuing the summons without specifically notifying J.B. and P.B. is rendered even more unnecessary because the billing records and invoices that the IRS requested are exactly the type of records that the IRS should have expected J.B. to have in his possession, and to have readily been able to provide once the dispute as to whether J.B. and P.B. should have remained in the research audit was resolved. In fact, federal law requires J.B. and P.B. to maintain exactly those records. See
We think there were several reasonable additional steps that the IRS could have taken to notify J.B. and P.B. before turning to the California Supreme Court. See Jones, 547 U.S. at 234. The ongoing litigation between J.B. and P.B., and the IRS, meant that IRS lawyers had opportunities to notify the couple that, despite the litigation, it would begin contacting third parties to collect information that J.B. and P.B. continued to withhold. Another reasonable step would have been for the IRS to, once again, renew its request for documents, and tell J.B. and P.B. that, if the documents were not provided, it would begin reaching out to third parties. Because more than two years had elapsed between the date the IRS sent Publication 1 to the couple, and the date the IRS issued its summons to thе California Supreme Court, it is not unreasonable to expect the IRS to renew its request for documents and to remind J.B. and P.B. that if they did not comply, the IRS would begin contacting third parties. Other reasonable notice measures, directed at the possibility that J.B. and P.B. did not understand or remember the third-party contacts notice in Publication 1, would have been to re-mail Publication 1, call the taxpayer, or issue a more tailored letter indicating that the IRS would begin contacting third parties.
But, because the IRS took no additional steps to notify J.B. and P.B. that it would be sending a summons to the California Supreme Court, we affirm the district court‘s conclusion that issuing Publication 1 two years before the third-party contact did not satisfy
IV.
The IRS must comply with its statutory obligation to provide reasonable notice in advance of contacting third parties. Courts are not in the position to prescribe the exact form of notice that is reasonable in
The district court‘s order quashing the 2011 summons to the California Supreme Court is therefore AFFIRMED.
APPENDIX A
Case 4:15-cv-04764-YGR Document 10-2 Filed 11/09/15 Page 10 of 45
IRS Department of the Treasury Internal Revenue Service Publication 1 (Rev. May 2005) Catalog Number 64731W www.irs.gov
THE IRS MISSION PROVIDE AMERICA‘S TAXPAYERS TOP QUALITY SERVICE BY HELPING THEM UNDERSTAND AND MEET THEIR TAX RESPONSIBILITIES AND BY APPLYING THE TAX LAW WITH INTEGRITY AND FAIRNESS TO ALL.
Your Rights as a Taxpayer
The first part of this publication explains some of your most important rights as a taxpayer. The second part explains the examination, appeal, collection, and refund processes. This publication is also available in Spanish.
Declaration of Taxpayer Rights
I. Protection of Your Rights
IRS employees will explain and protect your rights as a taxpayer throughout your contact with us.
II. Privacy and Confidentiality
The IRS will not disclose to anyone the information you give us, except as authorized by law. You have the right to know why we are asking you for information, how we will use it, and what happens if you do not provide requested information.
III. Professional and Courteous Service
If you believe that an IRS employee has not treated you in a professional, fair, and courteous manner, you should tell that employee‘s supervisor. If the supervisor‘s response is not satisfactory, you should write to the IRS director for your area or the center where you file your return.
IV. Representation
You may either represent yourself or, with proper written authorization, have someone else represent you in your place. Your representative must be a persоn allowed to practice before the IRS, such as an attorney, certified public accountant, or enrolled agent. If you are in an interview and ask to consult such a person, then we must stop and reschedule the interview in most cases.
You can have someone accompany you at an interview. You may make sound recordings of any meetings with our examination, appeal, or collection personnel, provided you tell us in writing 10 days before the meeting.
V. Payment of Only the Correct Amount of Tax
You are responsible for paying only the correct amount of tax due under the law—no more, no less. If you cannot pay all of your tax when it is due, you may be able to make monthly installment payments.
VI. Help With Unresolved Tax Problems
The Taxpayer Advocate Service can help you if you have tried unsuccessfully to resolve a problem with the IRS. Your local Taxpayer Advocate can offer you special help if you have a significant hardship as a result of a tax problem. For more information, call toll free 1-877-777-4778 (1-800-829-4059 for TTY/TDD) or write to the Taxpayer Advocate at the IRS office that last contacted you.
VII. Appeals and Judicial Review
If you disagree with us about the amount of your tax liability or certain collection actions, you have the right to ask the Appeals Office to review your case. You may also ask a court to review your case.
VIII. Relief From Certain Penalties and Interest
The IRS will waive penalties when allowed by law if you can show you acted reasonably and in good faith or relied on the incorrect advice of an IRS employee. We will waive interest that is the result of certain errors or delays caused by an IRS employee.
Case 4:15-cv-04764-YGR Document 10-2 Filed 11/09/15 Page 11 of 45
Examinations, Appeals, Collections, and Refunds
Examinations (Audits)
We accept most taxpayers’ returns as filed. If we inquire about your return or select it for examination, it does not suggest that you are dishonest. The inquiry or examination may or may not result in more tax. We may close your case without change; or, you may receive a refund.
The process of selecting a return for exаmination usually begins in one of two ways. First, we use computer programs to identify returns that may have incorrect amounts. These programs may be based on information returns, such as Forms 1099 and W-2, on studies of past examinations, or on certain issues identified by compliance projects. Second, we use information from outside sources that indicates that a return may have incorrect amounts. These sources may include newspapers, public records, and individuals. If we determine that the information is accurate and reliable, we may use it to select a return for examination.
Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund, explains the rules and procedures that we follow in examinations. The following sections give an overview of how we conduct examinations.
By Mail
We handle many examinations and inquiries by mail. We will send you a letter with either a request for more information or a reason why we believe a change to your return may be needed. You can respond by mail or you can request a personal interview with an examiner. If you mail us the requested information or provide an explanation, we may or may not agree with you, and we will explain the reasons for any changes. Please do not hesitate to write to us about anything you do not understand.
By Interview
If we notify you that we will conduct your examination through a personal interview, or you request such an interview, you have the right to ask that the examination take place at a reasonable time and place that is convenient for both you and the IRS. If our examiner proposes any changes to your return, he or she will explain the reasons for the changes. If you do not agree with these changes, you can meet with the examiner‘s supervisor.
Repeat Examinations
If we examined your return for the same items in either of the 2 previous years and proposed no change to your tax liability, please contact us as soon as possible so we can see if we should discontinue the examination.
Appeals
If you do not agree with the examiner‘s proposed changes, you can appeal them to the Appeals Office of IRS. Most differences can be settled without expensive and time-consuming court trials. Your appeal rights are explained in detail in both Publication 5, Your Appeal Rights and How To Prepare a Protest If You Don‘t Agree, and Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund.
If you do not wish to use the Appeals Office or disagree with its findings, you may be able to take your case to the U.S. Tax Court, U.S. Court of Federal Claims, or the U.S. District Court where you live. If you take your case to court, the IRS will have the burden of proving certain facts if you kept adequate records to show your tax liability, cooperated with the IRS, and meet certain other conditions. If the court agrees with you on most issues in your case and finds that our position was largely unjustified, you may be able to recover some of your administrative and litigation costs. You will not be eligible to recover these costs unless you tried to resolve your case administratively, including going through the appeals system, and you gave us the information necessary to resolve the case.
Collections
Publication 594, The IRS Collection Process, explains your rights and responsibilities regarding payment of federal taxes. It describes:
- What to do when you owe taxes. It describes what to do if you get a tax bill and what to do if you think your bill is wrong. It also covers making installment payments, delaying collection action, and submitting an offer in compromise.
- IRS collection actions. It covers liens, releasing a lien, levies, releasing a levy, seizures and sales, and release of property.
Your collection appeal rights are explained in detail in Publication 1660, Collection Appeal Rights.
Innocent Spouse Relief
Generally, both you and your spouse are each responsible for paying the full amount of tax, interest, and penalties due on your joint return. However, if you qualify for innocent spouse relief, you may be relieved of part or all of the joint liability. To request relief, you must file Form 8857, Request for Innocent Spouse Relief no later than 2 years after the date on which the IRS first attempted to collect
Potential Third Party Contacts
Generally, the IRS will deal directly with you or your duly authorized representative. However, we sometimes talk with other persons if we need information that you have been unable to provide, or to verify information we have received. If we do contact other persons, such as a neighbor, bank, employer, or employees, we will generally need to tell them limited information, such as your name. The law prohibits us from disclosing any more information than is necessary to obtain or verify the information we are seeking. Our need to contact other persons may continue as long as there is activity in your case. If we do contact other persons, you have a right to request a list of those contacted.
Refunds
You may file a claim for refund if you think you paid too much tax. You must generally file the claim within 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later. The law generally provides for interest on your refund if it is not paid within 45 days of the date you filed your return or claim for refund. Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund, has more information on refunds.
If you were due a refund but you did not file a return, you generally must file your return within 3 years from the date the return was due (including extensions) to get that refund.
Tax Information
The IRS provides the following sources for forms, publications, and additional information.
- Tax Questions: 1-800-829-1040 (1-800-829-4059 for TTY/TDD)
- Forms and Publications: 1-800-829-3676 (1-800-829-4059 for TTY/TDD)
- Internet: www.irs.gov
- Small Business Ombudsman: A small business entity can participate in the regulatory process and comment on enforcement actions of IRS by calling 1-888-REG-FAIR.
- Treasury Inspector General for Tax Administration: You can confidentially report misconduct, waste, fraud, or abuse by an IRS employee by calling 1-800-366-4484 (1-800-877-8339 for TTY/TDD). You can remain anonymous.
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