Apr 25, 2010

IRS must release levy in case of hardship- even if you have not filed all your returns

In a recent Taxpayer Advocate memorandum to its employees, the TAO has determined the IRS should follow a very unusual ruling in the Tax Court case, Vinatieri v Commissioner. In fact, the TAO informs its employees that it will grant relief to such taxpayers that are similarly defined as in the Vinatieri case.

Let me explain the situation:

- Taxpayer has tax debt
- By the IRS determination, taxpayer qualifies not to pay on the debt (i.e. qualifies for "currently not collectible")
- Appeals Office will not allow CNC because taxpayer did not file 2 years of required tax returns
- The IRS follows its procedure of requiring the taxpayer to be in "full compliance" - i.e. filed all required tax returns and up to date with withholding/estimated tax payments before hardship relief can be granted - and denies relief to the taxpayer
- Taxpayer disagrees and petitions the US Tax Court for relief
- Taxpayer wins and CNC and levy relief is granted despite all required returns not being filed.

Why is this ruling important?
This is a clear departure from the IRS "full compliance" requirement. There have been many individuals who have been denied levy relief and CNC due to unfiled tax returns. It will be interesting if the IRS follows this case or it requires all of these situations to go the the Taxpayer Advocate.

In any event, it is important to get all returns filed. In fact, it may "bounce" your CNC status if the unfiled returns trigger additional liability and the IRS has not coded the unfiled tax "modules" for advanced CNC approval. In fact, the IRS can start a "Taxpayer Delinquency Investigation" for not filing the required returns- and that is not a good option compared to voluntarily filing.

Let me know if I can help.

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