The following is an excerpt from:

"For Whom the Tax Tolls: Significant Events That Extend IRS Collection Rights"

Published in Tax Practice & Procedure - October/November 2004

By Michael S. Fried and Zachary S. Fried

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Hypothetical Client

Recently, Dr. Ron Delinquent, a prominent local ophthalmologist, was referred to our office in connection with IRS collection activity for taxes owed for the period 1987 to 2000. After 2000, Dr. Delinquent, in his infinite wisdom, sua sponte spontaneously began to file returns and pay taxes in a timely manner. At the time of our first meeting on September 15, 2004, Dr. Delinquent's tax obligations totaled $1.5 million, including income tax liabilities for all years 1987 through 2000, and trust fund recovery penalties (?trust fund taxes?) assessed in 1989 as the result of the failure of his professional corporation to pay taxes withheld from employees? salaries. At the time of our meeting, Dr. Delinquent's personal bank account had been levied by the IRS, and he was having trouble making his mortgage payments.

Obtaining accurate information about the timing of the various assessments, return filing and due dates, and the intermittent activity of the client intended to ameliorate IRS collection procedures was crucial to determining the best strategy to solve the client's problems. Since Dr. Delinquent ?recalled? that the trust fund taxes were assessed against him in 1988, it appeared that the collection statute of limitations had expired for the trust fund taxes. It also appeared that the collection statute of limitations would bar collection of the taxpayer's income tax liabilities for the delinquencies attributable to tax years 1987 to 1993. However, Dr. Delinquent, like most taxpayers facing IRS collection pressure, suffered from a lack of clarity concerning the filing and assessment of the taxes in question and could not accurately remember prior actions taken personally and through his advisors to solve his tax problems. Accordingly, our first step was to obtain tax transcripts for all years and all taxes owed.

Examination of the client's tax transcripts revealed the following facts:

The pending trust fund taxes were assessed on July 15, 1989, and the outstanding balance of these taxes totaled $100,000 at the time the transcripts were prepared by the IRS.
The other delinquency balance of $1.4 million was for income tax liabilities for the years 1987 to 2000.
On May 1, 1994, the client filed a bankruptcy case that was not terminated until June 24, 1997.
On December 9, 1998, the client filed an offer in compromise for the trust fund taxes and all other taxes owed for 1987 through 1997.
The taxpayer's offer in compromise was not rejected by the IRS until December 9, 2003, five years after it was filed.
Dr. Delinquent filed his 1999 and 2000 tax returns on March 15, 2002.
On April 29, 2002, the IRS assessed a liability of $10,000 for 1999 and a liability of $25,000 for 2000.
The transcripts contained no indication of any civil fraud penalty or problem.

Remarkably, Dr. Delinquent had very little recollection of the events shown on his the transcripts.

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