No Evidentiary Burden for IRS Applicable to Accrued Interest and Penalties
Eli Noff, Esq., Partner
Mary F. Lundstedt, Esq., Associate
Taxpayers who are delinquent with their IRS taxes all too often find themselves facing rapidly accruing interest and penalties, which snowball into dismally high amounts. As the case discussed below indicates, when delinquent taxpayers and the IRS have repeatedly failed to resolve a matter, the IRS can file an action to reduce liabilities to judgment. And, assuming the action is filed within the statute of limitations (SOL) applicable to all tax years at issue, the IRS can easily win on motion for summary judgment to collect the accrued interest and penalties without submitting any evidence in its motion regarding these amounts. Cases like this should be read to prompt delinquent taxpayers to engage the services of a tax professional who can help them find a resolution with the IRS as soon as possible.
In United States v. Okoro, the court held that the Internal Revenue Service (IRS) was entitled to collect accrued interest and penalties from taxpayers, even though the IRS submitted no evidence in its motion for summary judgment regarding these amounts because the IRS’s evidentiary burden only applies to assessed tax-not to accrued interest and penalties.1In reaching its decision, the court considered whether the: (1) IRS timely filed the action within the SOL for all tax years at issue, and (2) IRS’s evidentiary burden applied to accrued amounts other than the assessed tax.
First, the court considered the taxpayers’ allegation that the SOL for collection applicable to tax year 2003 had already expired. The court clarified that per Internal Revenue Code (IRC) §6502(a)(1):
Where the assessment of any tax imposed by this title has been made within the period of limitation properly applicable thereto, such tax may be collected … by a proceeding in court, but only if … the proceeding [is] begun… within 10 years after the assessment of the tax.2
However, the court continued, explaining that there are events that can toll the general 10-year SOL. The court agreed with the IRS that the 2003 SOL was tolled for at least 847 days due to five tolling events, including:
- The filing of an offer-in-compromise
- A pending offer for an installment agreement until it was accepted
- Reversal or termination of the installment agreement without appeal of such termination
- Another pending offer for an installment agreement until it was accepted
- Another reversal or termination of the installment agreement without appeal
Thus, the court concluded that the IRS’s suit was timely for all years involved.
Next, the court reviewed the taxpayers’ argument that the IRS was not entitled to summary judgment because the IRS failed to provide any evidence of the accrued interest and penalties. The court clarified that the only evidentiary burden the IRS has is with respect to the unpaid assessed taxes. Specifically, the court considered various precedential cases to conclude that establishing tax liability requires evidence, but statutory interest and penalty amounts are a matter law and, as such, do not require evidence.3
In the end, finding that the IRS had timely filed the action to collect and had no evidentiary burden relating to the accrued penalties and interest, the court granted the IRS’s motion for summary judgment and awarded the IRS hundreds of thousands of dollars in unpaid assessed taxes, plus accrued interest and penalties.
Delinquent taxes and failed attempts to settle with the IRS are a sure recipe for an unhappy ending for taxpayers. The IRS is unlikely to just sit back and let the SOL collect expire. And if the IRS succeeds in an action filed in court before the SOL expires, the collection period is significantly extended. Specifically, when a tax assessment is reduced to judgment, as it was inUnited States v. Okoro, the IRS may collect via levy or having the judgment enforced under the Federal Debt Collection Procedures Act (FDCPA). Under the FDCPA, the IRS can obtain a “judgment lien” against a taxpayer’s real property. Such lien is effective for 20 years unless satisfied earlier. With court approval, the lien may even be renewed for another 20 years.Again, delinquent taxpayers should act quickly to find a tax professional who can help establish a resolution for their IRS tax matters.
If you are facing IRS tax obligations call Frost Law for a free consultation at 410-497-5947.
1No. 3:17-cv-1589 (N.D. Ohio Jan. 28, 2020).
2Id. at 2.
3See United States v. Hammon, 277 F. App’x 560, 563 (6thCir. 2008); Unites States v. Watson, 909 F. 2d 915, 919 (6thCir. 1990); United States v. Sarubin, 507 F.3d 811, 816 (4thCir. 2008).
4Internal Revenue Manual 184.108.40.206.2 (12-03-2010). “While a suit to reduce assessments to judgment has the effect of extending the collection statute of limitations under IRC §6502(a), the collection statute expiration date (CSED) is not tied to the duration of the judgment lien. The federal tax lien created under IRC §6321 does NOT merge into the judgment lien but continues to exist independently.” Internal Revenue Manual 220.127.116.11.2(5).
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