I recently had the opportunity to attend the two-day tax resolution “boot camp” offered by the American Society of Tax Problem Solvers (ASTPS). In spite of the name, ASTPS is a fantastic organization, and this “boot camp” was by far the best seminar of any sort I have attended. ASTPS is an organization for tax attorneys, enrolled agents (EA), and certified public accountants (CPA). No one else would join this organization, because the IRS no longer allows anybody else to solve the “tax problems” that ASTPS deals with. Simply put, appeals and complex collection matters are outside the domain of what un-enrolled tax preparers, or even those who have completed the annual tax preparer’s program, generally do. Besides, who would want to hire such a person for a complex tax matter, such as an audit, appeal, or an offer in compromise?
The tax resolution “boot camp” was taught by a person, who is both a CPA and an Enrolled Agent. In fact, all the presenters met that description. The bulk of the class’ students consisted of CPAs and EAs, although there were a handful of lawyers there also. As such, most of the dialogue and most of the interaction was among CPAs and EAs, people I do not often have occasion to work with. They are not like lawyers. The differences were interesting.
The analogy for me is the distinction between a corporate lawyer and a corporate litigator. Each plays a separate, but important role in the legal system. I had the privilege of going to the law school at the University of Virginia, where most of my classmates grew up to be corporate lawyers, pure paper-pushers. Corporate lawyers incorporate businesses, negotiate contracts, paper over deals, and advise regarding regulatory issues and the like. However, they would be terrified if they ever had to try a case in a court room. Corporate lawyers are not advocates. Of course, at this point in the practice of law, all attorneys seem to be paper-pushers to one degree or another, including trial lawyers. I had always wanted to be a trial lawyer; simply because they are much less of the paper-pusher type. We are advocates.
At the boot camp, we were doing various case studies. The CPAs and EAs were certainly good at following the tax code, and at filling in the various forms that needed to be filled in. However, the advocacy component was missing. At times throughout the course, I even had to remind the “teachers” about some of the things we are allowed to do if only we are willing to advocate for them. The key to successful tax resolution is not properly filling in the IRS forms (although that obviously is an essential component), but rather the more subjective qualities of advocacy: quite literally, fighting for the client!
Allow me to give you a very simple example. In an offer and compromise, the client’s cash and financial assets are components of the offer. The form itself will allow the client to keep a thousand dollars in the bank. Although not particularly generous, it is still an improvement over the way things were prior to the 2012 Amendments. The Internal Revenue Manual says that in addition to the thousand dollars, the client is allowed to keep enough money to meet their “allowable” living expenses. There is no place to put that on the form. As such, it is necessary to attach a schedule to the form indicating a deduction for “allowable” living expenses. Although a revenue agent/officer might not allow for “allowable” living expenses, appeals will almost usually allow a month. However, that month is a rule of thumb. There may be good arguments for why the number should be more than a month. In fact, there may be arguments for why all of the client’s financial assets, including retirement plans, should be excluded. If those numbers are significant, it may require a rather extraordinary set of circumstances. The point is, the form only allows for $1,000.00, yet $1,000.00 should rarely be the correct number. Nevertheless, most offer and compromise forms prepared by a CPA, or an EA, are going to exempt only $1,000.00. These things are true across the board. For every line item on the form, there may be an argument as to why that prescribed amount is incorrect. The Internal Revenue Code specifically allows us to challenge what the IRS guidelines allow for every line on the form. Most people will not. It is simply not their nature. There are very few trial lawyers doing tax resolution, and there are very few EAs and CPAs that think like trial lawyers.
The seminar’s lead presenter made a very interesting point. He started the class with a number of lawyer jokes, getting in his digs every chance he got. But when the class got serious, he turned to the CPAs and EAs and told them that they needed to learn to think more like lawyers. He acknowledged that he himself was a frustrated lawyer wanna-be. When he got out into the working world, he realized he wanted to be an attorney, but the city he lived in had no night law school, and he had a family to support. However, he claims to have that combative mindset that trial lawyers possess, and I will concede that notwithstanding his background, he does.
I will also acknowledge that there are things for us to learn from them. The big one is that the IRS is not a court. Most of the lawyers at the seminar are bankruptcy attorneys, such as myself. For them, the main point of being there was that so many of our bankruptcy clients also have tax problems that bankruptcy may not be able to solve. It is time to learn how to deal with those as well. For those of us who are accustomed to practicing in the Bankruptcy Court, there are things that we simply are not allowed to do. We have ethical standards. The Bankruptcy Code and the Office of the United States Trustee specifically prohibit certain activities that would be characterized as “bankruptcy planning.” We are officers of the court, and are thus accustomed to operating within certain boundaries that the IRS does not expect of us.
The IRS, in its own rules, has declared what is acceptable spending for a taxpayer. It is not a determination of what you can get away with if you try, but a determination of what is allowable. For example, having a $517.00 a month car loan is an allowable expense to the IRS. Generally speaking, car loans are an allowed expense in bankruptcy, too. I would not counsel a bankruptcy client to go out and buy a new car and get a car loan simply because it would help their budgeting in a bankruptcy petition. Frankly, I would not be doing my client any favors. If I recommended it, the United States Trustee would hang my client and hang me. What a shock it was to learn that when preparing for an offer in compromise, or preparing for a partial or negotiated installment payment plan, such counseling is perfectly acceptable. The IRS itself has determined that such an expenditure is allowable, and thus taking it on is completely reasonable. So while it may be the case, those EAs and the CPAs need to adopt a different mindset and a different worldview from their quiet, “green-eyeshade” world, we trial lawyers need to know that some of the restrictions are off when we are fighting with the IRS, and that is only appropriate. For these kinds of tax resolution matters, the IRS made the rules. It is a fundamental concept of contract law that a contract be interpreted against the party that wrote it. Here, all we are doing is advising clients to do exactly the things the IRS says that they are allowed to do.