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January 31, 2011

Pro Se Follies Preserved by Tax Court

Guest Author: Daniel Waters, Esq., Columbus, Ohio

    The Tax Court slams pro se taxpayer, who is unaware of IRS procedures and his burden of proof in having a Notice of Federal Tax Lien withdrawn.  In Ronald M. Costi, the taxpayer had defaulted on an installment agreement, and the IRS filed a Notice of Federal Tax Lien.  In an attempt to re-establish the installment agreement, the taxpayer filed for an appeals hearing.  Unfortunate for the taxpayer, the settlement officer sustained the filing of the lien notice.  The taxpayer then filed a petition with the Tax Court to challenge the settlement officer’s determination.  The Tax Court sustained the settlement officer’s determination and held that the taxpayer failed to prove that the settlement officer abused her discretion in not releasing the lien. That is, the taxpayer had not provided proof of how the lien was more intrusive than necessary to protect the Government’s interest. 

    This case highlights that proceeding against the IRS without being fully informed of your rights and the IRS’s duties, can be costly to your time and to your credit score.  The IRS is bound by specific laws as to how and when they can file a lien to protect their interest in property.  Furthermore, the IRS has promulgated internal guidelines that give their collection department discretion as to when a lien should be filed, when a taxpayer is seeking to remedy their debt through an installment agreement.  While these rules may not have been helpful to Mr. Costi, they can be crucial for individuals and businesses looking to become current with their past due taxes, but need to avoid any undue consequences that a lien may bring about. 

    There is no magic formula to the steps the IRS needs to take, with a noncompliant taxpayer, for a lien to be filed.  The steps are as basic as:

  1. Assess the tax owed.
  2. Send a notice of demand for payment.
  3. The taxpayer fails to pay the tax within 10 days of the date of the notice.

    Once all three steps are met the lien can be filed, putting the public on notice of the IRS’s right and priority to all your current and future property.  For individuals this includes homes, cars, collectibles, etc.  And, for businesses this includes accounts receivables.  If a lien has been placed against you or your business, you must show how the lien creates a particular detriment to you for a release to be considered.  A mere ding in your credit score or personal embarrassment will not suffice.

     It is important for a delinquent taxpayer to work with proficient counsel in order to understand the “why and when” of lien filings, or how to pursue the removal of the lien.  Mr. Costi’s quixotic foray into Tax Court may have been avoided had he been properly informed of what it takes to remove a lien before the initial appeals hearing.   Going before the Tax Court and blaming your ex-wife, as Mr. Costi did, is not the best of ways to get a lien removed.

    To review the case please see attached.

Download Ronald M. Costi v. Commissioner, TC Memo 2010-246 (00010922)

 

 

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January 31, 2011

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