Ask The California Employment Tax And Payroll Tax Attorney – Is There Innocent Spouse Relief For Payroll Tax Related Assessments? – Part 1

 

By Robert S. Schriebman

2022

Introduction

This is Part 1 of a 2-Part series of articles.

Angela M. Chavis and her then husband were officers of a corporation that withheld payroll taxes from its employees’ wages but did not pay those taxes over to the IRS.  The IRS tried to collect these delinquent payroll taxes from the corporation without success.  The matter was assigned to a Revenue Officer.  After an investigation, the Revenue Officer decided to assess both Angela and her then husband for the trust fund portion of the corporate level deficiency.  Angela and her husband divorced.  The IRS sent Letter 1153, Notice of Trust Fund Recovery Penalty (TFRP) to Angela affording her a 60-day window to file a Protest to challenge the TFRP assessment.  Angela failed to file the Protest. There was no response from Angela.

In its process of collection, the IRS issued a Collection Due Process (CDP) Notice to Angela. Angela filed her CDP petition, and in the petition, for the first time, she challenged the merits of the pending TFRP assessment.  Angela sought to challenge the IRS proposed assessment against her but went about it the wrong way and the results were disastrous!

The Case of Angela M. Chavis v. Commissioner, (US Tax Court, 158 TC, No. 8, June 15, 2022)

This article will discuss the following topics:

• Should Angela have filed a Protest challenging the TFRP assessment?
• May Angela contest the merits of the TFRP assessment now in her CDP petition?
• Is Innocent Spouse Relief available to Angela in a TFRP assessment?
• If this were an EDD CUIC 1735 assessment, would Angela be allowed to raise the defense of innocent spouse?

Should Angela Have Filed a Protest Challenging the TFRP Assessment? – YES!

When the IRS targets an individual for the TFRP assessment, it is required by law to send a notice to the individual giving a period of 60 days to file a Protest with the IRS Appeals Division.  Appeals has the task of conducting an administrative hearing to determine whether or not the individual should be assessed.  The IRS initially sends Letter 1153, Notice of Trust Fund Recovery Penalty.  The IRS is telling the taxpayer that this is when and how you must challenge the proposed assessment.  If you do not avail yourself of this window of opportunity, you cannot challenge the merits in a CDP proceeding.  You must go through the refund process where you will be given a second bite at the Appeals apple.

Here, Angela admitted she received the Letter, but did not file a Protest at all.  She let the 60-day window lapse.

May Angela Contest the Merits of the TFRP Assessment Now in Her CDP Petition? – NO!

The purpose of a CDP proceeding is to work out a solution to your IRS debt.  Under limited circumstances you may be afforded an opportunity to challenge the merits of the proposed assessment.  For example, you may raise the innocent spouse defense, or challenge an income tax assessment if you never received a deficiency notice.  On the other hand, if you do not take advantage of the opportunity afforded via an 1153 Letter, you may only challenge the merits if the notice was not sent to your last known address.

Here, Angela was not allowed to challenge the merits of the proposed TFRP. She should have filed a Protest within the 60-day window provided in the Letter.  A CDP proceeding is not the place to challenge a TFRP assessment if the Letter was sent to Angela’s proper address, and she received it in a timely fashion.  The letter was sent to her proper address in plenty of time for Angela to have filed a timely Protest with Appeals.

Conclusion

In Part 2, the following issues will be discussed:

• Is Innocent Spouse Relief available to Angela in a TFRP assessment?
• If this were an EDD CUIC 1735 assessment, would Angela be allowed to raise the defense of innocent spouse?

 

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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.  Mr. Schriebman is in private practice.  He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

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