INFORMAL TAXPAYER LETTER DIDN'T SETTLE TAX DEBT - Rogers Wood Hill Starman & Gustason

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INFORMAL TAXPAYER LETTER DIDN’T SETTLE TAX DEBT

Posted by Kim Chen on October 26th, 2018

The taxpayer filed an amended return two days after he filed his original return. This resulted in a refund of $1,396. Upon audit, the IRS determined that the taxpayer wasn’t entitled to the refund and issued a notice of deficiency for $39,757. The taxpayer returned the refund, along with a letter that asked the IRS to “confirm that we are now concluded on this tax return issue and we won’t have any more issues with IRS on that year.” The IRS didn’t respond to the letter, but it did assess the $1,396 liability. When the taxpayer failed to pay the balance, the IRS filed a notice of federal tax lien. The taxpayer argued this was an abuse of discretion because he had settled the debt by returning the refund. The Tax Court disagreed, holding that the lien was valid because no settlement was duly authorized and memorialized in a closing letter under IRC Sec. 7121. John Longino, TC Memo 2018-175 (Tax Ct.).