In our last post we discussed the basics of IRS liens, wage levies and bank levies. We also began to discuss a recent Tax Court case involving a construction company and the IRS. The company got behind on its taxes so the IRS imposed a lien and refused to subrogate it to a bank's claims arising out of a line of credit. Without the line of credit the construction company could not stay current on its tax obligation and risked closure, so the company took the IRS to court. The Tax Court sided with the construction company and held that the IRS abused its discretion in failing to subrogate its lien to the bank's claims.
This type of case is called a collection due process case because the taxpayer was challenging the IRS' collection tactics. Collection due process cases are hard to prove and taxpayers should seek the advice of an experienced tax law attorney before attempting to challenge the IRS' collection tactics.
One of the reasons a collection due process case is hard to win is because the taxpayer has the burden of proof. This means that the IRS is not required to defend its decision not to pursue collection alternatives and the taxpayer must prove his or her eligibility for lien and levy relief.
In this case the construction company proved that the lien subrogation would facilitate the collection of the tax by presenting two different cash flow projections to a settlement officer. The projections showed that paying the tax back was impossible without the subrogation of the lien. The company also presented data which showed the company's ability to remain current on its tax obligations by laying off employees, employing tax cutting strategies and moving into more profitable business areas.
Finally the company provided documentation showing that the bank lien was canceled due to the tax lien, how it would remain current on its taxes and proposed an installment agreement plan for the delinquent taxes.
The construction company's case is an excellent example of how a competent tax law attorney can appeal an adverse IRS decision and obtain the best possible outcome for a client.
Source: Morgan King, "Tax Court Weighs in on Lien Issue," Dan Pilla, Oct. 4, 2011