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1 [1] (March 14, 2025)

handle is hein.crs/fdltxencemt0001 and id is 1 raw text is: I* Cogrsioa Reerh evc 0 March 14, 2025 Federal Tax Enforcement: An Overview Federal tax enforcement involves a series of adverse actions that the government-primarily the Internal Revenue Service (IRS)-can take against a taxpayer to collect taxes Congress mu owed and to penalize non-compliance with federal tax laws. ofInternal Re Taxpayers are provided notice of and the opportunity to Common aut challenge most enforcement actions. This In Focus provides * failure t an overview of federal tax enforcement-outlining the failure t types of adverse actions the government can take against a delinquent taxpayer and highlighting relevant caselaw. • substant Audit The IRS can audit-or examine-a taxpayer to determine tax liability and ensure information reported on a tax return is correct. Audits can be conducted by correspondence or in person at an IRS office or at a home or business. The IRS selects a certain number of tax returns at random or through computerized screening for audit. It might also select returns for audits if it notices inconsistencies with other reported information. Special procedural rules apply for audits of certain categories of taxpayers-for example, churches. Taxpayers receive a notice of the audit from the IRS, which specifies the items on a tax return it is auditing. At the conclusion of an audit, taxpayers receive a notice if the IRS proposes adjustment to specific items. Assessment Assessment is the statutorily required recording of tax liability. An assessment is reflected in a taxpayer's account transcript maintained by the IRS. An assessment can be based on, among other things, a tax liability reported in a tax return or a calculation by the IRS after an audit. For most types of assessments, taxpayers are required to be provided with notice of and the opportunity to challenge the proposed assessment in Tax Court. An IRS assessment generally has a presumption of correctness. Welch v. Helvering, 290 U.S. 111, 115 (1933). Unless the assessment is arbitrary and erroneous, the taxpayer has the burden of proof to rebut the presumption. U.S. v. Janis, 428 U.S. 433, 440-42. (1976). Under a provision in the Internal Revenue Code (IRC), the taxpayer can shift the burden of proof to the IRS if the taxpayer introduces credible factual evidence and if procedural requirements are met. IRC § 7491. An assessment triggers the IRS's authority to undertake certain collection actions, such as enforcing the federal tax lien. Civil Tax Penalties In addition to assessing tax liability, the IRS can assess certain civil tax penalties, which are categorized into two types: additions to tax and assessable penalties. Additions to tax are subject to more procedural requirements and review before assessment than assessable penalties. In contrast to assessments of tax, the IRS has the initial burden to show a taxpayer's liability for a penalty. Un derpaymrent Interest The IRS has statutory authority to charge underpayment interest when a taxpayer does not pay a tax or penalty by the due date. In general, interest accrues until the balance is paid in full. The IRS is required by statute to set underpayment interest rates quarterly. Two different rates of interest are set: a general rate applicable to individual and corporate taxpayers and a higher rate for a large corporate underpayment. Federal Tax Lien When a taxpayer fails to pay a tax liability after (1) assessment and (2) notice and demand for payment, the government automatically has rights to the delinquent taxpayer's property through a federal tax lien created by the IRC. The lien attaches to all property-whether real, personal, or financial-of the taxpayer. The lien applies to property owned by the delinquent at any time during the life of the lien, including property acquired after the lien arises. Glass City Bank of Jeanette, Pa., v. U.S., 326 U.S. 265, 268-69 (1945). Once a lien is established, the IRS files a public document called a Notice of Federal Tax Lien (NFTL) to alert creditors of the government's legal right to a taxpayer's property. This notice allows the lien to have priority against certain competing lien interests of third parties. Taxpayers are provided with notice of and the opportunity to challenge an NFTL. The lien continues until the liability is satisfied or becomes unenforceable by expiration of the period to collect the tax. The IRS will release the lien after such time. In certain situations, the IRS may withdraw an NFTL even when the taxpayer still owes a tax liability, if, for example, the taxpayer enters into an installment agreement or if the IRS determines that withdrawal best serves the interests of both parties. The withdrawal abandons lien priority but does not extinguish the lien or tax liability. Collection Once a federal tax lien exists, the IRS can undertake a series of actions to collect an unpaid tax liability. Taxpayers have several options upon notification of a collection ,,ttps://crs repo rtscon ress~go ommon Civil Tax Penalties st specifically authorize penalties. Farhy v. Comm'r venue, 100 F.4th 223, 225 (D.C. Cir. 2024). horized penalties assessed by the IRS include o file a tax return, IRC § 6651 (a)(I); o pay tax owed, IRC §§ 665 I(a)(2) and (3); and ial understatement of tax, IRC § 6662(b)(2).

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