rejected 843

Technical topics regarding tax preparation.
#1
JAD  
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We filed an 843 to request a refund for SS and Medicare on income that was improperly characterized as compensation. It was rejected. Not a surprise. We need to keep the issue open while the IRS and FTB process the income tax returns. I have never gone to appeals before. I am interested in any advice. Thank you.
 

#2
JAD  
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Actually, it turns out that I need even more help than I thought.

This is a continuation of this issue:

viewtopic.php?f=8&t=7811&p=74301&hilit=cap+gain+compensation#p74301

I just got off the phone with practitioner priority service to ask about the next step, because client did not receive any information regarding appeal rights, what to do. She was very nice, but I believe mistaken. She said that there is no issue because the client hadn't filed the 2016 1040 (it was sent in last week). She said that we have to show the incorrect FICA and MCARE withholding on the 1040. After it is disallowed, then we file the 843, receive a rejection, then appeal. This is, of course, completely inconsistent with Form 1040, line 71 instructions, which allows for excess SS if you have two employers who both withheld FICA and MCARE.

It is also inconsistent with Form 843 instructions, which clearly states,

"Use Form 843 to claim or request the following.....A refund to an employee of social security or Medicare taxes that were withheld in error, but only if your employer will not adjust the overcollection."

I could use some help with strategy here. I am in the twilight zone. Thank you.
 

#3
taxea  
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Was there more than one employer? If not then the employer should be the one to refund the excess withholding.
 

#4
JAD  
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Employer has taken the position that payment was compensation, discussed in detail in the linked thread. It is a twilight zone situation. Form 843 instructions say that one of situations where the form may be filed is where a single employer will not adjust the improperly withheld tax.

Where I am now is simply this: I have to go to appeals, which I have never done, and am looking for any advice that anyone would like to give.
 

#5
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JAD wrote:
Where I am now is simply this: I have to go to appeals, which I have never done, and am looking for any advice that anyone would like to give.

File Form 12203. Then you go to appeals and you make your case. There’s not much to it, really. Presumably, you’re only asking for the EE share back. You’ll argue that the payments were consideration for stock and you’ll present the agreement, the history of payments, how they were treated, etc. And hopefully you’re right, because if you’re not, the capital gain vs. ordinary income issue might rear it’s head. But knowning you, you’ll be as prepared as you can be. Sometimes, things come out of the blue that are unexpected, like the employer making some argument that there was a consulting agreement, or that the purchase price was inflated such that the “last payment” really represented compensation for continued employment (if continued employment did in fact happen). It’s just odd why the employer/buyer is taking the position it took and is sticking by that position.

We’d think that buyer/employer is just plain wrong, but again, sometimes extraneous, and unforeseen arguments are made that we didn’t think of. So just be prepared for those if you are not already. One way to prepare for something like this is to find other shareholders who sold out to see how their final payment(s) were treated…and maybe have a conversation with those folks. Maybe they can shed some light on the situation.
 

#6
WEISSEA  
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This link https://www.mystockoptions.com/ may provide a resource for your compensation question.
 

#7
JAD  
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Jeff and Weissea, thanks for the replies. I spoke with someone in Practitioner Priority Service who actually tried to help me (this is in contrast w/ yesterday's person). The problem is that the letter I received - the 96C - is a general letter that apparently usually addresses issues that don't have appeals issues. She acknowledged that my client has a right to appeal but said that I should call the appeals customer service line to find out where to send the appeal since I didn't receive instructions. That # is a VM. We shall see. This whole thing has been so strange. Thanks again for your help.
 

#8
JAD  
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A human called me back. Shocking.

Does anyone know off the top of your head if this is true: if the IRS has not sent a letter with our appeal rights, the clock to file an appeal is not ticking?

I took a class on all of this stuff years ago. I never used any of it, and it is not longer in this CPU.

Thanks.
 

#9
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Not sure what clock you’re talking about. When it comes to a refund claim, the applicable law is Sec 6532. If the IRS won’t give you the time of day, then you’re remedy is to sue them.

What exactly, and specifically, did their letter say?
 

#10
JAD  
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Here is the update on this journey: The IRS denied the taxpayer's 2016 refund claim in a letter dated 3/13/18.

We filed Form 12203, Request for Appeals Review, on 3/18/18. This is a small dollar case appeal.

Tax practitioner hotline confirmed receipt. I also have the FedEx proof of delivery. I asked tax practitioner hotline about the status of this appeal. They told me to call the appeals line at 559-233-1267 and the person at TPH expressed irritation that so much time had passed without us hearing anything. So I called the appeals line. VM says that someone will call back within 24 hours. No one has. I've done this twice.

Here's the question: what is the timing on all of this? As the clock keeps ticking, and the IRS does nothing, is my taxpayer protected from an expiration of the SOL or anything else? How long does this process normally take?

I am nervous about this because I have not gone to appeals before, and I'm not familiar with the details of the process.
 

#11
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As the clock keeps ticking, and the IRS does nothing, is my taxpayer protected from an expiration of the SOL or anything else?


Since the IRS acted on your claim (by rejecting it), you can file suit in District Court at any time. However, you would need to do so within 2-years of the disallowance date [absent an agreed-upon, written extension].

(And FYI, if the IRS hadn’t acted on your claim within 6-months, only once that time-frame passes can you file suit in District Court. Basically, you have to give the IRS 6-months to respond to the claim).

All of this is spelled out in Sec 6532(a)(1), which is the Section I referenced in Post #9.

How long does this process normally take?


A long time.
 

#12
JAD  
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Thanks, Jeff.

Here’s where I’m at: Disallowance claim was received on 3/13/18. Small dollar case appeal was filed on 3/18/18. If taxpayer wants to sue, he has to file by 3/12/20. I’m trying to figure out if there is any recourse if appeals doesn’t respond by 3/12/20, and I think that there is not.

IRM 8.7.7.4 says this:

8.7.7.4 (06-02-2015)
Actions by the Appeals Technical Employee on Claim or Overassessment Cases
1. Upon receipt of a claim or overassessment case, follow the procedures outlined in IRM 8.2.1, Agreed Pre-90-Day Income Tax Cases. The procedures include the following:
A. Ensure a Uniform Acknowledgment Letter (UAL) was sent to the taxpayer and a copy to the authorized representative (if applicable);
B. Review the administrative file contents and determine if the case is ready for Appeals' consideration;
C. Validate all critical data fields on ACDS; and
D. Conduct the conference.
Reminder:
Determine whether the time for filing a refund suit has expired (if yes, sustain the denial - unless a refund suit was timely filed). See IRM 8.7.7.11.2 (5).

So that is it, correct? Taxpayer must file suit if appeals has not responded by the deadline in order to protect his position.
 

#13
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I’m trying to figure out if there is any recourse if appeals doesn’t respond by 3/12/20, and I think that there is not.

Right. We’re asking the government to pay us here (refund claim), not the other way around (asserted deficiency). So, yes, we are relying on the IRS to respond. And they could, in theory, decide not to. It’s all internal at this point. The only way to make it not internal is to invoke the courts. At which point, the IRS will be forced to respond.

If you file suit, it’s a real, bona fide lawsuit against the U.S. Government. This is unlike the Tax Court, which deals with deficiencies. Although we are the “petitioner” in Tax Court cases, that’s only because we can go to the Tax Court without paying the tax first. In reality, it is the IRS suing us in Tax Court, since they’re the ones saying we owe them. Had we paid the tax first and then sued, that would be refund suit, which is what we have in your case and which is outside the jurisdiction of the Tax Court. In any case, since your suit will be a real one against the U.S. Government, if it gets that far, you’ll be dealing with a DOJ attorney.

I’m basically saying the same thing I said in the second sentence of my Post #9…but with a little more background, just so you have a better appreciation for the process.

I am nervous about this because I have not gone to appeals before

The big thing in my mind is the validity of your research…confidence/assurance that your claim is legit and a winner from a technical standpoint. Knowing you, you have dotted your I’s and crossed your T’s and everything is tight and buttoned-up. If that is the case, there is nothing to be nervous about. Just sit back and wait. If this does get to court, you will have a much clearer picture of the government’s position pretty much immediately. But I think Appeals will get back to you.
 

#14
novacpa  
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If memory serves, aren't there 2-Courts in which to file?
Yes, a Federal District Court, also
the "Court of Claims"? (Washington, DC)
 

#15
JAD  
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novacpa, yes that is correct.

Jeff, thanks, that is really helpful.
 


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