The federal income tax system is administered by the Internal Revenue Service (IRS), which is part of the Treasury Department. The IRS is governed by Title 26 of the United States Code, also known as the Internal Revenue Code (IRC), as well as by the related title of the Code of Federal Regulations. The IRS also promulgates the Internal Revenue Manual (IRM), which is a guide for IRS agents and employees. Throughout this chapter, citations to “I.R.C.” are to the Internal Revenue Code; citations to “I.R.M.” are to the Internal Revenue Manual1 . Citations to the “I.R.B.” are to the Internal Revenue Bulletin, which is the authoritative source for recent rulings and procedures of the IRS, recent Treasury Decisions, Executive Orders, and notable tax cases. These sources, and nearly all forms, returns, and instructions needed to help your clients can be obtained at the official IRS website, www.irs.gov.

The IRS will process tax returns, conduct audits, calculate liability, send notices, and try to collect unpaid tax liability. At many junctures, you can appeal IRS actions or proposed actions, and the appeal will eventually go to the IRS Appeals Division. The Appeals Division is part of the IRS but maintains a strict firewall between itself and the rest of the agency; the Division does discuss cases with the regular IRS agents. The IRS also has a Taxpayer Advocate who is charged with helping taxpayers and advocating on their behalf; the Advocate also manages Taxpayer Assistance Centers around the country. The taxpayer can appeal final decisions of the IRS to the United States Tax Court, which is based in Washington, D.C. The judges of the Tax Court travel the country to hold trials. In Louisiana, the Tax Court holds trials in Shreveport and New Orleans. The IRS is represented in Tax Court by attorneys from the IRS Office of Chief Counsel, which has field offices around the country. Refund lawsuits, in which the contested tax is paid but then a refund is requested by petition, are filed in the local federal district court. In these cases, the IRS is defended by Justice Department attorneys.

In addition to the Taxpayer Advocate, other organizations can help low-income taxpayers. The Volunteer Income Tax Assistance (VITA) program has trained volunteers who help low-income taxpayers prepare their annual tax returns for free. VITA programs are often associated with non-profit agencies or higher education institutions, and local programs can be found online. In addition, most states have at least one Low-Income Taxpayer Clinic (LITC), which is a legal clinic where attorneys provide free legal services for low-income taxpayers. The LITC program is funded by the IRS, but the clinics are independent.2

• 1The IRS regularly revises and reorganizes the Internal Revenue Manual, which IRS staff generally follow in processing taxpayer cases. IRM citations may have changed since the revision of this Chapter. The Internal Revenue Manual can be found using the search function at www.irs.gov.
• 2In Louisiana, a federal tax controversy with the IRS may be referred to the Low-Income Taxpayer Clinic (LITC) at Southeast Louisiana Legal Services. This LITC serves clients anywhere in the state of Louisiana. For more information, see Se. La. Legal Servs., http://www.slls.org.

Many low-income taxpayers do not fully understand the status of their tax liabilities or the notices and demands issued by the IRS. Overwhelmed clients may ignore or throw away IRS notices or may not receive them if they have recently moved or suffer from housing instability. Even if they are aware that they have tax issues, they may not be able to give the attorney much information about the issue. The attorney’s goal is to figure out what the taxpayer faces, any potential deadlines, and the taxpayer’s options. The attorney should request any IRS notices the client has and copies of any federal tax returns for the years in question. If the client does not have these documents, the attorney will have to obtain the needed information from other sources, usually from the IRS itself.

A tax attorney’s first task is to determine whether the client has any imminent legal deadlines. The quickest way to find out this information is by reviewing recent IRS notices received by the client. IRS notices are famously opaque and difficult to read, and a client may not understand what they say. You should ask the client for all and any IRS notices in the client’s possession. Each IRS notice can be identified by its CP number. This number should be in the upper right of the first page of the notice. You can find information on how to understand and respond to many IRS notices at “Understanding Your IRS Notice or Letter”.1 Most notices will apply to only at one tax year, which is also listed in the upper right of the first page.

Common IRS notices are:

• Notice of Proposed Changes to Tax Return, CP-2000 Notice (30 days to reply)
• Penalty and Interest Notices on Liability Already Assessed (30 days to reply)
• Notice of Examination or Audit Notice

These deadlines can generally be extended. Call the IRS for an extension to reply to a CP-2000 notice. (IRS phone numbers may be staffed until about 8 p.m. on weekdays). 

Other notices that have deadlines to appeal or file suit should be strictly complied with. These include:

• Examination Report, Form 4549 or 886-A (30 days to reply or appeal)
• The 30-day letter notifying taxpayer of the right to appeal (30 days to appeal by protest letter)2
• Notice of Tax Deficiency or “the 90-day letter” (deadline to file petition in the Tax Court given in the Notice)
• Notice of Determination on Collection Due Process Appeal (30 days to file petition with Tax Court)
• Notice and Demand for Payment, CP-14
• Notice of Federal Tax Lien (30 days to appeal by Form 12153)
• Final Notice Before Levy on Social Security Benefits, CP-91/298 (30 days to reply)
• Final Notice of Intent to Levy, CP-90/CP-297 (30 days to appeal by Form 12153; if bank account levy, 21 days before bank remits funds to IRS)
• Notice of Seizure (10 days to appeal by Form 9423; about 60 days to sale)
• Denial of Installment Agreement (30 days to appeal by Form 9423)
• Termination of Installment Agreement, CP-523 (30 days to appeal by Form 9423)

• 1Understanding Your IRS Notice or Letter, Internal Revenue Serv., (last updated Dec. 1, 2022).
• 2Note that a taxpayer should not sign the Form 870 included with these notices since it will waive right to petition the Tax Court.

Some taxpayers may come to you with copies of tax returns, a Form W-2, or a Form 1099. A Form W-2 reports the wages paid and the taxes withheld for an employee in a certain year. A wage employer should automatically deduct Social Security and Medicare taxes from each paycheck (i.e., FICA). Federal income tax can also be deducted at the discretion of the employee. Many wage workers incur tax liability because they do not have the proper amount of income tax withheld from their paychecks. 

Form 1099 reports income other than employee wages and comes in various types identified by the letters following the 1099. For example, a Form 1099-C reports debts that have been cancelled by a creditor. A Form 1099-MISC is generally issued by employers for contractor compensation or by lenders or other creditors who have cancelled a taxpayer’s debt. A Form 1099 may also be issued by an opposing party in personal-injury litigation for the portion of a settlement that may be taxable income, e.g., lost wages or attorney fees.

If the Form 1099 is from an employer, there may be an issue as to whether the client has been properly classified as a contractor instead of an employee.1 A taxpayer who truly is a contractor is responsible paying the Social Security and Medicare taxes that are automatically deducted from an employee’s wages. The taxpayer is also responsible for paying estimated taxes every quarter to cover the income tax that is usually deducted from an employee’s paycheck.

If the Form 1099 is from a lender or creditor, the issue will be whether the debt cancellation can be excluded from the taxpayer’s income. Normally, cancelled debt is considered income in the year of cancellation and must be reported on the tax return. Failure to report Form 1099 income usually leads to an audit in which the taxpayer must justify why the debt cancellation is not income.

• 1For a more complete discussion of misclassification, see Section 17 of this chapter and Section 3 of the chapter on Employment Law.

If your client does not have any IRS notices to show you, you will have to obtain information directly from the IRS. At the beginning of the representation, you should have the client sign a Form 2848, which is a power-of-attorney agreement that allows a lawyer to receive information from the IRS by phone, fax, or mail, and to discuss the case with IRS employees. The client must sign and date the form, which must be submitted to the IRS within 45 days of that date or it will be rejected. 

The attorney should list any possible issues that may arise in the case (e.g., 1040 returns, identity theft, innocent spouse relief) and also any possible years. A good practice tip is to request authorization to review information for at least the past 15 years because it is possible for the client to have liability in that timeframe that has not expired. Attorneys in Louisiana would fax the Form 2848 to the IRS Memphis office at (855) 214-7519. Once the attorney faxes a Form 2848 to the IRS, the attorney will be given a CAF (Centralized Authorization Files) number. This will be the attorney’s identifying number with the IRS and will be requested on all telephone calls and communications. Once the Form 2848 is processed, the attorney will be able to call the IRS to obtain detailed information about the client’s issues.

An attorney who will be doing tax work on a regular basis should obtain authorization to access the IRS database called “E-services.” This database can provide the attorney with detailed transcripts for each tax year. E-services is also used to electronically file tax returns, but an attorney can ask for authorization to review transcripts only.

A few tips for more effective communications with IRS employees:

• Keep copies of any documents sent to the IRS.
• Reference or include the IRS notice or letter to which you are responding.
• Write the client’s Social Security Number on each submitted document.
• Only use certified mail when necessary to protect a deadline, e.g., amended return, an election, or where there would be an adverse action if no the taxpayer does not respond.
• Generally, limit contents of a mailed submission to one tax year (e.g., if mailing three separate tax returns, use three different envelopes). 
• When citing “law” to IRS employees, it is more effective to cite to the Internal Revenue Manual (“I.R.M.”) or IRS Publications than to case law.

Significant rights can be lost if certain deadlines in IRS notices are not met. You should identify all critical deadlines that affect taxpayer rights for IRS appeal, judicial review, or avoidance of collection action.