IRS Audit

Should You Grant the IRS An Extension for Their Audit?

- Scott Scammahorn

Like everyone else, the IRS has deadlines.  If you file a tax return with potential problems, federal law requires the IRS to bring an audit within a certain time frame.  The IRS can only extend the time frame for specific reasons, including if the taxpayer consents to the extension. As counter-intuitive as it may seem to help out the IRS, there may be good reasons to give the IRS your consent for an extension.  Continue reading for a discussion of when giving the IRS an extension on your audit might actually work in your favor, and contact a dedicated Texas IRS audit attorney with any questions or for help with an IRS tax problem in Dallas or Tyler, Texas.

The audit deadline

Pursuant to the assessment statute, the IRS generally has three years from the later of either the date the return was due or the date the return was actually filed to bring an audit.  If the IRS audits a tax return and determines that there is an additional tax liability, they generally must process the tax assessment within the same time period. In order to extend this time period, the IRS generally must get your consent.

Should you give the IRS more time?

It may seem counterintuitive, but there are good reasons to grant the IRS its requested extension.  First of all, if you say no, the IRS will almost certainly issue a notice assessing extra taxes. They are likely mid-way through your review and, if you force their hand, they will resolve remaining ambiguities in favor of a higher assessment.  By agreeing to an extension, you may be able to limit the scope of the extension to certain issues, or give them a specified time limit (such as an additional year).

Secondly, you might have been caught by surprise that you were being audited at all.  Granting the extension gives you more time to hire a tax adviser and/or an audit representation attorney to help you through the audit process and limit your additional tax liability.  By refusing the IRS an extension, the IRS will likely stop the process and issue a notice of deficiency immediately, limiting your time to go through the normal appeals process and petition a tax court.  Additionally, you may find that there are additional audit issues that are actually in your favor and which may offset a proposed tax assessment or even lead to an overdue refund.

If you are able to get all of the information into the record that supports your tax claims, then you may be better off not agreeing to extend the time limit.  Particularly if you are a larger tax payer and the audit is very complex, you may benefit from limiting the IRS’s time to review your return. As noted, the IRS will likely file a notice of deficiency, with a larger tax assessment, forcing you to file a petition in the tax court to fight the assessment.  You may be able to argue that the IRS’s case was not fully developed, and you may prevent the IRS from discovering additional issues. Some taxpayers may prefer to avoid the publicity associated with a public tax case or the financial impact the delinquency notice may have until it is resolved.

Regardless, if you plan to keep the IRS to its three-year deadline, it is good to notify the IRS of as much at the beginning of the audit.  This will help avoid angering the IRS further and causing them to issue an inflated assessment. A seasoned tax audit representation attorney can help you determine the right course of action during your audit.

If you’re facing a complicated tax issue involving back taxes or allegations of tax fraud, tax evasion, or false returns, get skilled legal help with your case from the Texas tax lawyers at the Scammahorn Law Firm, PC at 903-595-1000, with offices in Dallas and Tyler.

Tea Party Groups Settle Class Action Lawsuit targeting IRS

- Scott Scammahorn

After years of controversy and litigation before a federal judge, the IRS has reached a settlement agreement with a class of non-profit groups associated with the Tea Party movement who were wrongly discriminated against when applying for non-profit status.

The controversy began in 2010. Tea Party groups and other politically-conservative nonprofits had noticed that their applications for non-profit status were being held up by unreasonable delays and requests for additional information by IRS employees. When these delays came to light, the Justice Department, an inspector general from the Treasury Department, and several congressional committees opened investigations into the IRS staffers’ conduct. Ultimately, a number of IRS staff members resigned or retired, including the head of the division that considered tax-exempt status applications, but no criminal charges were brought.

Settlement includes apology from agency


A number of Tea Party groups in both Cincinnati, Ohio and Washington, D.C. banded together to file class action lawsuits based on the discrimination they faced. The Washington D.C.-based lawsuit was resolved without a monetary award, but the Cleveland-based lawsuit appears ready to settle for approximately $3.5 million. The settlement, now awaiting approval by the court, includes an apology from the IRS, which states:

The IRS admits that its treatment of Plaintiffs during the tax‐exempt determinations process, including screening their applications based on their names or policy positions, subjecting those applications to heightened scrutiny and inordinate delays, and demanding of some Plaintiffs information that (the inspector general) determined was unnecessary to the agency’s determination of their tax‐ exempt status, was wrong. For such treatment, the IRS expresses its sincere apology.

The class action lawsuit was spearheaded by the nonprofit Citizens for Self-Governance. Mark Meckler, the president of Citizens for Self-Governance, explained, “This is not a Republican or Democrat thing, no administration should be able to do this, and I don’t only fear Democratic administrations doing this, I fear Republican administrations doing this as well.”


Help with unfair treatment by IRS agents


IRS agents are tasked with making unbiased decisions when executing their responsibilities as federal employees. These individuals wield a great deal of power, capable of demanding high fines, subjecting individuals to audits, or forcing people into court. When contesting a decision made by the IRS, it’s important to have a seasoned Texas tax attorney on your side, prepared to fight on your behalf for a just outcome.

If you are in search of professional, experienced legal help with a tax issue in Texas, contact the skilled tax attorneys at the Tyler offices of Scammahorn Law Firm, P.C. for a consultation on your case, at 903-595-1000.

Outside Collectors Contracted by IRS Accused of Illegal Practices

- Scott Scammahorn

Late last month, a group of United States Senators submitted a letter to Pioneer Tax Recovery, one of four debt collection organizations contracted by the Internal Revenue Service (IRS), accusing the organization of violating the U.S. tax code.

In the letter, lawmakers objected to Pioneer’s “extraordinarily dangerous” practices that encouraged debtors to use 401(k) funds, credit cards and home loans to pay off overdue taxes – some totaling as much as $50,000.

Lawmakers also cited Pioneer’s employment practices, specifically encouraging employees to suggest that tax debtors liquidate assets or borrow money to cover overdue taxes. In scripts submitted to the IRS for approval, Pioneer employees were directed to provide taxpayers ideas on where and how to borrow.

The letter also accused all four of the collection organizations employed by the IRS of offering debtors installment plans that spanned as much as seven years – two years longer than private collectors are allowed to offer under existing law. Under current U.S. tax code, private collectors may not offer installment agreements for a period longer than five years.

How Long Can the IRS Attempt to Collect Unpaid Taxes?

When you are in debt to the IRS, you are not on the hook forever. There is generally a 10-year statute of limitations on all IRS collections, meaning that the IRS can try to collect any unpaid taxes up to 10 years from the date of assessment. After those 10 years are up, barring some important exceptions, the IRS must cease its collection efforts.

However, it’s important to note that, as your Collection Statute Expiration Date nears, the IRS and its collectors may be more aggressive in their pursuit to recover as much of your debt as possible.

Can the Limitations Period Be Extended?

In some cases, the 10-year collection period may wind up lasting longer than 10 years because it is possible to suspend it for a period of time. When a statute of limitations is suspended, it does not count towards that 10-year deadline and the IRS is legally barred from making any attempt to collect.

Some taxpayers may also elect to enter into an installment agreement that allows for partial payment of the debt amount owed to the IRS. In order for this to happen an individual generally has to sign a form that waives the 10-year limitations period. However, this extension may last no longer than six years.

Once the limitations period is nearing its end on an extension, the IRS may offer attractive terms in order to persuade you to agree to to another extension of the deadline.

However it’s important not to act on this without first consulting with a qualified attorney, as it may be better to let the IRS recover whatever debt it can before the limit expires.

Attorneys Specializing in IRS Issues

If you have received a notice from the IRS, it is in your best interest to contact an attorney as soon as possible. For those residing in the communities around Dallas and Tyler, Texas, the legal team at Scammahorn Law Firm is available to help with IRS-related legal issues, including the attempted recovery of outstanding tax debt.

Our attorneys can carefully assess your case and help you determine the best course of legal action. To receive more information on our services, or to schedule an initial consultation with our legal team, contact the Scammahorn Law Firm today at (903) 595-1000.

Federal Court Issues Ruling Against IRS in Class Action Lawsuit Challenging PTINs

- Scott Scammahorn

Every year, thousands of taxpayers in the United States, both individuals and businesses, experience disputes with the Internal Revenue Service (IRS) related to matters such as:

  • Tax penalties
  • Back taxes
  • Employment taxes
  • Unfiled tax returns

Occasionally, these types of matters can grow increasingly complex, requiring careful litigation by a qualified tax attorney. This is especially true in situations where a taxpayer is forced to take legal action against the IRS, like contesting fees or other penalties associated with the filing of tax documents.

Federal Court Ruling Against IRS

A federal judge recently ruled against the IRS in a class-action lawsuit brought by tax preparers that challenged the IRS’ right to charge Preparer Tax Identification Numbers (PTIN). As a result, the IRS may be required to refund the hundreds of millions of dollars in fees that it collected each year the system was utilized.

The decision, which was handed down by the U.S. District Court for the District of Columbia, determined that, while the IRS possesses the authority to utilize PTINs, it lacks the authority to charge individual user fees. The lawsuit had revolved around select regulations that both the IRS and the Treasury Department had issued in 2010 for registering preparers with PTINs.

Four years ago, the same court ruled that IRS regulations that required testing and continuous education of tax preparers had overstepped the organization’s statutory authority. However, it left PTIN requirements for tax preparers in place – a decision that was upheld a year later when appealed.

In response to the recent federal ruling, the IRS has suspended use of the PTIN system, pending further litigation.

Addressing Tax Litigation Issues in Texas

From unpaid taxes to disputing tax-related fees or penalties – as was the case in the aforementioned case – it is important to find an attorney who can work closely with you to solve your tax litigation issues.

Depending on the circumstances surrounding your tax matters, an attorney may recommend several potential courses of action, such as:

  • Filing suit in U.S. Federal Court
  • Installment Agreement
  • Filing suit in U.S. Tax Court
  • Offer in Compromise
  • Penalty Abatement

Finding a Qualified Tax Attorney

If you or someone you know is experiencing a tax issue that requires litigation, the attorneys at the Scammahorn Law Firm, P.C. are prepared to help. Our firm is comprised of only the finest tax attorneys who have the legal acumen and experience necessary when dealing with tax litigation matters. No matter the situation, our firm is committed to working closely with you to achieve a favorable resolution for your case.

To schedule an initial consultation with a member of our legal team to discuss your tax or IRS issue, we invite you to contact the attorneys at the Scammahorn Law Firm P.C. at (903) 595-1000.

Avoiding Criminal Liability When Tax Code Has Been Violated

- Scott Scammahorn

Although the Internal Revenue Service (IRS) estimates that a small fraction of tax crime convictions occur in a given year, the organization also estimates that 17 percent of American taxpayers fail to comply with tax code.

It is mostly individual taxpayers, not corporate entities, that commit some of the most common tax-related offenses, like tax fraud. In fact, IRS estimates reveal that roughly 75 percent of all income tax fraud cases involve individual taxpayers.

Because the United States tax system revolves around the self-assessment of any taxes owed, or “voluntarily compliance”, the IRS uses several practices to discourage violations. This includes assessing fines, seeking prison sentences for offenders, civil taxes and penalties. It also involves the publicizing of criminal indictments related to tax code violations.

Avoiding Tax Code Violations

The tax code is complex set of rules and regulations that can be difficult for most taxpayers to decipher – the IRS understands that. That’s why, when a careless error occurs and there is no evidence of fraud, the IRS will generally assume that it was a simple mistake, rather than an intentional attempt to evade the tax code.

The IRS can also usually distinguish between a simple, negligent error and willful evasion of tax law. Auditors will look for suspicious or fraudulent activity, such as:

  • Falsification of documents
  • Overstatement of exemptions and deductions
  • Transfer or concealment of income
  • Keeping multiple sets of financial ledgers
  • Using false Social Security information
  • Attempting to pass personal expenses off as business expenses
  • Willfully underreporting income
  • Claiming exemptions for non-existent dependents, including children

Although the IRS can usually separate negligent from fraudulent activity, that does not mean that the IRS will not attempt to punish a taxpayer for making a simple mistake. Even if it is unintentional, the IRS may still elect to impose a penalty on the individual – up to 20 percent of the underpayment.

Example of Tax Crime Conviction

In 2015, a Boston court sentenced a man to a year in prison for evading the tax code. The man, who was a business owner and occasional contractor for a family member’s business, was paid by check for any work performed and admitted to using check cashing services, rather than depositing funds in the bank, to avoid any scrutiny by the IRS.

According to the court, the man cashed roughly $3 million in funds using this method. He was also found to be operating his businesses and paying his workers entirely in cash, even requesting that customers not write checks to him for bills exceeding $10,000.

As a result, the man failed to file tax returns for a number of years, eventually gaining the attention of IRS auditors. As is common practice, the IRS publicized this conviction, as it does with other non-filer investigations.

Trusted Tax Attorneys in Texas

If you encountered a tax-related issue, such as failing to file your taxes or intentionally evading the tax code, it is highly recommended that you seek the guidance of a qualified tax attorney as soon as possible.

In Texas, the legal team at the Scammahorn Law Firm, P.C. has secured outstanding results for clients dealing with tax matters, including disputes with the IRS. Our firm advises taxpayers on every facet of the tax code and is prepared to fight the IRS on your behalf. Our goal is to reduce your any criminal liability, wherever possible, and resolve your case through an Installment Agreement or Offer in Compromise.

To set up a preliminary consultation to discuss your tax issue or IRS dispute, contact the skilled attorneys at Scammahorn Law Firm P.C. today at (903) 595-1000.


How to Resolve a Dispute with the IRS

- Scott Scammahorn

Unfortunately, it isn’t unusual to find yourself at odds with the IRS, however there are a number of ways to resolve your tax worries without ending up in court.

Five procedures to avoid litigation with the IRS

  • Fast-track settlement. Allows taxpayers the opportunity to resolve audit issues during the examination process by using the mediation skills of the IRS Appeals Office and precedent case law
  • Fast-track mediation. Again, the taxpayer and the IRS mediate the dispute through an IRS Appeals officer who acts as a neutral party. This type of mediation is designed to expedite the resolution of issues that arise during examination or collection actions
  • Early referral. This process comes under the jurisdiction of both the examination and collection departments of the IRS and it allows the taxpayer the ability to transfer their case to the IRS Appeals Office. Only elements of the case can be transferred, therefore examination and collections personnel will continue to handle the issues that are not referred
  • Post-appeals mediation. In this process, a neutral third party will be selected to mediate between the taxpayer and the IRS. The mediator will have no settlement authority and they do not make the decision, but they will help to facilitate negotiations between the disputing parties. This action can be taken after appeals settlement discussions have failed
  • Arbitration. Similar to the above mediation process, an arbitrator will be selected to facilitate settlement, and all parties are bound to the arbitrator’s decision. Arbitration is only available for certain cases within the IRS Appeals Office’s jurisdiction which meet the requirements of the arbitration program

What If I Can’t Afford Legal Representation?

Another alternative for resolving tax issues without going to court is to use the services of the Taxpayer Advocate Service (TAS). This is an independent organization within the IRS that helps taxpayers resolve federal tax problems. You might be eligible for help from TAS if you’ve tried to resolve your tax problem through normal IRS channels and it still remains unresolved. You should also reach out to TAS if you believe that the IRS procedures aren’t working for your particular circumstance. TAS assists both organizations and individuals that are suffering financial difficulties because of their tax problems, and their services are free.

Low-Income Taxpayer Clinics (LITCs) also represent low-income taxpayers with IRS issues such as audits, appeals, and collection disputes. You might be able to receive free (or nominal charge) assistance from an LITC if you are a low-income taxpayer or if you speak English as a second language.

Remember, that no matter what your situation is you don’t have to be alone when handling an IRS dispute. Here, at the Scammahorn Law Firm, we have been protecting hardworking American taxpayers from threats and penalties issued by the IRS for years. If you have been targeted by the IRS and need advice, we welcome your call today at (903) 595-1000 to discuss your tax situation.

Concerned about Tax Litigation?

- Scott Scammahorn

Everyone dreads the heart-pounding moment when you receive an unwanted notice from the IRS informing you that there has been an issue with your tax return, and it can become unbearable when those issues result in tax litigation. You might be surprised to learn that there is a significant amount of both criminal and civil tax litigation in the US every year.

Which Tax Issues Are Most Commonly Litigated?

Typically, the issues being litigated concern the omission of income or the availability of deductions. In most cases, there is an element of fraud, in that taxes have been intentionally withheld through the use of deception. As taxes can be imposed at each of the US federal, state and local levels, proceedings should be brought in the proper court and therefore the venue for litigation will depend on the type of issue at hand.

Is It a Civil or Criminal Offense?

Title 26 of the United States Code (USC) contains the rules governing federal income tax matters for both civil and criminal tax litigation purposes. Title 28 of the USC contains the statutes governing civil litigation and Title 18 contains the statutes related to criminal matters. There are a number of tax-related criminal offenses within the USC which relate to fraudulent activity such as:

  • The attempt to evade or defeat tax
  • The willful failure to collect or pay tax
  • The willful failure to file a return, supply information, or pay tax
  • Providing fraudulent returns, statements, or other documents

This list is not exhaustive and there are a number of other statutes that allow for the prosecution of tax-related criminal offenses within the US.

What Is My Defense?

If you are currently facing civil or criminal proceedings you may be wondering what defenses are available to you? Typical defenses to tax crimes include:

  • The failure to comply was not willful but due to negligence or error
  • The compliance requirement was not met by a third party, such as an accountant
  • The taxpayer lacked the mental capacity to commit the offense

There can also be rare occasions when the government acted improperly because of the taxpayer’s race or religion, or that the government induced the taxpayer to commit the offense.

Tax litigation, whether civil or criminal, can be both stressful and complex, therefore it is always recommended that you have a skilled and knowledgeable attorney to represent you. If you have been targeted by the IRS and you would like to discuss your options with an experienced attorney we invite you to call the Scammahorn Law Firm today at (903) 595-1000.

Avoid These Top 5 Tax-Filing Mistakes

- Scott Scammahorn

Tax litigation is a term used to describe resolving tax disputes with local, state, federal, and foreign tax authorities. Litigation arises when there is a tax controversy which may involve an individual, a business (both for-profit and not-for-profit), an estate or a trust.

With tax season in the United States in full swing, it is important that businesses and individual’s alike avoid these common mistakes when filing their taxes this year to avoid threats and penalties from the IRS:

1. Mistakes in Math

Making a miscalculation can result in one of the following:

  • The immediate return of your taxes along with a correction notice; or
  • A reduction in your tax refund (or you may end up owing more than you thought)

Tax software can make sure that your math is correct. But before you send any tax forms along, make sure that your initial numbers are correct.

2. Computation Errors

Another common mistake are taxpayers, bookkeepers or accountants making mistakes when determining which tax return entries are taxable income, withholding, or estimated tax payments.

3. Misspelled Names

While the IRS may be all about the numbers, they are also all about the names on your tax form. If you file a return where the tax identification number does not match the taxpayer, the spouse or the child’s name, you will either need to:

a) Refile your tax return; or

b) You will not receive your tax return in a timely manner

If you have changed your surname because of marriage or divorce, alert the Social Security Administration (SSA) as quickly as possible.

4. Choosing the Incorrect Filing Status

Taxpayers have five filing status options. It is important to choose the one that is most suitable for your personal tax situation so that you can maximize your return.

5. Leaving Out Valuable Tax Deductions

If you have given to charitable groups over the past year, you may be able to claim these as valuable tax deductions. From cash given to charity to donating property such as cars and land, you may be able to claim these on your tax form.

When to Contact the Scammahorn Law Firm

Based in the Dallas area, the Scammahorn Law Firm protects hardworking American tax payers from threats and penalties issue by the Internal Revenue Service. We handle a number of federal tax-related issues, including delinquent returns and payments, back taxes and audits.

If you have been targeted by the IRS, we want to hear from you. Call us today at (903) 595-1000 to discuss your tax situation.

IRS Targets Facebook in New Probe over Billion-Dollar Tax Understatement

- Scott Scammahorn

Earlier this month, the Internal Revenue Service (IRS) announced that social media giant Facebook may have grossly underestimated the value of its intellectual property by “billions of dollars” during a transfer to an Irish subsidiary.

Though the lawsuit cites an international transfer, the concern at the heart of the case remains whether or not Facebook understated U.S. income as a result of the transfer, effectively cutting its tax bill.

In recent years, technology giants have utilized complex tax restructuring, prompting government agencies to launch initiatives aimed at rewriting tax rules to avoid inter-group deals that transfer profits into tax havens.

According to the lawsuit, an initial examination by the IRS suggests that the valuation of the transferred assets were understated by some billions of dollars.

However, Facebook has denied any wrongdoing regarding federal tax law, affirming in a statement that the company obeys the laws of any and all countries in which it operates.

When Might the IRS Audit Your Taxes?

No one wants to be notified by the IRS that they are the target of an audit. For many taxpayers, simply hearing the term “IRS audit” is enough to spark anxiety, but the reality is that the risk of an IRS audit is surprisingly low – for most people.

Depending on your gross income, you may face elevated odds of being targeted by the IRS for an audit. For example, for those making anywhere between $100,000 and $200,000 annually, the audit rate is only around one percent. However, once an individual crosses the $500,000 annual threshold, the rate jumps to more than five percent.

Only those accruing more than $5 million or $10 million see a significant risk for tax audit, at nearly 21 percent and 30 percent, respectively. However, there are cases where the audit rate is slightly higher among low-income adults, such as those making less than $25,000, as many of these cases can involve taxpayers fraudulently claiming earned income tax credit.

However, if you are self-employed and file a Schedule C with your tax return, your chances of audit increase signficantly, regardless of income.   That is why it is good practice to operate your business as a corporation.

That’s not to say that it is ever safe to attempt to cheat on your taxes. In fact, the IRS currently uses sophisticated algorithms to identify returns that need to be audited, such as those involving:

  • Extremely large deductions compared to the total income
  • Certain types of deductions, like those related to travel, automobiles or entertainment.
  • Other deductions like casualty losses or any bad debt deductions.
  • Businesses showing losses, especially if they are recurring
  • Out of character deductions

Additionally, the IRS can use technology to match information on returns to employee forms and other documents issued to non-employees, like W-2s or 1099 forms.

Finding an IRS Attorney

If you or someone you know has received notice of an audit by the IRS, or if you are dealing with another IRS-related issue, it is critical that you contact a qualified attorney as soon as possible.

That’s where the skilled attorneys at the Scammahorn Law Firm, P.C. come in. Throughout Dallas, Texas, we work with clients dealing with a variety of federal tax-related issues, including those stemming from IRS audits or disputes. Our attorneys have a wealth of experience with handling federal tax cases, and can provide the sound legal advice you need as you look to protect your future interests.

Let us work with you to find a solution to your IRS issues. To schedule an initial consultation to have your case assessed by one of our highly qualified attorneys, call Scammahorn Law Firm P.C. today at (903) 595-1000.

Top Three “Excuses” Used to Avoid IRS Penalties

- Scott Scammahorn

Going up against the IRS alone is incredibly daunting, but some individuals have been able to obviate penalties and fines by giving some clever – and often truthful – excuses.

The Scammahorn Law Firm has helped build hundreds of strong cases against the IRS which has resulted in penalties reduced or cleared entirely. When we build a case, we make sure that it is strong enough to stand up against harsh and unforgiving scrutiny and questioning.

You may be surprised by which issues may help your penalties be pardoned, such as:

“The Software Made Me Do It”

In an effort to save money, hundreds of thousands of Americans use software programs each tax season to tally up what they owe or what their refund check will be. Though it may sound silly, this defense was attempted by former Treasury Secretary Timothy Geithner a few years back.

After numerous unsuccessful ‘faulty-software’ cases, a patent attorney did successfully blame his tax mistakes on his tax preparation software. While he still had to pay his taxes, all of his penalties were excused because of his tax software.

“I Have A Mental Problem”

Mental issues and substance abuse are also two common issues which are voiced today as a defense to criminal tax charges. IT consultant Andrew Mottershead had filed false tax returns which claims additional business expenses. Although he was facing jail time, he avoided it entirely by stating that his bipolar disorder was to blame for his tax fraud. He also agreed pay all money back.

Mottershead continued to file more false returns. After being prosecuted a second time, Mottershead claimed that he had filed these fraudulent tax returns during manic episodes. The court believed him and spared him a prison sentence, instead handing down a two-year suspended sentence instead.

“My Accountant Made The Mistake – Not Me!”

What may be the most common “excuse” is that the accountant or another tax professional made the error on your return and that you had no knowledge that this had been done. This happens far more often than we realize in this country and it can leave you with harsh financial penalties and even jail time if you are convicted.

The Scammahorn Law Firm believes in protecting the rights of American citizens, and that includes protecting them from being bullied by the IRS. If you are facing a tax issue and do not know where to turn, we invite you to call us at (903) 595-1000 to discuss your situation.