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Summary

If you think the IRS has wronged you or taken part in questionable practices concerning your federal taxes, you probably need the help of a tax attorney specializing in federal tax law.

Financial Lawyers can also help you at the start of a business venture to advise you on the corporation, trust or LLC that best fits your business.

While U.S. income tax law is very complex, the underlying idea is relatively easy to understand. Simplifying greatly, gross income is all income from all sources less any exemptions. An exemption is something that Congress has effectively said a taxpayer need not include in his or her income for tax purposes.

The federal government imposes a progressive tax on the taxable income of individuals, partnerships, companies, corporations, trusts, decedents’ estates, and certain bankruptcy estates.

For individuals, Adjusted Gross Income is gross income less any above-the line deductions. Above-the-line deductions include trade or business deductions, alimony, and moving expenses.

Taxable income, what you should be concerned with, is AGI less itemized deductions or the applicable standard deduction, whichever is greater.

If you are unsure about you federal taxes, it is recommended you contact a local tax attorney to know your rights and what possible action to take with a lawsuit.

Who Can Sue

The Internal Revenue Service was once virtually immune from lawsuits, even when it engaged in questionable practices. While this has changed, it is still difficult to sue the IRS. However, if you feel you've been wronged by the department, it is recommended you seek the help from a tax attorney to file suit.

If you feel the IRS has wronged you, there are important things to know regarding federal tax law. The U.S. Tax Court handles most of the litigation and allows taxpayers to litigate their tax disputes without paying the tax liability up front.

One group that can sue the IRS is those who have been caught in the toils of a computer, issuing demands for a payment when, in fact, you are entitled to a refund. You might then find that you have no choice but to sue to avoid paying out money for no reason.

Another group that can sue includes suits against the IRS for those damages resulting from an IRS employee's reckless or intentional disregard of the tax collection procedures. These courts also allow a taxpayer to sue for damages resulting from the IRS's failure to release a lien on property.

You should speak with an experienced tax lawyer if you have any questions regarding the validity of your claim and for advice and representation regarding how to sue the IRS.

Potential Recovery

It was estimated that the IRS wrongfully collected up to $7 billion in penalties it assessed in 1989 but were not owed by taxpayers and this was 20 years ago.

The IRS could be collecting thousands of dollars from you that you in fact do not owe.

In 1993, Rohm & Haas, a chemical manufacturer, sent the IRS a check for $4,448,112 for payroll taxes; the IRS claimed the check was ten cents short and penalized the company more than $46,000.

The company assigned a team of accountants to the dispute, and after five months, the IRS dropped the penalty but without explaining or apologizing for its action. If this had not been taken to court, the company would have lost almost $50,000.

In addition, in 1996, a new Taxpayers Bill of Rights increased the maximum amount of actual damages, which the taxpayer can recover from $100,000 to $1 million.

Recent News About Federal Tax Law
In 1996, Congress revisited the Taxpayer Bill of Rights, originally passed in 1988. The new law, Taxpayer Bill of Rights 2, adds about 40 new procedural rights. Some are technical and have limited applications, while others constitute significant additions to the rights of taxpayers.

Taxpayer Advocate
The Taxpayer Advocate has been renamed and given enhanced powers. The Taxpayer Advocate is an independent representative of taxpayers' interests before the IRS. The duties of the office are to assist individual taxpayers in resolving problems with the IRS; identify areas in which taxpayers commonly have difficulties dealing with the IRS; and propose possible administrative and legislative changes that may mitigate such problems.
The Taxpayer Advocate must make annual reports to Congress containing, among other things, a summary of at least 20 of the most serious problems affecting taxpayers.

Collection Powers
Claims of abusive practices of the IRS often arise from the exercise of its broad collection powers. For example, it is sometimes next to impossible to have a tax lien removed or to have levied property returned for any reason short of full payment of the claimed tax liability.

The 1996 update gives the IRS authority to loosen this grip on taxpayer property for various reasons, including IRS noncompliance with administrative procedures, the execution of an installment payment agreement, or general findings that withdrawing the lien or returning the property would facilitate collection of the tax or would be in the best interests of the taxpayer and the government.

Taxpayer Lawsuits
When taxpayers do resort to suing the IRS for reckless and intentional disregard concerning the collection of taxes, they will carry more ammunition into battle. The 1996 update increased the maximum amount of actual damages, which the taxpayer can recover from $100,000 to $1 million.

Failure to exhaust all possible administrative remedies will now result only in a possible reduction in damages awarded, not the dismissal of the lawsuit.

With these new enhanced powers for taxpayers, if you feel the IRS has wronged you in any way regarding your taxes, contact a local tax attorney to find out your rights and options.


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