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Jax Tax
Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1377
Experience:  JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
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After being unemployed for some time in Idaho the high technology

Customer Question

After being unemployed for some time in Idaho the high technology taxpayer moved to Colorado in 2003 where he was unable to find employment other than in fast food. In 2004 he was unemployed again. Without early withdrawals from his pension plan from earnings outside of Coloradoo he would have been homeless. Not being a tax expert
(and falling apart emotionally after a string of personal disasters) he failed to include the early withdrawal income on his federal and state online tax returns.

Federal IRS picked up on it in 2006 and a relative paid the federal deficiency plus penalties for both years with two check dated the same day. Later the taxpayer found employment in another state and over an extended period paid the Colorado collection agency the full amount plus penalties for the 2003 Colorado taxes. It is not clear why both years were not included in the Colorado demand. (Or, perhaps they were!) In any case, the collection agency would have known and informed the Department of Revenue the current address in another state from which the payments were made.

When Colorado belatedly went after the 2004 tax deficiency, the notice was mailed to
the old Colorado address and was not forwarded because USPS address changes are
not forwarded after one year. It is not reasonable to require address changes be updated forever.

Now in 2011 a different collection agency contacted the relative and the relative informed the taxpayer without giving the collection agency his new address. He immediately Department of Revenue office for advice. They obviously passed his new address to the collection agency, which sent a formal demand notice to him. So much for confidentiality!

The total effect smells like a Zombie collection. Apparently the statute of limitations is being ignored because no amended return was filed. However, in these instances the Revenue office normally files the return for the taxpayer. This should have been done at the same time for both tax years.

Now in his old age with mandatory retirement looming and being paid far under market for his skills, he has lost everything - pension, home, wife - everything gone.

What is the best way to proceed now?
Submitted: 3 years ago.
Category: Tax
Expert:  CGCPA replied 3 years ago.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

There are several possibilities for you to investigate.

The first is an Offer In Compromise (OIC). Due to the circumstances the state may be willing to accept far less than they now claim is due. Here is a link to the Colorado Department of Revenue's web page addressing this option.

https://revenuestateco.custhelp.com/cgi-bin/revenuestateco.cfg/php/enduser/std_adp.php?p_fa qid=912&p_created=1064414402&p_sid=-kiLY4Dk&p_accessibility=0&p_redirect=&p_lva=&p_sp=cF9zcmNoPTEmcF9zb3J0X2J5PSZwX2dyaWRzb3J0PSZwX3Jvd19jbnQ9MTUsMTUmcF9wcm9kcz0mcF9jYXRzPTAmcF9wdj0mcF9jdj0mcF9wYWdlPTEmcF9zZWFyY2hfdGV4dD1PZmZlciBJbiBDb21wcm9taXNl&p_li=&p_topview=1

Another point to consider is that if the taxpayer is living only on Social Security, it cannot be attached, garnished, or taken. If that is the case, he could simply ignore the matter and, at his death, it will cease to exist.

Another option is to work out a payment arrangement. The state will be willing to work with this under the circumstances but it will end up far more costly than the OIC.

Unfortunately, bankruptcy does not eliminate all tax debts and, if this is a choice, the taxpayer will need to seek the assistance of a bankruptcy attorney.

Customer: replied 3 years ago.

With the full expectation that you would not have responded unless you were quite familiar with Colorado tax law and that you would provide expert knowledge of information that was not readily available from open sources on the Net --->

 

You have not told me what I didn't already know. I have studied options from dozens of links comparable to the one you provided. From what I have learned from extensive reading on the Net, Colorado does not allow OIC unless it has already been applied at the federal IRS level.

 

http://www.colorado.gov/cs/Satellite/Revenue/REVX/1230899222568

 

Also, you did not address what effect the failure of Colorado to pick up on the case much earlier and failure to send notices to the correct address had on the statute of limitations.

 


http://www.colorado.gov/cs/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1251599350348&ssbinary=true

 

"Late payment of tax"

 

"The federal statute of limitations may be extended beyond the usual
three year time frame when a payment of income tax is made after the
due date. The federal statute of limitations is two years from the
date of the payment of tax if this date is after the three-year
statute of limitations date. Colorado extends the statute of
limitations to three years from the date of last payment (the federal
two-year time frame plus one year)."

 

As for the payment plan option, that has already been offered by the collection agency.

 

Another point to consider is that the taxpayer no longer lives in Colorado.

Customer: replied 3 years ago.
Relist: Incomplete answer.
Although I asked for further details about a disputed Statute of Limitations and patiently waited several days for clarification, the "expert" did not reply. Now the question appears to be closed without resolution. I did not close it. Who did?

It is apparent that this "expert" has only provided a generic response to just pay the tax and false penalties without even looking into the facts about the false extension of the Statute of Limitations in Colorado. Apparently he is licensed in New York and has no background on Colorado tax law or procedures.

Quite some time before asking the question I already did much research and have many links that go into much more depth than he provided.
Expert:  Jax Tax replied 3 years ago.
The question and subsequent answers are not.clear. Did you ever file a.state.return or did the state fully file.for.you. Did you live in CO in the year they say you owe? What.tax years are in question? When did you file.if ever? When did the state.file?
As for.the address, you would have to change it with the statw not.just USPS.
Customer: replied 3 years ago.

I did not file a return because I never lived in Colorado.

 

The relative was unable to find technical employment during a brief residence in Colorado. Federal and state tax returns were filed for 2003 and 2004, but they failed to include early withdrawal income from the pension plan. All of the income that created the pension plan was earned outside of Colorado, some international. A stressed out taxpayer cannot be expected to know the fine points of state tax law shortly after arrival. In any case, payment of the tax at the time would have forced a homeless situation.

 

As mentioned in the original question above, I paid the federal tax and penalties for the unemployed relative for both tax years, with two checks made out on the same date. When the state picked up on it and billed later, the taxpayer paid the state tax and penalties to a collection agency in installments for what was assumed to be both tax years. In fact, that collection agency told the taxpayer that the debt was "all settled".

 

Now, it appears that the state claims that tax year 2004 was not included in the collection. That makes no sense, because the federal IRS should have passed on the information for both tax years at the same time.

 

Not only that, but the state claims to have mailed the 2004 delinquency notice to an old Colorado address after the taxpayer had moved out of state. Delivery would have failed because the post office doesn not forward mail after one year from the last change of address. That claimed failure to deliver the notice triggered penalties, interest, and collection agency fees that doubled the original amount.

 

Again, that makes no sense, because the state would have had the current address from the original collection agency. Such agencies operate "in behalf of" the state, so if the tax records were not updated, that is not the fault of the taxpayer.

 

From the taxpayer point of view, personal records were not retained after the expected statute of limitations date and several personal relocations. Old banks have responded to requests for record copies by saying the old records have been purged. Federal ans state tax return copies have not been provided as requested. The taxpayer has proof of filing, but without any supporting income or tax data.

 

The entire matter smells like a Zombie collection attempt to bring the case forward in time. The amount of money involved is trivial in comparison to other, flagrant cases.

 

Expert:  Jax Tax replied 3 years ago.
If he did not live in CO in 2003 and 2004, he does.not owe.them money. The only reason they would think this is if the Federal return was prepared with a CO address. They assume a state return should have been filed. He needs to simply tell the state he did not live there in those years and supply proof that the correct state return was filed.
Customer: replied 3 years ago.

Where did I say the taxpayer did not live in Colorado during 2003 and 2004 ?

 

The taxpayer move out of state later, but before the collectionn attempts.

Expert:  Jax Tax replied 3 years ago.
He was either living in colorado when the withdrawals were taken or not. Of not, he.does not owe. If he did, he does owe. All the information on timing and the IRS does not mean anything. There is no statute of limitations on anything if he did not file the State.returns.
Customer: replied 3 years ago.

The taxpayer lived in Colorado during the early withdrawals. Can we get off that kick?

 

All of the collection activity took place later, AFTER the taxpayer had moved out of state.

Expert:  Jax Tax replied 3 years ago.
Then the money is owed. The state is.under no obligation to send debts to collection agencies for all uears at the same time. The 2004 was not.included. The amount is.due.
Customer: replied 3 years ago.

Note there is a fine point distinction in Colorado law between the ORIGINAL statute of limitations and the EXTENDED statute of limitations. The following link to a FYI office policy guide might be the key to an appeal. A curious sidelight is that the document is on the Department of Revenue website, but there is a disclaimer stating that it had not been officially approved by the Executive Director! One can only speculate "why".

The FYI guide defines how the statute of limitations is EXTENDED beyond the original period. A "Late payment of tax" section appears to set the extension - at first glance - solely on the basis of the federal activity, plus one year. That makes sense, because one year would allow enough time for IRS to report back to Colorado that the federal claim had been resolved.

A subsequent "Colorado waivers" section goes into more detail to describe various procedural violations by the taxpayer that would force the extension. The blurb for one of those violations explicitly states that the Colorado Department of Revenue MUST be notified within 30 days after the federal case is settled.
======================================================================

http://www.colorado.gov/cs/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1251599350348&ssbinary=true

"Late payment of tax"

"The federal statute of limitations may be extended beyond the usual three year time frame when a payment of income tax is made after the due date. The federal statute of limitations is two years from the date of the payment of tax if this date is after the three-year statute of limitations date. Colorado extends the statute of limitations to three years from the date of last payment (the federal two-year time frame plus one year)."

"Colorado waivers"

"The Colorado statute of limitations can be extended beyond the federal statute of limitations plus one year in the following situations:"

". When the taxpayer fails to notify the executive director in writing within 30 days of any final determination from the federal IRS. [§39-22-601(6)(c), C.R.S.]"

======================================================================

 

According to the referenced Colorado law, the EXTENDED statue of limitations has nothing to do with filing or non-filing of state tax returns. Instead, it dates from the time of last federal activity. But, it does not run forever. It runs for, at most, three years.

 

In any case, the collection attempts would have been as a result of the state filing as a PROXY for the taxpayer. If both tax years were included in the original claim, the EXTENDED statute of limitations would have run until more recently, but it would now be moot, because the debt would be paid.

 

If they were separate, then state law clearly states that the EXTENDED statute of limItations starts with the last federal activity. That was in 2006. It would have run to 2009. Apparently that was when the undelivered notice was mailed. At that point the state should have had an address from the original collection agency, but did not.

 

So, it appears, as a minimum, that the taxpayer is not responsible for the penalties, interest, and collection fees (commission, of course).

 

Zombies, anybody?

 

Expert:  Jax Tax replied 3 years ago.
Forget the statute of limitations. There is none when income is.just not reported as it could be.considered fraud (no statute) or substantial understatememt which more than doubles this time. Also, this is a audit statute not a.collections statute. What you quote which contains an additional 2 years if payment is made is a.statute.of.limitations regarding.refunds which.has.nothing to do with the.situation. You are confusing.yourself.by reading incorrect law.So the starting point you are using is not the correct one.
Customer: replied 3 years ago.

You wrote:

 

"Also, this is a audit statute not a.collections statute. What you quote which contains an additional 2 years if payment is made is a.statute.of.limitations regarding.refunds which.has.nothing to do with the.situation."

 

================================================================

 

The FYI document that I quoted reads:

 

"GENERAL INFORMATION"

"The statute of limitations defines the time period during which a refund claim may be filed, an assessment may be initiated, or a COLLECTION activity may occur. The statute of limitations varies by tax type. The income tax and wage withholding statute of limitations are primarily based on the federal statute of limitations while the statute of limitations for other taxes are defined solely in Colorado law."

 

================================================================

 

Zombie "experts", anyone?

Expert:  Jax Tax replied 3 years ago.
You are missing a huge point. The income was not reported. This is either a substaintial under statememt or fruad. Both of which are beyond all statutes you list. IRS general statute on collections is 10 years.
If you question is whether the state.is in the right trying to collect the tax, they are. It is that simple and I am done discussing this.
Customer: replied 3 years ago.

Thank you for your time. Our conversation was most interesting.

 

===============================================================

 

Perhaps an expert on COLORADO tax court case history might wish to take a look at this. Do note that the federal IRS issue was resolved several years ago and there was no fraud or deliberate concealment of earnings - only a lack of knowledge of state tax law at a very grim personal time when returns were filed.

 

 

Expert:  Jax Tax replied 3 years ago.
I want to clarify some things. 1. There is no statute of limitations for the IRS.or.the State to prepare returns that.have not been filed. Second, the statute of limitarions on collectioms for.the IRS.is 10 years. Longer for.the state. So I.do not understand your statememt that they were collecting belatedly. Third, changing your address with the USPS and.the.collection agency does.not change your address of record with the IRS or.the State. No one is.going to tell you what you want to hear. The.money is owed.
To the question, what should be.done. Taxes are.dischargable.in bankruptcy. Do that or call them and.set.up a.payment. If he makes less than $40k a.year and does not have equity outside his.primary residence, the $2k to $3k for the attorney fee will be all he.pays. He may be able.to get free.legal help by calling the.local low income legal clinic in the city.
Customer: replied 3 years ago.

All taxes at the federal level have been paid for the two tax years - 2003 and 2004, so there is no reason to continue bringing up federal IRS law.

 

The original collection agency was acting as an agent of the state. Therefore, the state would have access to the correct mailing address. That address sharing would come under a law regarding the roles of an agent, and the responsibility of the employer of the agent to monitor that agent's activities. I am quite familiar with that duality because I was involved in such an arrangement at one time.

 

PRINCIPALS AND AGENTS DEFINED:

 

http://legal-dictionary.thefreedictionary.com/agency

 

COLORADO LAW READS:

 

"24-2-108. Departments to share information and mailings."

"For the convenience of the citizens of this state and to promote economy in state government, it is the intent of the general assembly that all principal departments, when feasible and not contrary to federal or state law, shall share as much information as possible and, when reasonably feasible to do so, shall coordinate forms, both federal and state, and shall eliminate multiple mailings to addressees."

Expert:  Jax Tax replied 3 years ago.
That is like saying the pizza delivery man is my agent because he.is deliverying my pizza. A collection agency is not an agent. They are a service and.a.business. Not all.business.relationships create agency. Certainly not a.creditor hiring a.collection agency to do a job. This.is not agency.
Expert:  Jax Tax replied 3 years ago.
False, Fraudulent or No Return Filed
When a taxpayer fails to file an income tax
return or files a false or fraudulent return
with intent to evade the tax, the tax may be
assessed and collected at any time. [§39-21-
107(4), C.R.S.]


The statute of limitations for collecting an
income tax (or wage withholding) balance
due is six years from the date of the final
determination or assessment. [§39-21-107(2),
C.R.S.]
Customer: replied 3 years ago.

From the dictionary link about agency that is posted above:

 

"A consensual relationship created by contract or by law where one party, the principal, grants authority for another party, the agent, to act on behalf of and under the control of the principal to deal with a third party. An agency relationship is fiduciary in nature, and the actions and words of an agent exchanged with a third party bind the principal."

 

In the second line note the words --- ON BEHALF OF

 

Doesn't sound like the pizza delivery man to me.

================================================================

As an aside, here is a most interesting link FYI...

http://usgovinfo.about.com/od/incometaxandtheirs/a/Is-Your-Information-Safe-With-The-IRS.htm

 

================================================================

Expert:  Jax Tax replied 3 years ago.
It is not agency. They were hired to collect a debt not to act on behalf on the State. They have no power to do anything but collect the tax. They do not act under the control of the state. They do not have to follow state procedures and there is no state oversight. It is not agency. Regardless, he now knows of the debt and it must be addressed.
Customer: replied 3 years ago.

Direct quote from their website:

 

"These collection agencies are authorized to contact taxpayers on behalf of the Department of Revenue."

 

Unless you have seen the contract, you don't know what the terms are. It would vary from state to state and within any one state it would vary from agency to agency.

Expert:  Jax Tax replied 3 years ago.
Authorized and acting on behalf of are different things. You can authorize someone to go to your house and feed you dog. This does not mean they are now your agent operating under your control and direction. Also, agency requires intent. I can assured you that the state has not created an agency relationship. Doing so would have no benefit to them only make them liable for the actions of the collector. In fact, I can assure you that just the opposite is contained in the contract indemnifying the state from any liability of the collector and likely specifically stating that agency was not created. You can use a freedom of information equivalent to request a copy of the contract if you like, but regardless of the language, the tax is still owed.
Expert:  Jax Tax replied 3 years ago.
Even if there was an agency relationship created, the responsibilities and duties are defined by contract. Assuming to collect tax, why would there be an obligation to report changes in address or anything else. The website state to collect tax. I don't see where it says receive change of address information. Can you file tax returns with the collection agency? Why don't you give that a shot and see what happens. The relationship is defined by contract, simple to collect tax, not to perform or receive any other information, payment, or tax filing on behalf of the state.
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