When the Internal Revenue Service sends you a Notice of Deficiency, there may be multiple years at issue.
For example, Portfolio Recovery Associates Inc., a debt collection company, recently announced it had reached a settlement agreement with the IRS over Notices of Deficiency from 2005-2012. The IRS claimed that the company owed $192.6 million from those tax years.
Negotiating a settlement in your tax controversy is often a smart strategy
Notably, the parties reached the settlement just one month before the trial was scheduled to begin. Like many other types of cases, tax controversies often settle before going to trial. The outcome of a trial is never guaranteed, especially where juries are concerned. For that reason, many parties are more comfortable negotiating a certain outcome, instead of playing the odds. The procedure is the same: The Court must approve any settlement before it becomes final.
Even innocent tax mistakes may result in tax controversies
In this case, the discrepancy in back taxes resulted from the company’s cost recovery accounting method. According to a spokesperson, the company’s practice of buying risky assets necessitated that method, as a safeguard for covering the costs on any deal before reporting the resulting taxable income. However, the IRS disagreed, stating in the deficiency notices that the accounting method was inappropriate for the company’s operations.
If you have received a Notice of Deficiency, it is important to consult with a tax attorney who understands both the procedural and substantive issues of an IRS tax controversy. An attorney with that experience can evaluate your case, advise you of your options, and pursue a favorable outcome through negotiation or preparing for trial.
Source: InsideArm, “PRA Group Announces Settlement with IRS,” Tim Bauer, May 16, 2017