You’ve crunched all the numbers, followed all the steps, and answered all the questions. Your taxes are complete and it’s time to wait for your refund!
If you filed on paper, you’re checking the mailbox every day for a letter. If you filed electronically, you’re clicking “refresh” every few hours to check the status of your return. When a notice does arrive, you open it immediately.
Eager with anticipation, you might be surprised to find that instead of a refund check, you’ve received a different type of correspondence. It’s an IRS Topic 151 notice, and it’s addressed to you.
What does this notice mean and how should you proceed? Today, we’re sharing all about Tax Topic 151 and explaining the next steps you need to follow.
What Is IRS Topic 151?
Before we dive into how to exercise your appeal rights, let’s answer a basic question: What is IRS Tax Topic 151 and what does it mean?
In short, this is a notice that you may receive in the mail. The language on the notice is urgent in tone and requires you to take action as soon as possible.
There are two reasons why you might receive an IRS letter addressing Section 151. These include:
- The IRS is reducing the amount of your tax return
- The IRS is withholding your tax return in its entirety
In either case, the IRS is holding your money back because the agency believes that you owe funds toward a particular account. It’s using the money you would have received on your tax return to help pay down or eliminate those debts.
Why Did I Receive This Notice?
By definition, this practice is called a tax return offset. The IRS can enact it for a number of different reasons. You might receive an IRS Topic 151 notice if any of these conditions apply to you:
- You have unpaid taxes
- You haven’t paid all of your child support payments
- You took out federal student loans and defaulted on the payments
To help cover the costs of these unpaid amounts, the IRS will deduct the payments you owe from your tax refund. As such, you may notice that the amount on your refund check is lower than you expected. Or, you might discover that the debt was equal to or larger than your refund, and you will not receive any money from the IRS at all.
Understanding the Two IRS Letters
The first Tax Topic 151 letter you will receive is simply a courtesy notification. The IRS is letting you know that it is reviewing your tax return and that your refund might be affected due to outstanding debts that you owe.
In around four weeks, you should receive a follow-up letter from the IRS. This is called a Notice of Intent to Offset. In this notification, the agency will list all of the documentation and information it needs from you to finish processing your return. It will also update you on the status of your Tax Topic 151 consideration.
In the second letter, you’ll learn whether the IRS has decided to continue pursuing this classification, or if it’s decided to drop it after investigating your tax account more closely.
If the IRS decides to continue with the classification, you’ll get a more detailed explanation that clearly outlines why it’s made this decision. You’ll also learn the precise action that the IRS plans to take against your account. Often, it’s already taken those actions by the time the letter reaches your mailbox.
Finally, the second letter will also define the options that you can choose to take in response to the letter. This will include verbiage that explains:
- The full extent of your appeal rights
- How to file an appeal against the IRS
- How to set up a meeting with a dedicated Appeals Officer or Settlement Officer
Paying Off Your Tax Debts
If you want to avoid the Notice of Intent to Offset altogether, it’s important to take action immediately. The easiest, quickest, and most effective way to do so is by paying off all of your tax-related debts. In addition to the baseline amount you owe, you’ll also need to pay off any interest or penalties you accrued over the non-payment period.
This may sound like a simple action, but in reality, it can be more difficult than it seems. You may need to enlist the help of a debt counselor or a financial advisor. Outstanding debts can snowball and become unmanageable over time, and paying them back in full isn’t always possible.
What If I Disagree With It?
You may receive the letter, read through the details, and understand why the IRS is taking this action. Or, you might decide that you disagree with some or all of the points.
In that case, you are within your rights to appeal the notice.
Before you take action, it’s wise to contact a team of experienced tax attorneys. These legal professionals will understand how to appeal to the IRS and can help you navigate these next steps. It’s important to gather the right information, complete the correct forms, and work with the right people to maximize your opportunity for a successful appeal.
Once you’ve decided that you are going to appeal the IRS Topic 151 letter, the best and most economical way to do so is to contact the IRS directly. The agency has established a straightforward, informal administrative process that allows you to work through your appeal without pursuing a costly and time-consuming trial. In many cases, this process is enough to help you settle your dispute out of court.
Appeal Option 1: Contacting the Independent Office of Appeals
The Independent Office of Appeals is an independent organization that operates within the IRS. It is in place to help taxpayers resolve their tax disputes without litigation. The goal of the Appeals Office is to be fair and impartial, to both the U.S. government and to you.
If you have any sort of dispute with the IRS or believe the agency is taking an unjust action against you, it’s smart to go directly to this office. In fact, it’s the only office you can contact if you disagree with a decision that the IRS has made. The benefits of working with the Independent Office of Appeals include:
- You don’t have to pursue litigation
- The process is informal
- The process is inexpensive
Representatives there are trained to take your perspective into consideration, as well as that of the IRS. They will listen to your dispute, collaborate to review the issue at hand, and then deliver a final judgment.
Contacting Your Appeals Office
Your first step is to contact your local Appeals Office.
Usually, the staff will advise you to file a formal, written protest in response to the IRS notice that you received. When you do so, you can request an appeals conference to share details about your case. The IRS will list the contact information for your local Appeals office in your initial letter.
Completing Your Written Protest
If you’re required to submit a written protest, the IRS will explain how long you have to do so. Usually, you have 30 days from the date of the letter to send your protest. When you file the written protest, you will need to include the following information:
- Your full contact information (name, address, phone number)
- A copy of the IRS letter detailing the Section 151 classification you’re protesting
- A statement that you intend to appeal the IRS’ claim to the Appeals Office
- A statement detailing the tax periods/years that apply to your appeal
- A detailed list of the IRS declarations you disagree with, and an explanation of why you disagree
- Evidence that backs up your stance
If you reference any specific IRS tax laws in your written protest, you will also need to list those laws in the document. When everything is compiled and complete, sign and date the letter. Then, mail it to your listed Appeals office by the deadline listed.
Opening a Small Case Request
Depending on the situation, your Appeals Office may require you to open a Small Case Request instead of a formal written protest. The step you’ll take depends on how much you owe.
If the total amount due for any tax period is less than $25,000, then you can go this route. The first letter you receive from the IRS should explain if you qualify for a Small Case Request, and how to proceed.
Most of the time, the only thing you’ll need to do is complete IRS Form 12203: Request For Appeals Review. On that form, you’ll list the reasons you disagree with the IRS’ decision, and why.
Preparing for Your Appeals Conference
Before it can reach a judgment decision, the office will need to understand all of the details surrounding your case. You can share everything during an official appeals conference. At this time, you will need to bring in all of the records, forms, and documentation related to your tax account.
Once the Appeals Office receives your request, a representative will contact you to set up a time and place for the conference. Note that while most of these conferences are held in person, you may be able to arrange a telephone conference or written review depending on your circumstance.
Make sure you have everything ready and in order, as the office will use these papers to understand your position. This can be a time-consuming task, but it’s a critical one. When you attend the meeting, be sure to have your tax attorney, certified public accountant, or another legal expert with you.
This person will need to be authorized to practice before the IRS, so make sure to vet their credentials before partnering with them. They can help you explain the details of your case and argue against the IRS Code 151 declaration.
If your conference goes successfully, you may be able to get a portion of your original tax refund back. In some cases, the Independent Office of Appeals may even decide to reverse the Section 151 action in its entirety after listening to your case. Or, it may decide to pursue a third option: an IRS installment agreement.
While you might not be able to make any more money through a payment plan, it does give you the benefit of time and flexibility. Instead of paying your full tax debt up-front, this plan will enable you to make routine payments toward the amount.
Appeal Option 2: File a Case in Court
An appeals conference can take a while to complete, but it’s usually the most direct and effective way to dispute a Section 151 classification. However, some taxpayers may choose to expedite the process and take their case straight to court.
There are a few reasons why you may go this route. You might want to skip the conference step altogether. Or, you might fail to reach a satisfactory agreement at your appeals conference.
When you file an appeal with the court system, you can expect a more formal and expensive process. While you can represent yourself, it’s best to hire a lawyer to represent you.
You should work with qualified tax attorneys who are experienced in tax court litigation and defense services. These professionals are used to handling cases like yours and can advise you on how to proceed.
Navigating the Different Court Systems
There are three different court systems you may work with if you file a case against the IRS. These include:
- U.S. Tax Court
- The U.S. Court of Federal Claims
- The U.S. District Court
The U.S. Tax Court is most often used to settle disputes between taxpayers and the IRS.
The only way you can make a case in this court is if you’ve received an official notice from the IRS stating that you owe the government money. This letter is called a Notice of Deficiency and will clearly define the amount that you owe. As long as you respond to the letter within 90 days, your case is valid.
If the dispute is over a tax refund, then you’ll take it up with the U.S. Court of Federal Claims or the U.S. District Court. These courts handle negotiations that occur after a taxpayer has paid their taxes and filed for a refund with the IRS.
How to Respond to an IRS Topic 151 Letter
If you’ve received an IRS Topic 151 letter after filing your taxes, take the time to read through it carefully. If the remarks are valid and you do owe money, then take steps to pay off those tax debts and restore your account.
However, if you believe that any part of the notice could be inaccurate, you can appeal it through the steps detailed above. As you can see, this can be a complicated process. You need the right team by your side and we’re here to help.
Contact Silver Tax Group today to discuss your tax-related questions and more.