When Rezaian returned home from his detainment, he was shocked to see a notice from the IRS saying he owed thousands of dollars in unpaid tax, penalties, and interest. It’s normal for Americans to receive a notice from the IRS so, for more information on how to handle this, you should see my blog about what to do if you receive a notice from the IRS.
Rezaian says he tried everything to get the bill removed because it was unjust for him to have to pay taxes after being wrongfully detained in an Iranian prison. He said there was no solution other than changing the law. Because of this he wants to push a bill through congress called the Stop Tax Penalties on American Hostages Act so others wouldn’t have to deal with this.
However, there’s already a solution in the tax law that he could have pursued if he had simply talked to a tax attorney. But to start off, let’s give a little background analysis on his case. Rezaian seems most upset about the penalties and interest that were charged during the time he was imprisoned. This is understandable because he had no way of taking care of them.
But you have to realize that Federal tax is generally only charged to American citizens on their income. There are a few exceptions, but we won’t worry about them here. Rezaian was not earning an income while he was in prison.
Since the tax charges came up while he was in prison, they must have come from taxes he owed before he went to prison. This usually happens if you don’t have enough taxes withheld from your paycheck, if you didn’t file your return correctly, or if you failed to report income on your tax return. When this happens, the IRS is bound by federal law to charge both penalties and interest.
They also have to allow the interest to accrue until the balance is satisfied. It’s not that they want to, they have to. Penalties can be removed for reasonable cause, but you have to apply for it before they can remove them.
This doesn’t seem to be the problem with Rezaian’s case though. The IRS told him, “We will get these down as much as we can but there is interest that we just cannot undo.” Meaning, they already removed the penalties, but he still has to pay the interest.
This is somewhat true. Interest on unpaid tax is one of those things congress put directly into the tax code. The only way you can get interest removed is if the IRS made the error themselves. If the reason for the interest was for anything else, the IRS can’t just remove it even if they want to.
But, if Rezaian had talked to a tax attorney, like myself, I would have been able to get rid of the interest and a majority of all his back taxes. And when I say all, I mean all the taxes he owed before, during, and directly after he was wrongfully incarcerated in an Iranian prison.
To address his injustice, Rezaian turned to the National Security Advisor Robert C. O’Brien and two unnamed hostage envoys from the state department. They tried to intervene with the IRS on his behalf but weren’t able to do much for him. While I’m sure they are brilliant individuals and more than competent in their fields, they are not tax experts.
Most people think that any attorney can handle any legal problem; this is simply not true. Law is similar to medicine. Some things do overlap, but if you want your problem solved, you need a specialist. If you’re accused of murder, you need a criminal defense attorney. If you have a land dispute, you need a real estate attorney. If you have a tax issue, you need a tax attorney.
You can’t just call the IRS and demand they remove your taxes, interest, and penalties, no matter how unjust they are. You need to work within the system if you want results. If Rezaian had come to me, I would have prepared an officer in compromise (OIC) to the IRS.
I explained this in depth in another article, but an OIC is essentially the tax equivalent of a debt settlement. An OIC is income based which is important because when Rezaian was in prison for 18 months, he had no income.
In Rezaian’s case, it wouldn’t matter how much he owed in taxes. He could owe hundreds of thousands of dollars, and I would still be able to show he had no income for the past 18 months. Depending on some of the circumstances, I could likely get his entire tax debt discharged for somewhere around a hundred dollars.
This would be completely legal as this option exists for people in Rezaian’s situation. I should note though this option probably isn’t available now because Rezaian probably has a healthy income again. But if he had just come talk to someone like me when he first received his notice, I could have fixed his tax issues for him. It would have saved him a great deal of the stress and hassle he put himself through when he really didn’t need to.
Brian Fletcher, ESQ
Tax Attorney
If you have a tax question or matter, call the Law Office of Pietro Canestrelli, a Tax Controversy Boutique, APC for more assistance. 951-441-2184