IRS has announced new policies and programs to help taxpayers pay back taxes and avoid tax liens. IRS’s goal is to help individuals and small businesses meet their tax obligations, without adding an unnecessary burden to taxpayers.
Background on liens. Under Code Sec. 6321, when a taxpayer fails to pay a tax liability after notice and demand, a lien arises that attaches to all the taxpayer’s property and rights to property. Under Code Sec. 6331 , IRS is authorized to seize and sell the taxpayer’s property and rights to property subject to a federal tax lien. Thus, IRS may seize any property or property right (unless it’s exempt under Code Sec. 6334(a)) of a delinquent taxpayer (whether held by him or someone else), sell it, and apply the proceeds to pay the unpaid taxes. Seized property may be real, personal, tangible, or intangible, including receivables, bank accounts, evidences of debt, securities, and salaries, wages, commissions or compensation. (Code Sec. 6331(a), Reg. § 301.6331-1(a))
Background on installment agreements. Under Code Sec. 6159, IRS may enter into written agreements with any taxpayer. IRS must enter into an installment agreement requested by an individual whose aggregate tax liability (without interest, penalties, additions to tax, and additional amounts) isn’t more than $10,000, and who hasn’t failed to file or to pay income tax, or entered into another installment agreement, during any of the preceding five tax years, if IRS determines that the taxpayer is financially unable to pay the liability in full when due (and the taxpayer submits information that IRS may require to make this determination). The agreement must require full payment within three years, and the taxpayer must agree to comply with all Code provisions while it’s in effect.
Background on OICs. Under Code Sec. 7122, IRS will consider an offer in compromise (OIC)—i.e., an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed—where: (1) the taxpayer is unable to pay the tax; (2) there is doubt as to the taxpayer’s liability for the tax; or (3) a compromise would promote effective tax administration because collection of the full amount of tax would cause economic hardship for the taxpayer, or compelling public policy or equity considerations provide a sufficient basis for compromising the liability. IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.
New procedures. After a review of collection operations which IRS Commissioner Shulman launched last year, as well as input from the Internal Revenue Service Advisory Council and the National Taxpayer Advocate, IRS has determined that the following changes will lessen the negative impact on taxpayers:
· Higher dollar threshold for issuing liens. IRS will significantly increase the dollar thresholds at which liens are generally filed to take account of inflationary changes since the number was last revised. Currently, liens are automatically filed at certain dollar levels for people with past-due balances. IRS expects to review the results and impact of the lien threshold change in about a year.
· Easier lien withdrawals after payment. IRS will modify procedures so as to make it easier for taxpayers to obtain lien withdrawals. Liens will now be withdrawn once full payment of taxes is made if the taxpayer requests it. IRS will streamline its internal procedures to better allow collection personnel to withdraw the liens.
· Withdrawing liens after DDIA. IRS will now allow lien withdrawals for taxpayers with unpaid assessments of $25,000 or less where: (1) a taxpayer enters into a Direct Debit Installment Agreement (DDIA); (2) a taxpayer on a regular Installment Agreement converts to a DDIA; and (3) a taxpayer on an existing DDIA requests the withdrawal. Liens will be withdrawn after a probationary period demonstrating that direct debit payments will be honored. IRS notes that this lowers user fees and saves the government money from mailing monthly payment notices. Taxpayers can use the Online Payment Agreement application on IRS.gov to set up a DDIA.
· Easier access to Installment Agreements for small businesses. IRS will make streamlined Installment Agreements available to more small businesses by raising the dollar limit to allow small businesses with $25,000 or less in unpaid tax to participate. Currently, only small businesses with under $10,000 in liabilities can participate. Small businesses that file either as an individual or as a business will have 24 months to pay. Small businesses with an unpaid assessment balance greater than $25,000 can qualify for a streamlined Installment Agreement if they pay down their balance to $25,000 or less. Small businesses will need to enroll in a DDIA to participate.
· Expanding streamlined OIC program. IRS will expand a new streamlined OIC program to cover a larger group of struggling taxpayers. The streamlined OIC will allow taxpayers with annual incomes up to $100,000 to participate. Participants must have tax liability of less than $50,000, doubling the current limit of $25,000 or less.
The full Information Release can be viewed on the IRS website at http://www.irs.gov/newsroom/article/0,,id=236540,00.html?portlet=7.
Friday, February 25th, 2011