For a while it was said that what emerged from the IRS Restructuring and Reform Act of 1998 was “a kinder and gentler” IRS. Over the past several years we have learned that the alleged tide of kindness was pulling back out to sea. Replacing it appears to be a more practical and resourceful IRS that is recognizing that traditional collection methods are resulting in a greater number of business failures and lower rates of repayment.
The IRS recently announced a “New Effort to Help Struggling Taxpayers Get a Fresh Start.” See News Release IR 2011-20 here. This is a good thing for a lot of taxpayers that have fallen behind on their tax obligations. Make no mistake, this is not a program that has grown out of altruism. The IRS must have realized that by lifting the threat of the sword and replacing it with a carrot, they could collect more unpaid taxes and allow the public a better solution to addressing tax problems.
The IRS announcement explains changes they are making. These include:
- Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens.
- Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill.
- Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement.
- Creating easier access to Installment Agreements for more struggling small businesses.
- Expanding a streamlined Offer in Compromise program to cover more taxpayers.
The IRS explains that the increased dollar threshold for lien filing is tied to inflationary changes since its last adjustment. They have not, however, released what those dollar thresholds will now be. The revisions to IRS procedure should expedite the release of a filed lien once a liability is fully paid.
The biggest change is the release of a lien where a taxpayer owing less than $25,000 enters into a direct debit Installment Agreement. In these cases, the monthly installment payment against a tax debt is automatically withdrawn from a taxpayer’s bank account. This means that people owing less than $25,000 might be able to avoid additional damage to their credit report resulting from a tax lien if they allow for an automatic withdrawal from their bank account. I am confident, however, that if a payment is missed (due to insufficient funds in a bank account) the IRS will be quick to file a lien against a taxpayer. Getting a lien removed after such a situation will likely require the full payment of the tax even where a direct debit is in place.
Small businesses owing $25,000 or less will also benefit under the new programs. The new rules should allow these businesses to enter into automatic installment agreements provided that the debts are paid off within 24 months. Obviously, this will require a monthly payment in excess of $1,000. So, while not a benefit to everyone, this will help a number of business get out of tax trouble without too much bureaucracy getting in the way.
Overall, these changes will allow a number of past due taxpayers to become fully compliant without adding a credit-devastating lien to their financial troubles. Setting cynicism aside, what the IRS is doing is a good thing.