IRS Announces New Effort to Help Struggling Taxpayers Get a Fresh Start

In its latest effort to help struggling taxpayers, on February 24, 2011, the Internal Revenue Service announced a series of new steps to help people get a fresh start with their tax liabilities.

Download PDF pdf-icon

The goal of this effort is to help individuals and small businesses meet their tax obligations, without adding unnecessary burden to taxpayers.  Specifically, the IRS is announcing new policies and programs to help taxpayers pay back taxes and avoid tax liens.  The changes include:

  • Significantly increasing the dollar threshold when tax 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.

This is another in a series of steps to help struggling taxpayers.  In 2008, the IRS announced lien relief for people trying to refinance or sell a home.  In 2009, the IRS added new flexibility for taxpayers facing payment or collection problems.  Last year, the IRS held about 1,000 special open houses to help small businesses and individuals resolve tax issues with the agency.

Tax Lien Thresholds.  A federal tax lien gives the IRS a legal claim to a taxpayer’s property for the amount of an unpaid tax debt.  Since the government is not the only creditor to whom the taxpayer usually owes money, filing a Notice of Federal Tax Lien is necessary to establish priority rights against certain other creditors.

The IRS will significantly increase the dollar thresholds when liens are generally filed.  The new dollar amount takes into account inflationary changes since the number was last revised.  Currently, the IRS automatically files liens at certain dollar levels for people with past-due balances.

A lien informs the public that the U.S. government has a claim against all property, and any rights to property, of the taxpayer.  This includes property owned at the time the notice of lien is filed and any property acquired thereafter.  A lien can affect a taxpayer’s credit rating, so it is critical to arrange the payment of taxes as quickly as possible.

Tax Lien Withdrawals.  The IRS will also modify procedures that will make it easier for taxpayers to obtain lien withdrawals.  If the taxpayer so requests, the IRS will now withdraw a lien upon full payment of tax.  In order to speed the withdrawal process, the IRS will also streamline its internal procedures to allow collection personnel to withdraw the liens.

Direct Debit Installment Agreements and Liens.  The IRS is making other fundamental changes to liens in cases where a taxpayer enters into a Direct Debit Installment Agreement (DDIA).  For taxpayers with unpaid assessments of $25,000 or less, the IRS will now allow lien withdrawals under several scenarios:

  • Lien withdrawals for taxpayers entering into a Direct Debit Installment Agreement.
  • The IRS will withdraw a lien if a taxpayer on a regular Installment Agreement converts to
        a Direct Debit Installment Agreement.
  • The IRS will also withdraw liens on existing Direct Debit Installment agreements upon
        taxpayer request.

Liens will be withdrawn after a probationary period demonstrating that direct debit payments will be honored.  Taxpayers can use the Online Payment Agreement application on www.irs.gov to set-up with Direct Debit Installment Agreements.

Installment Agreements and Small Businesses.  The IRS will also make streamlined Installment Agreements available to more small businesses.  Small businesses with $25,000 or less in unpaid tax can participate, will have 24 months to pay, and will need to enroll in a Direct Debit Installment Agreement to participate.

The streamlined Installment Agreements will be available for small businesses that file either as an individual or as a business.  Small businesses with an unpaid assessment balance greater than $25,000 would qualify for the streamlined Installment Agreement if they pay down the balance to $25,000 or less.

Offers in Compromise.  An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.  Generally, the IRS will not accept an offer if it believes the taxpayer can pay the liability in full as a lump sum or through a payment agreement.  The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.

The IRS is also expanding a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers.  This streamlined OIC is being expanded to allow taxpayers with annual incomes up to $100,000 to participate.  In addition, participants must have a tax liability of less than $50,000, doubling the current limit of $25,000 or less.

For more information on dealing with income tax delinquencies, visit the Taxation section of our law library at http://www.racklaw.com/resources/law-library