February, 2009 Tax Newsletter

Perhaps It Is a Kinder Gentler IRS

The IRS recently announced several new steps to help financially distressed taxpayers who are struggling to meet their tax obligations.  IRS employees have been given the flexibility to help taxpayers in hardship situations to adjust payments for back taxes, avoid defaulting on payment agreements, or even possibly deferring collection action.  Among the areas where the IRS can provide assistance are:

Postponement of Collection Actions  -  IRS employees will have greater authority to suspend collection activity in certain hardship cases where taxpayers are unable to pay.  This includes instances when the taxpayer has recently lost a job, is relying solely on social security or welfare income, or is facing devastating illness or significant medical bills.  If an individual has recently encountered this type of financial problem, IRS may be able to suspend collection without documentation to minimize the burden on the taxpayer.  As it has not been the policy of the IRS to suspend collection “without documentation” in the past,  I, as everyone else, will wait to see how this will be implemented.

Added Flexibility for Missed Payments - The IRS is allowing more flexibility for previous compliant individuals in existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship.  IRS may allow a skipped payment or a reduced monthly payment amount without automatically revoking the agreement

Additional Review for Offers in Compromise (OIC) on Home Values -  An OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s debt for less than the full amount owed.  The general rule for an offer to be considered is that it must be for an amount that equals the taxpayer’s net equity in his assets plus his future income potential.  This could be a very viable option for a taxpayer experiencing economic difficulties were it not for the taxpayer’s equity in his real property.  However, with the uncertainty in the housing market, the IRS recognizes that the real estate valuations used to assess ability to pay may not be accurate.  Therefore, in instances where the accuracy of local real-estate valuations is in question or other unusual hardships exist, the IRS is creating a second review of the information to determine if accepting an OIC is appropriate.

Prevention of OIC Defaults - Taxpayers who are unable to meet the periodic payment terms of an accepted OIC will be able to work with the OIC office handling the offer for available options to help them avoid default.

Expedited Levy Releases -  The IRS will speed the delivery of levy releases by easing requirements on taxpayers who request expedited releases for hardship reasons.  Taxpayers seeking expedited releases for levies to an employer or bank can discuss available options with the IRS levy department.

Taxpayers who can’t pay when they file their 2008 returns  -  There are options available here, also, for taxpayers experiencing financial problems.  There are alternatives available to paying in full.