The IRS recently announced a new effort to help struggling taxpayers get a fresh start with major changes made to the lien process. The goal 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. (IR-2011-20).
The changes to the IRS lien filing practices 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.
“We are making fundamental changes to our lien system and other collection tools that will help taxpayers and give them a fresh start,” IRS Commissioner Doug Shulman said. “These steps are good for people facing tough times, and they reflect a responsible approach for the tax system.”
The IRS also announced that it is making it easier for taxpayers to enter into an installment agreement and is expanding its streamlined offer in compromise program.
“These steps are in the best interest of both taxpayers and the tax system,” Shulman said. “People will have a better chance to stay current on their taxes and keep their financial house in order. We all benefit if that happens.”
The IRS uses liens to establish a legal claim to a taxpayerbs property when the taxpayer has an unpaid tax debt; once filed, a lien gives the IRS priority over certain other creditors. While under IRC B’ 6321 a tax lien automatically arises when a taxpayer fails to pay taxes due after a notice and demand for payment from the IRS, the IRS will file a lien when a taxpayer’s past due balance exceeds a certain dollar amount. The IRS announced that it will bsignificantly increase the dollar thresholdsb above which liens are generally filed; however, it did not announce what the new threshold would be. The Internal Revenue Manual currently calls for the automatic filing of a lien for unpaid balances above $5,000 (IRM B’ 126.96.36.199.1).
Under the new procedures, the IRS will withdraw a lien once the taxpayer has fully paid the taxes due, if the taxpayer requests it. The IRS also says that it will streamline its internal procedures to allow collection personnel to withdraw liens.
For unpaid assessments of $25,000 or less, the IRS will allow lien withdrawals if the taxpayer enters into a direct debit installment agreement or converts a regular installment agreement to a direct debit installment agreement. The IRS says it will also withdraw liens on existing direct debit installment agreements upon taxpayer request. There will be a probationary period before the lien is withdrawn to satisfy the IRS that the direct debit payments will be honored.
Installment Agreements and Offers in Compromise
Currently, only small businesses with under $10,000 in liabilities can participate in the IRSb streamlined installment agreement process. The IRS is raising the maximum to $25,000. Small businesses will then have 24 months to pay off their tax debt.
Sources – IRS, Journal of Accountancy