IRS Leniency Throws Taxpayers a Lifeline

By Nancy Trejos
Washington Post Staff Writer
Sunday, February 15, 2009

In its bid to be more lenient this year, the IRS is giving its employees more flexibility in helping taxpayers in financial straits. Employees will have greater authority to temporarily suspend collection in certain hardship cases, especially when the taxpayer has lost a job or is facing a severe illness or large medical bills.

But some tax experts say leaving such decisions to individual employees can be dangerous. "The worst thing about the civil tax enforcement is that so much of it depends on who has your file, and I'm still seeing aggressive collection practices against small businesses and individuals," said Gerald W. Kelly of the Baltimore law firm Thomas & Libowitz.

Benson Goldstein, senior manager of taxation at the American Institute of Certified Public Accountants, said it is unclear how much relief the approach will bring taxpayers. "How they'll be more lenient to taxpayers . . . we just don't know," he said. "It's too early to tell."

IRS Commissioner Douglas Shulman said his employees are well-trained to handle their responsibilities. "They follow a very tight set of procedures," he said. "That's people's job in an organization, to try to exercise their judgment."

Ultimately, taxpayers will have to be proactive if they want to benefit from the IRS's promised leniency. Those who are behind on payments should call the phone numbers listed on the correspondence they receive from the agency, Shulman said. They can call and say, "I just can't pay this, what are my options?," he said.

In some cases, they won't even have to provide much proof of a hardship.

That's not to say the IRS will be lenient with everyone. Each case will be carefully vetted, Shulman said.

If a taxpayer's request for leniency is rejected, he or she can ask to speak to an IRS supervisor or write a letter requesting reconsideration, Shulman said.

Taxpayers should go to the agency's Web site,, for more guidance. The agency added a section titled "What If . . . ?" addressing a number of problematic scenarios and actions beleaguered taxpayers can take to fix them.

For instance, under the heading "What if I can't pay my taxes?," the agency instructs taxpayers to still file their return on time and pay as much as possible to avoid penalties and interest. The agency then urges taxpayers to call 1-800-829-1040 to discuss payment options, such as installment plans that allow people to pay their full balance over time.

Here are some changes taxpayers should know and ask about:

· For people who already have installment agreements and have paid on time in the past but can no longer do so because of a job loss or financial hardship, the agency will consider allowing skipped payments or partial monthly payments. In the past, taxpayers would have had to pay off the entire balance if they missed a payment.

· The agency also vowed to make it easier for some taxpayers to get an offer in compromise, an agreement in which the IRS settles the tax debt for less than what is owed. Those with equity in their homes have typically been turned down for such arrangements because the IRS assumes they can tap that equity to pay their debt. But many people's homes have lost value, which is not always reflected in the valuations the agency has on file. Recognizing this, IRS officials said that in cases where local real estate assessments are in question, the agency will review the application a second time.

· In an effort to stave off foreclosures, the IRS will also make it easier for homeowners who are behind on their taxes to refinance or sell their homes. It will do so by expediting homeowners' requests for removal of tax liens on property they are trying to sell for less than what they owe on the mortgage. Banks are unwilling to give mortgages to anyone trying to buy a property that has a tax lien. Agency officials also said they would speed up the process by which federal tax liens become subordinate to a mortgage lender's claim on a property. Lenders typically won't allow homeowners to sell or refinance their property unless their claim on the property takes precedence over all other creditors'.

"If you're trying to sell a house in the upside-down market or you're trying to refinance your house . . . we don't want the IRS to be the reason you can't do that," Shulman said.

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