IRS announces new policies, programs to help taxpayers avoid liens
Wednesday, March 2, 2011; 8:05 PM
In fiscal 2010, the Internal Revenue Service filed liens against 1.1 million taxpayers.
That can have a lasting impact, even if the lien is eventually removed. Lien filings are picked up by the three credit-rating agencies and remain in your files for seven years from the date a tax liability is resolved.
In her annual reports to Congress, Nina E. Olson, the national taxpayer advocate, has complained frequently about the burden of tax liens on taxpayers. Having a tax lien listed on your credit files can drop your score about 100 points, Olson has said.
"Increasingly, employers, mortgage lenders, landlords, car dealerships, auto insurance companies and credit-card issuers utilize credit reports, so a tax lien has the potential to render someone unemployable, unable to obtain housing (owned or rented) and unable to obtain car insurance or a credit card, at least at reasonable rates, for many years into the future," Olson wrote in her most recent report.
Since 1999, the IRS has increased annual lien filings by 550 percent, from 168,000 to last year's 1.1 million. If these filings clearly resulted in substantial increases in revenue collection, Olson argues, one could at least understand the IRS's position.
"The IRS still has no idea whether, or to what extent, liens contribute to the efficient collection of taxes, and it therefore still does not know whether it is balancing the need for the efficient collection of taxes with the legitimate concern of taxpayers that any collection action be no more intrusive than necessary," she wrote.
Olson blasted the IRS for claiming to want to help taxpayers struggling to pay their tax debts while refusing to "moderate its lien-filing policies." Now, IRS Commissioner Doug Shulman has announced that the agency will put into place new policies and programs to help taxpayers pay their back taxes and avoid getting one of those nasty, credit-ruining liens. Additionally, Shulman said the IRS is making changes to its installment agreement and "offer in compromise" (OIC) programs to cover a larger group of financially stressed taxpayers.
"We need to continually update our processes," he said during an interview. "My job is to collect the proper amount of revenue, to promote tax compliance while minimizing the burden on taxpayers." Shulman said he's made it part of his mission to balance the government's need to collect revenues along with being more compassionate to financially strapped taxpayers.
Here's a breakdown of his changes:
l The dollar threshold for when liens are generally issued is being increased, to at least $10,000 in back taxes. The previous threshold was $5,000.
l The IRS is promising to make it easier to withdraw a lien once a person pays off their tax debt. However, the withdrawal isn't automatic. Once full payment is made, you will have to request the lien be removed. To speed up the withdrawal process, the IRS will streamline its procedures to allow collection personnel to withdraw liens. "We are taking this very seriously. This will reduce liens by tens of thousands," Shulman said.
l The IRS says it will withdraw liens in most cases where a taxpayer signs up for a direct debit installment agreement, which means the IRS will pull the money directly out of your bank account. If you currently have an installment agreement but switch to a direct debit agreement, you can request that the lien be withdrawn. There is a catch. The IRS says liens will be withdrawn after a probationary period to make sure the direct debit is working.
l Small businesses with $25,000 or less in unpaid taxes can now get an installment agreement over 24 months. It used to be that only small businesses with under $10,000 in liabilities could participate.
l Under the new streamlined OIC program, taxpayers with annual incomes up to $100,000 can now participate. You have to have a tax liability of $50,000 or less, which is double the old limit of $25,000 or less. An OIC allows you to settle your tax debt for less than the full amount. In deciding eligibility for an OIC, the IRS will look at your income and assets. But generally an offer won't be accepted if the IRS believes it can collect the full debt as a lump sum or through a payment agreement.
Shulman said that with these changes, he hopes to "relieve people's stress." I hope so, too. Because as Olson wrote in her report this year (her 10th): "Collection is where, if not handled appropriately, real and lasting harm can be visited upon taxpayers - destroying people's lives and businesses."
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