Tax Lawyer's Blog

Nina Olson, the National Taxpayer Advocate, has released her Annual Report to Congress (PDF).

In it she recommends something old and something new: Simplification of the tax code and enactment of measures that will minimize the burden on taxpayers who are struggling to pay their tax bills.

Ms. Olson said, “it is imperative for the IRS to consider the circumstances of taxpayers facing economic hardship before initiating enforcement actions.”

The Tax Code and the IRS Manual already contain provisions that require IRS collection agents to consider economic hardship before proceeding with the levy and seizure of a taxpayer’s assets. 

In the past IRS agents rarely altered their collection actions based on a taxpayer’s alleged hardship.

The reason, says Ms. Olson, is that,

[C]urrent IRS guidance provides little direction to help IRS employees identify taxpayers who are experiencing economic hardship and prevent undue economic burden. 

Ms. Olson’s report makes 3 recommendations to reduce the burden on struggling taxpayers:

1. Use Available Alternatives to Enforced Collection

Make greater use of collection alternatives when economic hardship is present. While enforced collection actions like levy and seizure authority are important collection tools that allow the IRS to address serious incidents of noncompliance, a review of IRS historical enforcement data show that more enforcement actions do not translate into commensurate increases in revenue collection.

Historical enforcement data indicate that collection alternatives, such as offers in compromise and partial-payment installment agreements, may be more effective at collecting liabilities from taxpayers having difficulty paying their tax debts.

2. Simplify “Cancellation of Debt” Rules for Foreclosures

Simplify the “cancellation of debt” minefield that many taxpayers who default on debts must navigate. Most financially distressed individuals who lose their homes to foreclosure or cannot pay off their car loans, credit card balances, student loans, or medical bills probably do not realize that their delinquency may increase their tax liabilities, but it often does. If a creditor writes off a debt, the tax code generally treats the amount of the cancelled debt as taxable income to the debtor.

3. Protect Social Security Recipients From Automated Levies 

Implement a “screen” to protect low income Social Security recipients from continuous, automated tax levies. Under the Federal Payment Levy Program, the IRS is authorized to “levy” (or withhold) 15% of any federal payment made to a delinquent taxpayer. Using this authority, the IRS levied against 1.8 million payments to Social Security recipients in 2008. TAS estimates that more than 25% of these taxpayers had incomes below the poverty level and more than one-third would likely be classified by the IRS as unable to pay if their cases were subject to human review. However, the automated levy system does not use built-in screens to identify and shield these taxpayers. report contains a research study recommending the implementation of such a screen.

Author’s Observation: Rare Opportunity for Delinquent and Non-Compliant Taxpayers

In my 25 plus years of experience representing taxpayers, I have never heard this much talk from high-ranking IRS officials demanding that its collection agents be more compassionate when dealing with delinquent and non-compliant taxpayers.

Author’s Advice: Now is the Time To Make a Deal with the IRS

If you owe money or think you owe money to the IRS or if you have not filed your federal income tax returns, NOW is the time to come forward because you are likely to get favorable terms of repayment or settlement of your IRS debts. 

Call an experienced Tax CPA or Lawyer and get started before the window of IRS compassion closes.

Related Posts:

Bad Economy Means Good Time to File Offer In Compromise

Bookmark & Share: