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IRS Announces Fresh Start Initiative

Four New Initiatives to Assist Struggling Taxpayers

The IRS announced three initiatives to help taxpayers who are having difficulty managing and paying their tax liabilities.

Tax Lien Avoidance

The IRS will file tax liens against a taxpayer’s property and issue a Notice of Federal Tax Lien to other creditors to establish their claim and priority to secure full repayment of past-due income taxes. Historically, liens were filed in situations where the unpaid liability exceeded $5,000. Today, the IRS announced that threshold will be increased to $10,000. That should substantially reduce the number of taxpayers who will be served with liens, as well as relieve the IRS of a substantial administrative burden.

This is also significant because the filing of a tax lien is public record, and is typically picked up by credit agencies. Thus, the filing of a tax lien can impair a taxpayer’s credit score, which can result in ancillary financial consequences.

Releasing and Withdrawing Tax Liens

The IRS announced a new procedure by which many taxpayers will be able to have their liens released quicker after full payment, as well as have the lien withdrawn after entering into installment agreements. A withdrawal is important as it expunges the lien from the taxpayer’s record.

Upon request by the taxpayer (using Form 12277), the IRS will release a tax lien within 30 days after satisfying the tax debt. For taxpayers who enter into a “direct debit” installment agreement, who owe less than $25,000 and make 3 consecutive debit payments, the IRS will also withdraw the lien upon filing of Form 12277. Direct debit refers to an arrangement whereby monthly installments are made by automatic withdraw from the taxpayer’s bank account.

Offers in Compromise Streamlined

The IRS will consider an offer in compromise (OIC) from a taxpayer who can demonstrate the inability to borrow or earn enough to ever repay a delinquent tax liability. The threshold tax debt for someone to qualify to submit an OIC has been raised from $25,000 to $50,000. In addition, the IRS announced that OIC counselors will speed up the process by communicating with taxpayers via telephone concerning the information needed rather than resorting to long, drawn-out and confusing correspondence campaigns. In essence, the IRS is looking to “cut to the chase” in determining the validity of a taxpayer’s OIC.

Payroll Tax Installment Agreements

Certain small businesses who might be struggling with unpaid payroll taxes will now have an opportunity to request installment agreements to repay those taxes. Traditionally, the IRS has taken a dim view of businesses who did not timely collect and remit the payroll taxes withheld from their employees. Under the initiative described today, the IRS will allow taxpayers who owe less than $25,000 in unpaid payroll taxes to enter into an installment agreement. The maximum length of the plan cannot exceed 24 months and it must be set up as a direct debit installment agreement.

Closing Thoughts

In today’s program, IRS Commissioner Douglas Shulman reiterated that the IRS will continue to be tough with taxpayers who skirt the laws and are trying to duck their tax responsibilities. On the other hand, he said today’s initiatives are one way the IRS can assist taxpayers who are victims of the economy and who are cooperative and forthcoming.

We applaud today’s announcement by the IRS. Most Americans want to follow the rules and pay their bills, and it’s a welcome sign to see the IRS recognize this reality. Yet at the same time, we want our clients and friends to understand there is no need to be cowed or intimidated from claiming legitimate deductions and taking other steps to to minimize tax burdens. We’re here to help and to protect your rights.

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