Easy Street

Entrepreneur, Nov, 1999 by Joan Szabo

Check out the IRS' new options for tax-debt management. You'll drive away happy - and compliant!

If the "new and improved" IRS doesn't impress you much, take another look. Changes are taking place that are designed to make it easier to pay the taxes you owe.

The IRS still expects all taxpayers to pay their taxes on time each year, and it still charges interest and penalties if you fail to do so. Nothing new there. But if you find yourself in a real financial bind, there are a few payment options that have recently been changed a bit to make them more customer-friendly.

In fact, the IRS, feeling pressure from lawmakers to be nicer to taxpayers, is reportedly going a bit easier on the collection of unpaid taxes. Take a look at recent IRS statistics: In the nine-month period ending July 31, 1999, the IRS seized property to satisfy overdue taxes only 180 times, down from 2,193 seizures in a comparable period one year earlier. Garnishments of paychecks and levies of bank accounts in the later nine-month period fell to 488,834, down from 2.8 million one year earlier. Liens, which are what the IRS claims against property, went from 331,843 in the previous nine-month period to 143,747.

A recent check with a number of tax collectors around the country by The New York Times attributes these declines in part to a provision in the IRS Restructuring and Reform Act of 1998 that says IRS workers will be fired if they willfully abuse taxpayers or violate their rights. These unnamed tax collectors say they have become less aggressive in collecting unpaid taxes because they fear losing their jobs due to the new law's restrictions.

Another contributing factor, according to analysts, is the fact that the IRS has shifted large numbers of employees from enforcement activity to taxpayer assistance. Many are in the midst of time-consuming computer training designed to help them do their jobs more effectively, says Elliott H. Kajan, a principal with Beverly Hills, California, law firm Kajan Mather and Barish. Kajan specializes in tax-controversy matters.

IRS commissioner Charles Rossotti responded to the news reports of less aggressive tax-collecting this way: "There is nothing about the Restructuring and Reform Act or the IRS mission statement called for by this act that implies less effective tax collection." In fact, he says the tax agency intends "to achieve better compliance with the tax law by concentrating enforcement resources more effectively on the small minority of taxpayers who do not comply."

EXPANDING RIGHTS

For those with valid tax disputes, recent changes in the law should make a difference. For example, taxpayers now have the right to collection due process if they face an enforced collection action by the IRS. Specifically, if taxpayers don't believe they owe the tax assessed, they can now request an administrative hearing before an impartial appeals officer within 30 days either after a lien notice is filed or after they receive notice from the IRS indicating it intends to place a levy on their assets.

If the taxpayer requests a hearing, the proposed levy can't take place until the appeals officer has reviewed the case. Once a decision is made, the taxpayer has 30 days to decide whether to challenge the finding of the appeals officer in U.S. Tax Court or U.S. District Court. During this time, the IRS can't seize the taxpayer's property. As a result, "taxpayers can put a collection freeze on their accounts while they are pursuing their due-process appeals rights," says Kajan.

NEW AND IMPROVED INSTALLMENT PLAN

You can also ask the IRS to consider collection alternatives, such as setting up an installment agreement that allows you to pay an overdue tax bill over a number of months or even years. The new law makes working out installment agreements a bit easier than in the past. For example, the new law indicates that taxpayers have "guaranteed access to installment-payment agreements" if they owe $10,000 or less in income taxes and have filed tax returns on time in the past. The threshold limits for these agreements can be even higher depending on the IRS office location, says Kajan. In some areas of California, for example, the limit is $25,000.

This is a big improvement over the way things were done in the past, says Kajan. Changes in the rules for installment agreements make it possible for taxpayers "to handle their own problems with the IRS, without going to practitioners such as CPAs and tax attorneys," he explains.

Once you enter into an installment agreement with the tax agency, other IRS enforcement actions, such as levies or seizures, are suspended. To apply for an agreement, the IRS requires you to complete Form 9465 and pay a $43 fee to get the process started. In addition, you are subject to an interest charge and a late penalty on any unpaid tax. The late fee is one-half of 1 percent to 1 percent of the tax not paid for each month it goes unpaid. This fee is scheduled to drop next year. The maximum late fee, which will not change, is 25 percent of the taxes owed.