The IRS recently announced changes to its lien process. The goal is to help individuals and small business owners who are struggling to pay back taxes. IRS Commissioner Doug Shulman stated that the changes “reflect a responsible approach for the tax system.”1 At this point I’m going to have to say I agree.
What is a Lien? A federal tax lien gives the IRS a legal claim to all of a taxpayer’s property and rights to property. By filing a Notice of Federal Tax Lien, the IRS makes a public claim on a taxpayer’s personal property and is another step toward the collections process, which could result in the IRS physically seizing property, selling it and applying the proceeds to pay back tax liability. Other collection methods include wage and/or bank garnishments. It is also important to note that a lien is left unattended to will negatively impact a taxpayer’s credit report.
What are the Changes? In no particular order:
• Tax Lien Thresholds – The IRS is increasing the dollar threshold for when liens are generally filed. The dollar amount has not been specified, but is supposed to keep up with inflationary changes.
• Tax Lien Withdrawals – Another change, and one of the most important, is that the process for removing the lien will be more streamlined. In the past this has been easier said than done, so I look forward to seeing how the actual implementation of this proposed change plays out.
• Direct Debit Installment Agreements – The IRS will also implement a lien withdrawal process for taxpayer’s using / switching over to / agreeing to the terms of a direct debit installment agreement. There are stipulations to qualifying, such as liability thresholds ($25,000 or less in unpaid assessments) and probationary periods.
• Installment Agreements with Small Businesses – The IRS is raising the dollar limit allowed for small businesses to qualify for an installment plan to $25,000. The current rule limits those eligible to $10,000. In addition to meeting eligibility requirements, small businesses will be required to enroll in the direct debit system.
• Streamlined Offers in Compromise (“OCI”) - Under an OCI, the IRS and the taxpayer settle the issue of back taxes for less than the full amount owed. The IRS will not accept offers, however, if the IRS believes that the taxpayer is able to pay in a lump sum or through some other payment agreement. The IRS process for determining eligibility will mostly stay the same, but the dollar amounts will not. Under the new program, taxpayers making up to $100,000 will be allowed to participate. Additionally, the back tax limit has been raised from $25,000 or less, to $50,000 or less, doubling the limit.
The proposed changes are well intentioned. IRS staff are overburdened as it is, and even the small things like allowing collections personnel to withdraw liens will save time and money. Our hope is that the changes go smoothly and actually do work out favorably for both taxpayers and the IRS. The average taxpayer trying to handle a dispute by themselves is often overwhelmed by the massive and confusing phone system, which is not conducive to resolving issues with their tax account. If these changes help, then great.
An especially important change is the direct debit installment plan. This is a no-brainer. It has the potential of savings millions in government costs, and I do not need a statistic to show that direct debit programs are a more efficient means of collection than relying on checks. This also saves the taxpayer from simply forgetting to send in that monthly check to the IRS. It does happen, and even one slip-up can ruin an installment plan and place the taxpayer back at square-one.
- I.R.S. News Release IR-2011-20, Feb. 24, 2011 available at http://www.irs.gov/newsroom/article/0,,id=236540,00.html. ↩