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The 2012 Fresh Start Initiative and the relaxing of lien filings and levies during the past five years has relieved burden on taxpayers and the resource-constrained IRS. However, this more relaxed policy hasn’t resulted in maximizing collection for the U.S. Treasury. The IRS continues to tweak its collection policies and procedures to collect the most tax dollars.
During the past five years, new laws and IRS administrative changes to collection policy have been frequent, and can be hard for taxpayers and tax professionals to keep up with. This year has been no exception; in fact, 2017 has seen these six important changes to IRS collection policy.
1. Private debt collection begins
The impact: With the onslaught of tax identity theft schemes, taxpayers face new complications when an outside agency contacts them. Is the phone call real, or is it a scammer? To combat confusion, the IRS and collection agencies will send letters to these taxpayers ahead of time to notify them that a debt collector will call. The program is starting now, and the National Taxpayer Advocate will likely weigh in soon on its impact to taxpayers and the IRS's efforts to combat tax identity theft. Stay tuned.
2. The government is restricting passports for people who owe "seriously delinquent tax debt"
The impact: Hundreds of thousands of passport holders with seriously delinquent tax debt will now have to get right with the IRS or stay put. The catch: If taxpayers need the government to lift the passport restriction immediately, they are out of luck. The IRS has 30 days to notify the State Department that it can lift the restriction. Right now, taxpayers with emergency travel needs must turn to the National Taxpayer Advocate. Even then, the process could take considerable time.
3. The offer in compromise program gets strict on filing compliance
The impact: If taxpayers haven't filed, the IRS rejects the offer outright and keeps the down payment (which can be as high as 20 percent of the offer amount).
4. Collection Financial Standards expense limits went up
The impact: Financially struggling taxpayers may get some more wiggle room in their budgets this year when negotiating collection arrangements with the IRS. People already in these agreements may look to renegotiate their terms to lower payment amounts.
5. The IRS is testing faster processing for certain higher-debt installment agreements
The impact: Higher-debt taxpayers will be able to get into an agreement with the IRS faster. In particular, people affected by passport restrictions (see No. 2) will be able to travel again sooner. And the IRS won't have to review extensive financial documents to determine how much taxpayers should pay each month.
6. IRS.gov now shows tax balances
The impact: More than 90 percent of all payment arrangements can now effectively be set up online. Taxpayers will have the information and the capability to do this all online. This is an important step in the IRS effort to implement online tools to help taxpayers understand their status with the IRS, get more information about their account, and resolve matters quickly online - much like they can already do with other financial service providers.
The takeaway: Stay in compliance to avoid collection altogether
The best way for taxpayers to avoid IRS enforcement action is to get into an agreement on any unpaid balances. The next wave of IRS policy changes may not be kinder and gentler, so it is important to get into good standing now and stay there.
Tax professionals have always been crucial to help clients navigate the continual changes and options in IRS collection policy. This is true now more than ever.