As part of government attempts to alleviate economic pressures due to the coronavirus, the IRS has begun to pause collection activities for many taxpayers.
In a memorandum to collection executives from Frederick Schindler, director, Headquarters Collection, in the Small Business/Self-Employed Division, collection executives were told: “We are implementing a temporary deviation that provides guidance as to the collection activities that should be suspended as well as others that will continue to take place during the suspension period [March 30, 2020, through July 15, 2020].”
“To provide relief to taxpayers, employees were advised to suspend most collection activities unless:
- There is a risk of permanent loss to the government due to the expiration of a statute or other exigent circumstance; or,
- The taxpayer has agreed to an action.”
Taxpayers on installment agreements may suspend making any payments normally due between April 1 and July 15, 2020, according to E. Martin Davidoff and Robbin Caruso, partners at Top 100 Firm Prager Metis and partner-in-charge and co-managing partner of the National Tax Controversy Practice, respectively.
“This may be three or four payments depending upon when your payment would normally be due,” said Davidoff. “Although the IRS will allow such suspension without terminating the agreement, interest will continue to accrue at a rate of 5 percent per year. And, in many cases, an additional charge for late payment of 0.25 to 0.5 percent per month will also be added to the balance.”
For clients in a direct debit installment agreement, Davidoff and Caruso recommend that they contact their bank and ask them to stop the direct debits payments. “Some banks may take this information over the phone, while others will require written instructions,” advised Caruso. “Since some banks may require at least two weeks' notice, this should be done as soon as possible.”
Once DDIA payments have been stopped, there are several possibilities after July 15, 2020. Davidoff and Caruso explained a number of options.
If a taxpayer’s financial situation has changed permanently, it may take a bit of renegotiating the installment agreement. If the taxpayer has recovered fully, or merely wishes to begin the payments again, one option is to simply ask the bank to resume the direct debit. This may not be an option at all banks. Other options are to make post-July 15 payments via Direct Pay on the IRS website, through the Electronic Federal Tax Payment System.
For those who have been targets of IRS collection but are not yet in an installment agreement, the IRS is suspending garnishment, seizures of property, civil suit proceedings and lien filings through July 15, 2020. Davidoff notes that this is a good opportunity to assemble documentation and prepare a financial disclosure package to secure a collection alternative (installment agreement, offer in compromise, or currently not collectible status).
“Revenue officers in the field will be able to establish new installment agreements for those who wish to enter into such agreements,” Davidoff added.
Not necessarily a permanent situation
“Practitioners and taxpayers should not be lulled into complacency,” cautioned Daniel Gibson, a tax partner at Top 100 Firm EisnerAmper. “Once this suspension period ends, the IRS could very well start to file liens and levies with a vengeance. Therefore, practitioners and taxpayers should take advantage of this breathing space to prepare collection forms and organize supporting documentation in order to be ready when the suspension period ends.”
“Although revenue officers will continue to the extent they can operate remotely, no enforcement action will occur except for exigent circumstances,” he said.
“Officers must make taxpayer contacts with caution and extreme sensitivity to the taxpayer’s personal circumstances,” Gibson said. “Stress and fatigue are factors requiring consideration, even in instances where taxpayers have not experienced any personal illness or monetary loss from the pandemic. In most cases, revenue officers may request that taxpayers provide documentation, but will not warn taxpayers of enforcement action, except in exigent circumstances.”
“The memo notes that, while SB/SE cannot anticipate and provide guidelines for every possible situation, it remains vitally important for all front-line SB/SE employees to be sensitive to the individual circumstances of taxpayers and provide them with appropriate relief,” Gibson said.
