The last few articles I have written have been concerned with tough times, either economically or socially or especially as regards taxes and the collections thereof. Fortunately, there have been some recent developments which show that there may be some hope on the horizon.
Right now we are overall in the midst of some fairly tough times economically. Unemployment is way up, stores are closing, prices have gone a little bit crazy and there are various other indications of a general economic downturn. In the midst of all this, the IRS has seen fit to announce a very substantial change in their policy as regards tax collections. In a nutshell, the Commissioner of IRS has, as of early January 2009, instructed his troops in the field to cut the taxpayers who own money to the government a little bit of slack. This doesn’t mean to stop trying to collect the money; but it does mean that the IRS will be a little bit more reasonable about the manner in which they try to collect this money.
For example, the Offer in Compromise program was pretty effectively gutted over the past several years by a combination of IRS and congregational actions. For the most recent reporting year, over 75% of all submitted Offers were rejected. Combine this with the following facts: a) taxpayers now have to submit 20% of their total Offer amount along with their Offer in order for it to be a valid Offer; b) the IRS gets to keep that money whether the Offer is accepted or rejected; and c) The amount the IRS would accept as a valid Offer was based on the most incredibly optimistic interpretation possible of that taxpayer's financial condition.
All this together results in Offers in Compromise becoming a very impractical way of attempting to address IRS collections situations for most people. Consider for a moment; if you want to make an Offer to settle your IRS debt for $10,000, it means you have to submit $2,000 with the application, and the odds are 3 out 4 that the IRS is going to come up with an unrealistically high number for what you could afford to pay them and thus reject your application and keep the money anyway, after which time they’ll continue trying to collect the remaining unpaid debt. This is not a happy situation and discouraged a lot of people from even trying to make Offers.
Part of this most recent IRS announcement was the fact that they were going to now be evaluating Offers using property values which had some relation to reality and would even be willing to go back and reopen Offers which were previously rejected based on unrealistic valuations for real estate. The troops in the field have also been instructed to allow some time for taxpayers to get themselves back together financially in the event of a change in their fortunes; and to allow taxpayers to miss a payment or two (or maybe even more) on a payment plan as long as they work closely with the IRS regarding the missed payments. Other concessions to economic reality were also made.
All in all, this is a good thing and means that it should be much more realistic for people to be able to settle or at least address their unpaid tax liabilities with the IRS without having to spend enormous amounts of money on representation fees. This is good news for the average American and probably even good news for the overall economy.
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William D. Truax, E.A., a tax practitioner & financial consultant for over thirty years, is founder of William D. Truax, E.A. Tax Advisors (www.truax.net), in Glendale , CA --experts at tax prep, planning & representation.
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