The IRS recently unveiled a new program to help struggling individual taxpayers and small business owners pay off tax debts and avoid tax liens.
The new program is the latest in a series of efforts designed to assist taxpayers who can't pay. In 2008, the IRS provided lien relief for individuals trying to refinance or sell their homes. A year later, the tax agency created more flexibility for taxpayers facing payment problems.
Here's a brief summary of the new five-step program.
Step #1: Increase the dollar threshold for issuing tax liens.
The new rules generally prohibit the IRS from filing a lien unless unpaid taxes exceed $10,000. This doubles the previous limit of $5,000, which had been in effect since the mid-1980s. The IRS plans to review the results and the impact of this change in about a year.
A federal tax lien gives the IRS a legal claim to the taxpayer's property for the amount of an unpaid tax debt. Usually the government isn't the taxpayer's only creditor. The lien notifies the public that the U.S. government has a claim against all of the property -- and any rights to property -- of the taxpayer.
If there is a federal tax lien on a taxpayer's home, the lien must be satisfied before the taxpayer can sell or refinance the home. There are a number of options. Normally, if there is equity in the property, the tax lien is paid (in part or in whole depending on the equity) out of the sales proceeds at the time of closing. If the home is being sold for less than the lien amount, the taxpayer can request the IRS discharge the lien to allow for the completion of the sale. Taxpayers or lenders also can ask that a federal tax lien be made secondary to the lending institution's lien to allow for the refinancing or restructuring of a mortgage.
Step #2: Make it easier for taxpayers to obtain lien withdrawals after paying a tax bill.
The IRS will modify its existing procedures so that taxpayers can obtain lien withdrawals with less hassle. Liens can now be withdrawn once full payment of tax is made if the taxpayer requests it. The IRS has determined that this approach is in the government 's best interest. Furthermore, to help streamline the process, the IRS will also modify its internal policies to allow collection personnel to withdraw liens.
Step #3. Withdraw liens in most cases if a taxpayer enters into an installment agreement.
For a taxpayer with an unpaid assessment of $25,000 or less, the IRS will now allow lien withdrawals in these situations:
- If a taxpayer enters into a Direct Debit Installment Agreement (DDIA), which automatically takes payments out of a bank account.
- If a taxpayer on a regular Installment Agreement converts to a DDIA
- If a taxpayer with an existing DDIA requests a lien withdrawal
- Liens will be withdrawn after a probationary period demonstrating that direct debit payments will be honored.
Step #4: Allow greater access to Installment Agreements for struggling small businesses.
The IRS will offer streamlined Installment Agreements to more small businesses. A small business with $25,000 or less in unpaid tax will be able to participate. Currently, only a small business with less than $10,000 in unpaid tax can participate. Small businesses will have 24 months to pay off the debt.
A streamlined Installment Agreement will be available for a small business that files either as an individual or as a business. Small businesses with an unpaid assessment amount greater than $25,000 would qualify for the streamlined Installment Agreement if it pays down the balance to $25,000 or less. To participate, the small businesses must enter into a DDIA.
Step #5: Expand a new streamlined Offer in Compromise (OIC) program to cover more taxpayers.
The new streamlined program will be available to taxpayers with annual incomes up to $100,000. Also, a participant can have a tax liability reaching as high as $50,000. This doubles the current limit of $25,000.
An offer-in-compromise is an agreement between a taxpayer and the IRS settling the taxpayer's debt for less than the full amount owed. Generally, offers aren't accepted if the IRS believes that the liability can be paid in full as a lump sum or through a series of payments. The IRS examines the income and assets to arrive at a determination regarding a taxpayer's ability to pay off the debt.
If you'd like more information, feel free to contact me, or your local tax provider.
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