The IRS says it will file fewer tax liens, which give the government legal claim to a taxpayer’s property for the amount of his unpaid taxes, and make it easier to remove the liens that are imposed from credit records once the debt has been settled. The IRS is also promising to expand its offer-in-compromise program, which allows individuals and small businesses that are truly unable to pay their back taxes to settle their debt for less than the amount owed.
“We are making fundamental changes to our lien systems and other collection tools that will help taxpayers and give them a fresh start,” IRS Commissioner Douglas H. Shulman says. “People will have a better chance to stay current on their taxes and keep their financial house in order.”
Not far enough
National Taxpayer Advocate Nina Olson, an independent watchdog who works on behalf of taxpayers, called the announcement “a significant step in the right direction” but said the new policies don’t go far enough.
Olson says the IRS’s plan to double the threshold for triggering automatic tax liens from $5,000 to $10,000 of tax debt does not address the underlying problem of filing liens against taxpayers with little or no property. Instead of automatic liens, she says, the IRS should evaluate liens on a case-by-case basis to determine the taxpayer’s financial situation and ability to pay.
Tax-lien notices are picked up by the three credit-rating agencies and remain on a taxpayer’s credit report for seven years from the date a tax liability is resolved — or longer if it’s not resolved.
“Increasingly, employers, mortgage lenders, landlords, car dealerships, auto insurance companies and credit card issuers utilize credit reports, so a tax lien has the potential to render someone unemployable, unable to obtain housing and unable to obtain car insurance or a credit card, at least at reasonable rates, for many years into the future,” Olson wrote in her latest annual report to Congress. “The IRS often collects nothing, yet it inflicts long-term harm on the taxpayer.”
The IRS says it will modify procedures to make it easier for taxpayers to obtain lien withdrawals. A lien that is “released” continues to be reflected on the taxpayer’s credit record for seven years or longer, while a lien that is “withdrawn” is treated as if it had not been filed and is removed from the taxpayer’s credit record.
Liens will now be withdrawn once taxes are paid in full. The IRS will also withdraw liens when taxpayers sign up for a direct-debit-installment agreement — authorizing monthly payments to be deducted from their bank account — as long as the unpaid tax debt is $25,000 or less. Liens will be withdrawn once it’s clear that the payments are going through.
Olson called the decision to provide lien withdrawal to taxpayers who enter into direct-debit-installment agreements “a prudent decision that should benefit taxpayers and the IRS.” Shulman noted that using direct-debit payments lowers set-up fees to users and saves the government money by not having to send monthly payment notices.
Read more at The Washington Post.