Changes Include Beneficial Payment Plan Options, Less Financial Disclosure for Many with Balances Due, and Ability to Delay Collection Actions
This has been a difficult year for many American taxpayers. In recognition of the job losses, business closures, and other uncertainties caused by COVID-19 and the related shutdowns, the Internal Revenue Service (“IRS”) has taken many important administrative steps to lessen the burden on citizens. For instance, back in March, the IRS announced the People First Initiative, which suspended collection actions against delinquent taxpayers for months and provided more time to provide financial information for pending Offers in Compromise and installment agreements, among other things . In addition, around the same time, the IRS postponed the deadlines for filing most returns, waived procedural requirements, and delayed payment dates for income taxes and employment taxes for many taxpayers. In that vein, on November 2, the IRS announced the Taxpayer Relief Initiative and took additional steps to make it easier for taxpayers to enter into installment agreements and otherwise deal with looming tax debts.
Goals of the Taxpayer Relief Initiative
Building upon the People First Initiative, the Taxpayer Relief Initiative expanded some of the administrative graces offered by the IRS. This additional relief is particularly helpful to those taxpayers with a general record of filing and payment compliance. As specified in press releases, the main policy goals of the Initiative are as follows:
- Use “existing rules for immediate, broad-based relief from unpaid liabilities resulting from COVID-19 issues;”
- “[R]emove bureaucratic barriers and expand flexibilities to all taxpayers who financial condition has been affected by COVID-19;” and
- “[B]alance the relief against the need to uphold the nation’s tax laws,” including to maintain resources to manage “complex cases and egregious non-compliance,” “work to secure the government’s interests in the event of future bankruptcies,” and “uphold the laws and help ensure fairness.”
New Collection Details for Delinquent Accounts
To further these overall goals, the IRS indicates that it will make the following administrative changes to its collection program for the time being:
- For individual taxpayers with liabilities of up to $250,000 for tax year 2019 only, the IRS can provide an opportunity for an installment agreement without filing a Notice of Federal Tax Lien. (Press releases are not clear about the required terms for these agreements.)
- The IRS is extending the short-term payment plan timeframe from 120 days to 180 days.
- For individuals with cases not yet assigned to a revenue officer, the IRS is allowing for non-streamlined installment agreements of up to $250,000 without the need to provide financial verification “if their monthly payment proposal is sufficient.” (The exact terms of this new procedure are not yet known.)
- New tax balances will be automatically included in existing installment agreements. (Previously, incurring a new balance would result in default of an installment agreement.)
- The IRS will provide additional relief for those with difficult meeting the terms of accepted Offers in Compromise.
- Qualified taxpayers with existing direct debit installment agreements can use the Online Payment Agreement system to propose lower monthly amounts and change dates of required payments.
Aside from these new options for taxpayers, through the Taxpayer Relief Initiative, the IRS highlights some of the other administrative provisions that offer relief for taxpayers affected by COVID-19. For instance, taxpayers without income or ability to pay may request “Currently-Not-Collectible” status, which will offer temporary suspension of collection activity. Taxpayers are also reminded of options for abatement of penalties including the “reasonable cause” defense and the First-Time Abatement policy. Finally, the IRS indicates that taxpayers should be proactive in addressing their compliance issues and that most of these new administrative tools require active participation towards resolution.
Advice Still Necessary to Weigh Your Options
While the Taxpayer First Initiative offers potentially significant benefits for those with tax compliance issues, taxpayers will still benefit from the advice of seasoned counsel. Aside from these new and improved options, other collection procedures and defense may be more appropriate. Given the recency of this guidance, the exact terms – and potential problems – associated with Taxpayer First Initiative. Moreover, there are a significant number of taxpayers and businesses who will (1) not qualify for the relief provisions described by the Initiative, (2) require significant assistance in addressing compliance issues to qualify for the relief provisions (e.g., filing previously unfiled returns or substantiating reasonable cause), or (3) need to address compliance outside of these options as a result of exposure to other civil and criminal penalties. A tax professional can also help taxpayers to properly consider the collection landscape upon the expiration of the Taxpayer First Initiative or upon the installment of a new administration in 2021.