IRS Commissioner Charles Rettig has gone on the record to tell taxpayers that it is a good time to resolve tax issues with the IRS. The Commissioner likely directed his comments towards many unresolved tax debtors and non-filers. IRS non-filer enforcement is a priority at the IRS, in 2020 and in the future. Taxpayers with unfiled back returns and who likely owe for the unfiled years will be the primary enforcement targets.
Tax debtors who are not in a collection agreement with the IRS should look to get right with the IRS while IRS enforcement is on hold.
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Taxpayers may want to act immediately because of these 5 reasons:
The IRS is likely going to stay “kinder and gentler,” even after the pandemic: the IRS understands the high level of unemployment and financial struggles taxpayers are experiencing. This mindset will likely make it easier for taxpayers (even taxpayers who are in a current payment plan with the IRS) to negotiate non-collectible status. Non-collectible status, or “currently not collectible,” allows taxpayers to defer making payments on their tax debt until their finances get better in future years. If a taxpayer’s finances do not get better before the collection statute expiration date (generally 10 years from when the tax is assessed), the IRS may write off the debt.
The IRS is going to be bogged down: taxpayers who want to get into an agreement will face issues navigating the overwhelmed IRS. IRS mail and phone call backlogs will take them months, if not over a year, to answer and resolve. Taxpayers who want to get into a collection agreement based on their current circumstances should start now with evaluating options and executing their collection agreement with the IRS. IRS Collection phone lines are open, and taxpayers can call/mail the IRS with information/forms to obtain a collection agreement. This includes applying for a payment plan, currently not collectible status, or for an offer in compromise.
There may be future stimulus payments – and the amount you get may be based on your status with the IRS: normally, stimulus payments are kept by the IRS if the taxpayer owes back taxes. Not true for the first round of COVID-19 CARES Act stimulus payments. The payments were paid to taxpayers regardless of whether the taxpayer owed the IRS and was in good standing on their tax issues. Big questions remain on the next steps: Will there be another round of stimulus payments to taxpayers? Will there be different rules for non-filers and tax debtors? We can all speculate, but being “in compliance” (i.e. filed all past returns and in a collection agreement on past balances) is always the safest position. The first round of stimulus payments likely induced many prior non-filers to now file a return. Any future stimulus may have conditions that the taxpayer is in good standing on their taxes.
You may now qualify for a hardship collection agreement -including a tax settlement: as a result of the impact of COVID-19, some taxpayers may be faced with a long-term financial hardship. Also, taxpayers may have liquidated many of their assets to pay for necessary living expenses during the pandemic. Lower asset values and little monthly income after necessary living expenses make for favorable settlement conditions for tax debtors. Now maybe the time to apply for that OIC.
Acting now can avoid future IRS enforcement actions: many non-compliant taxpayers, including those who were under the radar and filed a past-due return to obtain a stimulus payment, may find themselves subject to future IRS compliance enforcement. Once 7/15 arrives, taxpayers can expect the IRS to gradually ramp up to previous enforcement levels. The IRS may also activate these accounts based on recent information received on their tax return. Better to address the past issues now on your timeline than being pressured to comply on the IRS enforcement timeline.
3 steps to get right with the IRS
Taxpayers that are not in compliance with their tax obligations should follow three steps to get back into compliance:
First, they should research their IRS account and understand exactly what is needed to get back into compliance. This likely means calling the IRS and/or reviewing their IRS transcripts. Information such as unfiled tax years, penalties assessed, balances outstanding, and questionable IRS assessments are examples of what taxpayers can find when they research their account at the IRS. Taxpayers will also find out who they will need to deal with at the IRS to resolve their issue(s) (hint: it may be more than one IRS function).
Next, with the problem(s) clearly understood, the taxpayer can evaluate options and the steps needed to resolve their issue(s). For example, taxpayers with penalties should review penalty abatement opportunities. Taxpayers with balances owed can review collection alternatives. Taxpayers with questionable IRS tax assessments can review their tax records and understand what is needed to lower the amount owed, such as filing an amended return. Once options are evaluated and prioritized, the taxpayer can take action to resolve their issues.
Lastly, once the problem(s) are resolved, the taxpayer can put in measures to stay in good standing with the IRS. For example, taxpayers can increase withholdings to avoid additional balances owed.
This 3-step process will put you back in good standing with your IRS issues. But act now, after the pandemic is over, the IRS may not be as kind and gentle.
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