In the past, the Tax Resolution Institute has referred to the Internal Revenue Service as the largest collection agency in the world that will go after your delinquent income tax debts without blinking. What is a positive development is that sometimes even mammoth bureaucracies recognize the signs of the times and offer help in a recession. Seeing the how many American taxpayers are truly struggling, the Internal Revenue Service has announced new policies designed to help them meet their tax obligations, pay back taxes, and avoid tax liens and wage garnishments. The IRS also plans to forgive the back tax debts of small taxpayers and make tax liens less damaging to a taxpayer’s credit rating.

Although the economy has rebounded from its worst point, many American taxpayers and small to mid-size businesses are still battling to pay the bills and make proverbial ends meet. When a taxpayer has a delinquent tax debt and has avoided notices regarding the need to begin a payment plan, the IRS will issue a tax lien against the taxpayer’s property. The IRS describes this process as follows: “A lien informs the public that the U.S. government has a claim against all property, and any rights to property, of the taxpayer.” In other words, an IRS tax lien makes a taxpayers personal problems a public affair.

IRS Commissioner Doug Shulman Ponders the Struggles of the American Taxpayer

In addition, an IRS tax lien can have a devastating effect on a taxpayer’s credit rating. Realizing the difficulty faced by so many well-meaning taxpayers, the IRS has shifted policies. The new policies that are in the process of being instituted by the IRS include increased tax lien thresholds. As it presently stands, IRS tax liens are automatically filed at various dollar amounts for individuals with past due tax accounts. Since the interest on IRS tax debts is compounded daily, these thresholds have been reached with alarming speed.  IRS commissioner Doug Shulman explained the change of policy at a recent press conference: “Raising the lien threshold keeps pace with inflation and makes sense for the tax system. These changes mean tens of thousands of people won’t be burdened by liens, and this step will take place without significantly increasing the financial risk to the government.”

Focusing in the needs of lower-income Americans, the IRS has also expanded its Direct Debit Installment Agreement (DDIA) to help taxpayers who owe $25,000 or less in taxes. When taxpayers enter into a DDIA, the IRS will withdraw their lien. In addition, they will withdraw a lien if a taxpayer currently participating in a regular Installment Agreement converts to a DDIA or if the taxpayer is already participating in a DDIA and requests that the lien be withdrawn. It is important to point out that withdrawals will occur only after a taxpayer has completed a probationary period that proves that they will actually be making the direct debit payments. Without question, entering in a DDIA will be easier as well now that the IRS has set up the new Online Payment Agreement application on its website. Besides being easier to use, the online access will also mean lower user fees.

The American Taxpayer has felt the Increased Burden of Income Taxes in Recession

Currently, small businesses with under $10,000 in unpaid back taxes are able to participate in the IRS’s Installment Agreement program. This program helps businesses pay their taxes over 24 months as a last ditch alternative to a lien. Under the new policy, small businesses will be able to participate as long as they have less than $25,000 in unpaid tax liabilities. If a small business has over $25,000 in unpaid tax liabilities or payroll tax problems, they should contact the Tax Resolution Institute for help. TRI has extensive experience helping small businesses keep their doors open.

Middle and lower class taxpayers struggling to make payments are a large population. To help them, the IRS has expanded their Offer In Compromise (OIC) program. Currently taxpayers can only participate if they have a tax liability of less than $25,000. Taxpayers with annual incomes of $100,000 or less and tax liabilities of $50,000 or less can participate in this program that allows the IRS and the taxpayer to come to an agreement that settles the tax liability for less than the full amount owed.

Nina Olsson, the National Taxpayer Advocate tapped by Congress to monitor the IRS, was less than enthusiastic in her response. Although she called the changes “a significant step in the right direction,” she added, “They are not sufficient to address the problems we have seen.” The new rules generally prohibit the IRS from filing a tax lien unless the delinquent tax debt exceed $10,000, doubling the previous limit. The IRS also will ease the damage to taxpayers’ credit scores after the full amount of the back tax debt is paid.

National Taxpayer Advocate Nina Olson Is Not Satisfied

In an important technical move, the IRS will grant more taxpayers “lien withdrawals”—a higher level of forgiveness than the current “lien release.” According to Ms. Olson, full withdrawal is often better for credit ratings because it expunges the lien from the taxpayer’s record immediately. In contrast, a tax lien release leaves the damage on the taxpayer’s credit record for at least seven years. An IRS tax lien can easily knock 100 points off a person’s credit score. The highest credit score is 850 at FICO, a leading credit scorer. Borrowers often need a score in the 700s to qualify for the best rates on loans.

In another key shift, if a taxpayer has no hope of paying their tax debts, the IRS has expanded its Offer in Compromise program. The program allows taxpayers to settle their debt by paying a significantly lesser amount than they actually owe. Taxpayers with incomes of as much as $100,000 may now be eligible for the Offer in Compromise program if their total tax liability is $50,000 or less. The change doubles the limits of $50,000 of income and $25,000 of total tax due. If you need to find out whether you qualify for the new Offer in Compromise program, please contact the Tax Resolution Institute. Not only can we tell you whether or not you qualify, we can make sure that the IRS accepts an Offer in Compromise by making sure you are in full compliance. If you have unfiled tax returns, we will file them and bring you up-to-date.

The IRS said the new rules will reduce liens by “tens of thousands” but declined to be more specific. Criticizing the decision, Ms. Olson said the IRS’s changes don’t go far enough. The agency is often too quick to impose liens on people without checking their resources, she said, adding that the number of IRS tax liens surged to 1.1 million last year from 168,000 in 1999. Ms. Olson capped her criticism of the new program by pointing out that, “Such filings do not generate significant revenue compared with the financial devastation they visit on taxpayers.”

Most importantly, if you have a significant tax debt with the IRS, it is essential to take action sooner rather than later. As we pointed out, IRS tax debts are compounded daily so a bad situation quickly goes to worse and worse until it is a living financial nightmare. If you are experiencing this horrible state of affairs, whether it is unfiled tax returns or an IRS tax lien, a wage garnishment or an IRS tax levy, we can help restore the harmony back to your life. By contacting the Tax Resolution Institute, you are taking the first step in redeeming your tax nightmare and restoring the dream of your life. In addition, if you have severe payroll tax problems, TRI can help you keep your doors open and your business viable. If you need tax resolution services, feel free to contact the Tax Resolution Institute at 877-829-8370 or fill out our  tax resolution form.