IRS offers to help struggling taxpayers

January 7, 4:15 PMNY Consumer Affairs ExaminerAsa Aarons

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In a sign of unexpected compassion--or just how seriously the economy has fallen--the IRS is reaching out to financially strapped taxpayers. Depending on the circumstances, it may allow taxpayers to adjust payments for back taxes, avoid default on payment agreements or defer collection action.

"The IRS will do everything it can to help during these tough times,” IRS Commissioner Doug Shulman said, adding that the agency was trying to balance its "responsibility to enforce the law with the economic realities facing many American citizens today." He said IRS employees have flexibility to work with struggling taxpayers, "especially those who’ve done the right thing in the past and are facing unusual hardships.”

The announcement came just hours before National Taxpayer Advocate Nina E. Olson recommended two actions to help struggling taxpayers. In the annual report she released today, Olson urged Congress to simplify the tax code and advocated support of taxpayers caught in the economic downturn. “It is imperative for the IRS to consider the circumstances of taxpayers facing economic hardship before initiating enforcement actions,” Olson wrote.

Both the tax code and IRS procedures require IRS employees to consider the potential economic impact of collection actions and whether they will impose an economic hardship on the taxpayer. Nonetheless, Olson stated, “current IRS guidance provides little direction to help IRS employees identify taxpayers who are experiencing economic hardship and prevent undue economic burden.”

But the IRS said it is already strengthening efforts to help taxpayers injured by the recession. The agency has created a list of “What If?” scenarios on its website, offering  advice to taxpayers with financial problems. Taxpayers can refer to the scenarios for specific actions or contact the IRS to discuss additional options if they're unable to pay all the tax due on their 2008 returns.

Other potential IRS assistance includes:

• Postponement of Collection Actions: The IRS may be able to suspend collection actions against taxpayers who recently lost jobs, rely solely on Social Security or public assistance, or face devastating illnesses or significant medical bills.
• Leniency for Missed Payments: The IRS may allow previously compliant taxpayers to skip a payment on an existing installment agreement or reduce the amount they pay monthly in the event of job loss or other hardship.
• Reconsideration of Offers in Compromise: An Offer in Compromise is an agreement between a taxpayer and the IRS that settles outstanding tax debt for less than the full amount owed. In theory, it's an option for taxpayers experiencing economic difficulties. However, the agreements consider the equity the taxpayers have in their homes. "With the uncertainty in the housing market, the IRS recognizes the real-estate valuations used to assess ability to pay may not be accurate," the IRS acknowledged. As a result, the IRS will now take a second look at property valuations when the accuracy is in doubt or unusual hardship exists.
• Prevention of Defaults: The IRS will work with taxpayers who are unable to make payments as agreed under the terms of an existing Offer in Compromise to help them avoid default.
• Speedier Delivery of Levy Releases: The IRS is easing requirements on some taxpayers seeking release of a levy--the legal seizure of money or property to satisfy a tax debt. Taxpayers who request the release of levies to an employer or bank for hardship reasons can contact the IRS at the number shown on their notice of levy to discuss options.