Major Changes Made to Lien Process
The IRS recently announced some new policies that are aimed at helping taxpayers get a fresh start with their tax liabilities.
“We are making fundamental changes to our lien system and other collection tools that will help taxpayers and give them a fresh start,” IRS Commissioner Doug Shulman said. “These steps are good for people facing tough times, and they reflect a responsible approach for the tax system.”
As stated, many of the new policies focus on tax liens and their effects on taxpayers. Changes include:
- Raising the threshold amount when liens are generally issued. This will result in fewer liens being filed.
- Simplifying the process for having a lien removed, once the underlying tax debt is paid.
- Removing a lien for most instances where a taxpayer enters into an Installment Agreement that is paid by direct debit.
- Expanding the Installment Plan options for small businesses with tax arrears.
- Streamlining the Offer in Compromise process.
Tax Lien Thresholds
The IRS will significantly increase the dollar thresholds when liens are generally filed.
A federal tax lien gives the IRS a legal claim to a taxpayer’s property for the amount of an unpaid tax debt. Filing a Notice of Federal Tax Lien is necessary to establish priority rights against certain other creditors. Usually the government is not the only creditor to whom the taxpayer owes money.
A lien is a public record. It informs the general public that the U.S. government has a claim against all property, and any rights to property, of the taxpayer. This includes property owned at the time the notice of lien is filed and any acquired thereafter. A lien affects a taxpayer's credit rating, so it is critical to arrange the payment of taxes as quickly as possible.
Tax Lien Withdrawals
The IRS will also modify procedures, making it easier for taxpayers to obtain lien withdrawals.
Liens will now be withdrawn once full payment of taxes is made if the taxpayer requests it. In order to speed the withdrawal process, the IRS will also streamline its internal procedures to allow collection personnel to withdraw the liens.
Direct Debit Installment Agreements and Liens
It used to be the case that once a lien was filed, it was nearly impossible to get the lien removed before the taxpayer paid off the tax debt in full. Soon, for taxpayers with unpaid assessments of $25,000 or less, the IRS will now allow lien withdrawals under several scenarios:
- Lien withdrawals for taxpayers entering into a Direct Debit Installment Agreement.
- The IRS will withdraw a lien if a taxpayer who is on a regular Installment Agreement converts to a Direct Debit Installment Agreement.
- The IRS will also withdraw liens on existing Direct Debit Installment Agreements upon the taxpayer’s request.
Liens will be withdrawn after a probationary period, provided the taxpayer demonstrates that direct debit payments will be honored. The specific length of the probationary period has not been published.
Installment Agreements and Small Businesses
The IRS will also make streamlined Installment Agreements available to more small businesses. Streamlined Installment Agreements are long term payment plans that can be set up easily, without the need to fill out detailed financial disclosures. The payment program will raise the dollar limit, allowing additional small businesses to participate.
Currently, installment plans for small businesses are restricted to tax debts that are no larger than $10,000. The new rules will allow installment agreements that last up to two years for small businesses with $25,000 or less in unpaid taxes. In order to participate, small businesses will need to enroll in a Direct Debit Installment Agreement.
Offers in Compromise
The IRS is also expanding a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers.
This streamlined OIC is being expanded to allow taxpayers with annual incomes up to $100,000 to participate. In addition, participants must have tax liability of less than $50,000, doubling the current limit of $25,000 or less.
The IRS is NOT changing the eligibility requirements for achieving a tax settlement through the OIC program. OICs are still subject to acceptance based on IRS requirements. The new changes aim to move more OIC cases through the system, clearing out a backlog that has been growing over the past few years of economic downturn. Faster resolution on OIC cases will help taxpayers put problems behind them and get a new start.