Category: IRS and Coronavirus

How Corinavirus – COVID-19 – is impacting IRS collections practices and policies

Who is a fault for the IRS’s Incredible Incompetence?

Millions of calls from taxpayers to Taxpayer Service never get answered. After spending hours on hold, you might hear a click and then a dial tone. This is the IRS’s ‘curtesy hang-up’ because their computer has calculated they will not get to your call today.

Millions of IRS notices have gone out asking “Where is your 2020 Tax Return?”.  Recently they admitted to more than 8 million unprocessed returns sitting in stacks somewhere. Their computers show nothing filed as a result, and the taxpayers are left with two bad options. One – ignore the notice on the assumption that sooner or later the IRS will get their return processed, or Two – send in another copy and further add to the backlog.

Who is responsible for this incredible mess? Interestingly enough – it’s not the IRS people. It’s Congress.  I recently heard on a podcast by some very credible tax attorneys on just how the IRS budget works. Now bear in mind that the Federal Government spends a lot of time and money on hiring a competent Commissioner to oversee the IRS. However, that person has his or her hands tied behind their back from the get-go. The IRS does not get a lump sum authorization of money to run its operations. Instead, the budget is allocated to various functions. Some for answering phones, some for processing returns, some for audits, etc. If the demand for answers on the phones goes up, the commissioner cannot simply reassign auditors to help with the shift in demand. This is ludicrous. Why bother hiring high-end people to run the joint, if you are not going to give them the authorization to actually do the job?

The latest government budget bumps the IRS share by more than 12 billion dollars. Maybe it will help them get their act together with answering the phones and processing. I don’t think I will take that bet.

Are You One of the 7M Non-Filers?

Are you among  an estimated 7 million ‘non-filers’ in the USA? If you are, I’ll share bad news and good news. But first let’s look at the term non-filer:

Definition of a Non-Filer

According to Farlex Financial Dictionary (2009, accessed June 21, 2020),

“A non-filer is a person or corporation who does not file a tax return by the required date. In general, a person who has filed taxes once must continue to do so for the rest of his/her life (or existence, if a corporation).”

Let’s break that down a bit:

  • You’re a non-filer if you didn’t file in 2018 but did in 2017
  • You’re still  OK if you haven’t filed for 2019; the filing date was moved to July 15 2020 due to coronavirus
  • You’re a non-filer if you haven’t filed federal taxes in ten years (or 2-9 years for that matter) but did for some prior year(s), as required.
  • You’re a non-filer if you’ve never ever filed taxes (and were not exempt from filing).

As you might imagine, the longer it’s been, the more complicated it can be to get caught up, and the heavier the potential consequences in terms of interest, fees and penalties (25% of the original amount owed). If you have not filed because you know you’ll have tax debt you can’t pay, avoiding these penalties is your top priority.

I can guess the question many want answered: “What’s  my chance of staying  a non-filer forever—of flying under the radar ’til the statute of limitations runs out and I’m home free?”

Here’s the reality check, some bad news followed by good news:

The Bad News About Being a Non-Filer

The bad news (it may be news to you) is that if you are owed a refund you must claim it timely (within 3 years) or lose it. Read more about this in my post about the non-filer who believes all is good as the IRS owes him.

The other bad news  for non-filers is that data being collected about us in this digital age is being  scrutinized by IRS like never before. At one time it was easier to ‘get lost in the crowd’ and not file federal tax returns. But the IRS now has programs to identify and collect from people who are not filing and should be. The IRS is using public and private databases such as driver license records. By cross-referencing databases they can determine who is likely to be earning money that would require them to file.

The Good News for Non-Filers

What many others want to know of course, “Is there a legal way out that won’t bankrupt me or put me in money misery for ever?”

The first piece of good news for non-filers is that regardless of how many years have passed since you filed, to ‘catch up’ you only need to file the last six years. This fact could positively influence your timing. The second piece of good news is that the IRS wants a fresh start with non-filer citizens. It wants to kiss and make up, and get paid something. The steps to get square with the IRS are not complex, but choosing the best option for  your financial situation can be. You might also need help devising and carrying out a strategy to pay the least amount. That’s where I come in as your tax advisor and representative. If you’re a non-filer and have decided to explore getting square, I recommend you take me up on a free, confidential phone consult.

I’m CPA Jim Payne, your tax advisor and representative. I look after your interests. I look forward to serving you, saving you money, and releasing you from much of the stress and anxiety of dealing with the IRS or State of Florida tax authorities. Please text or call me at 352-317-5692 or email me for your free phone consult.

Make Hay During IRS Pay Vacation

In response to the coronavirus pandemic, the IRS announced March 25 it was suspending most collection efforts including the requirement to make monthly payments on installment plans (You’ll need to contact your bank to suspend the payments through July. A phone call should do it). Further, no automated levies and liens will be initiated until July 15.  The IRS will also stop telling the State Department to suspend delinquent taxpayers’ passports.

This post is for those of us who have been paying (or plan to pay) our IRS tax debts, and coronavirus has messed-up our finances. So,  should we just chill — take the payment vacation, and watch Netflix?

(If you can’t pay or chip away at your tax debt in the foreseeable future, read about how to obtain uncollectable status.)

If You Must, Defer Your Payments

So. If you are truly strapped, with no light in sight yet, taking the payment vacation may be the lifeline you need to put food on the table! Just remember that the debt hasn’t gone away, it’s just dozing and July 15 is right around the (ahem) coroner. So, be ready to start paying again, AND, act now to renegotiate your payment amount or cut your tax debt.

Act During IRS Pause to Renegotiate Payment Plan or Prepare a Pay-Less Compromise Offer

If you have a large or unresolved tax debt or run a business affected by the nationwide shutdown, you must get cracking on a recovery plan. One opportunity is to renegotiate your IRS Payment Plan. After all — if your business is hurting,  even future cash flow may not support your current payment plan. You’ll have to submit a new Form 433-a to document your Post-COVID-19 financial reality.

Learn Your Reasonable Collection Potential

IRS uses Form 433 to gather future-income data from delinquent taxpayers. The data is used in a formula that yields a  Reasonable Collection Potential (RCP) —a future-earnings dollar value the tax agency expects it can collect.

As a tax representative, I employ the same RCP formula with proprietary software so my clients can know in advance what the IRS expects to collect, based on the latest form 433 data.  This can help you, as noted above, to establish or renegotiate a payment plan; or if feasible, to save major money by offering to settle your IRS tax debt for less than you owe.

IRs Accepts 40% of Compromise Offers

IRS calls such gambits ‘Offers-in-Compromise’ (OIC) and in 2018 rejected 60% of these offers.  The key to landing in the 40% of accepted OICs is an offer close to your RCP. There are other factors, including timing. Which brings us back to the value of filling out or updating your form 433 and determining your RCP now.

Wait, It gets even better!

Tweak Your Reasonable Collection Potential

Now, while you have the time, during this pause in IRS collections activity, you can actually Change (Lower) Your IRS Collection Potential, to save even more money by taking certain steps. My linked article has more details.

Have a Pending Compromise Offer? Modify It, As Needed, by July 15

Do you have a pending Offer-in-Compromise? You now have until July 15th to modify the offer and document changes the coronavirus shutdown is having on your business. Also, any payments that were due with the offer are suspended until July 15.

If you or someone you know needs help with an IRS or state tax issue, please feel free to contact me at either (352) 317-5692 or via email.