IRS Collection Action, IRS Levy, IRS Tax Lien, IRS Audit

IRS collection action is down. There are fewer IRS audits, IRS levy and IRS Tax Lien filings. The IRS budget expenditures are lower and there is a reduced IRS workforce. While IRS collection action is down, taxpayer service and taxpayer rights are being jeopardized.  [See The 2017 IRS Data Book (released March 29, 2018) describing activities conducted by the IRS from Oct. 1, 2016, to Sept. 30, 2017].

Examinations and appeals – fewer audits:

Compared to the prior year, there were fewer IRS audits and IRS collection action is down (e.g., IRS levy, IRS Tax Lien filing) during fiscal year 2017.  The IRS audited almost 934,000 individual income tax returns during the fiscal year, the lowest number of audits since 2003. The chance of being audited fell to 0.6 percent, the lowest coverage rate since 2002.

Tax-related Identity theft – the fight continues:

In fiscal year 2017, the IRS also continued a years-long effort to fight tax-related identity theft. The IRS Criminal Investigation Division completed 524 criminal investiga­tions of tax-related identity thefts.

Changes in IRS enforcement activities – IRS Levy action down and fewer IRS Tax Lien filings:

IRS collection action fell during the fiscal year. IRS levy action was down 32 percent compared to the prior year, and the agency filed about 5 percent fewer IRS tax liens than in fiscal year 2016.

FY 2016

FY 2017

Number of offers received

63,000

62,000

Number of offers accepted

27,000

25,000

Number of federal tax liens filed

470,602

446,378

Number of notices of levy requested on 3rd parties:

869,196

590,249

Number of seizures

436

323

IRS budget and workforce levels when compared to fiscal year 2016 – down.

IRS’s actual expenditures were $11.5 billion for overall operations in Fiscal Year (FY) 2017, down from more than $11.7 billion in FY 2016

In FY 2017, the IRS used 76,832 full-time equivalent positions in conducting its work, a decrease of 14.9 percent from 2012.

The National Taxpayer Advocate also sheds some light on the current situation.

Taxpayer Services Reduced.

National Taxpayer Advocate Nina Olson, informed lawmakers recently that only about 4 in every 10 callers to IRS hotlines will be able to get through to a live operator to answer their tax questions during the fiscal 2018 filing season. The IRS plans to reduce telephone interactions with taxpayers and rely instead on more web-based services and tax practitioners. “Because of the IRS’s archaic telephone technology and operations, taxpayers face long wait times with the worry that the IRS’s telephone assistors will not be able to answer their questions if they are able to get through.”

Private Debt Collectors – a negative cash flow.

According to the Taxpayer Advocate, the use of Private Debt Collectors is not generating net revenues, appears to have been implemented inconsistently with the law, and burdens those taxpayers experiencing economic hardship. The Taxpayer advocate summarizes that according to the IRS, for Fiscal Year 2017, the Private Debt Collection program generated $6.7 million of payments from  taxpayers, but cost $20 million. At the same time, the IRS pays commissions to PCAs on payments from taxpayers that are attributable to IRS, rather than Private Debt Collector action.

Offer in Compromise Program – Still needs improvement.

The IRS continues to hold an exaggerated view of  taxpayer’s reasonable collection potential. This results in the IRS rejecting an Offer in Compromise which should have otherwise been accepted. The Offer in Compromise may be considered a potential alternative to IRS collection action.  However, an Offer in Compromise, absent special circumstances,  will not be accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement. This involves determining the taxpayer’s reasonable collection potential.

Citing a prior 2004 report, the Taxpayer Advocate advised that the IRS  is often overly optimistic in its view as to the collection potential from taxpayers with rejected offers.  Now, updated with the results of a current study,  the Taxpayer Advocate, advises that, “The IRS secures at least as much (often more) than the offered amount in 60 percent of the OICs it rejects. However, in the remaining 40 percent, the IRS has only collected a third of the amount offered through subsequent payments.  Overall, even after we factor in refunds offset to satisfy the delinquent liabilities, the IRS still collects significantly less than the amount offered on rejected or returned OICs” (emphasis added).

The Taxpayer Advocate, continued: “…when examining rejected OICs, the IRS determined reasonable collection potential was over 15 times the amount offered, and over 40 times the amount actually collected. While the rejection of the OIC is sometimes appropriate, in many instances, the IRS often has an exaggerated view of the taxpayer’s reasonable collection potential, with the dollars collected being less than the amount offered, and significantly less than the amount the IRS determined as the taxpayer’s reasonable collection potential.”

The Taxpayer Advocate recommended that the IRS should consider devoting more resources to obtaining acceptable OICs from taxpayers who seek to compromise their liabilities. See Offer in Compromise acceptance rate, and  IRS Offer in Compromise – will mine be accepted or rejected?

Reduced Training and reduction in competent advice and taxpayer services.

“The IRS has reduced its employee training budget by nearly 75 percent since fiscal year (FY) 2009. Not only has the budget for training drastically declined, but the way in which employees receive that training has shifted from in-person face-to-face training to virtual training. IRS employees cannot be expected to provide competent advice and adequate service to taxpayers who present myriad issues when they do not receive training timely or effectively. The downstream consequences to the IRS and taxpayers, including rework, misleading or incomplete advice, improper compliance actions, and distrust in the IRS serve to further degrade the relationship between the IRS and taxpayers, and violate the taxpayer rights to be informed, to quality service, and to a fair and just tax system. Employees must receive timely, comprehensive, and effective training in order to protect taxpayer rights and provide top quality service to taxpayers.” (Taxpayer Advocate Service – 2017 Annual Report to Congress).

For additional problems and recommendations, see the NATIONAL TAXPAYER ADVOCATE

Annual Report to Congress 2017.

 

 

Offer in Compromise acceptance rate

What are the current IRS statistics on the Offer in Compromise acceptance rate?

The Offer in Compromise acceptance rate is 40.32 percent. The IRS Data Book for 2017 (released March 29, 2018) shows that  62,000 Offers were received with 25,000 being accepted. Thus, the Offer in Compromise acceptance rate was  40.32 percent and the Offer in Compromise rejection rate was 59.68 percent. The Average Dollar amount of the Accepted Offers was $10,234.48.

The Offer in Compromise is a collection alternative.  The policy behind the Offer in Compromise program is to afford taxpayers a “fresh start”, while collecting what is potentially collectible at the earliest time, and at the least cost to the government. As such, an Offer in Compromise may be a more attractive alternative than a protracted installment agreement. The Offer may also be a good alternative to having the IRS place an account in currently not collectible status (with interest continuing to enlarge the bill).  Another benefit to the Offer in Compromise is the release of federal tax liens. However, one must remember that the Offer in Compromise is a proposal by a taxpayer to the Federal Government to settle a tax liability for payment of less than the full amount owed. It is a long process, and over the last 4 years, about 59.20 percent of Offer in Compromise proposals are rejected.  Absent special circumstances, an Offer in Compromise will not be accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement. There has been a continuing history of the IRS not administering the Offer in Compromise program in a proper manner to achieve the intent of the law.

When you compare the above most recent Offer in Compromise acceptance rate statistics (Fiscal Year 2017) with Fiscal Years 2014 through 2016,  the acceptance and rejection percentages are about the same.  The average Offer in Compromise acceptance rate for such years being 40.80 percent. The average Offer in Compromise rejection rate is 59.20 percent.   However, the Average Dollar Amount of Accepted Offers is steadily increasing each year (i.e., from $6,642.74 to $10,234.48).

The IRS Data Books for 2016 and 2015, show the number of IRS Offers in Compromise received, number of Offers accepted, and the total dollar amount of the Offers accepted as follows:

FYTTL Offers ReceivedOffers Accepted% Accepted% RejectedAverage $ Amount of Accepted Offers (Derived)
201663,00027,00042.8657.14$225,946,000 /27,000= $8,368.00 Average
201567,00027,00040.359.7$204,748,000 / 27,000= $7,583.00 Average
201468,00027,00039.7160.29$179,354,000 / 27,000= $6,642.74 Average

Your specific facts and circumstances and skilled representation determine your specific results.  The Taxpayer Advocate has made recommendations to improve the Offer in Compromise program.

IRC Section 7122(b) requires that in civil cases where the unpaid amount of tax assessed (including any interest and other additions) is $50,000.00 or more, the Treasury Department’s General Counsel review and provide an opinion in support of accepted Offers in Compromise. The Taxpayer Advocate believes that the present Counsel review procedure burdens taxpayers and the government by significantly delaying Offer in Compromise decisions.The Taxpayer Advocate also recommends repealing of the Partial Payment requirements for both “lump sum” and “periodic payment” offer applications. Hopefully, such recommendations will be acted on.

IRS Collection Standards revised March 26, 2018

The IRS has issued revised National and Local standards (IRS Collection Standards) for calculating repayment of delinquent taxes. These revised IRS Collection Standards are effective March 26, 2018.

These “standards” are used by the IRS in cases requiring financial analysis to determine a taxpayer’s ability to pay on delinquent taxes. As such, they impact, installment agreements, Offers in Compromises, determinations of undue hardship, and collection matters.

Overview of Changes to IRS Collection Standards:

National Standards – Food, Clothing and  Other Items.

The revised Total allowances for Food, Housekeeping supplies, Apparel & Services, Personal Care Products & Services and Miscellaneous were increased by varying amounts for each Family Size category ranging from a .435 Percent increase to a 6.183 Percent increase. The Additional Person allowance (above 4 persons) was increased by 9.84 percent.

National Standards – Out of Pocket Health Care Expenses.

The Out of Pocket Health Care Expense Allowance was increased by 6.122 percent (from $49. to $52.) for the under age 65 category.

But, the allowance for the age 65 and older category was decreased by 2.56 percent (from $117. to $114.).

Local Standards – Transportation.

The Public transportation allowance was reduced from $189.  to  $178.

On the other hand, the Ownership Costs for one car and for two cars were each increased by 2.47 percent.

Operating Costs by region were revised, with some geographic regions having increased allowances while others were reduced.

Local Standards – Housing and Utilities.

          These standards were also revised by state and county.

IRS Collection Standards – Not in compliance with the law?

A substantive legal problem, apparently ignored by the IRS, continues to exist as to the IRS Collection Standards. The law mandates that the IRS collection standards are to provide for an adequate means to provide for basic living expenses.  In contrast, the IRS computation is based upon what people spend to live, not what goods or services actually cost to live.  Just because your family can’t afford to pay for a basic living expense, doesn’t mean that it is no longer a basic living expense. But, this is how the IRS determines its allowances.  The Taxpayer Advocate has continued to recommend that the IRS adopt proper standards. The IRS has not. See Your basic standard of living and determining “ability to pay”. Is the IRS not following the law? ; and providing for retirement is necessary for a family’s health and welfare). Also, IRS Collections continues to routinely “impose” these “standards” and ignores the legal requirement that they take into account a taxpayer’s particular facts and circumstances.

The Current IRS Collection Standards are referenced at this link.

 

Tax Cuts and Jobs Act of 2017: Impact on IRS Collection Financial Statement Submissions and Substantiation

To determine the allowable National Standard for food, clothing, and other items, the IRS generally bases the allowable National Standard expense on the number of persons allowed as exemptions on the taxpayer’s most recent year income tax return (see IRS National Standard, food, etc…, as of March 14, 2018).  However, for tax years 2018 through 2025, H.R. 1-115th Congress (the Tax Cuts and Jobs Act) reduced the deduction amount for personal exemptions to “zero”.  The IRS will be modifying the tax forms for this and other changes. However, for tax year 2018 and future individual returns, it would appear necessary that the IRS continue to have at least some information for personal exemption information on the tax form (e.g., pages 1 and 2 of F 1040).  Why?  Other tax provisions still utilize the number of taxpayer’s “dependents”.  For example: to determine property exempt from levy – Tax Cuts and Jobs Act Section 11041 (d)(4)(A) and (B);  wage withholding rules – Tax Cuts and Jobs Act Section 11041 (c)(2)(B); and, Child Tax Credit – Tax Cuts and Jobs Act Section 11022(a).  If this “exemption” / “dependent” information doesn’t continue to be set forth on the face of the F 1040 returns (for tax years 2018 and following), then it would appear that additional forms and/or documentation may be required as part of the substantiation process for IRS Collections Financial  Statements  (e.g., for 433 A433 F)  to determine (and verify) your “allowable” National Standard expense Allowances.

IRS Offer in Compromise - will mine be accepted or rejected?

An IRS Offer in Compromise is an agreement between a taxpayer and the Federal Government that settles a tax liability for payment of less than the full amount owed. Absent special circumstances, an Offer in Compromise will be rejected if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement.

What are your chances of having your IRS Offer in Compromise accepted?

The IRS Data Books for 2016 and 2015, show the number of IRS Offers in Compromise received, number of Offers accepted, and the total dollar amount of the Offers accepted as follows:

FYTTL Offers ReceivedOffers Accepted% Accepted% RejectedAverage $ Amount of Accepted Offers (Derived)
201663,00027,00042.8657.14$225,946,000 /27,000= $8,368.00 Average
201567,00027,00040.359.7$204,748,000 / 27,000= $7,583.00 Average
201468,00027,00039.7160.29$179,354,000 / 27,000= $6,642.74 Average

YOUR FACTS AND CIRCUMSTANCES AND SKILLED REPRESENTATION DETERMINE YOUR RESULT

While the above percentages may be of interest, the fact is that it is your particular facts and circumstances, and how you fit into the IRS formulas for calculating an acceptable IRS Offer in Compromise payoff, that will determine if your Offer is accepted or rejected. It is clear, that more than half of the IRS Offers in Compromise are still being rejected. Professional representation by an experienced Tax Attorney is important. You need to have someone with experience to advise you as to whether an Offer is even realistic for you, and the potential result. To negotiate favorably, one must understand the investigative process as to your income, living expenses, and assets, and integrate such with the IRS process. There is no “one size” fits all, and there is no magic percentage.

The number of accepted IRS Offers in Compromise remain about the same. The IRS Offer in Compromise process is long. If the end result is rejection, then the effort was counterproductive, while you have merely given the IRS more time on its statute of limitations to pursue the tax debt.

During the past years, modifications have been made to the IRS Offer in Compromise program in order to improve it, and the program is continuing to evolve. For example, the IRS Fresh Start Initiative (FSI) of 2011 made it easier to qualify for an Offer in Compromise. Currently, as to a Lump Sum Offer in Compromise (paid in 5 or fewer payments within 5 months) the IRS now uses a cash flow valuation factor of 12. For a Short-Term Periodic Offer in Compromise (paid within 6 to 24 months), the IRS uses a cash flow valuation factor of 24. These valuation factors are more favorable than in the past. Of course a determination needs to be made on whether Special Circumstances apply. The IRS has an Offer in Compromise pre-qualifier tool; however, this doesn’t take into account a taxpayer’s particular facts and circumstances, and merely “plugs” in the IRS Standards from its tables. This may have the negative consequence of having you turn away from an Offer because your facts and circumstances were ignored in this plug and play “evaluation”.

CURRENT RECOMMENDATIONS TO IMPROVE THE IRS OFFER IN COMPROMISE PROGRAM

In order to assist is further streamlining of the IRS Offer in Compromise process and make the program better, the Taxpayer Advocate has continued making recommendations for improvement.

The National Taxpayer Advocate Purple Book (December 31, 2017) made several recent recommendations concerning the IRS Offer in Compromise program. One of the recommendations is to modify the existing requirement that the Office of Chief Counsel Review Certain Offers in Compromises. The second recommendation is for the purpose of improving taxpayer’s accessibility to the Offer in Compromise program by repealing the Partial Payment Requirement.

IRC Section 7122(b) requires that in civil cases where the unpaid amount of tax assessed (including any interest and other additions) is $50,000.00 or more, the Treasury Department’s General Counsel review and provide an opinion in support of accepted Offers in Compromise.

The Taxpayer Advocate believes that the present Counsel review procedure burdens taxpayers and the government by significantly delaying Offer in Compromise decisions. Factors include: impeding taxpayer’s ability to make other financial decisions while waiting for a response; jeopardizing a taxpayer’s ability to pay the amount offered if the taxpayer’s financial circumstances change; additional burden on the government due to the Office of Chief Counsel staff having to learn the facts of each case, and write supporting opinions; and the Chief Counsels work is many times duplicative of work already done by the IRS. The Taxpayer Advocate proposes that the Dollar criteria for Chief counsel be repealed and replaced with requiring review in cases that present significant legal issues.

The Taxpayer Advocate also recommends repealing of the Partial Payment requirements for both “lump sum” and “periodic payment” offer applications. Even the Treasury Department acknowledges that the partial payment requirement may be “substantially” reducing access to the Offer in Compromise program. See IRSLevyRelief discussion Here.

By engaging an Offer in Compromise Attorney with experience, and the tenacity to vigorously pursue your case, you are setting course to resolve your tax problems.

Offer in Compromise Program partial payment requirement - time to repeal it

The Offer in Compromise partial payment requirement is hurting taxpayers who want a fresh start. An Offer in Compromise benefits the government by collecting money it would not otherwise collect. An accepted Offer in Compromise concurrently provides the taxpayer a fresh start. A condition to the Offer in Compromise is that the taxpayer must also file and pay their taxes for five years after an offer is accepted.  However, taxpayer participation in the offer program is being reduced because of the Offer in Compromise partial payment requirement. Waivers can be obtained for the Offer in Compromise partial payment requirement, but only in limited situations.

A a current impediment to the offer in compromise program is the requirement that taxpayers who would like to consider a “lump sum” offer (payable in five or fewer installments), must include a non refundable partial payment of 20 percent of the amount of the offer. For “periodic payment” offers (an offer payable in six or more installments), a first proposed installment is required with the application, and continued monthly payments are to be made while the IRS is considering the proposal. Additionally, the IRS requires that a user fee be paid. The partial payment requirement and user fee can be waived for taxpayers with low incomes (less than 250 percent of the Federal poverty level).

The Treasury Department (report in 2017) has estimated that repealing the requirement of the Offer in Compromise partial payment would have a positive revenue impact since it may be substantially reducing access to the offer program. This is further supported by 2005 Treasury Inspector General for Tax Administration report finding that when the IRS first imposed a $150.00 Offer in compromise fee, offer submissions declined by more than 20 percent among taxpayers at every income level. Accordingly, the partial payment requirement is likely causing a decrease in collections by the government and increasing the costs of collection.

The Taxpayer Advocate has recommended that the Internal Revenue Code be amended to remove the requirement that taxpayers include a partial payment with “lump-sum” and “periodic payment” offers. [See National Taxpayer Advocate PURPLE BOOK, December, 2017].

When you need help for your Offer in Compromise, call 1-866-482-9767
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