ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – OWING THE IRS DURING THE PANDEMIC – GETTING A BREAK FROM UNCLE SAM
By Robert S. Schriebman
When you owe the IRS, there has always been the same avenues available:
- You can put yourself into a state of denial and pretend the problem doesn’t exist; this is known as the ostrich syndrome
- Pay the tax and get it out of your life
- Collection hardship suspension
- Installment payment arrangement
- Offer in Compromise
Nothing has really changed over the years. From time to time, the IRS has issued press releases and other publications helping taxpayers resolve their IRS collection problems. On November 2, 2020, the IRS issued its latest publication announcing new initiatives to help relieve this stress during the COVID-19 pandemic.
This article will discuss the new IRS initiative IR-2020-248.
Informal Payment Arrangement
For years IRS tax collectors have offered an informal payment arrangement where no financial information need be disclosed and the IRS will take you at your word. You do not need a lawyer or any other representative. You do not need people who advertise on TV or the radio. You can do this on your own. Traditionally when you promised to pay the IRS in full within 90 days, that was considered by IRS collectors to be an informal payment arrangement. During this time period, the collector will leave you alone. There will be no enforced collection action taken. There was only one problem with this arrangement – you had to keep your word! If you failed to pay in full as promised, you ran the risk of a bank account levy or wage garnishment. Under the new liberal rules set forth in the press release, you now have 180 days without the IRS coming back into your life.
Collection Hardship Suspension
This program puts collection activity on hold indefinitely. Usually the taxpayer prepares a short form financial statement, Form 433F. This is an abbreviated version of the longer financial statement Form 433A, and requires less additional documentation. During this time period no collection action will be taken. Taxpayers mistakenly take the suspension as forgiveness of the tax debt, but this is not true. Interest on the unpaid tax liability continues to accrue and is compounded daily. This program will continue.
Installment Payment Arrangement
By far the most common method of working out the payment of back taxes is a formal written installment payment arrangement. This usually requires the completion of long form financial statements, Form 433A for individuals and Form 433B for businesses. Under the new press release, the IRS is doing away with the requirement for financial statements and other documentation for balances owed up to $250,000, if the taxpayer’s proposal for payment is agreeable to the IRS.
One of the drawbacks of a formal installment arrangement is the requirement that the IRS file a Notice of Federal Tax Lien (NFTL) whenever a tax debt reaches a certain point. Now, the IRS will consider not filing the NFTL for taxpayers who only owe for the tax year 2019. If you owe for prior years, you can expect that an NFTL will be filed in order “to protect the revenue.”
Offer in Compromise (OIC)
The OIC is the IRS’ version of “Let’s Make a Deal.” The new press release provides additional flexibility in this process, but does not go into detail. The OIC is the favorite selling tool of TV and radio ads. These ads always feature someone who claims to have owed the EDD a zillion dollars and only had to pay the price of a six-pack of beer. Most of these ads take great liberties in stretching the truth.
IRS Form 656 is the form used for presenting an offer to the IRS. OICs are usually based upon doubt as to the IRS’ ability to collect the tax in full. In some limited circumstances legal issues are involved and the IRS resolves the matter based on doubt as to the taxpayer’s liability. There are also offers based upon effective tax administration.
If the IRS accepts the taxpayer’s offer, it settles the matter for pennies on the dollar. Any filed tax lien is removed. The taxpayer truly gets a new lease on his/her tax life.
The new press release did not go into any detail about new and liberal positions offered by the IRS.
Relief from Penalties
The new IRS press release only devotes one small paragraph to relief from penalties and these penalties are the failure to pay and the failure to file penalties. Granted, these are the two most common assessed penalties and together with interest can add an average of 40% to the tax bill. There are no details about how to have the penalties removed, but there is reference to first-time penalty abatement relief for the first time a taxpayer subject to these penalties. Many people do not know about first-time penalty relief. “First time” does not mean once in a lifetime, the IRS only looks back 3 years.
Penalty relief is always based upon reasonable cause and this means looking at how the average prudent business person conducts his/her business activities. This is the traditional standard used by the IRS for penalty abatement.
IRS Commissioner Chuck Rettig is a former tax attorney with a graduate law degree in taxation. He has had decades of hands-on experience in the private sector dealing with tax controversies. He is very aware of what people are going through during this pandemic, and he sincerely wants to be of what help he feels the IRS can be in these stressful times.
This article started by setting forth the avenues available to people who owe the IRS. The first avenue was denial – the ostrich syndrome. I have been representing clients in collection matters for decades. The worst thing you can ever do is to bury your head and pretend the problem does not exist. In the restaurant business, they say that the three most important factors are location, location and location. When it comes to the IRS the three most important factors are communication, communication and communication.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 40 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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