Easy Street Check out the IRS' new options for tax-debt management. You'll drive away happy--and compliant!

If the "new and improved" IRS doesn't impress youmuch, take another look. Changes are taking place that are designedto make it easier to pay the taxes you owe.

The IRS still expects all taxpayers to pay their taxes on timeeach year, and it still charges interest and penalties if you failto do so. Nothing new there. But if you find yourself in a realfinancial bind, there are a few payment options that have recentlybeen changed a bit to make them more customer-friendly.

In fact, the IRS, feeling pressure from lawmakers to be nicer totaxpayers, is reportedly going a bit easier on the collection ofunpaid taxes. Take a look at recent IRS statistics: In thenine-month period ending July 31, 1999, the IRS seized property tosatisfy overdue taxes only 180 times, down from 2,193 seizures in acomparable period one year earlier. Garnishments of paychecks andlevies of bank accounts in the later nine-month period fell to488,834, down from 2.8 million one year earlier. Liens, which arewhat the IRS claims against property, went from 331,843 in theprevious nine-month period to 143,747.

A recent check with a number of tax collectors around thecountry by The New York Times attributes these declines inpart to a provision in the IRS Restructuring and Reform Act of 1998that says IRS workers will be fired if they willfully abusetaxpayers or violate their rights. These unnamed tax collectors saythey have become less aggressive in collecting unpaid taxes becausethey fear losing their jobs due to the new law'srestrictions.

Another contributing factor, according to analysts, is the factthat the IRS has shifted large numbers of employees fromenforcement activity to taxpayer assistance. Many are in the midstof time-consuming computer training designed to help them do theirjobs more effectively, says Elliott H. Kajan, a principal withBeverly Hills, California, law firm Kajan Mather and Barish. Kajanspecializes in tax-controversy matters.

IRS commissioner Charles Rossotti responded to the news reportsof less aggressive tax-collecting this way: "There is nothingabout the Restructuring and Reform Act or the IRS mission statementcalled for by this act that implies less effective taxcollection." In fact, he says the tax agency intends "toachieve better compliance with the tax law by concentratingenforcement resources more effectively on the small minority oftaxpayers who do not comply."

Joan Szabo is a writer in Great Falls, Virginia, who hasreported on tax issues for more than 13 years.

Expanding Rights

For those with valid tax disputes, recent changes in the lawshould make a difference. For example, taxpayers now have the rightto collection due process if they face an enforced collectionaction by the IRS. Specifically, if taxpayers don't believethey owe the tax assessed, they can now request an administrativehearing before an impartial appeals officer within 30 days eitherafter a lien notice is filed or after they receive notice from theIRS indicating it intends to place a levy on their assets.

If the taxpayer requests a hearing, the proposed levy can'ttake place until the appeals officer has reviewed the case. Once adecision is made, the taxpayer has 30 days to decide whether tochallenge the finding of the appeals officer in U.S. Tax Court orU.S. District Court. During this time, the IRS can't seize thetaxpayer's property. As a result, "taxpayers can put acollection freeze on their accounts while they are pursuing theirdue-process appeals rights," says Kajan.

New And Improved Installment Plan

You can also ask the IRS to consider collection alternatives,such as setting up an installment agreement that allows you to payan overdue tax bill over a number of months or even years. The newlaw makes working out installment agreements a bit easier than inthe past. For example, the new law indicates that taxpayers have"guaranteed access to installment-payment agreements" ifthey owe $10,000 or less in income taxes and have filed tax returnson time in the past. The threshold limits for these agreements canbe even higher depending on the IRS office location, says Kajan. Insome areas of California, for example, the limit is $25,000.

This is a big improvement over the way things were done in thepast, says Kajan. Changes in the rules for installment agreementsmake it possible for taxpayers "to handle their own problemswith the IRS, without going to practitioners such as CPAs and taxattorneys," he explains.

Once you enter into an installment agreement with the taxagency, other IRS enforcement actions, such as levies or seizures,are suspended. To apply for an agreement, the IRS requires you tocomplete Form 9465 and pay a $43 fee to get the process started. Inaddition, you are subject to an interest charge and a late penaltyon any unpaid tax. The late fee is one-half of 1 percent to 1percent of the tax not paid for each month it goes unpaid. This feeis scheduled to drop next year. The maximum late fee, which willnot change, is 25 percent of the taxes owed.

Once you've worked out an agreement, you're required tomake your monthly payments on time and meet future tax liabilities.If you miss a payment or have outstanding past-due taxes in afuture year, you will be in default on your agreement and the IRSmay take enforcement actions to collect the entire amount owed.

Paying Less Than You Owe

What if you have a substantial tax bill and simply don'thave the financial resources to pay it, even with the help of aninstallment agreement? In that case, there's another paymentoption available, known as the "offer in compromise"(OIC) program. This was recently liberalized to make it moreaccessible to taxpayers.

With the OIC, the IRS agrees to accept less than the full amountof outstanding taxes, interest and penalties if it's confidentit will never be able to collect the taxes actually owed. Inaddition, under new temporary regulations, the IRS will, for thefirst time, be allowed to consider economic-hardship factors incases where taxpayers try to settle unpaid tax debts through theOIC. While the IRS is considering whether to accept taxpayers'applications for the OIC, it withholds collection activities.

In the past, only a relatively small number of OICs wereaccepted. In fiscal year 1998, only 25,052 offers out of 105,255were approved by the IRS, leading to the collection of $290 millionout of $1.9 billion in taxes owed.

The IRS contends it will now be easier for taxpayers to applyand qualify for the program. "Instead of collecting nothingfrom people with unpaid tax bills, we're able to collectsomething,' Rossotti said when he recently announced thechanges. The aim is to bring recalcitrant taxpayers back into thetax system.

Rossotti also expects fewer rejections of compromise offers,which will result in the collection of more unpaid taxes. Some ofthe changes in the OIC program include the fact that taxpayerswon't be asked to provide as many financial documents toqualify for smaller compromise offers as they were before.

In addition, the IRS has given its employees more freedom todetermine taxpayers' financial hardship beyond the standardcost-of-living formulas. As a result, taxpayers will now be able toafford their basic living expenses in addition to paying their taxbills.

While these changes appear to be beneficial, they have yet to beimplemented with business clients, says Carol Mount, a taxsupervisor for the Alexandria, Virginia, accounting firm of Halt,Thrasher & Buzas.

Kajan agrees that the OIC program remains a difficult paymentoption to nail down for business owners. "If the IRS goesalong with one for a business, it will want at least the fullamount of taxes owed to be paid. However, it may waive thepenalties and interest," he explains.

Nevertheless, the IRS contends that all these changes aredesigned to make paying the IRS easier for taxpayers. A revampedagency with a new attitude is also expected to make a difference.If business owners and individual taxpayers promptly receiveattention from the agency when problems arise, they will be morelikely to comply with the tax code, reducing the need forenforcement action, the IRS contends.

In the meantime, if you have a dispute or can't pay what youowe, the tax agency stands ready to help. Says Rossotti, "Iftaxpayers are having problems with their bills, we want to workwith them to make this process as painless as possible."

More Ways To Pay

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If you like the convenience of paying for purchases with yourcredit or debit card, the IRS hopes you will enjoy a similarconvenience when it comes to paying taxes.

For the 2000 tax-filing season, taxpayers who file their taxeselectronically can pay any balance due with a credit card or directdebit from their checking or savings account. In addition, if youhave a balance due, you can electronically file in January, receiveconfirmation of the filing, and then delay actual payment untilApril 15.

Starting in March 2000, the IRS also plans to expand itselectronic-payment program to accept estimated tax payments bycredit card to taxpayers using its pay-by-phone option.

Contact Sources

IRS, (800) 829-1040, http://www.irs.gov

Kajan Mather and Barish, (310) 278-6080, http://www.taxdisputes.com