It simply makes sense. When times are tough and people are struggling, the IRS collection should ease its policies. More than once in the recent months, the IRS made loud announcements about relief they’re now offering. Can’t help loving the nice folks at the IRS.
On a recent October weekend, I had a chance to meet those folks in person. The Houston Chapter of the Texas Society of Enrolled Agents invited several high-level IRS managers to explain the new people-friendly policies and answer our questions about the so-called “Fresh Start” program.
They came. They explained. They answered. Here’s the executive summary:
Business as usual at the IRS.
Despite the pompous announcements and public assurances from the IRS Commissioner, the actual changes are very few and relatively insignificant, compared to the outdated policies still in place.
Let’s look at the Federal tax lien which is a powerful weapon that the IRS has been using more and more lately. It’s like Tasers for the cops: always available, very easy to use, not lethal, very little risk for the officer, but far from harmless to the target.
When you owe the IRS, as millions do, it takes an IRS agent less than a minute to initiate such Federal lien and file it with your county. Once filed, the lien attaches to any property you own in this particular county. If you try to sell or refinance, the lien means that proceeds from sale shall go to the IRS and not to you. Forget closing. You need to work with the IRS first.
These days, when previously fancy terms like foreclosures and short sales became common subjects at the neighbors BBQ gatherings, IRS liens are everywhere. So, what exactly did the IRS do to relax this burden? They doubled the filing threshold from $5,000 to $10,000. Don’t get me wrong, I welcome this change. However, the IRS officials at the meetings made it very clear that the threshold is merely a guideline. The IRS still has the right to file a lien for debts under $10,000 or even under $5,000 – pretty much at the discretion of IRS employees. Translation: you call them names, they can hit you back with a lien. I expect the same result if their boyfriend was nasty or they got a parking ticket or their breakfast omelet was overcooked. Or if they did not read the memo.
Just like before, they are allowed to file a lien before sending you a notice – meaning you have no way to prevent the damage to your credit, even when the lien should NOT have been filed, and you could explain it to them. Just like before, even after you pay the debt, the lien will stay on your credit report unless you specifically request a withdrawal of the lien – and your request may still be denied.
Just like before, IRS cooperation regarding the Federal lien during foreclosure or short sale is completely discretionary, not to mention complicated. The good news is that the consideration for short sale cases is promised to be much faster than before. However, consideration does not mean their answer will be favorable. They can still say no. And for some unknown reason, they still do not understand the concept of seller-paid closing costs. Arrgghh.
Just like before, the reality is behind policy. Example: the new rules allow to avoid filing of a lien if you set up an automatic debit installment agreement (payment plan) to pay your debt. Yet, so far this option has not been adopted by the phone-based Automated Collection System, which is the department that most people end up dealing with. You must work thru a professional representative or visit your local IRS office in person. So much for “fresh start.”
Like they say, the more things change, the more they stay the same. Dealing with the IRS proves that every time.