When the IRS Goes Above and Beyond

Sometimes when I call the IRS with questions about a specific tax account, I want them to scour the entire file, read all the notes, research all the issues, and give me all the pertinent details.  Other times I contact the IRS with only one or two very specific questions; I want to get in and get out, and I don’t particularly want them lingering on my client’s account longer than necessary.  The truth is, sometimes (if not most of the time) it is a huge disadvantage trying to deal with the overzealous IRS representative.  They tend to make issues where there are none.  It is as if they don’t have enough work to do so they have to create work for themselves.  Maybe you know what I’m talking about.

Christine O’Donnell knows what I’m talking about.  Back on March 9, 2010 she announced that she was running for the United States Senate.  Later that same day one of these overzealous IRS types named David Smith pulled up O’Donnell’s tax record “just out of curiosity” and leaked her private tax records to reporters.  Or if he didn’t leak it personally, then he put it in the hands of somebody else who did.  And it pretty much ruined her chances of getting elected.  See, the information Smith decided to make public was a Federal Tax Lien (filed when a tax debt goes unpaid).  But it turned out that this information was inaccurate; O’Donnell didn’t owe the IRS.

This story is probably fairly mind-blowing to most people who do not regularly deal with the IRS.  I’m not that surprised by it though, especially the part about the erroneous lien.  The IRS makes mistakes like this all the time.  And as far as I know, David Smith still works at the IRS.

IRS Collecting Less Revenue "By Force" . . . For Now

According to the latest TIGTA report, enforcement revenue is down at the IRS.  Enforcement revenue is the money collected through enforced collection activities rather than through voluntary compliance.  Enforcement revenue is down because the IRS has decreased the overall number of enforced collection actions (i.e., lien, wage garnishment, bank levy, property seizure).  The number of enforced collection actions is down because the number of IRS enforcement personnel is down.  And the number of enforcement personnel is down because the funding that the IRS used to receive for these positions is down as well.  According to TIGTA:

The 13 percent reduction in enforcement revenue correlates to the 14 percent reduction in the number of enforcement personnel … since Fiscal Year 2010, approximately 8,000 full-time IRS positions have been lost—about 5,000 from front-line enforcement personnel.

But who are considered enforcement personnel?  Auditors?  Revenue Officers?  Call center personnel?  All of the above?  One news source suggests that these 5,000 lost “enforcement” positions are auditor positions, but I would take it to mean something broader than that.  The TIGTA report does not specify.  I think it matters, because 5,000 lost auditor or revenue officer positions is rather significant, and could realistically be responsible for the 13 percent drop in enforcement income.  However, 5,000 fewer Automated Collection Department phone operators would result in extended hold times, but probably not a drastic drop in enforcement revenue.

Maybe 13 percent is not enough to make an appreciable difference from the perspective of a tax practitioner.  The IRS is supposedly issuing fewer liens and levies, but I sure haven’t seen this to be the case.  And it is certainly not something we can count on continuing for too long.

Deceptive FTL Mailers

If you have an IRS tax debt, chances are the government has filed a Federal Tax Lien (FTL) against you to protect its interests, especially if the debt is greater than $10,000.  The FTL becomes public information and any number of non-attorney tax relief companies begins sending advertisements.  Many of our clients have come to us with a sizeable stack of mailers, and I am rather disgusted by the way these bottom-feeders try to trick taxpayers into calling them.  Often these mailers are designed to look like official government otices.

Tax relief firms are normally successful in obtaining the following information from the public record:

  • name of taxpayer
  • address of taxpayer
  • lien type (i.e., Federal / State)
  • lien amount
  • lien filing date

The hope is that the taxpayer will recognize the information, see that it is accurate, and then call to get some kind of government-sponsored reduction of the liability.  At least that is what they would have you believe.

It is easy to identify a deceptive tax lien mailer if you know what to look for.  One of the “red flags” is repetition of information.  The sample mailer that I included in this post repeats a United States Code section three times.  The “personal ID number” is also repeated three times.  Phrases like “please read carefully” and “final notice” are also repeated to add urgency.  It is also common to see a phone number repeated two or three times, but often no address.  And finally, maybe the biggest red flag is an “estimated settlement amount.”  There is no way anyone could estimate what the IRS might settle a case for based on the limited information contained in a Federal Tax Lien.

IRS Still Not Giving Proper Notice of Liens

Three years ago the Treasury Inspector General for Tax Administration (TIGTA) recommended that the IRS change its practices regarding tax lien notices, and from the looks of this year’s lien notice audit, it does not appear that the IRS has any intentions of doing so.

Today TIGTA released its 2012 lien notice audit to the public and some of the same problems they identified in 2009 still linger. The issue that the IRS has swept under the rug and ignored for the past 3 years has to do with notifying taxpayers’ representatives of a lien filing.  Specifically, they’re not consistently doing it.  The IRS promptly notifies taxpayers by mail when it registers a lien against them, and it is supposed to send the same notice to their attorney, CPA, or other representative with a Form 2848 Power of Attorney on file.

 [A]s noted in previous audits, the IRS did not always follow its own internal guidelines for notifying taxpayer representatives of the filing of the NFTL.  Therefore, the rights of some taxpayers may have been violated when the IRS did not notify their representatives of lien filings.

~ J. Russell George, TIGTA

Furthermore, the IRS does not always send lien notices to the taxpayers’ last known address.  According to the report, there are instances in which returned lien notices with bad addresses could be resent to the correct addresses, but nothing is done about it.  Just another instance of TIGTA needing more teeth to actually enforce rather than recommend.


IRS Lien Subordination & Federal Tax Lien

image via panasianbiz.com

A Federal Tax Lien (FTL) is the government’s legal claim against a taxpayer’s real and personal property that arises by operation of law (automatically) when a taxpayer incurs a tax debt and fails to pay.  The taxpayer, other creditors, credit reporting entities, and the general public may only become aware of the tax lien when the IRS files a “Notice of Federal Tax Lien” — and it’s at that point that it can damage one’s credit.

Previously the only sure-fire way to get a FTL removed was to pay the liability in full.  However, under the government’s Fresh Start program the IRS will agree to withdraw a lien notice if certain requirements are met.  But even if you meet the criteria, you still have to request withdrawal of the lien by completing Form 12277.

If a taxpayer cannot pay the tax debt in full and does not meet the criteria for withdrawal of the lien, the taxpayer may want to consider requesting a “lien subordination.”  This does not remove the lien, but it allows other creditors to “cut” in front of the IRS in line and it is normally required before a lender will refinance a home loan.  Of course, if the IRS is allowing others to cut, then it is on their terms and with their permission.  You must either be willing to make a big payment — sometimes up to the amount of the lien — or you must be able to show that it would be in the IRS’ best interest to subordinate their lien.  From the IRS’ perspective, the only way it would be in their best interest is if it would result in them collecting more money from you.


Notice of Federal Tax Lien

Most people who come see us for tax relief want to pay their taxes, but do not have the money. Some ask, “What happens if I don’t pay the IRS?”  One of the consequences of failing to pay your taxes is the filing of a Notice of Federal Tax Lien.  It is a relatively simple document showing the type of tax that is owed, tax form number, tax period, the unpaid balance(s), and the following rather blunt language:

“[W]e are giving a notice that taxes (including interest and penalties) have been assessed against the following-name taxpayer. We have made a demand for payment of this liability, but it remains unpaid. Therefore, there is a lien in favor of the United States on all property and rights to property belonging to this taxpayer for the amount of these taxes, and additional penalties, interest, and costs that may accrue.  [IRS Form 668(Y)(c)]

In case there is any question as to what “all property” means, the following explanation can be found on the reverse of the form:

“This Notice of Federal Tax Lien gives public notice that the government has a lien on all your property (such as your house or car), all your rights to property (such as money owed to you) and to property you acquire after this lien is filed.

Federal Tax Liens

What is a Federal Tax Lien? With all this talk of liens lately, we thought it would be helpful to give a little refresher.

The Federal Tax Lien (FTL) is just one of the many collection tools used by the Internal Revenue Service (IRS) to collect past-due taxes. The FTL secures the IRS’ interest in taxpayers’ property without actually seizing and selling the property on the spot.  A tax lien technically attaches to all the taxpayer’s property, whether real or personal, and the IRS may choose to enforce its lien rights at the time the property is sold.  In practice, however, the FTL usually only affects rights to real property, or personal property of extraordinary value. The FTL is considered a “passive” collection tool. In contrast, bank levies, wage garnishments, and property seizures are all active collection tools.

Under new IRS guidelines, a Federal Tax Lien should not be filed unless the amount owed is $10,000 or more, although circumstances may warrant that a lien be filed on amounts less than $10,000.  Normally a tax lien will not be released until the tax liability has been fully satisfied.  However, a tax lien can be released by entering into a Direct Debit installment agreement as long as the total balance is $25,000 or less.  The IRS will also release a FTL if the taxpayer can convince the government that releasing the lien will facilitate collection of the tax or that it is otherwise in the best interest of the government.

Although tax practitioners and the Taxpayer Advocate Service have cast serious doubt on the effectiveness of the Federal Tax Lien as a collection procedure, it is still widely used and widely feared to this day.

IRS Tax Liens up 74 Percent

The IRS is addicted to filing liens — even in an era when the American people need tax reliefthe most. The use of tax liens has increased an astounding 74% since 2006. A report released this week by the Treasury Inspector General for Tax Administration (TIGTA) shows that the use of all available IRS collection tools are on the rise. But when it comes to liens, the IRS clings to them like a chain smoker does to his pack of Camels.

Both obviously do more harm than good. Liens have been shown to destroy one’s credit and ability to earn a living, thereby making it even more difficult to pay back what is owed. I’m not sure why lien filings have increased. Perhaps it is an old habit for the IRS who sees it as an easy way to do something on an account where other options are not apparent. Whatever it is, the IRS needs to get a little more creative.

Although none are as impressive as the statistic on lien filings, the TIGTA report cites the following additional statistics:

  • 4% increase in number of levies and seizures in 2010
  • 4% increase in number of IRS employees between 2006 and 2010 (103,811 employees in 2006 compared to 107,622 employees in 2010, with a huge spike during fiscal year 2010)
  • 19% increase in number of Collection & Exam function Enforcement personnel (not including management)

Deceptive Tax Lien Mailers

If you owe enough in back taxes, the IRS will file a lien against your property which secures an interest in that property. The IRS “Notice of Federal Tax Lien” would inform you of the recording of the lien, which becomes public record. If you have received this notice, then chances are you have also received a stack of mail from various tax resolution firms wanting your business.

These “FTL mailers” are often given the appearance of an official IRS notice, complete with an official-looking seal, fabricated notice numbers, and meaningless codes.  Some letters contain tables and formatting that is also meant to replicate the style of IRS correspondences.  Most of these mailers, if read carefully and completely, do divulge the true identity of the sender. However, the firm name is usually somewhere near the bottom of the page, in a small font, and missing any contact information other than a toll-free phone number.

If you have received any mailers that fit this description, please shoot me an email (jwetenkamp@mwattorneys.com).  Also, I would love it if you could send copies to me; I’m sort of collecting them:)