Kinder, gentler IRS: Is this possible?
In light of the recession, the agency is cutting taxpayers some slack by delaying collection efforts and allowing more flexibility on tax liens, home equity and other issues.
In what might be considered financial sensitivity training, the Internal Revenue Service is encouraging people who are struggling to pay taxes during the global economic crisis to "reach out and talk to us."
An announcement Tuesday was the second time in as many months that the agency has pointed to current events as a reason for changing its enforcement rules and easing pressure on taxpayers.
IRS employees now have greater flexibility to work with taxpayers, including the ability to temporarily delay collection activities such as calling taxpayers, sending letters and garnisheeing wages, said Doug Shulman, the agency's commissioner.
"I've instructed all personnel at the IRS to be sensitive to taxpayers, especially previously compliant taxpayers who are for the first time having a hard time paying the IRS," Shulman said. IRS employees "have been given broader latitude to potentially suspend collection actions."
Also, if a taxpayer with an existing installment agreement or offer-in-compromise (a contract whereby the IRS settles a tax bill for less than the full amount due) misses a payment, that will no longer lead to an automatic end to the agreement, Shulman said. "We recognize there might be individuals who have to miss a payment."
In December, the IRS said it will work to quickly resolve tax liens on homes if they stand in the way of a taxpayer selling or refinancing the house.
But taxpayers won't get help if they don't contact the IRS, Shulman said.
"The only way we're going to be able to work with people is if they reach out and talk to us," he said. "If someone doesn't contact us, they're going to end up in trouble with the government. If they (contact us), our people have been instructed to work with taxpayers and try to help them work through these economic times."
If you're current on your taxes now but fear you won't be able to pay up this year, be sure to file a tax return anyway. The failure-to-file penalty is steeper than the failure-to-pay penalty, so file your return and then contact the agency to assess your options.
The IRS will "continue to run vigorous enforcement programs," Shulman said. "This isn't a free ride. People who can pay still need to pay. Pick up the phone. . . . We've instructed all our telephone assistors and all our people in the field to work with taxpayers to the extent they have a legitimate issue."
The volatile question of home equity
The IRS is easing other rules related to offers-in-compromise, too. In the past, if a taxpayer's home equity equaled the value of his or her tax bill, the IRS wouldn't agree to a compromise. But under the new rules, taxpayers whose compromises are denied based solely on the value of their homes will have their cases taken up by a new IRS unit that will assess whether the home values are correct.
"Home equity values are in a lot of flux right now. The market is hard to gauge. Sometimes that piece of paper that says your home is worth a certain amount may or may not be true," Shulman said. "We have a unit of experts who will work through this issue."
The IRS also will work more quickly to release levies on taxpayers' bank accounts or wages, he said.
Further, the IRS said that this year, for the first time, any taxpayer will be able to fill out tax forms online and file them electronically for free.
Until now, many but not all taxpayers were eligible for the IRS' Free File program, in which the tax agency partners with for-profit tax software providers to offer both free software and electronic filing to some people.
Taxes can be complicated, which means it's easy to make mistakes. But they can be corrected, as Stacy Johnson of Money Talks reports.
Starting this year, a number of tax forms will be available for free for any taxpayer to use on the Free File site. Taxpayers who feel comfortable doing their taxes without the assistance and prompts provided by tax software can go to the Web site, fill out their forms online on their own and file them electronically for free, starting in mid-January.
The tax agency also noted that taxpayers who didn't receive a stimulus check in 2008, or whose finances changed substantially from 2007 to 2008, should assess whether they're eligible for a recovery rebate credit. (Read "A second chance for a tax rebate.")
The stimulus payment is not taxable income, Shulman noted.
Separately, the IRS said it has posted new information on its Web site related to the current financial crisis, including answers to various tax questions such as "What if I lose my job?" and "What if I withdraw money from my retirement account?"
This article was reported and written by Andrea Coombes for MarketWatch.