The three major credit reporting agencies (TransUnion, Equifax, & Experian) have come to the realization that they cannot include tax lien information on consumer credit reports and still be in compliance with the Fair Credit Reporting Act, 15 U.S.C. § 1681 (“FCRA”).  The FCRA requires credit reporting agencies to “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates”.  Simply put, credit reporting agencies have found it too costly to accurately report tax liens on consumer reports and will therefore no longer include this information beginning April 2018.

It is important to understand how a tax lien impacts your financial profile to determine whether this new development will benefit you.

Credit reporting agencies compile data and then this data is used to formulate your FICO score.  The FICO score was developed in 1956 by Bill Fair and Earl Isaac, to measure consumer credit risk and is used by most financial institutions to make decisions on whether to furnish or deny credit.  Since your FICO score is based off of reporting by the three major credit bureaus that will no longer include tax liens, it is likely you may see an increase in your credit score.  Depending on the type of credit you are seeking, your FICO score can play a major role in determining the cost and amount of credit you are eligible for.  If you received credit of any type while you had a tax lien on your credit report, you may want to consider talking with your lender to see if you are eligible for a rate reduction.  They will likely pull a new credit report and that report should no longer include your tax lien, thereby increasing your score and reducing your credit risk.  This is likely to work with loans that involve a less intensive underwriting process.

Loans that are typically reviewed with greater scrutiny (e.g. mortgages) may not be impacted in any way as a result of this new development.  Lenders will still be privy to tax lien information if they seek it out specifically.  Companies such as LexisNexis offer reports on liens and judgments and claim to be accurate on over 99% of their reports.  If your lender specifically seeks out this data, the removal on your credit report will likely have zero impact on your ability to secure or renegotiate a loan.

If a tax lien is still creating problems for you, there are permanent solutions to find relief.

Form 12277 must be filed with the IRS in order to request a tax lien be withdrawn and no longer reported anywhere.  While anyone can file Form 12277, the filing begins a formal review process that is most successful when navigated by a seasoned tax professional.  At 20/20, we have an excellent track record of formally having tax liens withdrawn.  Please contact us for a consultation to discuss the merits of your tax lien and how we can assist you in obtaining a formal withdrawal.

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Well, not exactly. During 20/20’s two decades of working with clients, we’ve seen the pitfalls that can await taxpayers on the other side of the resolution process. We strongly advocate that our clients create a “post-resolution plan” to help them steer clear of future problems. Without a thoughtful approach to your new reality, the chances of needing additional help down the road increases.

The first step is to make certain you understand all aspects of your resolution, any payment plan that may be in place, the expected duration of the plan and – perhaps most important – how you will pay it. Don’t wait until your first payment is due to fully comprehend everything you agreed to in the resolution. Delaying this step is what typically leads to a first mistake: missing a payment (something you don’t want to do).

To avoid missing any payment deadlines, consider scheduling a direct deposit. If you choose to use traditional U.S. mail for your payments, remember that each payment must be received by the actual due date. Unlike filing a tax return, payments are not considered to be on time by their postmark. If you opt for snail mail, make certain to leave enough time for the post office to punctually deliver the payment.

A lot of managing your resolution just comes down to staying on top of it and identifying problems before they occur. At 20/20, we have been very successful at setting up manageable resolutions for clients for 20 years. We’ve found that very often, the root cause of problems can be traced back to a taxpayer’s individual habits, business practices or organizational skills.

While some businesses struggle to stay current due to genuine financial hardship, we often see business owners and officers neglect to establish effective business practices. One of the most effective ways to ensure compliance is to engage the services of a payroll firm. At 20/20, we partner with payroll and sales tax solutions in order to assist our clients in developing good and effective business practices. It’s important to make an honest assessment of your business and lifestyle to see if these solutions are right for you and your company.

Ask yourself the tough questions: Is your business undercapitalized? Are you overspending? Are there lifestyle changes you should consider to help keep you on better financial track? All of these are important considerations to study to keep you moving forward and avoid future tax problems.

Finally, now that you have what probably feels like a new lease on life, don’t take it for granted. Keep vigilant on your resolution and be proactive if and when you have any problems surrounding the payment terms. Remember that communication is key to staving off future issues with the IRS or other tax authorities. Don’t hesitate to speak up when problems arise.

If you’re still concerned about the ability to successfully manage your resolution and steer clear of future problems, 20/20 offers a monitoring program called POA+. POA+ is a monthly, pay-as-you-go service that allows 20/20 to maintain an active role in your tax resolution plan. Our team will be able to receive and monitor notices from the taxing authorities to promptly address issues that arise as well as remain available to answer questions.

However you proceed, enjoy the relief that comes from knowing you are managing your tax obligations and taking the best care of your business. And be certain to stay on top of your resolution requirements! If things ever get out of hand again, remember that 20/20 is here to help.

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Before getting into the details of IRS installment agreements, let’s make an important distinction about tax types. Individual income tax has the most flexibility when dealing with the IRS. Unpaid employment taxes, on the other hand, are heavily scrutinized by the IRS and more often have resolutions based on strict expense standards and a determination of ability to pay. In this discussion let’s focus on the individual and more standard opportunities.

As I just noted some IRS installment agreements are based on ability to pay. Other, more routine agreements, are often referred to as streamlined because of the ease of processing involved in setting them up. These can be based strictly on the amount owed and set up over a defined period of time. Routine agreements are great considerations for taxpayers that are in compliance, have few complications and can afford to pay the predetermined amount.

Having the knowledge of the various types of basic IRS agreements is a great starting point for resolving a taxpayer’s unpaid liability. But, it’s just that, a starting point. The agreements should not be misconstrued as the taxpayers only alternative, rather a possible path of least resistance. And as straight forward as these agreements are, a practitioner eyeing the long term success of the agreement needs to consider much more. There are many considerations that should come in to play when thinking about whether to enter into a repayment plan with the IRS. Here are just a few thoughts to consider:

1. Has a Notice of Federal Tax Lien already been filed against the taxpayer? This is typically done fairly early on the collection process. If it has not been done there is a good chance that the lien can be deferred by entering into a streamlined agreement.
2. Can the taxpayer afford the amount that will be required by the agreement? If not, entering into a streamlined agreement will result in a default.
3. Is an installment agreement the appropriate strategy based on the circumstances? Absent any pressure from the IRS, the taxpayer may be better served by going through other channels especially if there is a doubt as to whether the tax is really owed.
4. Is the timing right? Imagine a scenario in which the taxpayer owes for 2014-2016. Before entering into an agreement for those years one must consider the implications of 2017 and 2018.

In the end, the mere existence and availability of these streamlined agreements does not mean they are the appropriate resolution to the tax liability. Although the IRS might prefer that a taxpayer simply walk in to one of the easy offerings it is important for a tax practitioner to evaluate the totality of the taxpayer’s circumstances to properly put together an effective, winning strategy.

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Here’s your first step: DO NOT IGNORE THE IRS NOTICE. For your next step, read the following concerns that 20/20 most often hears from clients calling our office for the first time. With our 19 years of experience helping people overcome tax difficulties, we’ve heard just about every concern. Here are the top five concerns common to our clients. 

1. Aggressive enforcement and liens

People who speak with 20/20 agents overwhelmingly express fear that the IRS wants payment immediately and by any way possible. Taxpayers want protection from aggressive enforcement actions like bank levies, accounts receivables levies, wage garnishments and asset seizure. While every person’s case is unique, we have a variety of tools we can use to intercede and ensure that these extreme IRS actions are avoided. In nearly every case, we are able to use these tools to give clients the time and space they need to establish compliance and form a strategy to meeting their tax obligations.

2. Difficulty dealing with or communicating with the IRS

It’s not surprising that the second most-frequent concern we hear is that resolving this issue will require inordinate amounts of time, effort and frustration. Who hasn’t sat on hold trying to reach an account service representative? Taxpayers envision a customer service nightmare multiplied tenfold by government inefficiency. Because we work with the IRS all the time, we’re familiar with the agency’s communications processes and we know how to reach the right person to get the right information. We take over communication and do it for the taxpayer, freeing them up to run their business – and their life.

3. Revenue officer showing up at place of business and employees or others finding out about liability

While the IRS is stepping up enforcement and collection efforts of unpaid or delinquent taxes (particularly employment taxes), the agency does work to respect and protect a taxpayer’s privacy. However, in a busy office where documentation and information is shared widely, it’s entirely possible that some news about tax issues may filter out to others. But any employee or other individual will feel less anxious when they know a qualified, experienced tax resolution company like 20/20 is working on the case. The alternative is to have employees or others worry that nothing is being done to manage the liability.

4. Debt to IRS growing out of control (penalties and interest accrual)

There are very few ways to avoid having to pay interest when a tax obligation is delinquent. However, 20/20 can make certain that all obligations, interest and even any penalties will be the least amount allowable under the law. The bottom line: Doing something to resolve the situation is always better than doing nothing.

5. Getting a good and manageable resolution.

Finally, 20/20 clients are worried about achieving a fair, manageable resolution that won’t break the bank and will alleviate their worries. Fortunately, we’ve been helping clients achieve this goal for almost 20 years so we can say with confidence that we can help most taxpayers. We’ll use our experience to obtain the best resolution available under your specific circumstances.

While reactions to potential IRS action vary, it’s fairly typical for clients to feel some or all of the above concerns. Some people seem unfazed and are not frightened of the IRS at all. Typically, this reaction comes from taxpayers who have dealt with the IRS previously. The strongest fear many people experience is that others (employees, spouses, friends, etc.) will discover the problem. There’s a certain stigma about owing money to IRS – and they worry what others will think.

But the truth is many people experience these types of problems and it doesn’t indicate any lack of character. Taxes are a complicated issue – and running a business is always challenging. What’s important is recognizing when you need help in order to keep any problems from becoming overly burdensome. That’s precisely why we exist.

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Undoubtedly, however, the complexity and volume of our tax system means that errors are almost unavoidable. As representation experts we do our best to find and correct those errors made by the IRS. But, that’s just one side of the equation. Every year countless taxpayers ask us what to do if they discover an error on a return that was already filed. The short answer is to not panic and correct the mistake.

Questions about your unique situation? Learn more about ways we can help or feel free to contact us at any time!

To download a high-resolution version of this infographic, please click here.

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Not all cases are viewed equally within the eyes of the #IRS @2020TaxResInc
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The IRS will begin the process of collections with a simple, “Notice and Demand” for payment letter.  These letters are typically issued about 30 days after a delinquent tax return has been filed. If the IRS receives no response to its initial request for payment within the timeframe allotted in the letter, it will proceed with increasingly aggressive correspondence. After the timeframe to respond has elapsed the IRS will issue a CP504 notice, “Intent to Seize Property or Rights to Property.”  This is the IRS’s preliminary threat to enforce collections of a debt.  If it again receives no response, it will elevate its aggression and file a federal lien and/or provide a “Final Notice of Intent to Levy.”  After a Final Notice of Intent to Levy has been issued a taxpayer has 30 days to respond before the IRS can legally take this action.  After 30 days has elapsed and the taxpayer has not taken corrective action or requested an appeals hearing, the IRS can levy at any time.  This entire process can take as little as three months, but can take much longer.

For individual taxpayers, most of these notices will be computer-generated and most cases that are below $250,000 in total tax debt will remain with the IRS’s Automated Collections Department (ACS).  This means to speak with any IRS personnel a taxpayer will need to contact ACS at their toll-free line and bear through long hold times to discuss case specific options for resolution with IRS representatives standing by in a call center.  The IRS typically will not contact an individual taxpayer directly or by phone unless they are flagged for audit or the liability exceeds the $250,000 benchmark.  There are certainly exceptions to this for prolonged periods of delinquency or for “pyramiding” taxpayers.

For most businesses and particularly with regard to employment tax, the IRS will elevate the level of collections much more rapidly.  Any employment tax liability that exceeds $25,000 will require a field agent to be assigned for resolution of the account.  Employment taxes are considered to be held in a trust by the employer and are used to pay employee’s income tax as well as funding both Social Security and Medicare. Because of this, the IRS pursues this tax type much more aggressively than other tax types.  Due to tremendous shortfalls in financing for these entitlement programs, the IRS is ever increasing its effort to connect with business owners who fall short on their employment tax obligations as quickly as possible.

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The Collection Division is responsible for collecting taxes that have not already been paid or placed on a voluntary resolution program.  Unfortunately, there is quite a bit of misinformation regarding cases assigned for collection by the IRS.  Regardless of your circumstances here are a few of the most common myths of IRS collection cases:

1. You’re not responsible for mail you never get: Many taxpayers believe, mistakenly, that if they don’t let the IRS know their most current address they are not responsible for collection letters the IRS is sending.  Nothing could be further from the truth.  Generally, the IRS’ requirement for service by mail is the taxpayer’s last known address.  Therefore, if the taxpayer has not notified the IRS of an address change the taxpayer will actually be the one to suffer by being in the dark.  This issue can end up costing a taxpayer valuable collection appeal rights.
2. The IRS will settle for “pennies on the dollar”: The IRS does have a settlement program called the Offer in Compromise (OIC). Interestingly, offers happen probably more often than many tax professionals think, but a lot less than taxpayers have come to believe. The IRS’ own numbers over the past two years show an Offer in Compromise acceptance rate of roughly 40%.  Still, the key to a successful offer is the pre-qualification process.  There are many nuances to an Offer in Compromise case and as a result, there is no substitute for experience when it comes to presenting a viable, realistic offer. 
3. The IRS can collect against you for a lifetime: Sometimes dealing with IRS Collections for more than a day can feel like a lifetime.  Especially, if you’re on hold.  In fact, the rules concerning how long the IRS can pursue unpaid taxes are quite clear.  Generally speaking the IRS’ statute of limitations for collection is ten years from the date a liability is assessed.
4. The IRS will take your home: In actuality, the IRS is not going to take your home.  That’s not to say that the IRS can’t take it… only that the IRS doesn’t do it.  Seizures (which can include home, car, boat, etc.) themselves are fairly rare for the IRS.  In the past two fiscal years, the IRS has reported fewer than 500 total seizures.  And because policy statement and stricter rules make seizing a primary residence more difficult it becomes increasingly difficult to face that proposition.
5. At least the IRS can’t get to your retirement accounts: Unfortunately, the IRS can get to retirement accounts.  There are very few assets exempt from the reach of an IRS levy.  They are outlined specifically in the Internal Revenue Code and include (here), but are not limited to, Workmen’s Compensation, Unemployment Benefits and minimum exemptions for salaries and wages.  What one won’t find exempted by rule are 401k accounts, stock accounts or Social Security benefits.

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Of course, dealing with IRS Collections is a nuanced process that should not be taken for granted.  But, dispelling the myths above should help bring more clarity to what one may face when dealing with IRS Collections.

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A lesser known fact when it comes to interest is that Congress, not the IRS, sets the rates (currently 3%). And under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. Interest is probably not going to be waived, but there is an exception if penalties are abated. In such cases, interest on the penalty will be adjusted so that the interest on the penalty amount is removed. However, the interest on the tax itself is a necessary evil and typically cannot be removed.

When it comes to penalties assessed by the IRS, the most common are failure to file, failure to pay, federal tax deposit penalty, estimated tax penalty, and the Trust Fund Recovery Penalty (TFRP). To call the TFRP a penalty is a bit of a misnomer, since it is actually the principal tax amount that a business withheld from employees’ paychecks, and then failed to pay over to the IRS. It is a portion of the related business liability, so if a business is paying its liability through an Installment Agreement, those payments are applied to the TFRP as well. But, remember that establishing a resolution for the business collection case does not automatically resolve the TFRP case against the individual(s). The individual cases must be addressed and resolved separately. 

The IRS will abate or remove penalties if you establish reasonable cause. This is generally granted when the taxpayer proves that he or she exercised ordinary business care and prudence in determining his or her tax obligations but nevertheless failed to comply with those obligations. A showing of reasonable cause typically requires evidence that the taxpayer acted in good faith, and that the failure to comply was not due to willful neglect. Absent first-hand knowledge of what led to the tax accrual, a good starting point for a penalty abatement, is asking the taxpayer to describe in his or her own words what happened. This should provide enough insight for the tax professional to further investigate and eventually expound upon key relevant points. It’s always best to focus on the facts and timelines that overlap with the time of the accrual, thereby providing the best chance of success. 

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Some of the specific reasons listed in the IRS penalty handbook that may establish reasonable cause are as follows:

• Death, serious illness, or unavoidable absence of the taxpayer or in the taxpayer’s immediate family
• Fire, casualty, disaster or other disturbance
• Unable to obtain records
• Erroneous advice or reliance

*The above list is not exhaustive, and other reasons may qualify for penalty relief. It is important to provide as much detail as possible, and any written documentation available, to have the best chance to obtain relief.

If penalties have been assessed against you or your business, you can minimize the damage by remaining current on all tax obligations moving forward, establishing a formal resolution to the back tax liabilities, and formally requesting abatement of all assessed penalties. In the meantime, if you are unsure about your liability, we encourage you to utilize our online calculator tool (click here) that will allow you to calculate the penalty and interest on your tax liability, today.

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Unfortunately, they couldn’t be more wrong and it’s usually a levy or lien that brings about the realization.  Yes, of course, voluntary payments are important to paying unpaid taxes.  In fact, they are the first thing I recommend in nearly every case, especially employment tax cases.  But to think that voluntary payments alone will alter the course of one’s case can be a huge miscalculation.  State and IRS collections are done by system.  They’re not whimsical or based on good faith.  Until a tax liability is paid in full or a formal resolution, such as installment agreement, is agreed to the collection process moves forward exposing taxpayers to liens and levies.

Just recently, in fact, I encountered this very situation.  A taxpayer came to me at the end of last year irate about being levied by the IRS.  The company owes the IRS just over 100k in employment taxes but the owner of the company had been making voluntary payments of $2,000 per month.  He hadn’t spoken with the IRS but had noted less mail was coming since beginning the voluntary payments.  He was angry that the levy followed his very obvious effort at resolving the situation.  Unfortunately, this taxpayer had assumed that his payments had directly influenced the IRS’ lack of urgency with his case.

Immediately, I began my effort of educating the taxpayer about the collection process. Most every state and definitely the IRS has a set protocol for collecting unpaid taxes. The process begins with notification of a balance due, letters with an increasing demand for payment and ultimately assignment to a field personnel for collection.  Every collection case goes through this protocol until the liability is paid or a collection determination is made.  A collection determination means the state or IRS’ decision on how the liability will be resolved.  A tax practitioner’s goal is to mold and influence that collection determination within the rules to their clients’ best interests.

The point here is that making voluntary payments, while advisable, does not alter the collection process.  Short of full paying the liability proactive and consistent contact with the authorities is not just recommended but required in order to ensure that a client remains protected from enforcement action.

If you find yourself in this situation, it is now more important than ever to get in contact with us. We are always here to answer any questions that you might have about your particular situation. Make it a point to contact us today so that we can get your life back on track.

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Most importantly, compliance is a prerequisite to any case resolution.  When a case is with IRS collections, the taxpayer’s compliance with returns and deposits is subject to higher scrutiny.  The Service simply seeks to draw a line in the sand to stop accruals otherwise known as “pyramiding.” When an individual or business is current and not pyramiding, they are more likely to be protected from collections such as bank levies and garnishments.  They can be protected by being placed into “pending installment agreement status” if a formal proposal is made.  Further, an IRS revenue officer is also more likely to grant a hold on collections and work on a timeline for resolution.  Finally, if an appeal is filed, the Office of Appeals is more likely to consider their case without collections to achieve a resolution.

In its simplest form, the IRS can only formalize a resolution with a taxpayer who is compliant, for the exact periods with balances due.  If returns are outstanding or current deposits are not made, the total balance due is also unknown and terms for an agreement cannot be set. More so, after an agreement has been established, if a taxpayer does not remain compliant, new periods outside of agreement have been created.  This automatically breaks the terms of any agreement and the entire process must start over to encompass all periods with balances due.

For an individual, this means that all personal income tax returns (Forms 1040) must be submitted.  Keep in mind an extension to file a return is not an extension to pay.  Therefore, if a balance is expected on any return on extension, it should be filed at once so it can be included in the resolution.  In addition, if required, sufficient year to date estimated income tax deposits must be made in order to show compliance.

For a business, all payroll tax returns (Forms 941), unemployment returns (Forms 940) and corporate income or partnership returns (Forms 1120 & 1065) must be filed.  Primarily the business must show that in the quarter in which it is currently in, sufficient and timely payroll tax deposits have been made.  If current deposits are late, sufficient payments to cover penalties should be addressed as well.

Very often the IRS is also more likely to formalize a resolution for a taxpayer who is compliant in working with a third party payroll service provider.  Specifically, payroll service providers can help establish a very efficient, formal schedule for deposits and filings under the control of a business owner.  This significantly lowers the risk for accruals, which helps both the taxpayer and IRS in the future.

Overall, cases can easily turn in a taxpayers favor when they first can establish compliance.  Being current must be the primary focus of any individual or business working with IRS collections.  Ultimately, having the experienced representatives at 20/20 Tax Resolution, Inc. will make this process easier and more successful in the long run. Please feel free to contact us with any questions — we are here to help.

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