IRS takes new steps to help struggling taxpayers

The IRS is taking new steps to help taxpayers buffeted by the recession. The agency intends, among other things, to make it easier for taxpayers to obtain a lien withdrawal and to offer installment agreements to more small businesses.

IRS Commissioner Douglas Shulman announced the new initiatives in Washington, D.C., on February 24. “These new steps are in the best interest of both taxpayers and the tax system. People will have a better chance to stay current on their taxes,” Shulman said. Many of the details of the changes are expected to be fleshed out in future announcements and guidance from the IRS.
Tax liens
A tax lien gives the IRS a claim to a taxpayer's property as security or payment for a tax debt. Once a lien arises, the IRS generally cannot release the lien until the taxes, penalties, interest, and recording fees are paid in full or until the IRS may no longer legally collect the tax.
Shulman announced that liens will be withdrawn once full payment of taxes is made if the taxpayer requests it. Additionally, the Service will allow lien withdrawals in certain cases where taxpayers enter into a direct debit installment agreement. The IRS intends to revise its internal procedures to expedite the withdrawal of liens.
The distinction between releasing a lien and withdrawing a lien is important. Once the IRS files a tax lien, a taxpayer's credit rating may be harmed. If the IRS releases the lien, the lien continues to be reflected on the taxpayer's credit report. When a lien is withdrawn, it is removed from the taxpayer's credit report.
Installment agreements
An installment agreement allows taxpayers to make a series of monthly payments over time to satisfy their tax debts. Certain installment agreements are called “streamlined” because they do not require a financial statement.
Shulman announced that the IRS is raising the threshold amount for small businesses from $10,000 in tax liabilities to $25,000 in tax liabilities for a streamlined installment agreement. To participate, a small business must make its payments through direct debit. “By expanding payment options we can help small businesses pay their tax bill while freeing up cash flow to keep funding their operations,” Shulman said.
Offers in compromise
An offer in compromise (OIC) is an agreement between a taxpayer and the IRS that settles the taxpayer's liabilities for less than the full amount owed. The IRS may accept an OIC based on three grounds: (1) doubt as to collectability; (2) doubt as to liability; or (3) effective tax administration. Acceptance of an OIC is within the sole discretion of the IRS. The OIC program is frequently misunderstood by taxpayers. Claims of being able to settle tax debts for much less than the amount owed are usually exaggerated.
Shulman announced that the IRS is expanding a new streamlined OIC program to cover taxpayers with annual incomes up to $100,000 to participate. Taxpayers must owe less than $50,000 to participate.
If you have any questions about the new steps the IRS is taking, please contact our office.

Will Small Business Be Spared From More Form 1099 Requirements?

I often hear the phrase that "change is good."  However, as a skeptical CPA, I'll say to myself, "that depends." 

Two recent changes to the tax law that concern Form 1099 - MISC aren't very good for small businesses. The increased compliance necessary to meet the new changes could be quite burdensome for small business, and I believe won't really derive much revenue for the government.    In case you don't remember, Forms 1099 - MISC are prepared by the payer for services performed in connection with a "trade or business" to a payee-provider.   The Forms are given to the payee by the payer usually by January 31 of the following year.  They report the payee's name, address, taxpayer identification number and amount paid during the calendar year.  If the payee doesn't want to provide this information to the payer, the payer is required to withhold amounts from their payment known as "backup withholding".  This backup withholding is added in with the payroll tax filings.

The first change requires that businesses must now issue Form 1099 - MISC to all payees/vendors who weren't tax exempt entities and were paid $600 or more for the year.  Payments for property were also specifically included, too. Previously Form 1099's had to be issued to non-corporate payees/vendors who met the $600 threshold and were for business services.  This new change is part of The Patient Protection and Affordable Care Act (PL 111-148) or "Obamacare" and was expected to help pay for the new act by increasing compliance among non-reporting individuals and entities.  However, most of these non-reporting individual and entities were already covered under the previous law for several decades, now.   The primary type of entity left out was corporations, and they have their own forms to file each year already.  So I may be wrong, but I don't see how these new compliance measures will significantly increase revenues.

The second change has to do with rental properties and the individuals who own them and was part of The Small Business Jobs Act (PL 111-240).   Under this law individuals, who receive rent income and pay service providers $600 or more, need to file Forms 1099 - MISC for these payees.  In this case gardeners and utilities would need to receive a Form 1099 - MISC.  This requirement could be quite burdensome for retirees who live in a duplex and rent out their other unit.

Currently the US Congress is trying to repeal these changes after they originally passed them in their previous term.  As of this writing (February 27) the Senate has pass a bill that would repeal the first change regarding the "expanded" reporting requirements under Obamacare, but not the rental property owners' requirement.  The House Ways and Means Committee has approved a bill repealing both changes and has sent it to the full House of Representatives.

If the Congress is unable to repeal these new requirements, the reporting for rental property expense payments will take effect beginning January 1, 2011 and be reportable by the following year.  The expanded service reporting will start on January 1, 2012.  Let's hope they can get the changes in on time and that will be good.

Glad to be Blogging about Smart Money Issues!

Looking forward to sharing insights on Taxes, Accounting and more!