WASHINGTON – The Internal Revenue Service says it's trying to help people who are struggling to pay delinquent tax bills, so it's reducing the number of property liens and easing rules for small businesses to enter into installment agreements.
As the economy has soured, the agency has filed an increasing number of liens on property owned by delinquent taxpayers. The IRS filed nearly 1.1 million liens in the budget year that ended in September, compared with 426,000 in 2001.
The steps announced Thursday will double the amount of back taxes a person can owe before facing a possible lien. Previously, taxpayers who owed at least $5,000 and ignored numerous IRS notices would get an automatic lien placed on their property. Under the new policy, the threshold is increased to $10,000.
The change will make it easier for people to have liens withdrawn once tax bills are paid or they start paying under certain installment plans. More taxpayers can settle their tax debt for less than they owe, if they meet certain income and debt requirements.
Small businesses with larger delinquent tax bills will be eligible for 24-month payment plans. Previously, the tax bill had to be less than $10,000; now it's up to $25,000.
The agency believes the changes "will help people trying to get right with their taxes and we think it strikes the right balance to protect the interests of the government," said Doug Shulman, the IRS commissioner.
The changes, however, don't go far enough, said Nina E. Olson, the national taxpayer advocate, an independent watchdog within the IRS. The agency will still file liens automatically, without analyzing whether a lien is likely to generate any tax revenue, she said.
"The IRS often files liens against taxpayers who own insignificant or no property interests to which the liens can attach. As a result, the lien filing simply damages the taxpayer's financial viability and impairs future tax compliance without any corresponding revenue benefit," Olson said in a statement.
The IRS expects to process more than 140 million tax returns this year, and the vast majority will qualify for tax refunds. But with the economy still weak, and the national unemployment rate at 9 percent, many taxpayers who owe money will be unable to make timely payments.
Liens are notices filed in land records to ensure the government can collect back taxes when property is sold. They also alert potential creditors and employers that property owners owe back taxes.
They can remain on credit reports for years — even once tax bills are paid and liens removed — hurting the ability of taxpayers to get loans or even a job, Olson said.
In her annual report to Congress last month, Olson criticized the IRS for relying too much on liens and other "hard-core enforcement tools."
"A tax lien can be particularly devastating to small businesses, as it often cuts off their access to credit," Olson said in the report.
Shulman said he expects the number of liens filed to be reduced by "tens of thousands." He said he couldn't be more precise because there are too many unknown factors, including the state of the economy. The number of liens filed tends to increase as the economy falters.
"A federal lien is an important tool for the IRS. It gives us legal claim to a taxpayer's property for unpaid tax debt, which protects the government's interest," Shulman said. "But we also recognize that this tool must be used judiciously."
National Taxpayer Advocate's report: http://tinyurl.com/4a2qczs