Struggling Taxpayers Get a Break From IRS

As the 2009 tax season approaches, the IRS says it has taken new steps to help Americans struggling to pay their taxes during the deepening economic crisis.

IRS employees now have greater flexibility to work with taxpayers and temporarily suspend collection activity, including garnishing wages and other enforcement steps, IRS Commissioner Doug Shulman said Jan. 6. People who recently lost a job, rely solely on Social Security or welfare assistance, suffer from a major illness, or face high medical bills will be eligible for the tax break.

“We need to ensure that we balance our responsibility to enforce the law with the economic realities facing many American citizens today,” Shulman said. “We want to go the extra mile to help taxpayers, especially those who’ve done the right thing in the past and are facing unusual hardships.”

As for people who are current on their taxes now but fear they won’t be able to pay up this year, Shulman said they should file a tax return by April 15 anyway, then contact the IRS to discuss their options.

Taxpayers with an existing installment agreement who miss a payment because of a job loss or other financial hardship can rest assured, Shulman said. A missed payment will no longer lead to an automatic end to that agreement.

But, he said, taxpayers won’t get help if they don’t contact the IRS.

Steve Ellis, vice president of Taypayers for Common Sense, a budget watchdog group in Washington, calls the IRS actions “appropriate” in today’s economic climate. However, he urges the agency to make certain that the tax breaks granted are done in a fair and transparent way.

“You don’t want a citizen in Oregon and a citizen in a similar situation in Kentucky getting different deals,” he told AARP Bulletin Today. “There has to be some central accounting and transparency within the IRS to make sure there isn’t favoritism, whether it’s intended or not.”

This is the second time in as many months that the IRS has eased its enforcement and collection efforts to help people in financial distress. In December the agency said it will work to quickly resolve tax liens on homes if they prevent homeowners from selling or refinancing the property.

The IRS will also work more quickly to release levies on taxpayers’ bank accounts or wages, Shulman said.

For people who won’t be able to meet their tax obligations this year, the California Society of CPAs offers a few tips to curb the penalties and interest that accrue in such situations:

• Pay what you can when you file the return, then wait for a bill. This will buy you some time and help reduce the penalties and interest that you’ll be charged. It usually takes about 45 days to get a bill for the balance, perhaps enough time for you to get the cash to pay it off.
• Consider taking out an unsecured bank loan or tapping into a home equity line of credit. The interest will probably be less than the interest and penalties owed on the unpaid tax.
• Offer to pay in installments. The IRS is required to accept installments if your total tax liability (excluding interest and penalties) is $10,000 or less, and if you meet a few other requirements.
• Negotiate a compromise. The IRS may agree to accept an amount that’s less than what you owe if you meet certain criteria.

Go here for more information on the IRS announcement of the new measures, or call 1-800-829-1040.

Carole Fleck is a senior editor at AARP Bulletin Today.