New online payment options, changes to the Offer in Compromise program, and the impact of the National Research Program are, among others, key issues for the tax practitioner community.
Online payments
The newest option for reaching an agreement with the Internal Revenue Service regarding a tax obligation is the online payment agreement. This payment option is currently available for use by tax practitioners and can be accessed via the IRS Web site, www.irs.gov.
The online payment agreement can be used for individual tax obligations and assessments totaling up to $25,000 that will be paid in full within five years. Qualifying taxpayers will not be required to provide additional financial information, further expediting the process.
In order to take advantage of the online payment agreement option on behalf of a client, the tax practitioner must have a power of attorney recorded with the IRS. It does not make a difference whether the power of attorney was recorded via E-Services or the CAF system.
With about 2.6 million installment agreements every year, the IRS hopes that tax practitioners and their clients will take advantage of the ease and speed of the new online payment agreement.
The service does require a user fee, currently set at $43, to put the installment agreement in place. That fee will be applied out of the taxpayer's first payment.
While the online payment agreement applies to individuals, there is also an option for small business owners who owe up to $10,000 in employment taxes. If full payment of the amount owed can be accomplished within two years, then an express installment agreement can be used. Similar to the online payment agreement, the express installment agreement does not require further financial data from qualified businesses.
For individual taxpayers who do not qualify for the online payment agreement, tax practitioners can still use the IRS Web site for other installment options. An online payment calculator uses present income and expenses to help determine what would be an acceptable installment agreement from the IRS perspective. Then the URL provides instructions regarding how to submit the resulting installment agreement to the IRS for consideration.
Tax practitioners should keep in mind that, for many payment agreements, the IRS uses Forms 433-A, 433-B and 433-F to evaluate what the client can pay. Practitioners should familiarize themselves with these forms; in some cases, they should complete the forms in advance to help improve client service and speed up the process.
Offers in compromise
The OIC program is intended to give taxpayers the opportunity to come into the tax system, settle past-due taxes, and agree to stay compliant going forward. Due to recent changes, all-cash OICs now require a 20 percent deposit. And for installment OICs, payments must begin immediately - from the date that the offer is submitted. While it is still too early to tell the impact of the 20 percent deposit, tax experts expect that taxpayers will be less likely to submit frivolous offers and should now pay more attention to detail.
As the OIC program has developed over the years, it has also become more transparent. Tax practitioners have a clear set of instructions that help in the computation of reasonable collection potential, making it easier than ever to sit down with a client, review gross assets and monthly payment potential, and determine whether or not the case will qualify for an offer.
Private debt collection
In September, the IRS began using private debt collection agencies. Taxpayers with outstanding taxes due who have not previously been assigned for collection within the IRS may be selected for the private debt collection program.
Tax practitioners should expect to hear from clients who have received a letter from the IRS notifying them that their case has been assigned to a private debt collection agency, followed by a letter from the collection agency itself. Cases currently assigned to private debt collection agencies are cases classified as low priority by the IRS that are less than four years old, under $25,000, and have not previously been assigned to a revenue officer.
While the IRS has gone to great lengths to maintain security and privacy for private debt collection cases, the opportunity for taxpayer scams does exist. The IRS emphasized that they will notify taxpayers before any action occurs on the part of the collection agency.
In addition, all checks are to be written to the U.S. Treasury, just as in regular IRS collection activities. Practitioners with clients who receive instructions to make payment to any organization other than the U.S. Treasury should contact the IRS immediately.
Any taxpayer who would prefer to deal directly with the IRS instead of the private collection agency may request that the case be returned to the IRS. To do so, the private debt collection agency must be informed in writing.
A look ahead
While new and changing payment options will help the IRS go about the business of collecting taxes and shrinking the tax gap, research and examinations are important considerations as well. Tax practitioners may see a rise in total examinations for their clients that fit into the category of sole proprietorships, which the National Research Program has identified as having a relatively low reporting rate on business income and self-employment tax.
In addition, proposed legislative changes on the horizon could make significant changes in third-party reporting requirements and expansion of preparer identification, as the federal government continues to look for ways to reduce the tax gap without significantly increasing the burden on the taxpayer.
Roger Harris, EA, is president and chief operating officer of Padgett Business Services, and a former chair of the Internal Revenue Service Advisory Council.
