[IMGCAP(1)]When it comes to getting a resolution considered during an Internal Revenue Service collection case in which the IRS doesn’t have criminal prosecution aspirations, there is only one piece of advice that fits every case.
The most basic and sound advice that a representative should give a taxpayer is: get caught up with unfiled returns and start paying current taxes.
Such seemingly basic advice is not consistently offered to taxpayers, however. When I speak with other practitioners around the country and share stories of collection cases (all varying in levels of complexity), there is a general theme that these conversations typically circle back to. More often than not, the taxpayers in these narratives either decided on their own or were told to start paying off their old liabilities, with the risk of running up a new tax debt.
When it comes down to it, the requirement to be in compliance with filings and tax deposits is the cornerstone of the voluntary, pay-as-you-go tax system. By definition, compliance means having all tax returns filed, including valid extensions, and making tax deposits toward any applicable deposit requirement, most commonly a business's federal tax deposit for employment taxes or an individual's estimated income taxes.
As one might imagine, the task of managing compliance for the nation’s individuals and businesses is an extraordinary endeavor for the IRS. This task became even tougher back in 2010 when the IRS budget was cut severely. Budget cuts have continued in every fiscal year since 2010 (with the exception of this year), making the mission of addressing non-compliance that much more difficult for the agency. In fact, the IRS is now owed more money than ever while having fewer resources. As a result, taxpayers often need to deal with a stretched agency and an inconsistent, frustrating system. They need to spend an extraordinary amount of time resolving their tax problems, exacerbating the stresses on our voluntary system.
On the other hand, some taxpayers will not comply with paying taxes voluntarily for various reasons, whether intentional or not. Most cases involving non-compliance result in a balance due account. When a balance due exists, the situation immediately becomes more complicated, as are the important decisions about what to do next. While every resolution plan requires the taxpayer first return to filing and paying current taxes voluntarily, the IRS has a host of rules and regulations that guide how to evaluate each taxpayer’s situation in order to arrive at a resolution that it deems suitable. Although it is important for the IRS to recover unpaid taxes, the agency makes a point of qualifying every resolution plan with compliance.
In 2012, the IRS introduced a new set of collection initiatives designed to bring non-compliant taxpayers back into the system. Then-IRS Commissioner Doug Shulman called it the Fresh Start Initiative. The core of the initiative was promoted as creating more favorable taxpayer outcomes in collection cases, perhaps in anticipation of the IRS’s strained budget eroding certain aspects of the system that encourage voluntary compliance, such as customer service and timely responses to taxpayer inquiries. The program shook things up, with a public relations push emphasizing new opportunities for taxpayer resolutions.
What did not change with the Fresh Start Initiative was the core underlying principle to every resolution: compliance. The program also did not consider business employment tax as a qualifying condition. Therefore, the IRS—while promoting its taxpayer-friendly collection policy changes—continued to emphasize its message of bringing non-compliant taxpayers back into the system while discouraging employment tax non-compliance.
Considering its declining budget, the IRS formulated a fairly robust and adept shift towards doing more with less. The years since the Fresh Start Initiative was first put into action have seemingly focused largely on implementing the program changes and measuring its overall success. Over the last four years, IRS Collections has generated $5 billion more in revenue, with 20 percent fewer revenue officers and an overall IRS budget decrease of almost $1 billion.
With success on individual liabilities coming from the Fresh Start Initiative, the IRS continues to fight when it comes to combating employment tax issues. To aid in the battle against employment tax deficiencies, in late 2015, the IRS scored an uncommon win from congressional Republicans when it was granted an addition $290 million in funding. This increase in funding has allowed the IRS to move forward with increased taxpayer contact, including its Early Action Initiative. With the purpose of identifying and addressing potential tax problems much sooner, this program is intended to have IRS Field Collection personnel appear in-person at companies that appear to have stopped making federal employment tax deposits.
From firsthand experience, there has already been a noticeable increase in the number of unannounced visits by field collection personnel in 2016. This increase in field visits should impact the previous methodology of addressing taxpayer compliance. In the past, compliance could be addressed over a longer period of time. Now, practitioners must effect a compliance change right away.
Undoubtedly, the IRS’s ability to properly fund its mission will play a role in the collection representation landscape for years to come. Policies will likely develop around the level of funding it receives in the future. Despite the uncertainty of how the IRS will move forward, the very basics of collection representation remain the same, and a practitioner’s advice—emphasizing compliance with current taxes—should follow suit. Ultimately, taxpayers should be encouraged to return to the voluntary system by filing and paying on a timely basis.
David F. Miles, E.A., is a vice president at 20/20 Tax Resolution, Inc. with over 18 years of tax resolution experience. He holds a Bachelor's Degree in Political Science from the University of Vermont. Miles is an active educator of other tax professionals on a national level and served as an instructor at the 2011–2015 National Tax Practice Institute conferences. He has been interviewed about a range of tax topics for various news articles as well as television, was a panelist on Tax Talk Today in November of 2012, and is a regular contributor to the EA Journal.
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