IRS Enforcement Action Heating Up, Lien Filings Triple

Don’t misread the New York Times article of Friday, April 13, 2001. While it is correct that the IRS has placed about a million cases into an inactive file, enforcement action IS on the rise. Remember that even if the IRS has put your case into an inactive status, the taxes do not go away until the statute of limitations expires. That is ten years after the assessment (first billing notice) date.

It appears that the lax enforcement efforts by the IRS over the past three years has come to an end. Federal tax liens filings shot up in August and September, 2000.

According to a southern California based firm that researches courthouse filings nationwide, the number of Federal tax liens filed jumped from an average of 9,000 per month from January through July to nearly 24,000 in August and September 2000. It is expected that lien filings will continue to increase rapidly. This is consistent with a recent CNN report that the IRS has requested a $144 million increase in its 2001 budget, to be allocated for hiring 1,633 additional personnel including more than 600 tax collectors and auditors.

According to TRAC IRS, a service of Syracuse University, in 1992 the IRS filed 1,452,634 Federal Tax Liens. In 1999, that number had dropped to 167,867. While lien filings may not return to 1992 levels, we do expect a return to the average for the period of 1993 through 1997 of 772,938.

Levies on wages and bank accounts are also likely to increase dramatically in the coming months. Taxpayers will again feel the need to contact a tax professional to resolve their long-standing IRS problems.

That raises a very important question. How should you use this information? Does that mean that now is the time to file delinquent returns, set up a payment agreement or submit an Offer in Compromise?

In the case of filing old returns, absolutely yes. If you want to set up a payment agreement, also definitely yes. Offers are a little different. While the IRS recently changed the Offer program, the changes were not particularly meaningful. However, if you are a good Offer candidate, I would submit the Offer now. What I have heard from other tax pros around the country is that the IRS is going a little outside their normal guidelines to accept Offers as long as they are “close on the numbers”.

I still strongly suggest that you use a competent EA, CPA or attorney that specializes in collection cases. The reason is that every $1 difference in the ability to pay on the IRS financial statement is a $48 difference in the amount of the Offer. The fee that you pay for professional representation may well be offset by the amount of the Offer.

The IRS has been much easier to work with over the past three years. It appears that the pendulum has begun to swing the other direction.