IRS eases rules on tax settlements

As tax day approaches, the Internal Revenue Service is giving agents more flexibility to work with taxpayers who have seen their incomes drop during the recession.

IRS Commissioner Doug Shulman announced Tuesday that the agency is loosening its rules for negotiating tax settlements for less than the amount owed. The agency also plans to open about 1,000 offices on various Saturdays, beginning March 27, to give taxpayers more opportunities to work with IRS employees to resolve their tax debts.

The IRS expects to process 138 million individual tax returns this year. Most will qualify for refunds, but with the economy shedding more than 8 million jobs since the start of the recession, many taxpayers will be unable to make timely payments.

Under an IRS initiative started a year ago, agents can negotiate new payment plans and postpone asset seizures for delinquent taxpayers who are financially strapped but make a good-faith effort to settle their tax debts.

The new rules will provide even more relief to people who have been laid off or have had their incomes cut.

Shulman cautioned that those seeking help will have to demonstrate their inability to pay. Those who fail to file tax returns, or who simply ignore collection notices, will not be eligible for help. Individual tax returns are due April 15.

"A lot of people think of the IRS and have a little bit of fear of the IRS and we want to make sure they know that our doors are open, our people are empowered to make decisions and our goal is to resolve your problem," Shulman said in an interview.

Shulman said new rules for negotiating tax settlements, known as offers in compromise, better reflect the economic problems many taxpayers face. IRS agents can only accept settlements for less than the full amount owed if they determine there is little chance the taxpayer will be able to pay.

Under the old rules, agents calculated a taxpayer's ability to pay based on past income. However, many people who were laid off in the past year don't make nearly as much money as they did in previous years. Under new rules, agents will be able to use current income to calculate a taxpayer's ability to pay, Shulman said. If their incomes increase in the near future, the IRS will rework the settlement.

"It's really part of the ongoing effort of making sure taxpayers out there know that we want to collect the money that's due, but if you want to work with us, you should give us a call," Shulman said.

To qualify for a tax settlement, taxpayers must file detailed financial statements, listing all their assets, liabilities and income, said Jackie Perlman, an analyst with the Tax Institute at H&R Block. Taxpayers could be required to sell assets to help settle tax debts.

"You can't just call up the IRS and say, 'Hey, I lost my job, I can't pay the bills. Can you cut my taxes in half?'" Perlman said. "Nice try, but it doesn't work that way."

Shulman said the IRS wants to keep struggling taxpayers in the system, rather than having them fall behind on payments and drop out, which would put them at risk for bigger penalties, including property seizures.

The IRS will continue to go after taxpayers who ignore notices or stop making payments altogether. For example, the number of IRS liens filed last year increased by 26 percent over the previous year, to 965,600, according to IRS statistics.

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