In my 2021 Annual Report to Congress, I reported on IRS processing backlogs and recommended that the IRS suspend all automated collection notices until it is up to date on the processing of original returns. and amended and unprocessed correspondence. I also outlined IRS collection policies and recommended that the IRS defer issuing Notices of Intent to Levy and filing Notices of Federal Tax Lien until it clears its backlog of unprocessed mail and answered taxpayer correspondence.
On February 5, 2022, the IRS announcement that it suspended the automatic sending of more than a dozen letters, including automated collection notices normally issued when a taxpayer owes federal tax or automated notices asking a taxpayer to file a tax return income when the IRS has no record of the filing of the return. This notice suspension is good news for taxpayers and should eliminate confusion and frustration for those experiencing processing delays.
Note: Taxpayers who owe taxes, interest, or penalties should NOT construe this announcement as suspending the obligation to make payment or suspending the time to make payment. Where applicable, interest and penalties continue to accrue until payment is made. Taxpayers can view their current balance by setting up and accessing their online account.
In general, taxpayers who have not received automated notice CP504, Notice of Intention to Seize (Levy) Your Property or Property Rights, by February 9, 2022, will not receive an automated collection notice or be subject to collection by the IRS during the suspension remains in effect. Taxpayers who have received a CP504 will not receive any automated collection notices, but may be subject to case-specific collection actions by the IRS.
Some taxpayers may still receive a Notice of Federal Tax Lien or Notice of Intent to Levy, may still have certain assets levied, and may have their overpayments set off
If the taxpayer’s account has been assigned to the IRS Automated Collection System (ACS), the IRS will not issue an Automated Letter 11 – Final Notice – Notice of Intent to Levy and Your Notice of Right to Hearing . Letter 11 is issued by ACS, a computerized inventory that manually and systematically sends notices to taxpayers, issues notices of federal tax liens and levies on taxpayer assets, and responds to calls to resolve balances owing. ACS will also not routinely issue notices of federal tax lien.
If a taxpayer’s account has been assigned to one of the IRS’ Automated Levy Programs (ALPs), the IRS also suspends levies made by those programs and automated notices equivalent to Letter 11. ALPs systematically issue state income tax levies. refunds, municipal income tax refunds, Alaska Permanent Fund dividend payments, and federal payments, including certain Social Security benefits, due to taxpayers.
Letter 11 and equivalent notices satisfy the legal requirements that the IRS notify the taxpayer of its intention to levy and of the taxpayer’s right to a Collections Proceedings Hearing (CDP). These notices inform taxpayers that the IRS may file a notice of federal tax lien if it has not already done so. The letter also explains that the IRS can certify to the Department of State that the taxpayer owes a severely delinquent tax debt if the debt (including penalties and interest) exceeds the current tax threshold. $55,000, which may result in the Department of State revoking a taxpayer’s passport, refusing to issue or renew a passport, or allowing a taxpayer who is already abroad to use the passport only to return directly to United States. Unless the IRS issues Letter 11 or an equivalent letter advising taxpayers of the right to request a collection due process hearing, the IRS generally cannot proceed with collection on a taxpayer’s property.
Because Letter 11 triggers the right to request a collection due process hearing, taxpayers should not waive this right, if at all.
Although the IRS suspended Automatique unpaid notices assigned to ACSs and ALPs, it will continue with case by case execution work. Therefore, depending on the circumstances, an individual IRS employee may issue a letter equivalent to Letter 11, advising the taxpayer of their intent to levy and their right to a CDP hearing, issue a levy, or file a notice of federal tax lien. .
Taxpayers should be aware that the IRS does not interrupt its normal tax refund set-off procedures to collect unpaid debts.
Additionally, pursuant to IRC § 6402(a), the IRS may offset a taxpayer’s overpayment, including refundable credits, and apply it against a federal tax liability, but it is not not required to do so. However, the IRS must offset an overpayment against a nontax federal debt such as child support or state tax owed by the taxpayer (see IRC § 6402(c)-(f)).
Request relief from levies and refund offsets
IRC § 6343(a)(1)(D) requires the IRS to release a levy when it would create economic hardship due to the financial condition of the taxpayer. Help with requesting a levy release may be available from CAS or clinics for low-income taxpayers.
In the area of overpayments and refund set-offs, as I mentioned in a previous blog, the IRS has Agreed to exercise its discretion under IRC § 6402(a) for certain Offers in Compromise (OCI). Beginning with ICOs accepted on or after November 1, 2021, the IRS will not offset overpayments or refunds of tax periods included in the ICO after the date of acceptance of the offer. For example, the taxpayer has an accepted ICO on November 15, 2021 and files a 2021 tax return on April 15, 2022, showing a refund. The IRS will not offset this overpayment and will refund the overpayment to the taxpayer if there are no other debts prohibiting repayment. Additionally, the IRS has also decided that refunds allocated to the 2021 recovery rebate credit will not be offset by federal income tax payable.
The IRS has also increased sensitization compensatory bypass refund (OBR) procedures if a taxpayer experiences financial hardship. Generally, an OBR is only available before the IRS applies a current overpayment to a prior tax liability and when the taxpayer establishes economic hardship (for example, the individual must pay a utility bill to avoid disconnection). Once the taxpayer has established the hardship amount, the IRS will only bypass enough of the overpayment to mitigate the hardship. For example, if a taxpayer has an overpayment of $4,000 and unpaid tax debts of more than $4,000, but establishes a hardship of $1,000, the IRS can issue a refund of $1,000 to the taxpayer and offset the balance, $3,000, against income tax payable. Under the new guidelines discussed above, the IRS will allow eligible taxpayers experiencing financial hardship to apply for OBRs while their OICs are waiting for IRS review. Taxpayers can call the IRS to request an OBR, but the IRS may not respond to their call. However, assistance may be available from TAS.
Collection options are available
Taxpayers who are unable to meet their obligation all at once may have several options. Those who are up-to-date on their tax returns can apply for a payment plan (installment agreement) to pay off the remaining debt over time. Taxpayers who owe less than $100,000 may be able to use the online payment agreement tool pay the liability in 180 days or less. Taxpayers who owe less than $50,000 may also be able to set up a long-term payment plan (monthly payment with an installment agreement) using this same self-service online resource. Calling the number on the notice or letter is also an option, as is sending a request for payment agreement. However, long wait times and connection backlogs can test the patience of those using these two options. A OIC may be the appropriate way to resolve a liability if the taxpayer is unable to pay the liability in full or in installments. This option allows taxpayers and the IRS to settle a tax debt for less than the full amount owed. The IRS may accept an ICO if the IRS agrees that there is doubt as to liability, doubt as to collectability, or for purposes of effective tax administration.
Taxpayers unable to pay their debt at that time can ask the IRS to delay collection and declare the account as currently uncollectible. This option can provide a temporary reprieve to taxpayers who cannot pay the amount owing because these payments would prevent them from meeting basic expenses. There is no online method to request this collection alternative. A caveat regarding this collection alternative: taxpayers should call the IRS and should be prepared to describe their financial situation when calling the IRS to request this relief, the IRS will still charge applicable penalties and interest up to until the debt is paid or expires, and the IRS can file a notice of federal tax lien.
Taxpayers can call the IRS to discuss these options, but the chances of reaching an IRS employee by phone remain low. As I reported, during the 2021 filing season, taxpayers logged into the IRS only nine percent of the time. However, the chances of reaching an ACS employee are higher than calling the toll-free customer service line. Also, since the IRS is suspending automated notices, there should be fewer calls to ACS, which may increase the chances of reaching an ACS employee.
Even though the IRS suspended some collection notices, it did not suspend liabilities
We commend the IRS for suspending automated collection notices normally issued when a taxpayer owes additional tax and when the IRS has no record of a taxpayer filing a tax return. This is a great relief for millions of taxpayers who may have received these notices while waiting for the IRS to process their returns or their mailing address. Remember that interest and penalties will continue to accrue even if the IRS does not send subsequent notices reminding taxpayers of their balances.