People lined up at the IRS office for help in preparing their… (Baltimore Sun photo by Algerina…)
The tax deadline is a month away, and the Internal Revenue Service wants you to know that it's going to lighten up.
IRS Commissioner Doug Shulman last week announced that agents will have more flexibility to settle with the newly unemployed and others - who have seen their income fall - for an amount that's less than the taxes owed.
And hundreds of IRS offices will hold open houses nationwide on certain Saturdays so taxpayers can sit down face-to-face with an agent to resolve tax problems.
(The Baltimore IRS office at 31 Hopkins Plaza is open every Saturday from 9 a.m. to 2 p.m. through April 10.)
Leniency from the IRS would be a big help to many people struggling to pay tax bills because they have lost jobs, seen wages cut or found themselves in lower-paying positions.
But some doubt just how generous the IRS will be. The agency made similar promises to be more flexible last year.
"And they were not," says Robert McKenzie, a tax partner with Arnstein & Lehr in Chicago. "I'm hoping they really mean it this time."
Through last year's enforcement actions, the IRS increased the number of liens by 26 percent over the year before to 965,619.
And the number of so-called offers in compromise - where the IRS accepts less than owed - remained flat last year even though demand rose by 18 percent from a year earlier.
The IRS received 52,000 requests to settle last year but approved only about 11,000. That's a rejection rate of about 80 percent, McKenzie notes.
The IRS says it expects to increase the number of offers in compromise this year because agents have the authority to be more permissive about income when considering a settlement.
Previously, the IRS looked at income for the past three years to determine how much a taxpayer could afford to pay. That wasn't much help to those who lost jobs or took a steep pay cut at a new job. Now, agents can look at your current income and potential future income when weighing a settlement.
"They are trying to say to the revenue officer out there, 'Don't be dogmatic about this and presume that this taxpayer is going to return to last year's income. ... Maybe that job is gone forever,' " says Benson Goldstein, senior technical manager with the American Institute of Certified Public Accountants.
If you anticipate having trouble paying your tax bill, the IRS offers a few options, some of which could suit you better than a settlement. Even with these, you might still owe penalties and interest.
•Ask the IRS for a short-term payment plan if you can pay the tax bill within 120 days, says Jim Dupree, IRS spokesman in Baltimore. The IRS will waive the usual $105 fee for an installment plan, he says.
•If you need more time to pay and owe $25,000 or less, you automatically can qualify for a five-year repayment plan. Fill out the "online payment agreement" form at irs.gov or the paper Form 9465.
•You also might qualify for a repayment plan if you owe more than $25,000, but "the IRS will do a very aggressive review of your budget," McKenzie says. Besides Form 9465, you must fill out a "collection information statement" with details about your assets and expenses.
•Request an offer in compromise through Form 656. The IRS doesn't grant a settlement to just anyone who asks. The agency usually settles if it is unlikely to collect the full amount due, if there's doubt that the tax bill is correct or in cases of extreme financial hardship.
Be aware the IRS won't be likely to work with you if you failed to file past returns or reneged on promises to pay a tax bill.
And it's critical that if you can't pay the tax bill this year, you file your return on time anyway. The IRS can try to collect on unpaid taxes for 10 years after the return is filed, Goldstein says.
"You want to get the clock running on the statute of limitations for collection. And if you do not file, it becomes unlimited," he says.