The IRS has made some changed to Income tax lien collections for 2010. The Internal Revenue Service improperly dismissed over $1.4 billion in delinquent taxes between 2002 and 2008 without filing tax liens to collect them.  A report, by the Treasury Inspector General for Tax Administration, faulted IRS revenue officers for not documenting valid reasons why they decided not to file tax liens.  

The IRS attaches property to insure that it is paid and establishing the IRS’s priority among secured creditors for the taxpayers’ equity.   IRS revenue agents are allowed to not file liens when a taxpayer is in bankruptcy, has died without assets, when a corporation is defunct or for a variety of other reasons.  IRS agents have to document and include an explanation when they are not filed.  Revenue officers are supposed to attempt initial contact with a taxpayer within 45 days after they are assigned the taxpayer’s return. A “module” refers to one specific tax return filed by the taxpayer for one specific tax period (year or quarter) and type of tax (i.e., individual, corporate, employment, excise, etc).

According to the report, the IRS did not file liens for 210 returns at two collection field offices representing a balance due of $6.4 million. In addition, IRS revenue officers did not document valid reasons for not filing attachments when closing as “currently not collectible” an estimated 2,297 modules, with $72 million in delinquent taxes.  The report also found that liens were not filed on shelved modules within a certain dollar threshold, even though an IRS study has shown a benefit in doing so. TIGTA’s analysis found that between 2002 and 2008, the IRS shelved, without filing liens, modules representing approximately $1.4 billion in delinquent taxes. Shelved modules are placed in a currently not collectible status and no collection work is conducted.   However it promised to improve it’s collection process to comply with regulations.  

Nick C. Thompson Louisville Kentucky Income Tax Bankruptcy Attorney

The IRS has made some changed to the offers in compromise program and Income tax liens for 2010.   The IRS adjusters are now permitted to consider a taxpayer’s current income and future income potential when negotiating an offer in compromise.  Former practice was to judge an offer in compromise only on a taxpayer’s earnings in prior years.  This provides greater flexibility when considering offers in compromise from the unemployed, or recently retired or disabled persons.  However the IRS will also now require any taxpayer entering into an offer in compromise to pay more if the taxpayer’s financial situation improves significantly.

The IRS will continue to offer other help to taxpayers, including:

• Assistance of the Taxpayer Advocate Service for those taxpayers experiencing particular hardship navigating the IRS.
• Postponement of collection actions in certain hardship cases.
• Added flexibility for missed payments on installment agreements and offers in compromise for previously compliant individuals having difficulty paying.
• Additional review of home values for offers in compromise in cases where real-estate valuations may not be accurate.
• Accelerated levy releases for taxpayers facing economic hardship.

In addition, the IRS will accelerate lien relief for homeowners if a taxpayer cannot refinance or sell a home because of a tax lien. A taxpayer seeking to refinance or sell a home may request the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan.  The taxpayer may also request the IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien under certain circumstances. 

No changes to the ability of a taxpayer to discharge income taxes in bankruptcy are expected.   The interest and penalties will still be dischargable in a Chapter 13 and if the income tax debt is over 3 years old, properly filed and “aged” it will be dischargable in a Chapter 7.

Nick C. Thompson Louisville Kentucky Income Tax Bankruptcy Attorney

How to bankrupt Income Taxes

Bankruptcy can discharge income tax debt.  Bankruptcy will not normally remove an income tax lien however most IRS tax liens dissolve 10 years after the return is properly filed.   Income taxes can be discharged 3 years after the tax became due, and the return is properly filed.   If an extension was properly requested the income tax return probably did not become due until October 15th of that year even if it was filed earlier.  The IRS tax debt would not become dischargable until 3 years after October 15th even if it was filed earlier than October 15th.   

Other items can delay the date a tax becomes dischargeable such as other bankruptcy filings, assessments, offers in compromise and due process hearings.   If you file as a Chapter 13 Bankruptcy you will normally continue to lose your income tax refunds  until the plan is paid. 

A bankruptcy can discharge state and local income tax debts.   Timing is a very important issue in discharging a tax debt and there are some other basic steps that must be followed.  This is how discharge income taxes:

1. Your tax returns must have been due three years or more before the bankruptcy petition is filed;
2. Your tax returns have to have been filed more than two years before the petition;
3. The tax you owe must have been assessed against you by the government for at least 240 days before the case is filed;
4. Your tax returns must have been truthful and not fraudulent; and,
5. You must not have been intentionally attempting to evade or defeat the tax when you failed to pay.

When an IRS lien attaches it effects any assets you own at the time it is filed and anything you later acquire until the lien is terminated.  If the returns are not properly filed or are filed fraudulently the clock never runs on the statute of limitations for the lien.  The failure to file a return and to keep records are a basis for never having the debt discharged in bankruptcy and owing the debt forever.    This is why it is imperative that you use a bankruptcy attorney that is able to pull your tax transcript and analyze when the bankruptcy should be filed.    After 10 years the tax lien expires and it is no longer effective.   Your personal responsibility can be discharged if you properly file a return and wait the correct amount of time to file income tax bankruptcy.   However for the lien to be removed it often only requires waiting the 10 years and the IRS very rarely forecloses on real property.

Nick C Thompson Louisville Kentucky Chapter 7 13 Bankruptcy Attorney