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IRS eases up on tax liens

By Kay Bell · Bankrate.com
Thursday, February 24, 2011
Posted: 1 pm ET

The Internal Revenue Service is among the debt collectors who have been trying to collect on unpaid bills.

But instead of making threatening phone calls to your home, the IRS files tax liens. This official notice establishes priority rights for the IRS against other creditors, meaning that when the property against which the lien is filed is sold, Uncle Sam will get his owed money first. 

Now the agency says it's going to give taxpayers who are having trouble coming up with the cash a bit of a break.

IRS Commissioner Doug Shulman announced today that his office is instituting new approaches to tax collection. These new policies and procedures, said Shulman in a telephone conference call, should help people who owe back taxes, especially lower-income taxpayers and small buisnesses.

Here's what the IRS now will do when it comes to certain collection efforts:

Increasing lien thresholds.
The IRS will "significantly increase" the dollar thresholds when liens are generally filed. Currently, liens are automatically filed at certain dollar levels for people with past-due balances. "Raising the lien threshold keeps pace with inflation and makes sense for the tax system," Shulman said. "These changes mean tens of thousands of people won’t be burdened by liens, and this step will take place without significantly increasing the financial risk to the government."

Withdrawing liens for direct payment plans.
Lien withdrawals will be even easier for taxpayers who owe $25,000 or less and agree to pay off the debt via a direct debit installment plan. Set up such a plan, in which the regular payments are made directly to the IRS, rather than you writing a check each month, and the lien will be released.

If you already have such a debit payment plan, just ask the IRS to release the lien. And if your IRS installment plan is the traditional type in that you're still writing checks, just change it to direct debit and the lien will be withdrawn.

Making installment plans more accessible.
The IRS will raise the dollar limit of its payment program to tax debts of $25,000 or less to allow more small businesses to participate. Currently, only small businesses with less than $10,000 in liabilities can get tax installment payment plans. Small businesses will have to enroll in a Direct Debit Installment Agreement and will have two years to pay off the debt.

Expanding the Offer in Compromise program.
The IRS is also expanding a new streamlined Offer in Compromise , or OIC, program to cover a larger group of struggling taxpayers. An OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt for less than the full amount owed. Taxpayers with annual incomes up to $100,000 now can participate. In addition, the unpaid tax bill amount for eligibility has been doubled, from $25,000 or less to $50,000.

Shulman said the changes will help people who are struggling in a weak economy get current on their tax bills. "These steps are in the best interest of both taxpayers and the tax system," he said.

I'm not naive enough to think that all these changes will go smoothly. But given the financial troubles so many are facing, the recognition by the IRS that accommodations should be made when it comes to tax bills is a laudable step.

Make sure you get all the latest tax news and tips this filing season by subscribing to Bankrate's free Daily Tax Tip newsletter.

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