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IRS decides to be more lenient on liens

posted Mar 1, 2011, 11:22 AM by Jayson Wingfield   [ updated Mar 1, 2011, 11:23 AM ]

WASHINGTON – March 1, 2011 – The IRS announced Thursday that it’s significantly reducing the number of liens it will place on property owned by delinquent taxpayers and will make it easier for taxpayers to get existing liens withdrawn.

The use of tax liens has soared more than 60 percent since the start of the recession, according to IRS Taxpayer Advocate Nina Olson. Olson has called on the IRS to moderate the use of this collection tool, which can make it difficult for an individual to find a job, obtain affordable housing or buy insurance.

IRS Commissioner Doug Shulman said the IRS will impose a lien when a taxpayer owes back taxes of $10,000, up from the previous threshold of $5,000. As a result of the higher threshold, “Tens of thousands of people won’t be burdened by liens,” Shulman said.

In addition, taxpayers who set up an installment plan to pay back taxes will usually be able to have their liens withdrawn, Shulman said.

A federal tax lien gives the IRS a legal claim to a taxpayer’s property for the amount of an unpaid tax debt. A tax lien can devastate a taxpayer’s credit score and make it difficult for the individual to sell a home or other property that has a lien against it.

In a statement, Olson called the announcement a “significant step in the right direction” but said it won’t address some of the problems that she outlined in her report to Congress.

For example, the IRS often files liens against taxpayers who own little or no property, Olson said, and those liens damage the taxpayers’ credit profile without producing any revenue for the government.

“Simply raising the dollar threshold for lien filings does not provide for the level of thoughtful judgment that should serve as the basis for the use of this powerful collection tool,” Olson said.

The IRS also announced that it has broadened its Offer in Compromise program, which allows taxpayers to negotiate a reduction in the amount of taxes they owe. Shulman said taxpayers with annual incomes of up to $100,000 can participate in the program, up from the previous cut-off of $50,000.

Only a small percentage of Offers in Compromise filed with the IRS are accepted. To obtain a permanent reduction in their tax debts, applicants must demonstrate that they have exhausted all resources available to pay the tax and have little hope of raising the funds.

Courtesy of: 2011 USA TODAY, Sandra Block.