Volume 8 Issue 3
IRS Collection Activities:
A Pain Worse than Death?
© by Tax & Business Professionals
Some stronger comments may come to mind when you or a client
have to deal with the IRS when it is attempting to collect taxes. The IRS is divided into
two very large primary functions Audit (reviewing returns for correctness) and
Collection (dealing with collecting unpaid taxes and obtaining unfiled returns).
This Newsletter begins a series of articles dealing with the
subject of IRS collection practices, a subject that for many is best left unmentioned.
However unglamorous the subject may seem, in fact, IRS collection practices can have an
enormous impact on both clients and tax professionals.
Many tax professionals refuse to deal with
collection cases for a variety of reasons. The primary reason for this reluctance to
handle collection matters seems obvious the client is (or is about to be) in
trouble and may not be able to pay anyone, much less you! Even under the best of
circumstances, however, collection cases are rarely a "cake walk."
The Importance of Collection Practices
The undoubted importance of collection matters, to both tax
professionals and taxpayers stems from the considerable power that the IRS has when acting
in its collection capacity. These powers, which are often tantamount to a life or death
power over business survival and individual finances, are not well understood by many tax
professionals and sometimes not even by the IRS itself!
For tax professionals, the task of dealing with IRS collection
activities is often very different from dealing with the Service in its more familiar role
of tax auditor. Moreover, while the individual state laws vary, many state tax authorities
employ collection practices similar to those of the IRS.
While it is often true that individuals and
businesses who fail to file returns or pay taxes are foolishly courting disaster, there
are exceptions. For example, sometimes an errant employee or spouse may cause a return not
to be filed or a tax to go unpaid. On occasion, a dishonest employee will file returns and
embezzle the funds slated for the IRS. In other words, not all collection cases are the
product of an apparent desire of a taxpayer to commit financial suicide.
The Role of the Professional
In collection matters the first order of business is to get the
client-taxpayer to accept responsibility for the situation and develop a plan for payment
of the tax (perhaps an installment payment agreement) or in some cases other resolutions,
such as an Offer in Compromise (discussed later) or bankruptcy.
By the time they come to see a tax professional, many
taxpayer-clients have tried with limited success to avoid or deny the existence of the
claims of the IRS or other creditors and many will have already tried bankruptcy before
the IRS calls.
Often, clients do not consult their tax professional until the
IRS has already begun levying on the clients assets and bank accounts or garnishing
an employees wages.
In order to deal effectively with IRS Collection
problems, it is important to know and understand with whom you are dealing and what their
role is. Within the IRS Collection sphere, functions are subdivided into two major parts,
Automated Collection Systems (ACS) and field offices with Revenue Officers (R/Os), who
visit delinquent taxpayers homes and offices.
For many taxpayers and professionals involved with collection
problems, the first point of real contact with the IRS comes through ACS. ACS is designed
to deal via telephone with large numbers of taxpayers and attempts to keep written
documents and records to a minimum.
Many taxpayers and professionals complain about the
"steeliness" of ACS collection staffers. Clearly, some IRS collection personnel
overextend their powers in ways not condoned by the IRS manual. In part, the IRSs
penchant for a tough approach is engendered by having extensive powers to levy and being
forced to deal constantly with "lame" excuses.
Just as tax professionals frequently hear such excuses, ACS
offices are inured to just about every excuse and greet most of them with considerable
disdain. Without condoning the seeming indifference of most IRS collection employees, it
is, at least in part, understandable.
In dealing with ACS it helps to understand what it (the office)
is designed to do. With budget cutbacks, experienced by all government agencies, the IRS
was constrained to find an economical way to collect unpaid tax debts efficiently. ACS is
designed to operate from afar and go for the easy "hits" primarily bank
accounts and wage garnishments. Some IRS wags have described ACS as "getting the
cream off the top."
In the next issue, we will
explore the day-to-day realities of dealing with ACS personnel and
begin to look at other aspects of tax collection practices.
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Published jointly by The Tax & Business Professionals, Inc. and the law firm of Newland & Associates as a service to their clients.
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