The IRS has a track record of halting collection actions when there is a disaster or other major event. As tax attorneys in Austin we saw this in the aftermath of the Hurricane Harvey storms. While a temporary stop to collections can be helpful, it can also cause other problems. If you owe back taxes to the IRS, here are a few things you should consider.
Installment Agreements
For those with existing installment agreements that are on direct debit, the IRS has announced that it will not be collecting installment payments for the April 1-July 15, 2020 periods.
For those who are not on direct debit, the IRS agreed to not default installment agreements for missed payments during this time.
In our experience, taxpayers cannot rely on these statements from the IRS. Taxpayers should actually contact the IRS directly to request a collection hold on the account. Even this is not fool proof, but it can help avoid defaulted installment agreements in the future.
Offers in Compromise
The IRS has also announced that it will allow those who submitted an offer in compromise to forego payments required during the time noted above.
The IRS will also grant additional time to provide information for offers that are currently being considered, but that have not been accepted.
We recommend taxpayers who have submitted offers recently to submit updated financial information to the IRS. While the IRS generally uses prior year income and current assets to evaluate offers, it is authorized to consider new information. This is particularly true when there are special circumstances. The virus situation is no doubt a special circumstance.
Unfiled Tax Returns
Those with unfiled tax returns should consider filing all back taxes. The government will be distributing stimulus checks to many taxpayers. These checks are based on information reported on either the taxpayer’s 2019 tax return or, if 2019 has not been filed, the 2018 tax return. If the taxpayer has not filed, they may not receive this payment.
Also, for taxpayers who need to qualify for a SBA loan, the loan terms typically require three years of tax returns be filed.
We prepare a lot of unfiled tax returns each year and can assist with this if needed. We can even get started now, virtually, given the processes we have developed for preparing and filing unfiled tax returns.
IRS Delays Expected
The IRS has also warned that in-person contacts will be limited. Staffing levels at the IRS service centers are also likely to be impacted.
IRS auditors and appeals officers largely work from home, so many of those cases will continue to be worked. The IRS auditors and appeals officers may not be able to retrieve items that are submitted by mail. But most IRS agents and appeals officers use eFax, which delivers faxes to their email in boxes. Thus, they are able to get faxes at their homes.
Ultimately, this means that there will be even longer delays in trying to work with the IRS. We recommend taxpayers start contacting the IRS now, as cases are often worked on a first-come-first-served basis.