The nation's tax collector is taking a softer
stance on millions of Americans without the money to pay their tax
"Instead of collecting nothing from people with an unpaid tax
bill, we're able to collect something," Internal Revenue Service
Commissioner Charles Rossotti said Thursday. "And for taxpayers
facing severe hardship, we'll work with them."
The change stems from last year's IRS reform law, which eased
numerous requirements so taxpayers can work out installment plans
and, in some cases, settle large debts by offering a lower
In addition, IRS agents are being trained to try harder to work
things out with taxpayers.
"In the past, we asked them to go out and protect the
government's interest," said Harry Manaka, IRS chief of
collections. "Now, we're telling our people that customer service
and the need to protect taxpayer rights always trumps the need to
collect money when they come in conflict."
Many taxpayers do not have the money to pay Uncle Sam but are
not doing anything wrong. Accountants give one primary piece of
advice: file the tax return by April 15 no matter what to avoid IRS
This year, for the first time, the IRS is permitting taxpayers
to pay with several popular credit cards: American Express,
Mastercard or Discover. Visa decided to sit out this year to see
how the program went.
But paying with plastic means a steep interest rate, sometimes
18 percent or higher. A bank loan is an alternative, but people who
cannot get that either may turn to the IRS for an installment
agreement at an interest rate now at 8 percent.
Beginning this year, the IRS is guaranteeing that a taxpayer
with a debt of $25,000 or less will be able to pay in installments
for up to five years with little extra paperwork. Previously, the
debt was $10,000 with a three-year payment window.
Taxpayers who get these installment agreements will avoid an IRS
lien, which drastically can affect a person's credit and ability to
"It's not the incentive of the government to ruin anybody's
credit," Manaka said. "As long as a taxpayer is current, our
incentive is to allow the payments to continue without filing a
Last year, under the old rules, 2.8 million taxpayers had IRS
installment plans to pay their taxes. But some people have tax
liability too high to pay that way, particularly those involved in
difficult situations such as a failing business or a messy divorce.
For those taxpayers, the IRS has a program called "offers in
compromise" in which payment for a lower amount is negotiated with
the agency. For years, however, the program had stringent paperwork
requirements that frequently meant people got turned down, even if
the problem were something as simple as a missing signature.
In 1998, only 25,052 out of 105,255 offers were accepted.
"We were very, very finicky about only accepting what we
considered perfect offer forms. We would reject them before we even
started to look at the merits," Manaka said. "Now, our intention
is to work with the taxpayer and try to perfect it."
In addition, the IRS is expanding the financial data its agents
will use to determine a proper tax payment compromise, such as a
person's future earning power. Only agents trained specifically in
negotiating these deals will handle them, instead of the
jack-of-all-trades approach of the past.
Phil Brand, a former IRS compliance chief now with the KPMG
accounting firm, said the new offer-in-compromise system should
"at least make sure the person gets a fair hearing."
"There is an expectation that the IRS treat people with more
concern about the total impact of these actions on their lives,"
Brand said. "What you're trying to do is turn the individual into
a compliant taxpayer."
The IRS reform law also set up new appeals rights and other
protections for people who find themselves owing taxes, such as a
requirement that a judge give permission before the agency tries to
seize someone's house.
Perhaps the biggest key is changing the attitude of IRS agents.
Manaka said that will take time, but the agency has instituted a
new system of grading performance that moves away from dollar and
numerical collection goals.
"We're trying to involve the taxpayer more and listen to the
taxpayer," he said. "That is a major change in philosophy."