Volume 8 Issue 3 -- May/June 1996
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
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 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.
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 client's assets and bank accounts or garnishing an employee's 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 IRS's 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.
By Tax and Business Professionals, Inc.
9837 Business Way
Manassas, VA 20110
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