Due to the recent economic downturn, more individuals and small businesses than ever owe unpaid taxes to the Internal Revenue Service. In an effort to help these individuals and small businesses comply with their federal tax obligations without taking on unnecessary burdens, the IRS recently announced a series of policies and programs. These policies and programs are specifically designed to enable taxpayers to pay their unpaid tax liabilities and avoid the filing of federal tax liens, which often have a severely negative impact on taxpayers’ credit scores. The changes include the following, which are described in detail below:


• Increasing the dollar threshold below which liens generally are not issued.

• Making it easier for taxpayers to obtain lien withdrawals after satisfying their liabilities;

• Withdrawing tax liens in consideration of a Direct Debit Installment Agreement; and

• Expanding the IRS streamlined Offer in Compromise program to assist more taxpayers.


Tax Lien Thresholds and Withdrawals


A federal tax lien gives the IRS a legal claim to a taxpayer’s property for the amount of an unpaid tax debt. Filing a Notice of Federal Tax Lien is necessary to establish priority rights against certain other creditors. Currently, liens are automatically filed when taxpayers owe the IRS a past-due balance of at least $5,000.00. Due to inflationary changes that have occurred since the last time the IRS revised this policy, the IRS claims it will double the dollar threshold below which liens generally are not filed to $10,000.00.


The IRS will also modify procedures that will make it easier for taxpayers to obtain lien withdrawals. Previously, when a federal tax lien was filed, and then the underlying liability was paid in full, the Federal Tax lien would not be withdrawn from the taxpayer’s credit report. Instead, the lien would remain on the report and a corresponding ‘release of lien’ would be reflected. The fact that the report still evidenced a tax lien being filed negatively impacted the taxpayer’s credit score, despite the taxpayer satisfying all obligations to the IRS. Now, after satisfying their unpaid taxes, taxpayer’s may request a withdrawal of the tax lien, meaning that the credit report will not evidence that a tax lien was ever filed.


Direct Debit Installment Agreements and Liens


Previously, the IRS would not release a tax lien until the liability in questions was fully satisfied. This was even the case where taxpayers had entered into Installment Agreements, pursuant to which they were obligated to make set monthly payments until their debts were paid. This policy has now been revised in relation to taxpayers with unpaid balances of $25,000 or less. In these cases, after a probationary period has elapsed, the IRS will withdraw the tax lien, even prior to the full payment of the balance due, if the taxpayer either:


1) Enters into an Installment Agreement with a monthly direct debit;

2) Is currently on an Installment Agreement and modifies the Agreement to allow for a monthly direct debit; or

3) Is currently on an Installment Agreement with a monthly direct debit.


Offers in Compromise


Finally, the IRS is expanding its streamlined Offer in Compromise program to make it available to more taxpayers. An Offer in Compromise is an agreement between the IRS and a taxpayer pursuant to which a taxpayer is permitted to satisfy its liability for less than a full payment. This is only available to taxpayers that demonstrate their inability to pay their balance due in full in accordance with an Installment Agreement. Taxpayer’s eligible for a streamlined Offer in Compromise are able to finalize such agreements in an expedited manner and with the production of significantly less financial documentation.


Previously, this program was only available to taxpayers with liabilities of less than $25,000.00. However, the IRS has increased this threshold to $50,000.00. In addition, the program has been expanded to allow taxpayers with annual incomes of up to $100,000.00 to participate.