More On Tax Planningfrom The Advisor's Professional Library
- Selected Provisions of the American Taxpayer Relief Act of 2012 The experts of Tax Facts have produced this comprehensive analysis of selected provisions of the American Taxpayer Relief Act of 2012 (the Act) to provide the most up-to-date information to our subscribers. This supplement analyzes important changes to the tax code with emphasis on how these developments impact Tax Facts’ major areas of focus: Employee Benefits, Insurance, and Investments.
- IRAs: In General Individual Retirement Accounts are highly popular tools for contributing funds that grow on a tax deferred basis. Depending on the type of IRA, the accumulation can be tax free.
The Internal Revenue Service (IRS) has announced help for taxpayers who are struggling to pay their personal and small business back-taxes. The intent, the IRS announcement on Thursday stated, is to “help individuals and small businesses meet their tax obligations, without adding unnecessary burden to taxpayers.”
The IRS is “significantly increasing” the dollar amount beyond which the IRS would attach liens to taxpayers’ assets; making liens easier to remove after the tax is paid; and generally withdrawing a tax lien if the taxpayer agrees to a “Direct Debit Installment Agreement (DDIA).”
The IRS also says it will make “Installment Agreements” more accessible for small businesses, and expand its “Offer in Compromise Program.”
“We are making fundamental changes to our lien system and other collection tools that will help taxpayers and give them a fresh start,” IRS Commissioner Doug Shulman said in the release. “These steps are good for people facing tough times, and they reflect a responsible approach for the tax system.”
The point at which a lien would generally have been placed on taxpayer assets was $5,000. Now it will be $10,000, IRS spokesperson Dean Patterson told AdvisorOne.
“The new dollar amount is in keeping with inflationary changes since the number was last revised. Currently, liens are automatically filed at certain dollar levels for people with past-due balances,” the announcement stated.
Doubling the threshold is significantbecause, according to the release, “A lien informs the public that the U.S. government has a claim against all property, and any rights to property, of the taxpayer. This includes property owned at the time the notice of lien is filed and any acquired thereafter. A lien can affect a taxpayer's credit rating, so it is critical to arrange the payment of taxes as quickly as possible.” Once the tax is paid in full the IRS will “withdraw” the lien “if the taxpayer requests it,” the release said.
“Raising the lien threshold keeps pace with inflation and makes sense for the tax system,” Shulman said in the announcement. “These changes mean tens of thousands of people won’t be burdened by liens, and this step will take place without significantly increasing the financial risk to the government.”
When taxpayers agree to a DDIAand owe $25,000 or less, and in certain other circumstances, the IRS said it would also withdraw a lien if they convert to a DDIA from a “regular installment agreement;” and “upon taxpayer request,” for those already using a DDIA.
Offer in Compromise
The IRS as also changed its “Offer in Compromise (OIC)” program, in which the taxpayer and IRS agree to settle the taxpayer’s tax liability at a discount from the original tax owed.
The “OIC is being expanded to allow taxpayers with annual incomes up to $100,000 to participate. In addition, participants must have tax liability of less than $50,000, doubling the current limit of $25,000 or less,” according to the release.
Small businesses will also benefit from an expanded DDIA program. The IRS will raise the limit for participation from under $10,000 owed to under $25,000 if the taxpayer will use a DDIA. Businesses that owe more than $25,000 in taxes would be eligible for the DDIA program if they pay the back-tax down to the $25,000 limit. The DDIA gives small businesses filing as individuals or businesses 24 months to pay.
“These steps are in the best interest of both taxpayers and the tax system,” Shulman added, in the release. “People will have a better chance to stay current on their taxes and keep their financial house in order. We all benefit if that happens.”