In my 2021 Annual Report to Congress, I reported on the IRS’s processing backlogs and recommended that the IRS suspend all automated collection notices until it is current on processing original and amended returns and unprocessed correspondence. I also described the IRS’s collection policies and recommended that the IRS postpone the issuance of Notices of Intent to Levy and the filing of Notices of Federal Tax Lien until it has eliminated its backlog of unprocessed mail and responded to taxpayers’ correspondence.
On February 5, 2022, the IRS announced that it suspended the automatic mailing of more than a dozen letters, including automated collection notices normally issued when a taxpayer owes federal tax or automated notices asking a taxpayer to file a tax return when the IRS has no record of the filing of the return. This notice suspension is good news for taxpayers and should eliminate some confusion and frustration for those experiencing processing delays.
Note: Taxpayers that owe tax, interest, or penalties should NOT interpret this announcement as suspending the requirement to make payment or suspending the time to make payment. If applicable, interest and penalties continue to accrue until payment is made. Taxpayers can view their current balance by establishing and accessing their online account.
In general, taxpayers who have not been issued automated notice CP504, Notice of Intent to Seize (Levy) Your Property or Rights to Property, prior to February 9, 2022, will not be issued any automated collection notices or be subject to IRS collection while the suspension remains in effect. Taxpayers who have been issued a CP504 will not be issued any automated collection notices but may be subject to case-specific collection actions by the IRS.
Some Taxpayers May Still Receive a Notice of Federal Tax Lien or a Notice of Intent to Levy, May Still Have Certain Property Levied, and May Have Their Overpayments Offset
If the taxpayer’s account has been assigned to the IRS’s Automated Collection System (ACS), the IRS will not issue automated Letter 11 – Final Notice – Notice of Intent to Levy and Your Notice of a Right to a Hearing. Letter 11 is issued by ACS, a computerized inventory that manually and systemically sends notices to taxpayers, issues Notices of Federal Tax Lien and levies on taxpayer property, and answers calls to resolve balance due accounts. ACS will also not systemically issue Notices of Federal Tax Lien.
If a taxpayer’s account has been assigned to one of the IRS’s automated levy programs (ALPs), the IRS is also suspending the levies made by those programs and the automated notices that are equivalent to Letter 11. The ALPs systemically issue levies on state income tax refunds, municipal income tax refunds, Alaska Permanent Fund dividend payments, and federal payments, including certain Social Security benefits, owed to taxpayers.
Letter 11 and equivalent notices satisfy the statutory requirements that the IRS notify the taxpayer of its intent to levy and of the taxpayer’s right to a Collection Due Process (CDP) hearing. These notices advise taxpayers that the IRS may file a Notice of Federal Tax Lien if it hasn’t already done so. The letter also explains that the IRS may certify to the State Department that the taxpayer owes a seriously delinquent tax debt if the debt (including penalties and interest) is more than the current threshold of $55,000, which may result in the State Department revoking a taxpayer’s passport, refusing to issue or renew a passport, or allowing a taxpayer who is already abroad to use the passport only to return directly to the United States. Unless the IRS issues Letter 11 or an equivalent letter that advises taxpayers of the right to request a Collection Due Process hearing, the IRS generally may not proceed with levying on a taxpayer’s property.
Because the Letter 11 triggers the right to request a Collection Due Process hearing, taxpayers should not forego that right, where appropriate.
Although the IRS has suspended automated notices for unpaid taxes assigned to ACS and ALPs, it will continue with case-specific enforcement work. Therefore, depending upon the circumstances, an individual IRS employee may issue a letter equivalent to Letter 11, notifying the taxpayer of its intent to levy and of the taxpayer’s right to a CDP hearing, issue a levy, or file a Notice of Federal Tax Lien.
Taxpayers need to be aware that the IRS is not interrupting its usual procedures for offsetting tax refunds to collect outstanding liabilities.
Also, pursuant to IRC § 6402(a), the IRS may offset a taxpayer’s overpayment, including refundable credits, and apply it to a federal tax liability, but it is not required to do so. However, the IRS must offset an overpayment against a non-tax federal debt such as child support or state tax liability owed by the taxpayer (see IRC § 6402(c)-(f)).
Seeking Relief From Levies and Refund Offsets
IRC § 6343(a)(1)(D) requires the IRS to release a levy when it would create an economic hardship due to the financial condition of the taxpayer. Assistance in requesting a release of levy may be available from TAS or Low Income Taxpayer Clinics.
In the area of overpayment and refund offsets, as I discussed in an earlier blog, the IRS has agreed to exercise its discretion under IRC § 6402(a) for some offers in compromise (OICs). Beginning with OICs accepted on or after November 1, 2021, the IRS will not offset overpayments or refunds against tax periods included in the OIC after the offer acceptance date. For example, the taxpayer has an OIC accepted on November 15, 2021, and files a 2021 tax return on April 15, 2022, showing a refund. The IRS will not offset that overpayment and will refund the overpayment to the taxpayer if there are no other debts prohibiting the refund. In addition, the IRS has also decided that refunds attributed to the 2021 Recovery Rebate Credit will not be offset to a federal income tax liability.
The IRS has also been raising awareness of the procedures for an offset bypass refund (OBR) if a taxpayer is experiencing a financial hardship. Generally, an OBR is only available before the IRS applies a current overpayment to a prior tax liability and where the taxpayer establishes economic hardship (for example, the individual needs to pay a utility bill to avoid disconnection). Once the taxpayer establishes the amount of the hardship, the IRS will only bypass enough of the overpayment to alleviate the hardship. For example, if a taxpayer has an overpayment of $4,000 and outstanding tax liabilities of more than the $4,000, but establishes a hardship of $1,000, the IRS may issue a $1,000 refund to the taxpayer and offset the balance, $3,000, to the tax liability. Under the new guidance discussed above, the IRS will allow qualifying taxpayers experiencing financial hardship to seek OBRs while their OICs are pending the IRS’s consideration. Taxpayers can call the IRS to request an OBR, but the IRS may not answer their call. Assistance may be available from TAS, however.
Collection Options Are Available
Taxpayers unable to pay their liability in full at once may have several options. Those who are current on their tax filings can request a payment plan (installment agreement) to pay the remaining liability over time. Taxpayers owing less than $100,000 may be able to use the online payment agreement tool to pay the liability in 180 days or less. Taxpayers owing less than $50,000 may also be able to set up a long-term payment plan (paying monthly with an installment agreement) using that same self-service online resource. Calling the number on the notice or letter is also an option, as is mailing in an installment agreement request. However, long hold times and correspondence backlogs may test the patience of those using these two options. An OIC may be the appropriate way to resolve a liability if the taxpayer is unable to pay the liability in full or through installments. This option permits taxpayers and the IRS to settle a tax liability for less than the full amount due. The IRS may accept an OIC if the IRS agrees that there is doubt as to liability, doubt as to collectability, or for purposes of effective tax administration.
Taxpayers unable to pay their liability at this time may request that the IRS delay collection and report the account as currently not collectible. This option may provide a temporary reprieve to taxpayers who can’t pay any of the amount due because those payments would prevent them from meeting basic living expenses. There is no online method to request this collection alternative. A caveat about this collection alternative: taxpayers must call the IRS and should be prepared to describe their financial status when calling the IRS to request this relief, the IRS will still charge applicable penalties and interest until the liability is paid or expires, and the IRS may file a Notice of Federal Tax Lien.
Taxpayers may call the IRS to discuss these options, but the chance of reaching an IRS employee on the phone remains low. As I reported, during the 2021 filing season, taxpayers connected with the IRS only nine percent of the time. However, the chances of getting through to an ACS employee are higher than calling the toll-free customer service line. In addition, because the IRS is suspending automated notices, there should be fewer calls to ACS, which may increase the chances of getting through to an ACS employee.
Even Though the IRS Suspended Certain Collection Notices, It Did Not Suspend Liabilities
We commend the IRS for suspending automated collection notices normally issued when a taxpayer owes additional tax and when the IRS has no record of a taxpayer filing a tax return. This is a big relief for millions of taxpayers who may have received these notices while still waiting for the IRS to process their returns or address correspondence. Remember that interest and penalties will continue to mount, even if the IRS is not sending subsequent notices reminding taxpayers of their balances.