Cessation of IRS Enforcement Action

IRSIn addition to the recently passed Coronavirus related legislation signed into law, we are seeing a variety of regulatory responses to the crisis. For instance, under the recently announced “IRS People First Initiative,” the IRS has postponed a variety of compliance actions in response to the Coronavirus crisis. The takeaway – while we realize taxpayers have plenty of other things to worry about, there may not be a better time than now to resolve outstanding tax liabilities with the IRS.

  • Currently Not Collectible: this is a status the IRS may place a taxpayer in where the IRS concludes the taxpayer cannot pay outstanding tax liabilities that are due because of financial hardship. This status temporarily delays collection activity by the IRS until the taxpayer’s financial condition improves.
  • Installment Agreements: this is an agreement between a taxpayer and the IRS which establishes a monthly payment plan that pays outstanding tax liabilities over time.
    • Existing installment agreements: for taxpayers with existing installment agreements with the IRS, payments due between April 1, 2020 and July 15, 2020 are suspended. The IRS will not default the installment agreements during the foregoing period, though interest will continue to accrue on any unpaid balances.
    • New installment agreements: the IRS will still consider installment agreements during this time period. Given the economic impact and uncertainty tied to Coronavirus, this may be an opportune time for taxpayers with unpaid tax liabilities to seek an installment agreement because the monthly payments are based on the IRS’s assessment of the taxpayer’s ability to pay.
  • Offers in Compromise (“OIC”): this is an agreement between a taxpayer and the IRS that settles a taxpayer’s liability for an amount that is less than the amount owed. There are three reasons the IRS may accept less than is owed: (1) doubt as to liability, (2) doubt as to collectability, or (3) a compromise based on effective tax administration. A compromise meets the “doubt as to liability” criteria when there is a genuine dispute as to the existence or amount of the tax due under applicable law. A compromise meets the “doubt as to collectability” criteria where the taxpayer’s assets and income are less than the full amount of the tax liability. Finally, the IRS may accept an OIC based on effective tax administration where requiring payment in full would either create an economic hardship or be unfair or inequitable because of exceptional circumstances.
    • Pending OIC Applications: the IRS will extend any existing deadlines for taxpayers to provide requested additional information in connection with a pending OIC until July 15, 2020. The IRS has also agreed not to close any pending OIC application before July 15, 2020, unless the taxpayer consents.
    • OIC Payments: taxpayers are permitted to suspend all payments on accepted OICs until July 15, 2020, although interest will continue to accrue on outstanding balances.
    • Delinquent Return Filings: the IRS will not default an OIC for those taxpayers who are delinquent in filing tax returns for tax year 2018, though the IRS recommends filing of delinquent 2018 returns (and 2019 returns) on or before July 15, 2020.
      New OIC Applications: the IRS will continue to consider new OIC applications.
  • Collection Activities: liens and levies (including any seizures of personal residences) initiated by IRS field revenue officers will be suspended until July 15, 2020.
  • Automated Liens & Levies: new automatic and systemic liens and levies suspended until July 15, 2020
  • Field, Office & Correspondence Audits: the IRS generally will not start new field, office and correspondence examinations during the above-described period, though they reserve the right to do so where necessary to avoid statute of limitations issues.

***This article is intended to be educational and is provided for your convenience. It does not constitute legal advice and it does not establish an attorney-client relationship between any reader and our law firm.***