Tax Attorney
The current tax season is tougher than most for Americans. With unemployment and home foreclosures at record highs, more can't afford to pay -- and won't pay -- their taxes.
This could prove to be a problem as local tax attorneys are reporting that in the past few years, the Internal Revenue Service has increased its collection practices. Those actions could be more pronounced during the economic downturn.
"There are huge revenue pressures on the federal and state governments," said Thomas Basset, a certified public accountant at accounting firm BKD. "Anything that can collect revenue will be funded. We're being driven by the state of the economy and a trillion-dollar deficit. There is a lot of underreported income out there, and it's more politically popular for Congress to tell the IRS to collect from people who already owe the government than to raise taxes."
Congress has played an integral part in raising IRS collection efforts.
"What I sense happened was that in the second Bush administration, law enforcement in the tax area took on a much higher authority, and more people were hired at the IRS from 2004 through 2008," said attorney David Capes, of Capes Sokol Goodman & Sarachan in St. Louis. "Congress specifically charged the IRS to do more in terms of criminal tax enforcement and gave them more resources to do that both in terms of more agents and new rules regarding rewards for people who provide information about people who cheat on taxes. As a result, the IRS is beginning to generate more criminal tax cases."
In a report issued last summer, the IRS said in fiscal year 2007 it increased its number of tax investigations and recommended more cases for prosecution. In 2007, the Justice Department prosecuted more tax criminal cases than any other year since 1998.
According to Michael Devine, IRS spokesman for Missouri and Kansas, the IRS has not put an emphasis on increasing its collections.
"Collection is what the IRS does and one of the key missions of the organization," he said.
Taxpayers can make mistaken assumptions about what they can do when they can't afford to pay.
"People don't realize that they have to both file and have to pay," Capes said. "But many who can't pay or get behind don't realize that even if they can't pay, they have to file. People wrongly try and decide to defer tax liability to keep the lights on and don't remit payroll taxes."
Harry Charles, a solo practitioner in Clayton who specializes in tax disputes, said that many of the clients he is seeing have been affected by the increase of IRS collection practices.
"There's a lot of broke people out there that are stretched too thin," he said. "[Taxpayers] may have been managing their debt in the past and playing catch-up when the IRS wasn't aggressive, but now they can't run anymore. Or there's been an increase in audit activity, and [the taxpayers] can't afford to pay the unexpected tax."
In January 2009, the IRS announced it would take steps to help distressed taxpayers pay their taxes. But one of its most touted programs is considered by many to be unmanageable.
The offer-in-compromise program is used when a taxpayer makes an offer to the IRS to pay off his or her debt. This offer can be accepted, and the rest of the debt is removed.
Charles said the program is almost impossible to use, citing the process and criteria that a taxpayer must meet to use the program. Kenneth Kleban, a partner with Bryan Cave, has also encountered issues, particularly in smaller cases.
"Under current law, taxpayers must pay 20 percent of the offer that they're making to the IRS at the time of submitting their application. This has discouraged taxpayers from entering the program," he said. "Also, the application for the OIC program is quite extensive, which isn't an unreasonable request by the government, but it still can be a hassle for a taxpayer to complete."
Sylvan Siegler, a partner with Shook, Hardy & Bacon, said he considers using OIC in his cases but normally doesn't because there isn't much hope in navigating through it.
"Because of the attitudes that IRS has taken, it's very often an elusive procedure," he said. "The bureaucracy doesn't favor resolution in offers-in-compromise."
According to Taxpayer Advocate Service spokeswoman Nina Olson, fewer taxpayers use the program than before, and the IRS accepts fewer offers as well. Olson testified before the U.S. House Ways and Means Oversight Subcommittee that the offers the IRS received declined 65 percent from FY 2001 to FY 2008 and that the offers accepted declined even more, by 72 percent. The Taxpayer Advocate Service is an independent organization within the IRS that assists taxpayers who need help with navigating through the IRS collections process.
But some changes are being made to the program with the IRS allowing a second review of applications of individuals who've experienced significant life changes, such as loss of a job or home. It's also giving leniency to those who may have missed scheduled payments for back taxes.
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