The IRS and most state taxing authorities have radically altered the way they collect unpaid taxes during the COVID-19 pandemic. Simply put, this is by far the kindest and gentlest IRS that I’ve seen in my lifetime. However—and this is a BIG however—things are going to change soon. For reasons that I will explain, this could be the very best time in our lives for those who owe taxes to cut a screaming deal with the IRS.
The economic crisis has created three powerful converging forces in the world of tax collections, and this convergence should create special tax relief opportunities for those who act soon.
First, the IRS has pretty much halted aggressive collection tactics such as bank levies, wage garnishments, accounts receivable levies, asset seizures, and the like. As of today, May 15th, 2020, it’s been about 2 months since the IRS has enforced as it normally does. The feedback our tax attorneys have received from the IRS indicates that aggressive enforced collections will resume on or about July 15th, if not sooner.
So, when the IRS resumes enforced collections in mid-July, it will have been about 4 months since they have enforced as usual. I can’t think of a single time in my life when they’ve gone anywhere near that long without taking widespread, aggressive enforcement action. Consequently, there is a huge backlog of cases requiring enforcement which continues to grow each day. Once the tax collectors are free to enforce again, I expect them to come out “guns-a-blazin’.”
The second major converging force is the immense pressure that the IRS will be under to collect unpaid taxes. Understand that Congress just handed out trillions (with a “T”) in relief money. In other words, the government coffers are in seriously dire straits, and we all know what the government does to fill its coffers. They collect taxes. I don’t think it’s a stretch to presume that the tax collection machine is going to come roaring back to life soon, and that it will be hungrier than ever.
The third major converging force is the massive workload the tax collectors will have on their plates in the very near future. While certain IRS personnel have been working remotely (e.g. from home) during the pandemic, and the IRS as a whole is gradually coming back to life (Automated Collection Services is actually now answering the phone), the fact of the matter is that they’ve been on what you might call a semi-hiatus due to the pandemic. This means they are behind with their workload. In many cases, they’re way behind. On top of that, with the economy in shambles, you better believe that there are going to be way more businesses and individuals going to collections for unpaid taxes. This is only going to exacerbate the tax collectors’ already massive workload.
Act Quick To Take Advantage of Unique Tax Opportunities
To understand why these three major forces are likely to create some unique opportunities for indebted taxpayers who act soon, it is first necessary to have a basic comprehension of where businesses and individuals fall in terms of severity when it comes to collections. In reality, tax indebted businesses and individuals fall on a spectrum somewhere between mild and severe when it comes to tax collections. For the sake of simplicity, however, I’m going to divide this spectrum into three categories: DEFCON-1, DEFCON-2, and DEFCON-3.
Tax debtors in DEFCON-3 are at the highest risk of enforced collections. Think larger tax liabilities that have been in collections for a while. There may be aggravating factors as well, such as recent non-compliance with the tax laws, multiple unpaid tax periods, and/or prior defaulted agreements with the IRS. Taxpayers in DEFCON-3 are going to be in the IRS’s crosshairs soon, and will be at a high risk of enforcement by mid or late July. The “hungry” collection machine will be gunning for those who fall into the DEFCON-3 category.
Taxpayers in DEFCON-2 fall somewhere in the middle. Although these taxpayers are not in serious danger of enforcement at this very moment, if things deteriorate just a little bit (e.g. they miss deadlines, accrue new tax debts, continue not to resolve their tax liabilities), they will move into DEFCON-3 and find themselves in the cross hairs. On the upside, taxpayers in DEFCON-2 also have the opportunity to be proactive in working towards resolving their tax debts and, thus, move into the safer, and much preferable DEFCON-1.
Then we have tax debtors in DEFCON-1. Although these individuals and businesses have unpaid taxes—and in some cases have very large tax liabilities—they are in compliance with the tax laws, are cooperating with the taxing authorities, and are eligible to enter into a tax resolution agreement with the IRS (or state) now. Taxpayers in this category may be able to take advantage of the convergence of forces discussed above, and walk away in the very near future with a screaming deal (e.g. very low monthly payments, large reductions in penalties, or a settlement for a tiny fraction of what they owe).
The reason why I say this is because the tax collectors are going to be slammed with work, and eager to resolve the cases that they can. They will still require all of the necessary things they need in order for their managers to sign off on tax resolution agreements. This means that, aside from streamlined agreements, income, expenses, and assets will have to be thoroughly documented—like always. However, I doubt that the tax collectors are going to have the time to tear through taxpayers’ financial information as thoroughly as they normally would. This works to the taxpayers’ advantage.
In my experience, the more thorough a tax collector is when reviewing the documents supporting a taxpayer’s resolution proposal, the less favorable the outcome for the taxpayer. In short, if we make it easy for the tax collectors to say “yes” by providing everything they could possibly need in order to secure their managers’ approval, there is a good chance they will approve agreements that are far more favorable to taxpayers than normal.
Keep in mind that the tax collectors will have their hands full going after their “problem” taxpayers—those in DEFCON 3–while also attending to taxpayers in their inventory who are in DEFCON-2. They will be so motivated to reduce their workload by closing cases as “resolved” that they may approve some real sweetheart deals for those in DEFCON-1…especially if we make it easy for them to say “yes.”
Skilled and Experienced Tax Resolution
Having a skilled and experienced tax resolution professional in your corner may be more important now than ever. It’s absolutely imperative that taxpayers in DEFCON-3 get out of DEFCON-3 as soon as possible. Now is not the time to be in the tax collectors’ crosshairs. A good pro can quickly help those in DEFCON-3 move to DEFCON-2 while also taking measures to reduce or eliminate the chance of enforced collections. Of course, ultimately, the goal is to get these people into DEFCON-1 so they can put their tax woes to rest with favorable terms.
A good pro can also help move those in DEFCON-2 into DEFCON-1 so that they can take advantage of the special opportunities we anticipate. I should also mention that, due to the tax collectors’ massive workload, those who don’t get out of DEFCON-2 soon may find themselves “stuck in the middle.” The tax collectors will be extremely busy enforcing against their DEFCON-3 taxpayers while simultaneously trying to resolve their DEFCON-1 cases. Consequently, those who don’t get out of DEFCON-2 soon may have to wait a very long time to get their cases resolved.
Finally, a good tax relief pro knows how to make it easy for the tax collectors’ to say “yes.” Those in DEFCON-1 who make the right moves now may be able to catch the tax collectors on their heels and exploit the opportunities described above—particularly if they have an experienced and skillful pro on their side.
If you’re curious about where you fall on the collection spectrum or how you might be able to work this unprecedented tax collection environment to your advantage, give us a call. We have caring and knowledgeable professionals on staff who would be happy to evaluate your situation and outline a solution for you at no charge.