COVID-19

The current state of affairs for the IRS

For decades, the IRS was one of the most feared agencies of the federal government. However, due to the severe economic downtown, the IRS has elected to turn a new leaf, at least temporarily.

The agency adopted a new “People First Initiative.” This proclamation is a sweeping series of steps that adjust or suspend its main tax enforcement programs.

Here’s what the IRS is going to do.

Installment agreement relief

Thousands of taxpayers have entered into installment agreements with the IRS. These permit them to pay what they owe by making monthly payments over time instead of all at once. 

The IRS says that installment payments due during April 1, 2020, and July 15, 2020, need not be paid. However, interest will continue to accrue on the amount owed.

You can still make such payments if you wish. Suspending them is purely voluntary. 

Offers in Compromise

Another important IRS program is the Offer in Compromise (OIC) program. This plan allows taxpayers who can’t afford to pay the taxes they owe to pay their tax debt for less than the full amount. 

According to the IRS, taxpayers currently making payments under an OIC can suspend them until July 15, 2020. Again, interest will accrue on the amount owe. 

The IRS is continuing to accept new applications for the OIC program. So, if you’re in financial difficulty, you should consider applying. However, to get the IRS to accept an OIC, you must submit detailed financial information showing you really can’t afford to pay all you owe. For detailed guidance, see the IRS Offer in Compromise web page.

IRS collections

The IRS is also scaling back on its collection activity. From April 1, 2020, through July 15, 2020, it will not:

  • Start new field, office, or correspondence examinations
  • Forward delinquent accounts to private debt collectors
  • Inform the U.S. State Department about taxpayers who are seriously delinquent so their passports can get suspended
  • File any new tax liens or enforce levies—for example, it won’t seize a taxpayer’s home for not paying taxes

The IRS will file liens in cases where the statute of limitations is about to run out.

The IRS appeals office will also continue to operate. But it is not holding any in-person meetings with taxpayers. Everything is now done by phone or video conferencing.

If you’re undergoing an audit right now, this could be a great time to contact the IRS and attempt to settle your case. IRS auditors may be particularly anxious to close their ongoing cases in this time of emergency. 

Non-filers

Not filing a tax return is the dumbest thing you can do as a taxpayer. This is so even if you owe taxes you can’t pay. 

Eventually, you’ll get caught. You’ll then have to pay a special non-filing penalty in addition to the regular taxes and penalties. The non-filing penalty is 5 percent per month on the taxes owed, to a maximum of 25 percent after five months.

The IRS has an ongoing enforcement program against higher-income individuals who don’t file tax returns. These are taxpayers who earn over $100,000 per year. The agency says it will continue with this program.

The IRS is urging all non-filers to file their returns for 2018 and earlier right now. They say that more than one million households that haven’t filed tax returns during the last three years are likely due to receive a refund.

If you haven’t filed a tax return for a past year because you can’t pay the taxes you owe, the IRS says you should still file now. It will work with you to arrange an installment plan or offer in compromise to resolve your outstanding tax liability.

Earned income tax credit and wage verification reviews

Millions of low-income taxpayers who work subsequently qualify for the earned income tax credit. To get the credit, the federal agency will often ask to verify your income. The IRS says that you have until July 15, 2020, to do this. Until July 15, 2020, they will not deny these credits for a failure to provide the requested information. 

Tips for dealing with the IRS 

The IRS has closed most of its offices, and a greater proportion of its employees are working from home. And it is not processing any postal mail. Reportedly, the IRS is now storing unread mail in trailers.

If you need to file a tax return or send any other document to the IRS, do so electronically and not by postal mail. For example, if you need to file your 2019 tax return (or a return for an earlier year), do so electronically. You can do so by using commercial tax preparation software or with the IRS Free File service.

If you already filed your 2019 tax return on paper, don’t try to refile it electronically. You’ll have to wait for the IRS to get around to processing your paper return. This could take months. Which is bad news if you’re owed a tax refund, but there’s nothing you can do about it.

Don’t try to call the IRS on the phone. The agency has closed its call centers. If you need help from someone, try to contact them by email. Don’t send postal mail.

If you have a tax question, need a form or want to read an IRS publication, go to the IRS website at irs.gov. It contains a massive amount of information, including virtually every IRS form and publication. Be aware, however, that not everything on the IRS website is up to date. 

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Business Insights and Ideas does not constitute professional tax or financial advice. You should contact your own tax or financial professional to discuss your situation.