The IRS hasn't gone far enough to change its tax-lien policy, National Taxpayer Advocate Nina Olson said today.
Olson, an independent Treasury official charged with representing taxpayer interests, said the IRS's announced plans today to reduce the burden of IRS tax liens on individuals and small businesses were lacking in several respects:
• The IRS's plans to only file liens on taxpayers owing $10,000 or more—double the earlier, $5,000 threshold—is not sufficient to address the huge increase in tax liens in recent years. Lien filings increased 550 percent from fiscal 1999 to 2010, and were up 28 percent in the first quarter of fiscal 2011 compared with the comparable period for fiscal 2010. "Until the IRS conducts additional analysis, it is not clear how many taxpayers will be spared from lien filings," Olson said.
• The IRS automatically files liens without enough analysis of their effects on citizens and government coffers. The agency, Olson said, "continues to establish lien filing policies without any evidence that automatic lien filings generate significant revenue as compared to the financial devastation they visit on taxpayers."
Olson praised some aspects of the IRS's announced actions, including those applying to small businesses. But she decried the agency's failure to more proactively contact taxpayers earlier in the collection process to work out alternatives. Taxpayers, who may not even recieve initial IRS mailings, may conclude the agency is ignoring the debt, she said. Only after penalties and interest increase that debt to an unmanageable load does the IRS issue its "calling card" in the form of a lien.
"The IRS's failure to engage taxpayers early, when the debts are small and fresh, is the root cause of many taxpayer cases with collection problems," Olson stated.
Earlier this year, in her annual report to Congress, the National Taxpayer Advocate argued that tax liens might do more harm than good.—Tobie Stanger