The barrage of “relief” issued by the IRS for filing returns, time-sensitive matters such as Tax Court petitions, partnership administrative adjustment workarounds, and suspension of collection activity, has been accompanied by reminders of one type or another that after July 15, it’ll be business as usual. That is: File your returns and documents and pay up or we’re coming after you.
That’s nonsense. The economic devastation — short run and long — will impact collectability of delinquent taxes for years. And this should be considered and addressed by the IRS now, not before the horror stories begin to pop up in the media and congressional offices. Imagine, for example, the IRS firing up the Automated Collection System shortly after July 15. Literally thousands of levy actions will proceed against taxpayers either unemployed or barely employed, or against businesspersons and independent contractors who have lost their entire income stream as the result of government action — not through any fault of their own. Moreover, it is likely that thousands of them have requested or will request relief as a result of their plight — only to find it impossible to call the IRS or to have their correspondence opened, let alone acted upon. All the while the IRS computer and collection personnel would grind away issuing levies on monies necessary for rent, food, and transportation money.
The IRS should not resume collection activity through the automated system until it has sufficient time to field every phone call and review every piece of correspondence from those persons and businesses that owe it monies, and there has been an additional period of time necessary for responses to relief requests — whether that is 30 or 60 or 90 days or longer. The government caused the problem for thousands of people attempting to comply with payment of their tax debt, and it should be responsible for subsequent responses to the problem. It should be noted, too, that if the collection activity commences without considering taxpayer distress factors, the Taxpayer Advocate Service may become overwhelmed with requests for relief — Form 911 requests — in the same manner the New York medical system became overwhelmed treating the virus.
In many cases, the IRS should direct its collection personnel to liberalize currently not collectible status for taxpayers for periods of an additional six months to two years while the taxpayer sorts through the process of restructuring her life. Moreover, consideration should also be given to excepting from collection a significantly greater amount of cash and other liquid assets held by a delinquent unemployed taxpayer who is faced with any of a variety of adverse economic and health issues caused by the economic shutdown — this includes non-COVID-19 health activities that were exacerbated by the shutdown and the emotional fears of the disease.
Additionally, the IRS — perhaps with congressional assistance — must consider liberalizing and expanding the offer in compromise program. For many taxpayers, their future income may never resemble their prior income, and those working the OIC function should be instructed to consider obvious impacts — more than just a loss of job or business income that will never be able to be replicated. These taxpayers include, for example, the restaurant owner that, even after reopening, will not be able to serve at the same business level due to mandated social distancing. Or 65-or-older persons in service sectors that may now be greatly restricted concerning income-producing activity — for example, a 68-year-old litigator whose physical life may be jeopardy when making a court appearance. Or perhaps someone in the same age range has historically had regular supplemental income from classroom teaching activity that cannot be converted to online activity. That income will vanish. Businesses may be reluctant, as well, to employ or retain independent contractors above certain ages out of coronavirus concerns, with the result that the past is no longer valid in estimating even short-term income prospects.
The issues discussed and countless more need to be taken into consideration in IRS collection actions to avoid the possibility of harm — particularly for our most vulnerable taxpayers when it comes to health in the age of the coronavirus. And a comprehensive approach to these issues will require a significant effort on the part of IRS leadership to assess the issues, to develop processes and standards, and to carefully educate and train employees. This will take some time. But restarting full-bore enforced collection activity without carefully assessing the changed circumstances post-COVID-19 could do a great deal of harm to taxpayers facing a very different reality than existed for them in early and mid-March.
Finally, even the most resilient organizations cannot simultaneously walk and chew gum if they suffer from malnourishment. The IRS is and will continue into the foreseeable future to be called upon to perform at an unprecedented level of commitment and service; Congress simply must provide the resources for it to do so.
Kip Dellinger, CPA
Senior Tax Partner
Cooper Moss Resnick Klein & Co. LLP
Sherman Oaks, California
Apr. 13, 2020