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Should IRS call delinquent taxpayers?

By Susan Tompor, Detroit Free Press –

Should the IRS be picking up the phone and demanding more money? Or at least making a call to discuss options if you’re delinquent?

It’s an idea — and not one that some people who owe money for taxes might like to hear.

The National Taxpayer Advocate, required by law to issue an annual report to Congress, suggested the Internal Revenue Service “does not emphasize the importance of personal taxpayer contact as an effective tax collection tool.”

The string of computer-driven paper notices from the IRS — the thing everyone dreads getting in the mail — is the main course of attack.

But the taxpayer advocate’s report suggests that more phone or face-to-face — no, the report did not say in-your-face — contact is needed earlier in the process.

“Businesses can accrue on average over two years of tax debt before the IRS ever attempts personal contact,” the taxpayer advocate report stated.

And honestly, a bit of direct dunning by phone, early on, could help some small-business owners and consumers get a reality check.

“They should be on them like a cheap suit,” said James Jenkins, president of Jenkins & Co., an accounting firm in Southfield, Mich. “What happens if you don’t pay your cable bill?”

He said without an early heads-up, the IRS process of collecting a debt can be “a slow-moving machine that will eventually crush you, if you let it.”

The Internal Revenue Service sends more than 34 million notices to delinquent taxpayers annually in its first stage of the collection process.

But the average payment received in response to a notice in fiscal 2011 was just $517, according to the latest Taxpayer Advocate Service report.

Peanuts, really.

By the end of fiscal year 2011, more than $56.2 billion was owed for federal taxes and stuck somewhere in the final stages of the collection process in which a field revenue officer works on the cases. And that amount has doubled over the last six years, according to the National Taxpayer Advocate.

It concluded: “The IRS has a responsibility to talk with taxpayers as early as possible to determine the reasons behind any tax liability, prevent the accrual of additional liabilities and discuss payment alternatives.”

Sure, many people would likely hang up on the IRS if phone calls went along with initial notices. Nobody wants to give their Social Security number on the phone, either — considering the scams out there.

But Willena Stiles, low-income tax clinic manager for the Accounting Aid Society in metro Detroit, said taxpayers could benefit from an awareness campaign to let them know that the IRS has payment plans.

She’s seen many people — including people who once had good jobs and now have fallen on hard times — admit they pushed aside notices, not wanting to deal with a tax bill that they couldn’t pay.

“I’ve heard a number of people say ‘I know it’s my fault,’ ” she said.

She noted that many aren’t aware of various options for payment.

Would a phone call help?

Maybe — or maybe not.

“The problem is if they’re not going to respond to a letter, would they respond to a phone call?” asked Angelique M. Neal, a tax attorney in Brighton, Mich.

Neal said her business has been up during the economic downturn because more taxpayers can’t pay the taxes they owe and now must deal with the IRS.

“The biggest issue is ability to pay,” she said. “You have a lot of unemployed or still-underemployed workers.”

George W. Smith IV, a certified public accountant and partner at George W. Smith & Co. in Southfield, said people should try to work with the IRS, but they need to be patient when they call the IRS, as wait times can be long.

Form 9465 can be used for an Installment Agreement Request in many cases if you cannot pay your taxes and owe federal income taxes in the amount of $25,000 or less. You can’t use the form — which requests monthly installments — if you can pay off the taxes within 120 days.

Installment plans can run up to 72 months generally.

One bonus with Form 9465: Smith noted that the IRS guarantees a taxpayer will not be turned down for an installment plan if the taxes, penalty and interest owed are $10,000 or less. Other conditions must be met, as well, to qualify.

If people don’t take care of an issue, penalties and interest build — and eventually a lien or levy is issued to go after assets, such as wages.

The idea of working out plans early wouldn’t just help taxpayers. It could help the IRS collection process, too.

The collection industry, according to the taxpayer advocate’s report, estimates the probability of collecting unpaid accounts falls to 70 percent after three months, 52 percent after six months and 23 percent after a year.

Oddly, someone who owes $20,000 or $30,000 is getting an IRS notice early in the process — just like the person who might owe $1,000.

“You’d think the zeroes would make a difference, but it doesn’t,” said James Jenkins, president of Jenkins & Co. in Southfield.

Right now, the taxpayer advocate noted, the IRS revenue officer attempts to contact the taxpayer in person in the third and final stage after months of delinquent accounts languishing.

The best bet might be to open that first notice, read it and contact the IRS. Some could need a tax attorney or professional accountant to help. But making a move — even if you have to wait a long time when calling the IRS — could eliminate some headaches in the long run.

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