Collection Changes Keep Late Payers in Tax System

WASHINGTON - Increasingly, people who are having trouble paying their taxes are coming forward to work with the Internal Revenue Service because of its recent collection policy changes. The number of taxpayers with installment agreements and accepted offers-in-compromise has increased more than 30 percent in the last year. Since early 1992, the IRS has made it easier for taxpayers to set up installment plans and has been more receptive to settling for less than the full amount owed.

"Although it will take time to see the full impact of these changes, the early results indicate we have struck a responsive chord with people who want to meet their legitimate tax obligations but have financial difficulty in doing so," said IRS Commissioner Margaret Milner Richardson. "I think it shows that taxpayers are willing to cooperate with us if we give them a chance."

For many years, installment agreements have been the most common way to pay back taxes. The IRS now allows more of its employees to accept the agreements, including staff in Taxpayer Services and Examination. Also for most debts under $10,000, the IRS no longer requires taxpayers to give financial statements and does not file tax liens, which means the taxpayers' credit rating is not affected.

Most individual taxpayers who find themselves with a tax balance due will benefit from these changes. The IRS said that 97 percent of individuals who owe taxes have a total debt under $10,000. In addition to making the installment payments, taxpayers must meet all tax obligations on time for the duration of the agreement.

During the first six months of fiscal year 1993, taxpayers entering installment agreements owed an average of $4,625, up 14 percent from the same period the previous year.

Offers-in-compromise -- in which the IRS settles a tax debt for a reduced amount -- are also up sharply since the IRS gave its Collection officers more authority to accept them. The IRS enters into such settlements when it is unlikely that enforcement actions -- such as levies or property seizures -- could collect any more taxes than the settlements offer. Taxpayers considering such settlements should try to raise funds from various sources, including loans from relatives or friends, so that they can make a satisfactory offer.

Taxpayers with accepted offers must also pay all taxes timely for the next five years. This commitment to future compliance with the tax laws is an important reason for the changes in IRS acceptance of compromise offers.

The most recent IRS collection innovation was Form 9465, on which taxpayers request installment plans when they file their returns. By May 8, the IRS had counted over 800,000 of these forms, and expects to find still more this month as it continues to process returns that were filed near the deadline.

Some taxpayers with extensions of time to file may realize that they will owe more than they can pay. They can cut their interest and penalty charges by starting to make payments as soon as possible, even before filing their returns. Checks should include social security numbers, the tax year and the form to be filed -- for example: 1992 Form 1040.

Filers may attach Form 9465 to the front of their returns if they cannot pay their balance due. Those who get tax bills can also use the form to ask for installment plans. Taxpayers using Form 9465 should fill it out completely, since omissions will delay IRS approval for the request.

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