Seeing as it is tax season, we here at The W Tax Group thought it would be worthwhile to point out some of the areas that the IRS has indicated they will be focusing on for the current filing season. Every year around tax time the Internal Revenue Service releases memos and press releases that express its collection goals for the upcoming tax filing season. In previous years, most of those reports dealt with overcoming staff shortages and trying to do more in terms of collection on a lower budget. The results have led to greater reliance on automated collection systems and cycles. However, for the current year, the IRS has recently stated that their focus has shifted in one important way that has many implications, the consequences of which could have a huge effect on the average taxpayer. For the first time in a number of years the IRS has announced a partial shift in strategy by increasing the number of revenue officers, both through internal promotion, but primarily by hiring new revenue officers. The stated goal of adding a new wave of revenue officers is to bolster the collections process by focusing on taxpayers who have unfiled tax returns. The following discussion will focus on what this policy change will mean for taxpayers who may have unfiled tax returns, and why they should take action sooner rather than later in getting those unfiled returns prepared and filed, even if it means adding new additional balances.
Previous articles have been written by W Tax Group professionals detailing exactly who Internal Revenue Service revenue officers are, what their role is within the collection system, and the methods that they use to enforce collection action. For purposes of this discussion a brief summary of that information will be provided, but it is highly recommended that any who has been assigned a revenue officer or received a field visit should consult the previous article for a more in depth examination of revenue officers. Revenue officers are collection agents within the Internal Revenue Service collection system that oversee the collection of balances owed by taxpayers. Typically revenue officers are assigned to cases where either there are large balances (in excess of $50,000) or where balances are owed and there are also a number of years where no returns have been filed. It is important to note that there is no amount requirement for a revenue officer to be assigned, but that it is just a general rule that they tend to be assigned to higher value cases. A revenue officer will conduct field visits, meaning they will physically come to an individual’s last known address or place of business to give notice of impending collection action. The most important change in collection action under a revenue officer as opposed to simply be subject to the automated collection system is that a revenue officer has discretion to enforce collection action such as bank levies, wage garnishments, and other asset or property seizure on a much quicker basis once the statutory notice requirements have been met. What this means in practice is that by the time you know you have a revenue officer assigned to your case either the clock is ticking to a significant collection action like those mentioned above, or more than likely, it is already too late to stop such a collection action. The Internal Revenue Service announced it will visit more taxpayers who haven’t filed tax returns for prior years in an effort to increase tax compliance and further enforce the law. In addition, the IRS is increasing the use of data analytics, research and new compliance strategies, including personal visits, to reach taxpayers and tax return preparers who have not filed federal tax returns.
Applying that knowledge of what a revenue officer’s job is with the announced goals of the Internal Revenue Service for the current tax season several important conclusions can be drawn. First, even though the IRS has increased the number of revenue officers and is implementing a wave of new field visits, that the primary goal is not to collect on the balances that are already on the books. The IRS is using one of its most effective collection tools, revenue officers, as a way of getting taxpayers to file unfiled returns. What this really means is that the IRS is hoping to add balances for all of those years that are unfiled. This will work in two ways, both of which have negative consequences for taxpayers involved. The first is that this will directly lead to many of these affected taxpayers filing their yet to be filed delinquent returns, incurring additional balances, interest, and penalties, and presumably have to navigate the collection system and more than likely dealing with that specific revenue officer moving forward. The second way this new strategy will take effect is by dramatically increasing the amount of forced collection actions by way of a spike in substitute tax returns being filed by the IRS. The process goes like this: a revenue officer is assigned to a taxpayer who in this new strategy has unfiled returns, if that taxpayer does not go back and file those old returns the IRS, in a streamlined process thanks to the revenue officer being involved, will file returns for that taxpayer for those years because the IRS has previously identified their income for those years through wage reporting from employers. This is called a substitute for return, and they are never favorable. In fact, substitute for returns can often be 2x, 3x, or even 4x the amount a taxpayer would owe if they had simply filed an original return, even if they filed late. Once a substitute return is filed, the IRS by way of the new revenue officer assigned, will be able to implement an aggressive round of collection actions including levies, garnishments, and asset seizures.
Clearly, the Internal Revenue Officer knows what they are doing. Their new strategy is designed to either bring you to the table and pay up or get dragged there and shaken down. The best way to avoid this situation altogether is to get in touch with experienced tax professionals, like those at The W Tax Group, and get out ahead of the issue before you have to play defense with a revenue officer.
