Tax Relief from IRS Retribution
The devastating effects of tax liens and alternative tax resolution
We previously discussed the penalty and interest's devastating effect on taxpayers among the myriad of devastating systems of punishment such as liens, wage garnishment and bank levies, unreasonable collection statute of limitation and collection employees who are secured in their arrogance and humiliation of taxpayers and their representatives such as CPA’s, tax attorneys and enrolled agents.
Morally speaking, it is repugnant to heap dirt upon a fallen human being. The IRS and the government sets a bad example and squanders goodwill when they put a tax lien on a person that is undergoing financial hardship. There is always good justification for bad things. We must not relent. Good arguments with malicious consequences, like sea foam, withers. What is good remains in the land and produces harmony.
It has always been touted by those who are in the know that business is not necessarily congruent with morality. For the business interest, that decision has to be made regardless of the moral consequences. Take laying off people. It is devastating to the employees but may be necessary to the survival of the business.
This reasonable and unfortunate necessity has been many times carried to the extreme. Government, instead of being a force for good, has adopted some of the most predatory tactics inflicted upon its citizens. This is no more prevalent than in the case of the IRS collection practices.
Taxpayer advocate has raised the issue of tax liens that are attached to taxpayers who owe back taxes to the IRS. Taxpayer advocate stated that tax liens imposed on taxpayers are producing the opposite effects on collection revenues. They reason that once the IRS imposes tax liens on taxpayers, their credit scores becomes much lower.
With lower credit scores taxpayers borrow money at a higher cost. It is said as soon as taxpayers are hit by a tax lien, expect that 100 points are erased immediately from their credit score. That means a loan marketable prospect now of 700 score is being shopped around with a 600 score. The devastating and practical effect is that they may pay much higher interest rate than they would have paid to begin with.
Let us say that with a 700 credit score you can get a 7% mortgage rate. At 600 credit score you may get 10% or even higher. If you have a home mortgage of $200,000 it means that your increase in annual interest could be $8,000 a year. According to the IRS $8,000 a year can pay $80,000 debt over 10 years of the statute of limitation.
If the taxpayer owes $30,000 to the IRS and a tax lien is placed on them, they could have paid the back taxes to the IRS much more easily than when they have to pay extra $800 per month in the loan. So in this case one may ask the IRS, is this even a good business decision much less a moral one?
The answer is no of course. It is a lose lose situation. The IRS loses the tax debt and the taxpayer is parlyzed by the tax lien. Add to this harm another damage that could visit those who face this tax problem. Some employers now check your credit before hiring you. I don’t think it is in the best interest of the IRS to keep people out of the employment pool because of the tax lien. You may even be rejected for insurance if you have bad credit. And the probabity is strong that you may pay extra for your insurance policy.
It is a case of harm with no reprieve. We must ask then what is the best tax help that we can propose in order to preserve the integrity of the collection system (assuming that we want to keep the system as it is, which is a a tall order)?
We have proposed previously, and we hope that other practitioners such as CPA’s, tax attonreys and enrolled agents join us, that the government should not impose a tax lien upon citizens who is in fincial distress and we defined financial distress loosely (others may choose any definition as long as it yields form tax relief to taxpayers) as the negative cash flow especially if it is coupled with a distressed balance sheet (negligible or no equity).
We reason that it is not economically beneficial to waste energy and budget on a case that yields no results. It only leaves in its trail family and business devastation and a squander of goodwill between the citizen and their government.