New IRS Review Of Home Equity Could Help Settle Disputes
Jan 14th, 2009
By Martin Vaughan, Of DOW JONES NEWSWIRES
WASHINGTON - People who have been prevented from settling with the IRS because of untapped home equity might benefit from a new review process announced last week by the tax collector, according to firms that represent taxpayers in disputes with the IRS.
The IRS last week announced several measures to show leniency to taxpayers in financial hardship, in response to the toll the recession is taking on household budgets.
"We have hundreds of clients for whom the equity in their home has been the only thing standing between them and an accepted offer-in-compromise with the U.S. government," said Richard Boggs, founder and CEO of Nationwide Tax Relief, a Brentwood, Ca. tax resolution firm.
Under the IRS' offer-in-compromise program, the tax collector may settle with a taxpayer for less than the full amount of taxes owed. Under previous guidelines, the IRS does not generally accept compromise offers from taxpayers who have untapped home equity.
"We might be amending dozens of offers pending now because of this, and contacting clients where we didn't submit an offer for them last year," Boggs said in an interview.
New IRS Review
The IRS said last Tuesday that it will in some circumstances consider compromise offers it would otherwise have rejected because of the home equity issue. But it indicated those circumstances may be limited.
"In instances where the accuracy of local real-estate valuations is in question or other unusual hardships exist, the IRS is creating a new second review of the information to determine if accepting an offer is appropriate," the IRS said in a news release.
Bruce Friedland, an IRS spokesman, said the review would be limited to cases where home equity is the only issue that would prevent a compromise offer from being accepted. A taxpayer may also be disqualified from a compromise settlement if the IRS determines he or she has the ability to pay the full debt owed based on monthly income.
"If equity in their residence was the determining factor for the rejection [of a compromise offer] and they believe new information has come to light or valuations have significantly changed, they may want to consider submitting a new offer in compromise," Friedland said.
A Taxpayer's Predicament
One individual who has been frustrated in reaching agreement with the IRS, in part because of equity in her home, is Patricia Sizemore of Austin, Texas. Sizemore, a client of Boggs, estimated her debt to the IRS reached as high as $ 30,000, though she said she didn't know the exact amount.
It all began with a $3,000 underpayment of tax from the family contracting business in the mid-1990s. Sizemore said she paid the full $3,000 within six months of being contacted by the IRS, but about half of her payment got eaten up by interest and penalties.
Things went from bad to worse as Sizemore, on the advice of her attorney at the time, stopped paying taxes while her dispute with the IRS continued. Principal, interest and penalties piled up.
"We got ourselves into a predicament by listening to people who didn't tell us the truth," Sizemore said.
Sizemore contacted Boggs' firm in 2006. Boggs said equity in an Austin condo has prevented Sizemore's compromise offer from being accepted. The couple has owned the condo for 15 years, Sizemore said, and would not be able to find comparable housing in Austin for anywhere close to what they are now paying on it.
With no compromise agreement forthcoming, IRS garnished Sizemore's Social Security disability payment to the tune of $122 a month.
The IRS does not comment on individual taxpayer disputes.
Other measures announced by the IRS include greater authority for agency field officials to suspend collection efforts in hardship cases; more leniency for taxpayers who miss installment payments; and a quicker lifting of review for taxpayers whose hardship requests are approved.
Failure to make an installment payment, under former guidelines, could have resulted in cancellation of the installment agreement, along with a demand from the IRS to remit the full amount owed immediately.
But Boggs said that even before the recession hit, the IRS allowed taxpayers to waive a monthly installment payment if the taxpayer informed the IRS in advance of the missed payment.
-By Martin Vaughan, Dow Jones Newswires;
(END) Dow Jones Newswires
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