NCPA - National Center for Policy Analysis

Satisfying The IRS In 168 Easy Payments

July 20, 1999

The Internal Revenue Service -- operating under the new IRS Restructuring and Reform Act of 1998 -- is cutting back on its traditional collection techniques: garnishing wages, tapping bank accounts, placing liens on property and seizing businesses and homes. It is offering easy terms in the form of monthly payments, which some tax professionals warn are taxpayer traps.

  • Wage garnishments and bank account seizures now run just one-fourth the rate of two years ago.
  • The agency now lets low-level employees make installment agreements on easy terms to people who owe $25,000 or less -- on the theory that it would collect more and write off fewer tax tabs.
  • Last year, taxpayers owed $246 billion in overdue taxes, up $12 billion or 5 percent from 1997 -- but the IRS admits that more than half that money is uncollectible.
  • But some tax accountants complain that the easy payments can be insufficient to cover even the interest levied -- putting the taxpayer into further debt even as he makes the payments.

For example, a taxpayer who owes $20,000 and is charged 8 percent interest, with payments of $200 a month, would need nearly 14 years to pay off the debt. Some arrangements have involved payments of as little as $75 a month.

The IRS believes that its new collection strategies will bring in more revenue, not less, principally by contacting taxpayers earlier and offering the easier terms. Many experts dispute that.

Source: David Cay Johnston, "Tax Professionals See Pitfalls in the New IRS," New York Times, July 18, 1999.


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