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BACK TAXES AND TAX DEBT

IRS Collection Officers: 10 things you should know

Jim Buttonow, CPA, CITP

SVP Post-Filing Tax Services

Published on: January 24, 2022

Taxpayers facing IRS field collection are usually considered the most serious tax debtors. These field collectors, known as Revenue Officers (RO’s), are given the most egregious of tax collection cases. 

These cases include high tax debtors, taxpayers who are hiding assets, business and payroll tax liabilities, abusive tax transactions, repeat debtors, and non-filers.

At this point in the collection lifecycle, collection enforcement is the rule, not the exception. An experienced RO has heard many promises to pay that go unfulfilled and may be quick to provide a deadline to pay or enforce collection by lien and levy.

ROs

 Taxpayers and their Tax Pros should prepare themselves by knowing these 10 things about an IRS Revenue Officers:

  1. ROs are experts at collection techniques:  They typically have two assignments: make sure the taxpayer files all required back returns (a “taxpayer delinquency investigation”) and pays the taxes owed (a “taxpayer delinquency account”). IRS auditors handle the accuracy of returns, not ROs.
  2. Withholding and not remitting payroll taxes is a major offense: RO’s generally do not want to hear excuses about why business taxpayers held funds, in trust, from their employees for their withholding and FICA taxes (called “trust fund taxes”) and didn’t remit them to the IRS as required. They want these taxes to be repaid to the IRS immediately and they aggressively pursue “responsible persons” of the business for collection.
  3. ROs want you to file delinquent tax returns: Filing a tax return is a basic requirement for all taxpayers. Failure to do so delays IRS collection efforts for the RO. Ultimately, if a taxpayer does not file, the RO will begin proceedings to file a return for the taxpayer (called a “substitute for return). This process takes considerable time for the RO. Instead, ROs may issue multiple levies to taxpayers until the taxpayer voluntarily files all returns.
  4. ROs are more likely to reject an Offer in Compromise from a business than from an individual: Ideally, the IRS strives to never put one business at an economic advantage over another business. This may help explain why the OIC acceptance rate for a business is 24% – as opposed to individual taxpayers who have a 44% OIC acceptance rate.
  5. ROs are obligated to let you know about the offer in compromise program: IRS collectors must let tax debtors know about the OIC program as an option. If a taxpayer files for an OIC, the RO will not investigate the OIC application. However, the RO will provide their input which may or may not be favorable. Experienced ROs know that the overall OIC acceptance rate is low, and they may see the taxpayer again if their OIC application fails.
  6. ROs can ley your business: The RO has great power in the form of a levy. A taxpayer’s first interaction with the RO should be to provide viable actions toward resolving any back taxes that are owed, including presenting viable installment agreements or appropriate hardship status. Business taxpayers, including independent contractors who are treated as small business owners, should be especially diligent because the IRS can take their sales proceeds through accounts receivable levies and their funds in the bank via bank levy. Multiple levies can quickly render a business insolvent and close its doors forever.
  7. ROs are not likely to seize your physical property; however ROs have other means of enforcement: In fiscal year 2020, the IRS conducted only 77 seizures by its field collectors. However, the IRS has other enforcement tools. In fiscal year 2020, the IRS issued 396,269 levies. Seizures take a lot of the ROs time, and a levy does not require as much paperwork and IRS management approval. In short, it is generally more effective for an RO to issue levies than seize property.
  8. ROs will first look to see if you can full pay your liability: The RO’s first step is to look at the taxpayer’s assets to see if the balance can be paid in full. If the taxpayer cannot use, sell, or borrow against their assets, the RO must seek an alternative. That means that the RO needs to collect and analyze financial information and documents to determine how the taxpayer could pay. After the analysis, the RO needs to process the collection alternative (i.e., installment agreement, currently not collectible status). The full-pay option is a quick solution for the RO.
  9. In most cases, ROs are not concerned with the reason for your past nonpayment of liabilities: : Generally, the past is the past – unless the taxpayer has hidden assets to avoid collection.  In most collections efforts, the RO just wants to determine the taxpayer’s current ability to pay the outstanding balance and take measures to ensure the taxpayer is making sufficient future payments (i.e. federal tax deposits, estimated tax payments, withholding) to minimize their owing in the future.  Taxpayers dealing with IRS collection should put themselves in a position not to owe taxes again. ROs do not audit your tax returnthat is for another department in the IRS: Taxpayers facing collection enforcement usually have to provide their assigned RO a lot of information about their current finances. Taxpayers who can’t pay may feel like the IRS will use the information provided to call into question the accuracy of past filed returns. If an RO sees an obvious issue on a filed tax return, they can refer the return to the IRS Audit Department – however, the RO cannot audit the taxpayer.   IRS audits are saved for a different IRS department. 

Your approach with the RO

Taxpayers with an RO need to be proactive and have a plan to resolve their taxes owed and/or unfiled returns. The taxpayer will need to quickly get into filing and payment compliance by filing all back returns and getting up to date on current payments (i.e., estimated tax payments, deposits). With a position of being in current compliance, the taxpayer can now work on balances owed. Taxpayers can even offer the IRS a solution, and proactively propose the solution with timelines to the RO.  

Open communication about options, deadlines, and consequences are key to concluding a collection case. When dealing with the RO, keep these 10 perspectives in mind and you will be closer to getting the best results with minimal enforcement.

For assistance creating a strategy to address your tax issue, visit Jackson Hewitt’s Tax Resolution Hub to see the various ways we can help you.

About the Author

Jim Buttonow, CPA, CITP, is the Senior Vice President for Post-Filing Tax Services at Jackson Hewitt. He’s been a leader in helping taxpayers and tax professionals resolve tax problems with the IRS, where he had worked for 19 years in various compliance-enforcement positions. Prior to his current role, Jim’s consulting practice focused on the areas of tax controversy and tax administration, which included leading product development on tax problem software for tax professionals, testifying before Congress, advocating for IRS transparency and efficiency, and proposing innovative large-scale solutions for taxpayers and tax professionals. Jim is also the author of Tax Problems and Solutions Handbook, a publication aimed at helping tax pros work more effectively in post-filing matters and resolving their clients’ most common tax problems.

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