enough to solve the problems of many more
well-meaning but financially strapped taxpayers now struggling with tax debt. The Taxpayer Advocate complained that the new IRS
lien policy falls short in several respects:
1. Raising the dollar tax liability threshold
for filing liens begs the underlying problem:
Taxpayers unable to pay their tax liability
generally don’t have adequate assets. The IRS
needs to investigate streamlining data collection on ability to pay before using otherwise
damaging collection tools.
2. Doubling the tax liability for which liens
are filed, from $5,000 to $10,000, does not ad-
equately address the exponential increase in
the number of liens filed in recent years. The
statistics are sobering:
Lien filings increased 550 percent from
1999 to 2010 and 28 percent alone for the first
quarter of fiscal year 2011 when compared to
a year ago.
The IRS filed liens against 1. 1 million taxpayers in FY 2010, as compared to 168,000
in FY 1999.
Over the past seven years, the IRS has
filed a total of over 5 million tax liens.
During FY 2010, the IRS also issued over
3. 6 million levies attaching to financial accounts, wages and other sources of income.
3. The IRS’s Automated Collection System
is good at systematically generating levies
FROM PAGE
15
were obviously not mere rhetorical devices.
It seems she wants accountants to integrate
them into the new paradigm she believes
should replace the old. Specifically, she posed
these four challenges:
“Could I be doing more to ensure that the
information is accurate?”
“Are the results I am reporting an exercise
in wishful thinking or a true portrait of actual
results?”
“Do I understand the company I am au-
diting well enough to recognize red flags, and
have I taken all appropriate steps to respond
to them?”
“Even if the numbers reported are accu-
rate, do they convey a fair picture, or is there
a need for additional disclosure?”
It’s clear what she’s getting at: The old way
of thinking and acting is not good enough and
the new way needs to replace it. While stan-
dards are better than nothing, they are not
much better than nothing if those who imple-
ment them treat them only as maximums and
game them, or permit their clients to do so, by
producing false rosy pictures with the futile
Spirit
FROM PAGE
18
— 2. 9 million of them issued in FY 2010. The
TA also reports that the IRS now generates a
majority of its liens through the ACS. The Taxpayer Advocate sees this automated approach
as part of the problem. The IRS’s machine-like
process leaves no room for “thoughtful judgment” that evaluates each taxpayer’s unique
circumstances and discusses with them collections solutions better suited to both the
taxpayer’s and government’s interests.
Overall, the Taxpayer Advocate maintains
that the IRS is not proactive in avoiding the
need for liens. She rhetorically noted that it is
not being proactive on the IRS’s part to set up
a process in which a taxpayer suddenly finds
a lien filed on his property because he missed
one or two pieces of IRS correspondence and
incorrectly assumed that the IRS had been
backing off.
The Taxpayer Advocate noted that the mere
filing of a tax lien can have a devastating impact on the taxpayer’s credit rating. Tax liens
are picked up by all three major credit rating
agencies and remain in their reports for seven
years from the date the tax liability is resolved
(and longer if unresolved). Credit reports are
used by employers, mortgage lenders, landlords, and vehicle financing and credit card
companies, thereby throwing the taxpayer
into a worse financial tailspin. Small businesses that need credit to survive are especially hard hit.
The Taxpayer Advocate’s Report to Congress this past January concluded that the
goal of tricking the markets. Instead, accountants need to ensure that financial statements
are useful, even as useful as they can be. That
goal can be reached only with perfect awareness of their importance and by applying
great diligence in their construction.
THE MARKETS NEED ACCOUNTANTS
In our January column (“’For the benefit of’
or ‘to the benefit of:’ What’s the difference?”),
we pointed out that capital markets work to
accountants’ benefit but do not exist for our
benefit. Rather, we have a franchise to provide
useful information, and meeting that obligation rewards us with a good living and the
satisfaction of doing important work.
We think Mary is reminding our profession
about that point. If we don’t collectively step
up and deliver, the markets will flounder and
even founder, and, perish the thought, turn
somewhere else for better information.
ACCOUNTANTS NEED THE MARKETS
It is obviously in accountants’ collective self-
interest to see that these bad things don’t hap-
pen. To make that point more memorable, we’ll
paraphrase a common bit of advice: “If the
markets ain’t happy, then nobody’s happy.”
current IRS lien policies “torment” taxpay-
ers. It was also critical of the IRS’s “one-size-
fits-all ... assembly-line” approach and rec-
ommended developing a working model of
the “will pay, “ “can’t pay” and “won’t pay”
distinctions in developing appropriate col-
lection treatments. It reiterated the need for
personal contacts.
CONCLUSIONS
The IRS commissioner recently has tried to
put some brakes on the “lien machine” that
automatically generates tax liens and with it a
host of financial headaches that typically ensue for the taxpayer. While commendable, his
new collection initiatives should also be cautionary in warning what the “lien machine”
can do once it gets rolling.
Early intervention by taxpayers and their
representatives is key to stopping the IRS lien
process in time before it ties up assets and
constricts credit and possibly destroys the
taxpayer’s ability to come out whole. Monitoring outstanding tax liabilities and related
correspondence is essential. Searching the
public records from time to time, for tax and
other liens, is always good business practice.
So is putting as high a firewall as possible between personal and business assets.
If all else fails, a taxpayer might even quote
Commissioner Shulman’s recent promise in
regards to collections to the IRS agent: “We
will continue to walk in taxpayers’ shoes and
look for ways to help.” AT
Thus, it follows that we collectively have
to rise to the Schapiro challenge or we won’t
survive. In hearing that challenge, some will
respond like the practitioner who recently
wrote a letter to the editor complaining
about our criticism of systematic deprecia-
tion in our December column. His engrained
paradigm, reinforced by years of successful
practice, has clearly stymied his inclination
to perceive that something might be wrong
with GAAP. Thus, we speculate that it will be
hard for him to change.
