IRS Tax levy, Tax Collection, Tax Lien, Foreclosure Debt Foregiveness Rules May Be Amended.

Los Angeles, California – IRS will be improving IRS tax procedures to protect victims of tax-related identity theft and expanding outreach and education to individuals who have lost their homes to foreclosure concerning the “cancellation of debt” tax consequences they face.

IRS Taxpayer Advocate’s office stated that IRS tax procedures concerning the following areas will be reviewed and updated:

1. IRS Collection Practices. IRS collection practices including tax levies, allowable living expense standards, tax installment agreements, IRS offers in compromise, and early intervention techniques have been the recent focus of various tax attorneys who have been concerned with IRS tax collection procedures. There have been many cases in which IRS has resorted to tax levies and seizures before all viable collection alternatives have been exhausted, under-utilization of partial-pay installment agreements, and excessive delays in collection that increase IRS taxpayer delinquency tax problems because of the increase tax interest and tax penalties.

1. Tax-Related Identity Theft. IRS is in the process of creating a centralized unit to handle identity theft cases and the development of a centralized set of procedures that cuts across IRS functions. The IRS has taken a number of steps to improve its procedures; notably, it has developed a Service-wide identity theft indicator and is studying the creation of a centralized unit to assist identity theft victims.

3. Cancellation of Debt Income. When an individual or business borrows money and the debt is cancelled, the borrower generally must include the amount of the cancelled debt in gross income. This requirement generally affects borrowers who lose their homes to foreclosure or who default on car loans or credit card debts. Taxpayers may exclude the amount of a cancelled debt from gross income under certain circumstances, but to do so, they must take the affirmative act of filing Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), with their tax returns. Very few taxpayers file Form 982, and the Office of the Taxpayer Advocate has focused and will continue to focus on increasing public awareness of the rules and exceptions.