The tax attorneys at Nardone Law Group in Columbus, Ohio routinely help individuals and businesses, including nonprofits, make use of the Internal Revenue Service’s (“IRS”) collection alternatives to repay federal tax liabilities. The IRS has significant power to collect delinquent tax debts from taxpayers, including the ability to file a Notice of Federal Tax Lien or obtain a levy against taxpayers’ assets. Utilizing a collection alternative may help prevent an IRS Notice of Federal Tax Lien or levy. So, it is very important that all taxpayers understand the various collection alternatives available to resolve federal tax liabilities with the IRS. But, it is imperative that taxpayers falling into any large group identified by the IRS or any related United States government agency as having a disparate amount of outstanding tax liability, take action as soon as possible to resolve that debt. This article highlights one such group: tax-exempt or nonprofit organizations, which the IRS recently recognized as owing a large amount in delinquent federal payroll taxes. Additionally, this article notes the various collection alternatives that the IRS offers for taxpayers to repay outstanding liabilities and avoid involuntary collection action, such as federal tax liens and levies.
Although nonprofits are generally exempt from paying income taxes, they are obligated to pay certain other taxes, such as federal payroll taxes. This is an important point given a recent U.S. Treasury Inspector General for Tax Administration (“TIGTA”) report, which revealed that as of mid-June 2012 more than 64,000 tax-exempt organizations had almost $875 million in outstanding federal payroll tax liabilities. Although many owed smaller amounts to the IRS, about 1,200 of these tax-exempt entities each owed over $100,000 in past-due federal payroll taxes. Adding to the importance and seriousness of federal payroll tax liabilities is the fact that the IRS has power to assess those liabilities against, and collect them from, both an organization and any individual within the organization who can be deemed a responsible party.
Recognizing the significance of these findings, TIGTA made three recommendations to the IRS Director of Tax Exempt Organizations for improving federal payroll tax payment compliance by tax-exempt organizations. The IRS accepted and agreed to proceed with the third recommendation only. Under the approved recommendation, the IRS and Treasury Department will examine possibly introducing new legislation to bolster the IRS’ ability to enforce nonprofits’ compliance with payroll tax payment requirements. Based on these steps, tax-exempt organizations would be wise to begin reviewing their federal payroll tax compliance status and arranging for repayment of any delinquencies.
Collection Alternatives Available to Repay Federal Tax Liabilities to the IRS
The IRS offers various options for taxpayers to repay their liabilities voluntarily, rather than through IRS-imposed federal tax liens, federal tax lien foreclosure sales, or levies. These options are called collection alternatives. Below is a list of the various collection alternatives available to help taxpayers resolve delinquent tax debts:
1. Bankruptcy. If a taxpayer qualifies based on very specific legal requirements, the taxpayer may be able to discharge certain types of federal tax debts in bankruptcy.
2.Currently Not Collectible Status. Even if some or all of a taxpayer’s federal tax liabilities cannot be discharged in bankruptcy, the taxpayer may qualify for the currently not collectible collection alternative. Currently not collectible status means that the IRS has determined that the taxpayer’s income and assets are too low to justify the IRS collecting against the taxpayer at the present time. In those instances, the currently not collectible collection alternative gives a taxpayer time to build back up to a better financial position before the IRS requires payment.
3.Offer in Compromise. The Offer in Compromise collection alternative is available for taxpayers who have some ability to pay the IRS, but who cannot pay the full amount of federal tax liabilities owed. The Offer in Compromise allows certain taxpayers who qualify based on financial situation to satisfy all federal tax liabilities by paying less than what is actually owed.
4.Installment Agreement. Even if a taxpayer does not qualify for the Offer in Compromise collection alternative, the IRS may allow the taxpayer to repay the full amount of federal tax liabilities in monthly payments through the installment agreement collection alternative.
As explained above, collection alternatives provide taxpayers a means to repay their liabilities to the IRS voluntarily, rather than through IRS foreclosure sales or levies. Accordingly, collection alternatives are a very important tool for taxpayers facing the IRS collection process.
Nardone Law Group represents businesses—including nonprofit or tax-exempt organizations—and individuals in federal and state tax issues, including collection alternatives to resolve federal tax liabilities and avoid or remove federal tax liens and levies. If you or your business or nonprofit are struggling with tax liabilities or received a Notice of Federal Tax Lien or IRS levy notice, you should contact an experienced tax attorney today. Nardone Law Group’s tax lawyers and professionals have vast experience representing clients before the IRS. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the Fresh Start Initiative Offer in Compromise, installment agreement, currently not collectible, or discharge in bankruptcy options. Contact us today for a consultation to discuss your case.