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The New York Times
July 18, 1999
Tax Professionals See Pitfalls in the New I.R.S.
By DAVID CAY JOHNSTON
For Robert Kolb, a lawyer in Walnut Creek, Calif., 1997
and 1998 were
especially good years as people with overdue taxes sought his help fending
off collectors from the IRS.
"People had to wait two or three weeks just to see me," Kolb said, "and I
to work weekends to keep up until, finally, I had to tell my secretary to cut
back" on accepting new business.
Then in December the telephones abruptly stopped ringing.
The IRS, operating under a new law and led by a commissioner who calls
taxpayers "customers," radically cut back on its traditional collection
techniques: garnishing wages, tapping bank accounts, placing liens on
property so the government gets paid first when the property is sold, and
seizing businesses and homes.
The IRS now lets low-level employees make installment agreements on
exceptionally easy terms to people who owe $25,000 or less, on the theory
that it would collect more and write off fewer tax bills.
To Kolb and other tax professionals across the country who specialize in
dealing with tax collectors, however, it was a disastrous development for
their business. And, they warn, taxpayers may come to regret the new
"The new IRS," Kolb said, "has almost put me out of business."
Much of the decline in tax enforcement was prompted by the the IRS
Restructuring and Reform Act of 1998, a bill enacted after Senate Finance
Committee hearings in which some taxpayers and IRS workers accused the tax
agency of abuses, though much of the testimony has since been discredited.
Tax collectors say the new law puts them at risk of being fired if they make
any mistakes, a fear that the tax commissioner, Charles Rossotti, says is
Still, one result of a combination of fear among collectors and the fact that
their numbers are shrinking is that wage garnishments and bank account
seizures now run just one-fourth the rate of two years ago and many tax
collectors complain that they have been pulled off collections to answer
telephones and do public relations work.
Rossotti has repeatedly told Congress that his efforts to make changes will
fail unless the agency gets more money, both for computer technology and for
sufficient law-enforcement resources to assure taxpayers that chiseling and
cheating is being policed effectively. But just last week the House Ways and
Means Committee voted to cut another $135 million from the proposed $8.2
But tax lawyers, accountants and tax preparers known as enrolled agents said
in interviews that in the agency's zeal to be friendly, and to cope with too
many demands, tax enforcement has shriveled.
Steve Kassel, an enrolled agent in Daly City, Calif., said that for years
two-thirds of his clients came from mailing 1,000 letters a month to people
in the San Francisco Bay Area who had a tax lien placed on their home or
"So few liens are being filed now that I have seen a drastic decline in my
business," Kassel said. "But I replaced most of my business by moving my
marketing to the Internet."
Bobby Covic, an enrolled agent in Incline Village, Nev., who teaches
negotiation of tax discounts, said that everywhere he travels, other tax
professionals tell of "much heat within the service for revenue officers to
bend over backwards and solicit offers to settle and then to help the
taxpayer make them into offers good enough to be accepted."
Kolb said he encountered this change in attitude recently when the case of
one of his few remaining clients, who wanted to settle his tax debt at a
discount, was assigned to a revenue officer with a reputation for being
"She called me and said, 'How much time do you want? Thirty days? Sixty?
Ninety?"' Kolb recalled. "Even before I filed the offer in compromise papers
she called me again to suggest we meet so she could help me fashion the
offer. I was astounded. She told me that she has to get cases out of her
inventory and so closing the file was all she cared about."
He added: "If this keeps up billions of dollars are going to go uncollected
because IRS officers do not want to risk putting their neck on the block,
they just want to close cases and move on. The IRS is not in an enforcement
mode and it is going to cost billions and billions of dollars."
The IRS believes that its new collection strategies will bring in more
revenue, not less, principally by contacting taxpayers earlier and offering
easy payment terms.
Joel Goverman, who is in charge of revising IRS collection strategies, said:
"We are emphasizing customer service and working with the taxpayer to come to
the proper resolution. When we studied the best practices of businesses in
collecting delinquent accounts we found that where the customer and the
organization came to terms, especially on a monthly basis, they had a higher
success rate in seeing accounts paying in full, and we believe that taking
hard immediate action will result in our ending up collecting less money."
Last year taxpayers owed $246 billion in overdue taxes, up $12 billion, or 5
percent, from 1997. But more than half of that money is no longer
collectible, the IRS has concluded.
Tax professionals warn that the newer, friendlier IRS policies are traps for
taxpayers, especially in new, easy payment plans.
Rick Oelerich, an accountant in Davenport, Iowa, who serves on a national IRS
advisory panel, said the new policies might create a class of taxpayers
perpetually in debt.
"If you get an installment agreement for past due taxes," Oelerich said,
official stance is that if you violate your installment agreement you can
never get another one. But in fact they will usually sit down and work it out
with you because they do not have the collection manpower to deal with you
any other way. This may turn into disaster because people who owed an amount
they could work out will have larger and larger debts."
Kenneth Martin, a tax preparer in New York City, said the IRS often agreed to
take too little.
"I had a guy who owes $20,000 and the IRS agreed to $200 a month in
payments," Martin said.
Martin said he was pleased for his client but, as a matter of policy, "that's
crazy because the interest alone will be most of that." At the current 8
percent interest rate, it would take nearly 14 years for the client to pay
his past due taxes.
Marc Albaum, a tax accountant in New York, said he had made deals for as
little as $75 a month, far below the interest charges alone, meaning that
each month the taxpayer gets deeper into debt to the government.
"That is not a long-term solution, but for the moment it keeps the IRS at
bay," Albaum said.
Mike Wellman, a tax accountant in Longview, Texas, who said his inventory of
collection cases had begun to dwindle, warned that "the new streamlined easy
payment plans are a formula for disaster because it will get some people who
had a manageable tax debt at one time into an easy payment plan this year and
next year and the next year and soon they will end up up owing $50,000 or
$100,000 before they get help."
Wellman predicted that "next year you will begin to see problems with people
who are in so deeply with the IRS that there is no way they can pay the debt
because of these installment-payment agreements."
Marti Myers-Garver, an enrolled agent in Alamogordo, N.M., said many people
were not aware of these nuances because as part of its new policies, the IRS
had made many people with overdue taxes believe that they did not need to pay
for professional help.
"The IRS Web site gives you almost everything you need in almost plain
English" to make payments on or negotiate a discount of an overdue tax bill,
Mrs. Myers-Garver said.
Covic, the enrolled agent in Nevada, said the fine print in these deals could
trap unwary taxpayers by waiving their right to file personal bankruptcy and
have their tax debts wiped out. In some cases, he said, taxpayers who
negotiate a discount on their tax bill can end up owing the full amount plus
penalties and interest that cannot be wiped out in a bankruptcy proceeding.
Copyright 1999 The New York Times Company