July 20, 1999
I.R.S. May Be Slower to Seize Some Assets
By DAVID CAY JOHNSTON
In a new break for owners of assets, the Internal Revenue Service will issue
regulations Wednesday allowing people with overdue taxes to keep their stocks, businesses
and homes if they can show that they need them to pay for medical care or basic living
"For taxpayers caught in severe hardships," said Charles Rossotti, the
tax commissioner, "this gives the IRS a new tool to work with people and help
settle their tax debt." He called the regulations "a safety valve to handle tax
cases in difficult situations."
Since 1930, regulations have permitted the IRS to discount overdue taxes,
but only when there was doubt about whether the government could collect or the taxpayer
actually owed the tax. When these conditions did not exist, the IRS mandate was to
seize assets and sell them, often at a sharp discount, to pay the taxes.
Under the new rules, a taxpayer with a large stock portfolio and a history of
paying taxes on time until trouble struck might be able to wipe out or significantly
reduce a tax bill if he or she could show that the assets were needed, for example, to pay
medical bills, said Steve Pyrek, an IRS spokesman.
Owners of large retirement funds might be allowed to keep all or part of them if
they could demonstrate that loss of the funds would leave them destitute. The regulations
would also allow flexibility in dealing with taxpayers who had not complied with rules set
by Congress: for example, a taxpayer who did not file for a refund before the deadline
because she was in a hospital.
The regulations implement orders issued by Congress in the IRS
Restructuring and Reform Act of 1998 to provide greater relief from tax debts. The
provisions were adopted after testimony in Senate Finance Committee hearings that accused
the IRS of mistreating taxpayers, although much of that testimony has since been
The Treasury Department, in the regulatory notice, included a history lesson
that appeared intended to make sure that Congress would be held responsible if the
relaxation of the rules created more problems than it solved.
The notice quoted from a letter written in 1933 by Dean Acheson, then the acting
treasury secretary, seeking authority to discount or write off tax bills if collection
would "destroy a business, ruin a tax producer, throw men out of employment, or
result in the impoverishment of widows or minor children of a deceased taxpayer."
The attorney general at the time, Homer Cummings, replied in a written opinion
that while strong arguments existed for "a liberal rule" on discounts in
hardship cases, "if such a course is to be taken, it should be at the instance of
Congress" and not a presidential administration.
The IRS called the new regulations "a significant change," but
tax professionals who specialize in collection matters called it window dressing.
"I don't think it involves much money," said Donald Alexander, a
Washington lawyer who was tax commissioner in Richard Nixon's administration. "This
is more cosmetic than real."
Last year, the IRS made 25,052 compromise agreements in which it wrote
off $1.6 billion of $1.9 billion in overdue taxes, collecting $290 million, or 15 percent,
of the tax bills. Taxpayers owed $246 billion in back taxes last year, up 5 percent from
1997, but the IRS regards more than half of that as uncollectible.
Steve Kassel, who represents taxpayers with overdue taxes, said that the
IRS had already found ways to handle difficult cases, like that of one of his clients, a
man in his late '70s who owned his home free and clear.
"The IRS agreed to a very small monthly payment, and then they put
a lien on his house," he said, delaying collection until the man dies.
"Every once in a while you hear about a cruel, heartless collection
agent," said Kassel, of Daly City, Calif. "But that is the rare exception."
Copyright 1999 The New York Times Company