Many years ago, I was an up and coming junior lending officer at a regional bank. It was a typical day, dealing with collection issues, reviewing the occasional auto loan and then my secretary informed me that a customer wanted to discuss a loan. Straightening my all too cluttered desk, I asked his name and gave the green light for her to send him in.
MaryAnn introduced Mr. Kutlik, who was an imposing yet distinguished gentleman in his fifties, and I invited him to sit. We began to with some small talk, the weather; how the Bears were doing this season and then we began to talk business. Mr. Kutlik it seems was in sales, had been for years. His company manufactured advertising novelties, personalized pens, coffee mugs, key chains things like that.
As the conversation progressed, it dawned on me how terribly haggard and drawn he appeared. As his story unfolded, I began to understand why. Mr. Kutlik it seems had gotten himself into tax difficulties about 4 years back, when the steel mills were laying off in the thousands and closing huge plants nearly every quarter. Small business in the region suffered terribly as consumer spending shrank during those difficult years and Mr. Kutlik’s business was no exception.
I’ll spare you all the ugly details, but suffice to say Mr. Kutlik owed the IRS a sum of $14,000 dollars, which was a great deal of money at the time, and coupled with penalties and interest the debt just kept growing. Mr. Kutlik was a long-time customer of the bank and had his business and personal accounts with us. At one time, his was a very valuable account.
He wanted to borrow enough to liquidate this debt, but absent liquid or unattached assets and because of his now shaky balance sheet and a credit report that showed tax liens, my hands were tied. I couldn’t help him.
When you are in your early twenties and you see a grown man cry, it makes an impression. Although my heart went out to him, there was nothing I could do. A few months later, I was reading his obituary. He had passed away from a massive heart attack.
As you can imagine, I made a covenant with myself to never cross swords with the Internal Revenue Service.
Today, my
line is invoice factoring for small business, and I still hear my share of hard luck stories, but nothing like the story I heard from Mr. Kutlik those many years ago.
I’ve had an interest in the federal tax code ever since and I try to stay current with things that develop, not only for my benefit but also to share with clients. Today I want to share some old news with you. I say old news because most of what I will share with you here was in force during most of 2011. Then I realized that it doesn’t matter that it is old news, because it is going to be fresh information for many of you and may assist you with any tax difficulties you encountered before these change went into effect. As I learned from Mr. Kutlik, these tax issues can drag along for years.
In February 2011 the
Internal Revenue Service instituted a string of new steps to help people and small businesses get a fresh start with their tax liabilities without adding superfluous burdens, with programs to help pay back taxes and avoid tax liens.
Here is a synopsis of what they have done to reduce negative effects on small business and individual taxpayers:
- Raised the dollar threshold which triggers a lien, resulting in fewer liens
- Streamlined the process to obtain lien withdrawals after a tax bill is paid
- Withdrawing liens when a taxpayer enters into a Direct Debit Installment Agreement
- Created expand access to Installment Agreements for more struggling small businesses
- Updated the Offer in Compromise program to include more taxpayers.
Tax Lien Thresholds
Under the newly stated policy, the IRS significantly will increase the dollar thresholds when liens generally are filed from $5000 to $10,000. The IRS says this will reduce liens by the tens of thousands.
Tax Lien Withdrawals
The IRS stated in its February 2011 announcement that procedures will be modified making it easier for taxpayers to obtain lien withdrawals once taxes have been paid. According to the announcement, liens will be withdrawn if the taxpayer requests such withdrawal when the tax is paid. This is important to individual and small business because previously liens could remain on record for years after the tax was and could stay on a taxpayer’s credit report for years.
Liens—Installment Agreements
The IRS has made fundamental changes to liens in cases where taxpayers enter into a Direct Debit Installment Agreement (DDIA). If the unpaid assessment is $25,000 or less, the IRS will allow lien withdrawals under these circumstances:
- Lien withdrawals will be permitted for taxpayers having an existing or entering into a new Direct Debit Installment Agreement.
Small Business
Previously the IRS would only allow small businesses to enter into an Installment Agreement if they owed $10,000 or less. That has been increased to $25,000 making it available to more small businesses. The maximum term will be 24 months and the business must pay via direct debit. This applies equally to individuals who file as a business and business filers.
Offers in Compromise
Offers in Compromise are now available to taxpayers with annual incomes up to $100,000 and the eligible liability (debt) has been doubled, formerly $25,000 and now $50,000. This will bring a settlement option to a significantly larger group of taxpayers.
Sadly, it’s too late for Mr. Kutlik.