WSJ Tax article
IRS Eases Up on Homeowners
By TOM HERMAN
IRS officials say they are speeding up efforts to provide relief for homeowners in financial distress.
The Internal Revenue Service has developed an “expedited process” to make it easier for homeowners to refinance their mortgages or sell their homes without having a federal tax lien delay or even block the process, officials said Tuesday.
IRS Commissioner Doug Shulman said he isn’t in a position to predict how many families will benefit. He did say there are more than one million federal tax liens outstanding tied to real estate and personal property. The IRS issues more than 600,000 federal tax lien notices a year.
When the IRS files a lien on someone’s property, it’s in effect making a formal claim to that property as security or payment for a tax debt. The lien also tells other creditors that the government has a claim on the property.
“These are difficult times for the U.S. economy,” said Mr. Shulman. “Many homeowners are at risk of losing their homes. Many are hoping to refinance at lower rates, and in some cases, homeowners are forced to sell their homes and get the best deal they can in the current marketplace.”
As a result, he says, IRS officials will respond more quickly to taxpayer requests to clear away liens and allow homeowners to proceed with refinancings or home sales. In the past, the process usually has taken about 30 days after a completed application is filed, a spokesman said. Officials didn’t say how much more quickly they will respond, but they did say they are increasing staffing, as necessary, to speed up the processing time and the decision-making process.
“We don’t want the IRS to be a barrier to people saving or selling their homes,” Mr. Shulman said. “We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes.”
Linda Goold, tax counsel for the National Association of Realtors, calls the IRS move “very helpful.” She says “anything that clears any impediment to a transaction is a boon. We view that as a great positive.” The national median existing-home price for all types of housing fell to $183,300 in October, according to the Realtors group. That was down about 11% from a year earlier, when the median price was $206,700.
If you’re trying to refinance or sell a home with a lien attached to it, you have several options. You or a representative, such as a lender, can ask the IRS to make its lien secondary to the claim of the lender that’s refinancing or restructuring the loan, the IRS said. Another option: If you’re selling your home for less than the amount of the mortgage lien on that home, you can ask the IRS to “discharge” its claim on it. That doesn’t erase your tax debt. It just clears that home from the lien so that the home can be sold, or the debt refinanced.
Very few people seem to be aware that these options exist. IRS officials say they get relatively few requests each year to discharge liens or to make them secondary to another lien, such as a lending institution’s, in a process known as “subordination.”
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More states are offering tax amnesties or similar programs.
In a typical amnesty, the state agrees not to prosecute or impose penalties on those who step forward voluntarily, before officials knock on their door, and pay what they owe or make arrangements to pay. Many states go even further by offering reduced interest charges, or no interest at all.
Connecticut hopes to raise about $40 million through an amnesty from May 1 through June 25, 2009, says Sarah Kaufman, a spokeswoman for the Department of Revenue Services in Hartford. The state won’t impose penalties and is offering a reduced interest rate. “You’re going to see more deals like this in the coming year as legislative sessions open in 2009” and lawmakers look for ways to raise cash quickly, says Verenda Smith of the Federation of Tax Administrators in Washington.
In New York, the state tax department launched a new “voluntary disclosure” plan last summer that officials say already has been highly successful. It offers protection from criminal and civil penalties to all eligible taxpayers who voluntarily disclose and “correct” their “delinquent tax liabilities,” and who agree to obey the law in the future. To participate, you have to come in voluntarily before the department finds you. Unlike traditional amnesties, New York’s offer doesn’t have an end date.
So far, New York’s tax department has received nearly 1,000 applicants, says William Comiskey, deputy commissioner for tax enforcement. Of those, about 45% reported owing a total of more than $12 million. “The other 55% will tell us what they owe when they sign their agreements and send their returns,” he says. Mr. Comiskey estimates that those 1,000 applicants will be reporting “somewhere around $25 million when all the numbers are in,” and calls the results “pretty spectacular.”
“Securing voluntary compliance is our primary enforcement objective,” Mr. Comiskey says. The program is “the honey intended to entice taxpayers to self-correct past delinquencies and become compliant in the future.”