How IRS Collection is helping taxpayers during the pandemic

Get a closer look at how the IRS Collection division responded to challenges related to the pandemic by taking actions that directly affect taxpayers.

Get to know the IRS, its people and the issues that affect taxpayers

By Fred Schindler
CL-21-31, December 9, 2021

“A Closer Look” - The IRS’s Collection organization has taken a number of actions to help taxpayers since the onset of COVID-19 , including some policy changes that will continue beyond the pandemic.

As Commissioner Rettig said in a recent Closer Look article, IRS employees have really stepped up in the past year and a half to provide even more support to Americans in need. The IRS temporarily scaled back operations, implemented important economic relief measures passed by Congress and worked to deliver Economic Impact Payments, advance payments of the Child Tax Credit (CTC) and many other critical initiatives in 2020 and 2021.

The IRS’s Collection organization has played an important role in these efforts. Normally, we are responsible for collecting delinquent taxes and securing unfiled tax returns. In the early days of the COVID-19 pandemic, Collection generally paused enforcement activities (such as levies on wages and bank accounts and filing notices of federal tax lien) for 3 ½ months as part of the IRS’s People First Initiative. Then, over the past 12 months those activities were gradually restarted, but Collection was careful not to interfere with the intent behind the various relief initiatives. We instituted policies to prevent funds originating from economic relief programs and advance CTC payments from being levied.

This is just one of many procedural changes IRS Collection instituted in order to help struggling taxpayers during this unusual period in our nation’s history. Another recent change -- which will outlive the pandemic -- enhances the “fresh start” option our Offer in Compromise (OIC) program provides. An OIC allows a taxpayer to settle their tax debt for less than the full amount they owe. It may be a legitimate option for taxpayers who cannot pay their full tax liability, or if doing so creates a financial hardship for them.

New change allows taxpayers who enter into offers in compromise to receive certain tax refunds

The IRS policy has been to offset tax refunds for tax periods extending through the calendar year in which the OIC is accepted. For example, a taxpayer has an offer accepted on November 15, 2020. They file their 2020 tax return on April 15, 2021 showing a refund (overpayment). The IRS applies that refund to the tax liability. (Since the offer was accepted during the 2020 tax year, the refund associated with the 2020 tax return was subject to offset).

The National Taxpayer Advocate raised a concern to Collection that these refund offsets were having a negative effect on low-income taxpayers. We discussed the issue with the Taxpayer Advocate Service and made the decision to change the policy. Beginning with offers accepted on or after November 1, 2021, the IRS generally will not offset refunds to tax periods included on the offer after the offer acceptance date. For example, the taxpayer has an offer accepted on November 15, 2021. They file their 2021 tax return on April 15, 2022 showing a refund. Under the new policy, the IRS will not offset that refund, allowing the taxpayer to receive the refund.

Having problems and owe past taxes? Special refund process may help – but contact the IRS in advance

Taxpayers experiencing financial hardship may also request an Offset Bypass Refund, or OBR, while their Offer in Compromise is being considered by the IRS. An offset “bypass” occurs when an overpayment that would otherwise be applied to a prior tax liability is instead refunded to a taxpayer. If the taxpayer only has a federal tax liability (and does not owe money to another federal or state agency) and is experiencing economic hardship, the IRS may forego the offset and issue the refund under OBR procedures.

Timing is important. An OBR is generally only possible before the IRS applies the current refund to a prior liability tax. The window of time to request an OBR is after the refund return is filed and before the IRS processes the return and offsets the refund. Once the refund has been offset, it’s too late to request an OBR. Also, an OBR is based upon establishing a specific hardship; for example, the taxpayer needs $500 to pay a utility bill to avoid disconnection or needs $750 to avoid eviction. Once the amount of the hardship is established, the IRS will only bypass enough of the offset to alleviate the hardship amount.

There is no specific form used to request an Offset Bypass Refund. Taxpayers wanting to request one should contact the IRS at 800-829-1040. They may also request assistance from the Taxpayer Advocate Service.

The IRS’s Collection organization will continue to carry out our mission of collecting delinquent taxes and securing delinquent tax returns through the fair and equitable application of the tax laws while respecting taxpayer rights. This includes the use of enforcement tools when appropriate, providing education to customers to enable future compliance, and working to protect and promote public confidence in the American tax system.

You can find out more about the Offer in Compromise program here.
For further discussion of these issues, you can read the National Taxpayer Advocate’s blog post here.

Fred Schindler
Director, Collection, IRS Small Business/Self-Employed