Background on liens. When a taxpayer fails to pay a tax liability after notice and demand, a lien arises that attaches to all the taxpayer’s property and rights to property. The IRS is authorized to seize and sell the taxpayer’s property and rights to property subject to a federal tax lien. Thus, IRS may seize any property or property right (unless it’s exempt) of a delinquent taxpayer (whether held by him or someone else), sell it, and apply the proceeds to pay the unpaid taxes. Seized property may be real, personal, tangible, or intangible, including receivables, bank accounts, evidences of debt, securities, and salaries, wages, commissions or compensation.

Background on installment agreements. The IRS may enter into written agreements with any taxpayer. IRS must enter into an installment agreement requested by an individual whose aggregate tax liability (without interest, penalties, additions to tax, and additional amounts) is not more than $10,000, and who has not failed to file or to pay income tax, or entered into another installment agreement, during any of the preceding five tax years, if IRS determines that the taxpayer is financially unable to pay the liability in full when due (and the taxpayer submits information that IRS may require to make this determination). The agreement must require full payment within three years, and the taxpayer must agree to comply with all Code provisions while it’s in effect.

Background on OICs. The IRS will consider an offer in compromise (OIC)—i.e., an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed—where: (1) the taxpayer is unable to pay the tax; (2) there is doubt as to the taxpayer’s liability for the tax; or (3) a compromise would promote effective tax administration because collection of the full amount of tax would cause economic hardship for the taxpayer, or compelling public policy or equity considerations provide a sufficient basis for compromising the liability. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.

New procedures. After a review of collection operations which IRS Commissioner Shulman launched last year, as well as input from the Internal Revenue Service Advisory Council and the National Taxpayer Advocate, IRS has determined that the following changes will lessen the negative impact on taxpayers:

• Higher dollar threshold for issuing liens. IRS will significantly increase the dollar thresholds at which liens are generally filed to take account of inflationary changes since the number was last revised. Currently, liens are automatically filed at certain dollar levels for people with past-due balances. IRS expects to review the results and impact of the lien threshold change in about a year.
• Easier lien withdrawals after payment. IRS will modify procedures so as to make it easier for taxpayers to obtain lien withdrawals. Liens will now be withdrawn once full payment of taxes is made if the taxpayer requests it. IRS will streamline its internal procedures to better allow collection personnel to withdraw the liens.
• Withdrawing liens after DDIA. IRS will now allow lien withdrawals for taxpayers with unpaid assessments of $25,000 or less where: (1) a taxpayer enters into a Direct Debit Installment Agreement (DDIA); (2) a taxpayer on a regular Installment Agreement converts to a DDIA; and (3) a taxpayer on an existing DDIA requests the withdrawal. Liens will be withdrawn after a probationary period demonstrating that direct debit payments will be honored. IRS notes that this lowers user fees and saves the government money from mailing monthly payment notices. Taxpayers can use the Online Payment Agreement application on IRS.gov to set up a DDIA.
• Easier access to Installment Agreements for small businesses. IRS will make streamlined Installment Agreements available to more small businesses by raising the dollar limit to allow small businesses with $25,000 or less in unpaid tax to participate. Currently, only small businesses with under $10,000 in liabilities can participate. Small businesses that file either as an individual or as a business will have 24 months to pay. Small businesses with an unpaid assessment balance greater than $25,000 can qualify for a streamlined Installment Agreement if they pay down their balance to $25,000 or less. Small businesses will need to enroll in a DDIA to participate.
• Expanding streamlined OIC program. IRS will expand a new streamlined OIC program to cover a larger group of struggling taxpayers. The streamlined OIC will allow taxpayers with annual incomes up to $100,000 to participate. Participants must have tax liability of less than $50,000, doubling the current limit of $25,000 or less.

McLaughlin & Quinn, LLC partner Thomas P. Quinn, Esq. says “These changes are significant and will help many of our clients immediately.  We welcome this practical improvement to the collection system.  We represent clients on a daily basis who face these thresholds.  Those clients will now be able to better manage their affairs and settle their outstanding tax obligations.”

For more information on these changes, and IRS collections matters generally, contact Tom Quinn, Esq. at 401-421-5115 ext. 218 or by e-mail at TQuinn@McLaughlinQuinn.com.

Clarence Smith, Sr., named his son, Clarence Smith, Jr., as his agent under a POA. When his father no longer wanted to manage his own finances, he asked Clarence Jr. to step in as his agent. Clarence Jr. reviewed his father’s account activity and became suspicious about some withdrawals from a bank account that Clarence Sr. owned jointly with a friend from his retirement community.

Acting as his father’s agent under the POA, Clarence Jr., asked Bank of America to transfer $65,000 from the account into a new account that listed only his father as the owner. Before doing so, Bank of America contacted the other person named on the account. When she told the bank that she did not want the funds withdrawn and also accused Clarence Jr. of stealing his father’s money, Bank of America refused to honor Clarence Jr.’s request. The other account owner then withdrew all of the funds from the account and placed them into her own account, effectively preventing Clarence Sr. from accessing his own money. Clarence Sr. died several weeks later.

Clarence Jr. sued Bank of America under a Florida law that imposes penalties on financial institutions that refuse to honor reasonable requests from agents named in properly executed POAs. In November 2009, after a week-long trial, a Florida jury returned a verdict against the bank and awarded $64,142 to Clarence Sr.’s estate. The jury found that Bank of America had not acted reasonably when it rejected Clarence Jr.’s request, even though the joint owner of the bank account had not agreed to the release of the funds.

Bank of America plans to appeal. “We believe that neither the facts nor the law support the verdict,” said spokeswoman Shirley Norton.

While this case clearly illustrates the conflicts that can arise through the use of a POA, it also raises the issue of the proper use of joint bank accounts in estate planning. Under most state laws, when two or more people own “joint” bank accounts, each of them has the right to the entire account, no matter whose money is actually in the account. While joint accounts can often be useful, sometimes, as in this case, joint owners or their agents can disagree about the use of funds in the accounts. When that happens, the party who makes it to the bank first often wins. A qualified elder law attorney, such as Jill E. Sugarman, Esq. of McLaughlin & Quinn, LLC, can explain the pros and cons of joint ownership, can draft an effective POA, and can assist family members when disputes arise.

For more information about durable powers of attorney and joint accounts, contact Jill E. Sugarman, Esq. at 401-421-5115 or by e-mail at jsugarman@mclaughlinquinn.com.

If you intend to leave your children equal shares of your estate, don’t forget to consider any money or property held jointly with a child. Property in a joint account passes outside of your estate. If you add a caregiver child to one of your bank accounts out of convenience, the account will pass to that child alone when you die. This is true for any property held in joint tenancy or any property in a POD (Pay on Death) account. If you don’t intend for that child to receive a bigger share of your estate, you can add a provision in estate planning documents stating that any property passing through joint tenancy to a beneficiary will be treated as an advancement of that beneficiary’s share.

On the other hand, you may intend to leave one child a different share of your estate than your other children. For example, you may want to reward a caregiver child or you may feel that a child with a disability needs a bigger share. If you do decide to favor one child over another, you should explain in detail your reasoning in your estate planning document. This may help your children understand your decision. You also need to make it clear that it is your decision and not the influence of the favored child. If your children are unhappy with how much they have received, they may try to challenge your will.

The elder law attorneys at McLaughlin & Quinn, LLC’s Law For Life can help you ensure your estate is divided the way you intend.  For more information, please contact Jill E. Sugarman, Esq. by phone at 401-421-5115 or by e-mail at jsugarman@mclaughlinquinn.com.