IRS tax liens jump by 60%, but how effective are they? - USATODAY.com

IRS tax liens jump by 60%, but how effective are they?

By Kevin McCoy, USA TODAY

IRS liens filed against taxpayers jumped 60% since the start of the national recession, according to a new federal report that urges the tax agency to moderate the collection policy and study its effectiveness.

The IRS filed more than 1 million liens in federal fiscal year 2010, the highest in nearly two decades and a spike from the nearly 684,000 filed in the year ahead of the recession's December 2007 start, according to the annual report to Congress issued Wednesday by the National Taxpayer Advocate.

Although the IRS has taken some steps to aid financially struggling taxpayers, it "has continued the trend toward more lien filings despite the worst economy in at least a generation" — with serious financial impact on some of those unable to pay, the taxpayer advocate report concluded.

"Lien filings can badly damage or destroy a taxpayer's creditworthiness because they are picked up by the credit-rating agencies and retained on the taxpayer's credit reports for seven years from the date the tax liability is resolved, or longer if it is not resolved," wrote Nina Olson, who heads the Taxpayer Advocate's office.

For those with IRS liens filed against their property, that can mean it's harder to get a job, find affordable housing or buy insurance.

Despite the increase in liens, the report said IRS payment coding protocols make it impossible to determine how much revenue the collection effort generates. Since the IRS pays to process the liens and file them with local county clerks, the report said it is "questionable whether liens generate much, if any, direct revenue."

The increase in lien filings continued a longer trend in which the report said the 2010 total soared 553% higher than the number filed in fiscal year 1999. The IRS said the comparison was misleading, because the agency reduced lien filings in 1999 while making legal changes under a 1998 restructuring of the agency.

IRS spokesman Terry Lemons said it has moved to help taxpayers facing collection problems. He said the IRS is starting a procedure to ensure its liens are withdrawn after tax debts are paid. That change, Lemons said, "will help struggling taxpayers who face hardship caused by having a lien."

Olson, however, said the IRS should determine whether its lien-filing policies balance efficient tax collection "with the legitimate concern of taxpayers that any collection action be no more intrusive than necessary."