IRS & Tax debt

SBA lenders—if you’ve ever embarked on completing the IRS Form 4506-C with a borrower, you’ve probably found yourself wishing there was a faster way to receive tax return transcripts and tax compliance data. Perhaps you found yourself unsure if any tax-related financial verification procedures other than Form 4506-C were accepted by the SBA? Either way, don’t worry: we’re here with good news!
SBA Releases IRS Information Verification Guidelines for Form 8821 We’re excited to share that the SBA recently issued SBA Procedural Notice 5000-829416 (effective March 9, 2022) that provides clear guidance regarding the allowance of both the IRS Form 8821 and Form 4506-C to request tax return transcripts and tax data for your SBA’s 7(a) and 504 loan programs. In case you’re unfamiliar with IRS Form 8821, it isn’t a new IRS transcript request form —it’s a decades-old tax information authorization form that helps transform the process of acquiring information from the IRS. Form 8821 is your port..

Government agencies and large businesses may be returning to somewhat “normal” operations, but many taxpayers — like small to midsize business (SMB) owners — are still financially reeling from the COVID-19 pandemic and have had issues paying their tax liabilities in full and on time.
In 2020, the IRS filed half as many tax liens as they did in 2019, mostly due to their moratorium on enforced collection beginning in April of 2020. As a result, there’s a false sense of security among some SMBs who now owe back taxes to the IRS. As the year has passed by, the sleeping giant of IRS collections has awakened – the IRS recently stated, “with the recent progress the country has made in controlling the COVID-19 pandemic, [we] plan to return to normal collection casework processes later this summer to support the integrity of the nation’s tax system.”
Awakening the Sleeping Giant: The IRS Is Back In June of 2021, the IRS began sending balance due reminder notices to taxpayers who have not pai..

Kickstarting the fight against the ever-growing tax gap will be a federal and national effort IRS Commissioner Charles Rettig recently testified before Congress about the state of the tax gap — the difference between total taxes owed and taxes paid on time — in America. He said that the official estimate is $400 billion, but he also noted it would not be out of order to suggest that the actual gap could “approach and possibly exceed one trillion dollars per year”.
To jumpstart the fight against the ever-increasing tax gap, President Biden unveiled the American Families Plan in April 2021. The White House expects the plan to boost funding to the Internal Revenue Service (IRS) by increasing taxes on wealthy Americans to raise nearly $700 billion over the next 10 years. Biden’s plan includes a general request that funds be allocated specifically to “improve taxpayer customer service.” The IRS has been underfunded for years, so a federal plan like this could mean an entirely new IRS expe..

As the world slowly starts to re-open after a global pandemic, small businesses are looking to secure loans so they too can continue to serve their customers. Maybe some business owners are just starting out, taking advantage of the new demands of a post-pandemic economy. Others may be existing businesses, opening their doors to the public for the first time in over a year. No matter who it is, one thing remains true: The entire credit process is at risk when unexpected or hidden tax debts are found.
Hidden debts affect the entire credit process — knowing what’s ahead will save underwriters from wasted time and headaches. Having real-time data and insight into a business’s payroll tax deposit compliance is key to recognizing financial distress in a business. Traditionally, when businesses are tight on cash, they’ll put their IRS payroll tax deposits last on the list of priorities. They assume there will be time to catch up on those bills later when their cash flow situation improves. ..

Imagine lending money to a company and not knowing if they have substantial cash flow issues in the form of hidden federal tax debts. Would you be shocked if we told you we see bankers doing this all the time? And it costs them millions.
Why? Simple: they’re not checking all the boxes.
For decades, bankers have conducted their typical due diligence when assessing the credit risks associated with a potential borrower — tax returns, bank statements, and so forth. But the reality is, lenders have ignored one of the most significant credit risks that are often hidden from the balance sheet: federal payroll taxes.
A large segment of C&I lending falls under the government guaranteed SBA lending program. Loans guaranteed through traditional SBA lending programs exceeded $28 BN in 2020 alone — Lenders and the federal government can’t afford to lend money to businesses with misleading financial assessments, thereby putting taxpayer dollars in the hands of failing businesses. Commercial len..

When small businesses get desperate for cash, the inclination to commit fraud increases. Where can they cut costs? Not with their employees, who would leave if wages were slashed or unpaid. There’s only so much that penny-pinching can do. A lightbulb flashes: if they fudged the numbers a bit, just this once, they might make it through to the next cash flow windfall.
In normal times, cash flow is a challenge for businesses — the average business has just 27 days of cash on hand — and these aren’t normal times. We’re in the midst of a global crisis that has significantly impacted small business liquidity and access to capital sources.
When businesses hit a cash crunch, desperation kicks in, making fraudulent activity that much more attractive. Business owners in circumstances like these might decide to produce an invoice slightly early or with doctored dates and submit it to their factor to get a payment just a bit earlier than they should. However, this kind of behavior can catch up t..

In this edition, we take time to reflect on 2020 and the progress our Product and Engineering teams have made in 2021. For questions on any of these existing or upcoming features, please contact our Customer Success Team.
2020 Lookback
While IRS slowdowns and IVES delays created havoc for many lenders, our product and engineering teams were busy behind the scenes launching new features to improve your customer experience. Check out a few key highlights below:
Identity Verification
This feature is now available as a standalone product that can now be used outside of the client creation process.
​Increased Monitoring Frequency
This was one of our most requested features due to the fact that the IRS’s compliance reporting is always changing. It is now available for our monitoring customers on a weekly, semi-monthly, or monthly basis.
Record of Account Transcript
This feature combines the Tax Return Transcript and Tax Account Transcripts into one complete transcript. Its value lies i..

On March 11, 2021, the American Rescue Plan Act became law, and this $1.9 trillion relief package ha..

The IRS Wait is Over: Back to Reality As a result of the pandemic, the IRS intermittently opened and closed throughout 2020, impacting their ability to maintain operations. They struggled to deal with basic business operations, such as opening the mail and picking up the phone — much less able to process paperwork or go after businesses and individuals for their tax debts.
The Peoples First Initiative went into place on March 25, 2020, to help alleviate taxpayers’ financial burden. This initiative was scheduled to expire in July but was extended through August, then September, and finally was lifted in October of 2020. This means that as of October of last year, the IRS collection engine has restarted. Businesses that were able to get some temporary relief from making fewer tax deposits, if any at all, are now having to face the reality of their increasing tax debts.
As of October 1, 2020, the IRS instructed staff to resume normal operations in their collection activities – assessi..

In 2020, Congress initiated the PPP loan program to provide economic relief to small businesses due to the pandemic fallout. As predicted, this program provided short-lived positive effects on small businesses and created additional blind spots for commercial lenders trying to assess the financial health of a small business.
Now that another round of PPP is underway in January, 2021, it is important to understand the impact a business with a PPP loan can have on your credit decisions and how you can measure that impact.
See our infographic below for more information.
Download Infographic Create clarity and predictability in your credit decisions with federal tax data today. Contact us for your customized demo.
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