At the end of last year, Congress passed the Fixing America’s Surface Transportation (FAST) Act, which gives the IRS the power to revoke U.S. Citizen’s passports, as well as contract with private debt collectors. The FAST Act, signed into law on December 4, 2015, approved $305 billion in funds for highway and transit infrastructure, among other things. Buried deep – very deep – in the act’s 1,300 pages are two provisions that have greatly expanded the IRS’s powers.
This is significant. While in the past, Homeland Security was charged with identifying individuals who may be leaving the country while under criminal investigation or with currency, now Congress has given the IRS powers to block those leaving that owe tax debt. While our office does have concerns regarding the constitutionality of the law, which will take years to litigate, read below to learn how the new tax law affects you today.
Division C, Title XXXII (Offsets), Subtitle A, Section 32101 of the FAST Act permits the IRS to transmit the identity of persons with seriously delinquent Federal tax debts to the Secretary of State to refuse issuance or revoke the passports of certain taxpayers. The idea for this apparently originated in a 2011 Government Accountability Office [GAO] report; the report found that as of September 30, 2008, more than 224,000 U.S. passport holders owed more than $5.8 billion in unpaid taxes.
Section 32101 defines “seriously delinquent tax debt,” as a tax liability which has been assessed, exceeds $50,000 (including penalties and interest), and for which there has been filed a notice of lien or for which a levy has been initiated. This new passport revocation provision is expected to raise $398 million over the next 10 years.
The law itself provides some procedural taxpayer protections, in that a passport revocation should not be pursued if timely payments are being made in accordance with an installment agreement or offer-in-compromise, if the debt has been suspended due to pending litigation, or pursuant to requested or pending innocent spouse relief. There are also some safeguards for emergency family matters.
However, the fact is that many of our clients owe far in excess of $50,000 and many feel the need to travel abroad to Europe, Hong Kong, mainland China, or other locations. They do not believe they are avoiding their tax delinquencies in doing so. They need to travel for work or general family obligations (think of how many people go back to China or Hong Kong to celebrate New Year with their families). Unfortunately, these reasons probably do not qualify as an emergency. Thus, this new power potentially creates an extremely embarrassing situation and undue hassle for people.
Our predictions: We know the IRS is getting better and faster at identifying individuals that owe tax and penalties. We further predict that, as banks continue to disclose information to the IRS through FATCA or as part of their non-prosecution agreements with regards to undisclosed foreign bank accounts, the IRS will move even faster in applying leverage to taxpayers in order to collect the tax. In the long term, it remains uncertain if the law is constitutional as there is a kind of 'debtor's prison' aspect about it that needs to be addressed.
Contracts with Private Debt Collectors
Section 32102 of the FAST Act authorizes the IRS to enter into contracts with private debt collectors. This is not a new idea. The concept was previously tried in 2006 and then abandoned following an excessive number of taxpayer complaints about aggressive collection tactics utilized by private companies.
It will be interesting to see how this provision is implemented, especially considering the fact that the IRS has issued a consumer alert warning taxpayers about scammers who pretend to represent it in collection proceedings, and its annual “Dirty Dozen” list often warns about various collection techniques utilized by individuals who pretend to represent the IRS.
Highly rated legal assistance with tax disputes
The government now has more resources than ever at its disposal, and it is more important than ever to have a highly experienced tax attorney assist you in handling disputes with the IRS, especially those involving large sums. The Moskowitz LLP team of tax attorneys, CPAs and support staff are efficient in providing an unparalleled, comprehensive representation. Contact our San Francisco office today through our website or by calling (888) 829-3325.