New Highway Bill Gives IRS New Collection Tools

In December 2015, Congress passed the Fixing America’s Surface Transportation Act (FAST).

In December 2015, Congress passed the Fixing America’s Surface Transportation Act (FAST). Provisions included in this bill authorize the State Department to deny or revoke passports for individuals with delinquent tax debt of more than $50,000. The bill also resurrects the IRS private debt collection program and requires the IRS to use third-party entities to collect tax debt under limited circumstances. The IRS contracted with private debt collection agencies from 2006 to 2009, but then at the end of this period insisted it could more efficiently collect the debt itself, thus ending the private program. 

Section 7345 of the new Act requires the Secretary of State to deny, revoke, or limit the passport of any person who the IRS certifies has a seriously delinquent tax debt, which is defined as an outstanding tax debt in excess of $50,000 for which a notice of lien or a levy has been filed. One exception to this is if the taxpayer is making timely payments under an agreement with the IRS. Another is if collection is suspended because of a requested or pending innocent spouse relief or pending Collection Due Process (CDP) hearing.

Of importance, the IRS may only revoke passports after it has followed its examination and collection procedures, and the taxpayer’s legal rights (administrative and judicial) have been exhausted or have lapsed. Possible loss of passport information will be included in correspondence the IRS sends to taxpayers. This applies whether it is a notice is to inform them of potential collection activities under Sec. 6320 or 6331, or whether it is notice of a certification of serious delinquency.

Pursuant to §7345, the IRS will certify to the U.S. Treasury the identity of persons who have seriously delinquent tax debts under the definition above. The Treasury will provide the list of certification to the State Department for use in determining whether to issue, renew, limit, or revoke a passport. Any individual whose name appears on the certification list is ineligible to receive a passport.

Once taxpayers pay off their tax debt, or if they were erroneously certified, they may be decertified if they (1) pay their seriously delinquent tax debt in full; (2) enter into an installment agreement with the IRS under §6159; (3) have an offer in compromise accepted by the IRS under §7122; or (4) file for relief from spousal joint liability. When this occurs, the IRS must notify the Treasury that the taxpayer is no longer seriously delinquent while providing contemporaneous notice to the taxpayer. The decertification applies only to the spouse claiming relief in the case of an innocent spouse matter.

What will this law’s future impact be on Americans living overseas when they want to return to the U.S., but suddenly the State Department has revoked their passport? What documentation will be necessary to return to the country if an individual taxpayer’s passport is revoked? One thing, if you want to freely travel abroad using your US passport, you’d better pay your taxes.

Congress amended §6306 to require the IRS to enter into tax collection contracts with third parties, but only for the collection of certain outstanding inactive tax receivables. Inactive tax receivables are defined as any tax receivable (1) that has been removed from the IRS’s active inventory due to lack of resources or inability to locate the taxpayer; (2) for which more than one-third of the applicable limitation period has lapsed and such receivable has not been assigned for collection to any employee of the Internal Revenue Service, or (3) in the case of a receivable which has been assigned for collection, more than 365 days have passed without interaction with the taxpayer or a third party for purposes of furthering the collection of such receivable.

There is a long list of receivables exempt from §6306 collection activities. This list includes tax receivables relating to pending or active offers in compromise (§6159) or installment agreements (§7122). As well as those collection matters involving innocent spouses, taxpayers in designated combat zones, deceased taxpayers, tax-related identity theft victims, and minors. The list also includes any receivables that are currently under levy, examination, or criminal investigation. Also those receivables actually in litigation or currently subject to a right of appeal are not eligible for private collection.

 Taxpayers are given a right to limited judicial review of certification of passport revocation or failure to reverse certification in federal district court or the Tax Court. Also, taxpayers may be subject to third-party collection activities and must have their legal rights protected to insure that the IRS and its third-party agent are not violating federal law. An experienced and knowledgeable tax professional is necessary to assist a taxpayer in these matters. Call THE TAX EXPERTS AT THE Thorgood Law Firm For a FREE consultation call 212-490-0704.

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