Legislation Would Intercept Tax Refunds from Debtors

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A pair of U.S. lawmakers has introduced a bill that would allow the courts to intercept tax refunds from delinquent debtors who owe restitution to victims or have outstanding court fees.

The legislation, known as the Crime Victims Restitution and Court Fee Intercept Act, would allow state courts to coordinate with the Internal Revenue Service to intercept the refunds. The IRS would be able to intercept tax refunds from those convicted of a crime who owe outstanding fines or payments and send the refunds instead to victims and courts that are owed the debt. The bill was introduced last Thursday by Sen. Ron Wyden, D-Ore., and Rep. Erik Paulsen, R-Minn.

“It is only common sense that those convicted of a crime pay their debts to society before benefitting from tax refunds,” Wyden said in a statement. “This bill gives crime victims some relief in knowing that they will be made whole, and courts and municipalities will be able to guarantee the income they need from assessed fines.”

Federal law currently permits the interception of federal tax refunds to pay outstanding child support debts, state tax and other federal debts, and the legislation would still require the payment of outstanding child support debts before any other court-related cost. Any additional costs needed to implement the law would be paid by the states that choose to participate.

Separately, Wyden introduced a tax simplification bill last week in conjunction with Sen. Dan Coats, R-Ind. The Bipartisan Tax Fairness and Simplification Act of 2011 would reduce the number of individual tax brackets from the current six to three—15 percent, 25 percent, and 35 percent—and eliminate the Alternative Minimum Tax completely. The bill would also nearly triple the amount of the standard deduction for individuals.

Business provisions in the bill would allow small businesses with gross annual receipts of up to $1 million to be able to permanently expense all of their equipment and inventory costs in a single year. The Wyden-Coats bill would also reduce the top corporate tax rate and replace the existing six corporate rates and eight tax brackets with a single flat rate of 24 percent.

However, some provisions of the Wyden-Coats bill would remove various tax breaks, including the tax exemption for investors who purchase state and local municipal bonds.

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