With Democrats and Republicans in Congress battling over competing tax legislation this week, one new bill should be able to attract bipartisan support.
On Tuesday, coinciding with Tax Day, Rep. Jim McDermott, D-Wash., a senior member of the tax-writing House Ways and Means Committee, introduced the Tax Levy Relief Act of 2012. The bill would give the IRS the authority to release a tax levy if it would cause an undue economic hardship to a struggling business and cost jobs.
McDermott’s office noted that in the aftermath of the recession thousands of businesses have struggled to meet their tax liabilities and many have faced the harsh imposition of levies, which have only made matters worse. While levies are a legal means of seizing property that the IRS uses to satisfy tax debts, the imposition of levies can often cause serious harm to a business, costing it customers, reputation and access to financing.
“There are thousands of viable businesses that have struggled greatly to stay current on their taxes as a result of the devastating recession,” McDermott said in a statement. “They should pay off their tax debt, but forcing them to do so by seizing their assets shouldn’t be the only option. The IRS should have the discretion to look at the facts and circumstances of a business and decide the best way to collect an outstanding debt without causing irreparable harm to the business, its employees and the communities they serve.”
The IRS is already allowed to relieve individuals, but not businesses, from levies on the grounds of economic hardship. Among those who have been pushing for the extension of tax levy relief to businesses is the IRS’s own Taxpayer Advocate Service, which recently recommended that Congress amend the Tax Code to permit the IRS to lift levies on the basis of economic hardship.
In National Taxpayer Advocate Nina Olson’s most recent report to Congress, the TAS wrote, “IRS collection procedures do not consider how long the entity has been in business, the business’s long-term compliance history, or the nature of the delinquency problem... [They] focus on the business’s ability to liquidate its productive assets to pay existing tax debt.”
Since 2008, the IRS has increased its use of levies against businesses by 20 percent, McDermott noted. He pointed out that tax levies can be devastating to the survival of a small business and, as the economy begins to recover, it’s especially important to provide businesses with every opportunity to succeed. The legislation would allow IRS employees to use common sense to save businesses and jobs, he noted.
Specifically, the Tax Levy Relief Act of 2012 (H.R. 4368) would permit the IRS, in its discretion, to release a levy against a taxpayer’s property or rights to property if the IRS determines that satisfying the levy would create an economic hardship due to the financial condition of the taxpayer’s business. The bill would also require the IRS, in making the determination to release a levy on economic hardship grounds, to consider the economic viability of the business, the nature and extent of the hardship, and the potential harm to individuals if the business is liquidated.
So far, McDermott has attracted support from several other Democrats in Congress, including John Lewis of Georgia, Pete Stark of California, Charles Rangel of New York, Richard Neal of Massachusetts, Ron Kind of Wisconsin, John Larson of Connecticut, Earl Blumenauer of Oregon and Bill Pascrell of New Jersey. It seems this is the type of legislation that many Republicans could easily support as well, if only Congress were not so polarized along party lines right now. The bill has also been endorsed by the National Association of Enrolled Agents and the National Small Business Association.
There are some signs that Congress is ready to get together on tax legislation. On Tuesday, the Ways and Means Committee held a hearing on tax reform and tax-favored retirement accounts (see Congress Mulls Tax Reforms to Spur Retirement Savings). At the hearing, a bill introduced by Rep. Richard Neal, D-Mass., allowing businesses to automatically enroll employees in IRA plans, was much discussed. Small businesses are often unable to provide retirement plans to their employees, but automatically enrolling employees in Individual Retirement Arrangement plans, as many larger businesses do today with 40(k) plans, would increase the retirement savings and security of many workers. The legislation would not require employers to make contributions to an IRA, so there would not be an economic burden on them as a result.
The bill does not yet have any Republican co-sponsors, but several Republican members of the committee, including Chairman Dave Camp, R-Mich., sounded as though they might lend their support. A representative from the conservative think tank, the Heritage Foundation, testified in support of the proposal, which could prove influential in lining up Republican support.
Unfortunately, the bipartisan prospects for several other pieces of tax legislation appear to be thin. On Monday, Senate Republicans blocked legislation promoted by the Obama administration that would institute the so-called Buffett Rule and impose a minimum tax rate of 30 percent on millionaires. A Republican-backed bill that would provide a 20 percent tax cut for most businesses for a year also seems doomed to defeat this week after the Obama administration expressed its opposition. The administration instead favors a less expansive proposal tying tax cuts to businesses that hire more employees.
With the expiration of the Bush tax cuts extension approaching at the end of the year, and dozens of tax extenders already expired or due to expire at the end of the year, including the temporary patch on the alternative minimum tax, Congress will be under increasing pressure to come to an agreement on what to do. Many observers predict that won’t happen until after the elections, during the lame-duck session, although IRS Commissioner Doug Shulman has warned that such a late resolution would likely delay the start of tax season next year, as happened in early 2011. The delay could last even longer than last year, when accountants were not able to begin electronically filing their clients' 1040s until February 14.
To avoid what’s already being called a “Taxmageddon,” Congress will need to start agreeing soon on what to do about taxes and tax reform, preferably sooner rather than later. The McDermott proposal for tax levy relief seems like a good place to start.
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