The Fixing America’s Surface Transportation Act passed Congress on Dec. 3, 2015, and was signed by President Obama on December 4. FAST provides long-term financing for road and mass transit construction after many years of only short-term funding.
The funding for FAST, however, is where most of the controversy arose. The gasoline excise tax, which has not been raised for many years and which no longer provides adequate funding for infrastructure improvements, was once again not increased and was maintained at current levels. Additional funding was instead provided through several tax and non-tax provisions unrelated to transportation. Non-tax provisions include pulling money from a Federal Reserve emergency account, reducing Federal Reserve dividends paid to banks, and selling oil from the national strategic reserve. The principal tax provisions include the revocation or denial of passports to persons with seriously delinquent tax debt and the authorization of private debt collectors to collect inactive tax receivables.
Speculation is that FAST was able to make it through Congress more easily by using revenue sources focused on government institutions and business entities that Congress does not like very much right now: banks, the Federal Reserve and the Internal Revenue Service.
The Secretary of the Treasury is authorized under FAST to certify to the Secretary of State that an individual has a seriously delinquent tax debt, and the Secretary of State is to utilize that certification for action with respect to denial, revocation or limitation of a passport.
“Seriously delinquent tax debt” is defined as an unpaid, legally enforceable federal tax liability of an individual which has been assessed, which is greater than $50,000 and with respect to which a notice of lien has been filed or a levy has been made. There are a number of exceptions provided, including a debt being timely paid pursuant to an agreement, a debt with respect to which collection has been suspended, service of the individual in a combat zone, and emergency or humanitarian situations.
Procedures are provided for withdrawal of the certification, judicial review of the certification, and sharing tax return information with the Secretary of State. The $50,000 threshold is adjusted for inflation. The limitation provision permits a limited passport to be issued only for return travel to the U.S. Procedures are also provided for revocation or denial of a passport to an individual without a valid Social Security account number.
TAX COLLECTION CONTRACTS
FAST orders the Secretary of Treasury to enter into one or more qualified tax collection contracts with private contractors for the collection of all outstanding inactive tax receivables. This is authority that the Obama administration, the IRS and the Taxpayer Advocate did not seek or want. The IRS views the last attempt at private debt collection several years ago to have been a failure. However, the provision does give Congress cover to argue, as it reduces the IRS’s budget and tax collection suffers, that this provision should permit tax collection to continue in spite of the reduced budget.
An “inactive tax receivable” is defined as a tax receivable that the IRS has removed from active inventory for lack of resources or inability to locate the taxpayer, more than one-third of the period of time under the statute of limitations has expired without the receivable being assigned for collection within the IRS, or, if assigned within the IRS for collection, more than 365 days have passed without interaction with the taxpayer or a third party for purposes of furthering collection. Certain tax receivables are identified as being not eligible for outside collection, such as where there is a pending or active offer-in-compromise or installment agreement, an innocent spouse case, or the taxpayer is deceased, under age 18, in a designated combat zone, a victim of identity theft, or is under examination, criminal investigation or levy, or in litigation.
The IRS is directed to utilize private collection contractors and debt collection centers listed on the schedule required under Section 3711(g) of Title 31 of the United States Code. The Secretary of the Treasury is directed to start entering into such contracts within three months of enactment of FAST and is required to make annual and biannual reports to Congress on the results of the program and the evaluation of the contractors utilized. Provisions address how private debt collectors may identify themselves to taxpayers. Provisions also address relief for taxpayers determined to be affected by a federally declared disaster.
As Congress cuts the IRS’s budget and the IRS cannot hire or retain collection personnel, Congress appears to anticipate that this will increase the volume of inactive tax receivables available to private debt collectors. It is not clear that there are any provisions in this new legislation that would address the problems encountered with the last attempt at private debt collection.
SPECIAL COMPLIANCE PERSONNEL
In an apparent effort to impose further control over the IRS’s use of funds raised from private debt collectors, FAST redirects funds that the IRS may retain from private debt collectors from use for the IRS’s collection enforcement activities to a new Special Compliance Personnel Program Account. The account is to be used for hiring, training and employment of special compliance personnel. These special compliance personnel are to be used by the IRS as field function collection officers or employed to collect taxes using the automated collection system. No other funds are to be placed into this account, no funds from any other source are to be used for this purpose, and no funds in the account are to be used for any other purpose. In short, if the IRS does not receive any money from private debt collectors, it is to have no funds to pay for this aspect of its internal collection activities. FAST also calls for annual reports to Congress on the activity in the account.
It appears that Congress, after complaining about the administration bypassing the legislative process through administrative action, has decided to try a hand at tax administration through legislation. These tax provisions in FAST are effective as of the date of enactment, Dec. 4, 2015. Tax practitioners, in discussing tax debts with their clients, will want to alert them to these issues with respect to passport denial or revocation and, if that is an issue, try to fit within one of the exceptions.
With respect to private debt collection, Congress clearly appears to be trying to force the IRS to undertake private debt collection whether it wants to or not. It is not clear if the legislative language is tight enough to force the IRS to shift all of its collection activities into this “special compliance personnel” category and to only rely on its portion of its revenue from private debt collection to fund internal collection activity. Tax practitioners should expect, however, that clients with tax debt that the IRS has not had recent success in collecting may soon start receiving overtures from private debt collectors.
George G. Jones, JD, LL.M, is managing editor, and Mark A. Luscombe, JD, LL.M, CPA, is principal analyst at Wolters Kluwer Tax & Accounting US.
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