Bill with passport and third-party tax collection provisions passes Congress

Provisions that revoke passports for taxpayers with unpaid tax debts and require the IRS to use third-party debt collectors were included in the Fixing America’s Surface Transportation Act, H.R. 22, which Congress passed on Thursday. The bill also repeals a recent change to the extended due date for employee benefit plan returns.

Revocation or denial of passport for unpaid taxes

The act creates a new Sec. 7345 that 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. “Seriously delinquent tax debt” is defined as an outstanding tax debt in excess of $50,000 (adjusted for inflation) for which a notice of lien or a levy has been filed, unless the individual is making timely payments under an agreement with the IRS or collection is suspended because a Collection Due Process hearing or innocent spouse relief has been requested or is pending. This provision is effective upon enactment.

Under the provision, the IRS will certify to the Treasury the identity of persons who have seriously delinquent tax debts, as defined for these purposes. Treasury will transmit these certifications to the State Department for use in determining whether to issue, renew, or revoke a taxpayer’s passport. Anyone whose name appears on the certification is ineligible for a passport.

Passport revocation will be allowed only after the IRS has followed its examination and collection procedures and the taxpayer’s administrative and judicial rights have been exhausted or have lapsed.

Possible loss of passport will be added to the list of matters required to be included in notices the IRS sends to taxpayers to inform them of potential collection activities under Sec. 6320 or 6331. The IRS will also be required to notify the taxpayer when it sends a certification of serious delinquency to Treasury.

The act also includes a process by which individuals who no longer have a seriously delinquent tax debt can be decertified and by which the IRS can correct erroneous certifications. Individuals will be eligible for decertification if they (1) pay their seriously delinquent tax debt in full; (2) enter into an installment agreement with the IRS; (3) have an offer in compromise accepted by the IRS; or (4) file for relief from spousal joint liability. In these cases, the IRS must notify Treasury that the taxpayer is no longer seriously delinquent (and must provide contemporaneous notice to the taxpayer). In the case of an individual who has filed for innocent spouse relief, the decertification applies only to the spouse claiming relief.

The IRS will have 30 days from the occurrence of the event that requires decertification to notify Treasury, which in turn must promptly notify the State Department, except in the case of a payment of the debt, where the IRS must provide notification no later than the date required for issuing the certificate of release of lien with respect to that debt.

Taxpayers are given a right to limited judicial review of certification or failure to reverse certification in federal district court or the Tax Court.

Third-party tax collection contracts

Sec. 6306 is amended to require the IRS to enter into tax collection contracts with third parties for the collection of certain outstanding inactive tax receivables. The act defines inactive tax receivables as any tax receivable (1) that has been removed from the IRS’s active inventory due to lack of resources or inability to find the taxpayer; (2) for which more than one-third of the applicable limitation period has passed and no IRS employee has been assigned to collect the receivable; or (3) that has been assigned for collection, but more than 365 days have passed without interaction with the taxpayer for purposes of furthering collection of the receivable.

Tax receivables relating to pending or active offers in compromise or installment agreements are not eligible for collection under qualified tax collection contracts. Neither are ones related to innocent spouse cases, deceased taxpayers, minors, taxpayers in designated combat zones, or victims of tax-related identity theft. Also, receivables that are currently under examination, litigation, criminal investigation, or levy or currently subject to a right of appeal are not eligible.

The provision applies to tax receivables identified by the IRS after the date of enactment.

The act also requires the IRS to use its collection enforcement budget to fund a newly created special compliance personnel program and to establish an account for the hiring, training, and employment of special compliance personnel.

Form 5500

The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41, enacted in July, authorized an automatic three-and-a-half month extension for Forms 5500, Annual Return/Report of Employee Benefit Plan. The act repeals that change, meaning the extended due date for Form 5500 will be determined under Labor Department and IRS rules in effect before the enactment of the Surface Transportation and Veterans Health Care Choice Improvement Act.

—Alistair Nevius (anevius@aicpa.org) is the JofA’s editor-in-chief, tax.