Monthly Archive: December 2015

IRS Offset Tax Audit

Welcome to TaxView with Chris Moss CPA Tax Attorney

Have any of you ever had your income tax refund from the IRS or your social security retirement income intercepted by the Government because you owed income tax or child support or were in default on your student loan?  Unfortunately for those Americans who owe taxes there are more offsets coming your way. Just weeks ago Congress passed H.R 22 Surface Transportation Reauthorization and Reform Act of 2015 which allows the Government to confiscate your Passport if you owe back income tax. Many feel the Government is overstepping its collection powers in restricting international travel as if you had been indicted in a criminal investigation and being ordered by a Federal Judge to surrender your passport so you don’t flee the country before trial.  So stay with us here in TaxView with Chris Moss CPA Tax Attorney to see where the IRS Offset Tax Audit is trending in 2015 and beyond and what you need to do now to protect yourself against an IRS Offset Tax Audit.

The Government Accountability Office (GAO) has been conducting ongoing studies called “High Risk Enforcement of the Tax Laws” for years, but the March 2011 study entitled Federal Tax Collection, “Potential for Using Passport Issuance to Increase Collection “appears to be the basis of Congressional legislation to revoke passports of folks who owe income tax.  The 21 page study claims that there were 224,000 individuals issued passports in 2008 who owed a total of $5.8 billion in unpaid Federal taxes.  The report concludes that because Federal law already allows linkage of debt collection to passport issuance in the area of Child Support Enforcement there is reason to believe the same linkage can be made to delinquent taxes.

From this GAO study a consensus in the Senate seemed to take hold that it was time to add passport confiscation for taxpayers who owe income tax to the Government. Who authored the provision in Senate Bill 1813 revoking or denying a passport to anyone who owes certain unpaid income taxes to the Federal Government?  A Forbes article claims Senator Harry Reid originally proposed the idea to Orin Hatch and links a Press Release from Senator Orin Hatch as the source.

Regardless of who inserted the provision, the bill cleared the Senate 65-34 on July 30, 2015 and passed in the House 363-64 on November 5, 2015 with the passport provision still intact. HR 22 Surface Transportation Reauthorization and Reform Act 2015 was then sent to Conference last week.  The bill left Conference and was approved by both Houses 359-65 in the House and 83-16 in the Senate on December 3 2015 and was sent to the White House for President Barack Obama’s signature.  The President signed the bill this week and HR22 FAST Act is now law. Section 32101 of the bill Subtitle A Tax Provisions requires that Section 7345 will be added to the IRS Code, requiring the Secretary of the Treasury to transmit to the State Department in accordance with the Passport Act of 1926 a request the passport of any individual who has a seriously delinquent tax debt be revoked. More specifically, HR22 Fast Act reads in part “If the Secretary receives certification by the Commissioner of the Internal Revenue Service that any individual has a seriously delinquent tax debt in tan amount in excess of $50,000, the Secretary shall transmit such certification to the Secretary of State for action with respect to denial, revocation or limitation of a passport pursuant to Section 32101 Subtitle A of FAST Act HR22.

Some scholars are questioning the Constitutionality of revoking a passport for back taxes owed. A February 2015 Penn State Law Review article by Gancarlo Seratto points out that Passport revocation is usually reserved for criminals or individuals who pose national security risks. But as the GAP study points out there are certainly similar statutes as described in 22 CFR 51.60 which requires the State Department to deny the issuance of a passport to any applicant who has been certified by the Secretary of Health and Human Services to be in arrears of child support. For example, the Passport Denial Program (PDP) established by Federal law in 1997 requires that if you are owe more than $2500 in back child support your passport will be restricted and revoked.

So assuming the law is deemed Constitutional, if your passport can be revoked for back child support or back taxes, can your passport also be revoked for other Federal infractions.  While 31 USC 3716 specifically excludes and exempts Title IV delinquent unpaid student loans all other student loans backed by the Government are subject to offset. Indeed, as far back as 1983 the Senate Finance Committee Subcommittee on Oversight of the IRS had a hearing specifically addressing Tax Refund Offset Program for Delinquents Student Loans.

One more point: What about taxpayers who have not filed tax returns? It appears that there is no provision in HR 22 for Americans who have joined the underground economy and have not filed income tax returns for many years. Perhaps an income tax nonfiler for 3 successive years should also lose his or her Passport?

In conclusion, regardless of whether you agree or disagree with expanding the Government offset program to Passports, there is no question that the ever expanding US Government offset program will keep growing its collection of enforcement tools against Americans who owe back taxes to the IRS. One may ask what could be next on the horizon of Government offset enforcement if you are a delinquent taxpayer. What about Professional licenses? Government Contracts?  Drivers Licenses?  Or simple Business Licenses?  What about denial of Federal Home Loan approved mortgages, low income housing or even Federal subsidized health care?

What can you do now?  The best advice is to hire the best tax advisors you can afford, pay your taxes in full and timely file your tax returns each year knowing with confidence that you can withstand any IRS Offset Tax Audit the Government throws your way.

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Chris Moss CPA Tax Attorney