FAST Act Contains Tax Collection Provisions, Including Potential Loss of Passport for Those With Large Tax Unpaid Tax Receivables

On December 4, 2015 the President signed the Fixing America’s Surface Transportation Act (FAST Act) which contained a few tax provisions, including one reversing a change made in the original temporary transportation bill passed by Congress.

Loss of Passport in the Case of Certain Past Due Taxes

The bill adds new IRC §7345 that provides for a new collection technique—the revocation or denial of a passport to individuals who have past due taxes under certain conditions.

The denial or revocation take place if the IRS sends certification to the State Department that an individual has a “seriously delinquent tax debt.”  A “seriously delinquent tax debt” exists when there is an unpaid, legally enforceable Federal tax liability of an individual:

  • Which has been assessed;
  • Which is greater than $50,000 (which will be adjusted for inflation in future years); an
  • Either:
  • A notice of lien has been issued and the administrative rights under IRC §6320 have lapsed or
  • A levy has been made [IRC §7345(b)(1)]

However it does not include:

  • A debt being paid in a timely manner under an installment agreement or offer in compromise;
  • A debt for which collection has been suspended
  • Because a due process hearing under IRC §6330 is requested or pending or
  • Innocent spouse relief has been requested under IRC §6015(b), (c), or (f) [IRC §7345(b)(2)]

An affected individual will have a right to challenge either an IRS certification or failure to reverse a certification in either U.S. District Court or the United States Tax Court.  [IRC §7345(e)]

This provision is effective as of December 4, 2015. [Act Section 32101]

Private Collection Agencies to Be Used by the IRS

Congress has reversed course on the use of private collection agencies to collect past due taxes.

IRC §6306 is amended to require the IRS to enter into tax collection contracts for all inactive tax receivables. [IRC §6306(c)(1)]  To be a “tax receivable” it must be included in potentially collectible inventory. [IRC §6306(c)(3)]

An inactive tax receivable is any tax receivable where:

  • The IRS has removed the account, at any time after assessment, from active inventory due to lack of resources or inability to locate the taxpayer;
  • More than ½ of the applicable statute of limitation has passed and the IRS has not assigned the receivable to an IRS employee; or
  • In the case of a receivable assigned for collection, more than 365 days have passed without interaction with the taxpayer or a third party for purposes of furthering collection.  [IRC §6306(c)(2)]

Some debts are exempted from being referred to private collection:

  • A debt subject to a current or pending offer-in-compromise;
  • A debt that is classified as a innocent spouse case;
  • A case involving a taxpayer that is either
  • Deceased
  • Under age 18;
  • Is in a designated combat zone; or
  • Is a victim of tax related identity theft
  • A taxpayer currently under exam, litigation, criminal investigation or levy; or
  • A taxpayer who is exercising a right of appeal.  [IRC §6306(d)]

The IRS is ordered to begin contracting within 3 months from the date of enactment of this provision.  That means action must commence under this provision by the IRS by March 4, 2016.  The IRS is also to report to Congress annually information on this program. [Act Section 32102]

The bill also requires the IRS to fund, from its collection budget, a “special compliance personnel program” and to establish an account strictly limited to the hiring, training and employment of such personnel.  The law defines such personnel as “field function collection officers or a similar position, or employed to collect taxes using the automated collection system or an equivalent replacement system.” [Act Sections 32103-32104]

Repeal of Automatic Extension Provision Added for Forms 5500

Congress had another change of mind, repealing the provisions changing the rules with regard to automatic extensions of time to file Forms 5500 included in the Surface Transportation and Veterans Health Care Act of 2015 passed in the summer of 2015.  Extensions for Forms 5500 will continue to be governed by the rules in place prior to the revisions made in the summer.  [Act Section 32104]