Passport Issues for Taxpayers with More Than $50,000 in Past Due Federal Tax Debt
Section 7345 of the Internal Revenue Code and the Fixing America’s Surface Transportation (FAST) Act, generally prohibits the State Department from issuing, or renewing, a passport of a taxpayer with debt certified as seriously delinquent by the Internal Revenue Service. IRS Notice CP508c, advises taxpayers with “seriously delinquent” tax debt, that the Internal Revenue Service has certified the debt with the State Department. Although the IRS has had the power to certify these types of tax debts since December of 2015, there has been a delay in ramping up enforcement. However, enforcement is becoming more common. As a result, taxpayers should be more proactive in resolving their outstanding tax debt issues, before they become a problem with issuance of a passport. Fortunately, there are resolution options available that do not require payment of the entire debt to get it cleared for passport issuance, or renewal, purposes. Learn more in our original insight: Unlikely Content Travels in the FAST Act.
Tax Lien Reporting Changes
Since April 16, 2018, the three major credit bureaus—Experian, Equifax and TransUnion—have been excluding tax liens from credit reports due to a Consumer Financial Protection Bureau Study that reported concerns with the way information was sent to credit bureaus. Last July, all three bureaus implemented changes to how they would include items, such as civil judgments and tax liens, on consumer credit reports. These new regulations required that public records data, such as liens, had to contain a consumer’s name, address, Social Security number, and/or date of birth. The information also had to be refreshed every 90 days. If public records data did not meet these criteria, they had to be excluded from credit reports. As a result, 50 percent of tax liens have been removed from credit reports since last summer. Now, the credit reporting agencies will eliminate the remaining tax lien data from consumer credit reports. Some taxpayers may see an increase in their credit score, while some may see no change in their scores even with the liens no longer being reported.
While tax liens may not appear on credit reports, that does not mean that they no longer exist. Tax liens continue to remain public information and still encumber assets. However, the IRS Fresh Start Initiative, which began in 2011, provides a useful mechanism for taxpayers to have their tax liens released or withdrawn under certain circumstances. It is always best to try and prevent a lien from being filed, but there may be relief if a lien has already been filed.
The IRS’ Use of Private Agencies to Collect Tax Debts
The IRS, in accordance with provisions of the FAST Act, has contracted with four private debt collection agencies to pursue payment of past due taxes owed to the Department of Treasury. It is important to remain vigilant if you are contacted by a private debt collection agency related to federal taxes. You need to ensure they are who they say they are, and that they are authorized to make contact with you. Being contacted by a third party to collect past due tax debts is a common red flag for scams. Beyond that, private debt collection agencies can be very aggressive and often overlook a taxpayer’s rights when attempting to collect past due taxes. While it is the private agencies’ duty to attempt to collect the debt as quickly as possible, they are still held to the same standard the IRS uses in making tax collections. In addition, be aware that there are several resolution options available to taxpayers to provide for the orderly collection of tax debt, including installment agreements, offers-in-compromise, penalty abatement or currently non-collectable status. Learn more about items included in the FAST Act here.
If you are facing any of these issues, or others that are a concern to you, contact the Eide Bailly Tax Controversy team to discuss your options.