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US Highway Bill Passed With Contentious Tax Measures

by Mike Godfrey, Tax-News.com, Washington

07 December 2015


On December 3, the US Congress passed a USD305bn bill to fund the Highway Trust Fund (HTF) over five years, and included two contentious tax measures that involve the use of private debt collectors to recover unpaid taxes and the denial of passports individuals with tax debt.

The HTF has depended on the federal fuel tax, otherwise known as the gas tax, that has remained unchanged since 1993. As a consequence, revenues from the US gas tax and tolls have recently been covering only about a third of state and local spending on roads, despite these revenues being solely dedicated to funding transportation projects.

The Fixing America's Surface Transportation (FAST) Act, which cleared the Senate by a 83-16 vote after an earlier 359-65 vote in the House of Representatives, has had to include a USD70bn package of miscellaneous federal budgetary measures that move the funding of US transportation away from the "user pays" principle. This was necessary as a result of lawmakers ruling out the politically difficult solution of hiking gas taxes.

The requirement for the Internal Revenue Service (IRS) to use private collection agencies (PCAs) to recover unpaid taxes is expected to raise USD2.4bn over a 10-year period. It would apply to accounts that have been designated as "inactive" by the agency for lack of resources or ability to locate the taxpayer; on which more than 365 days have passed without interaction with the taxpayer; or where more than one-third of the applicable statute of limitation period has lapsed.

Some tax accounts have been excepted from private debt collection – for example, if they are being paid by installments; if they are subject to litigation; or if the taxpayer is deceased, under 18 years old, a victim of tax-related identity theft, or an innocent spouse.

In his speech in the Senate on the FAST Act, Ben Cardin (D – Maryland) pointed to the previous failures in the use of PCAs by the IRS. "Twice before, from 1996 to 1997 and from 2006 to 2009, Congress required [the IRS] to turn over some tax collection efforts to PCAs, with miserable results," he said.

"The first attempt resulted in the loss of USD17m, and contractors participating were found to have violated the Fair Debt Collections Practice Act," he added. "While the [2006-2009] program was supposed to bring in up to USD2.2bn in unpaid taxes, data from the IRS showed that the program actually resulted in a net loss of almost USD4.5m."

Cardin also commented that the policy "puts a target on the back of low-income and middle-class families," while the National Treasury Employees Union stated that "turning over tax collection work to the most complained about industry – private debt collectors – makes no sense. The Federal Trade Commission and state authorities recently launched sweeping new investigations to stop these companies from hurting vulnerable Americans."

The second tax measure in the FAST Act, to deny or revoke passports for individuals with assessed unpaid tax of more than USD50,000 (which is not being repaid in installments or appealed), is only expected to gather an additional USD395m in the next 10 years.

It has been strongly opposed by American Citizens Abroad (ACA). "This provision is way too harsh and dangerous a remedy, especially for American taxpayers residing abroad who absolutely must have their US passport at hand," commented Jonathan Lachowitz, ACA's Chairman. "In many situations, they cannot do things like open a bank account, arrange for direct debit of utility bills, travel, or do many other everyday things, without their passport."

"Enactment of this legislation would come at a time when the IRS's, including Collections', ability to render services to taxpayers overseas and, in effect, help them 'work out' their collection problems, are severely reduced," he said. "IRS offices overseas have been closed. The ability of revenue officers in Collections to meet with taxpayers outside the US, as a practical matter, is non-existent."

TAGS: individuals | expatriates | compliance | tax | tax compliance | law | Internal Revenue Service (IRS) | tax authority | legislation | United States | construction | individual income tax | services | Expats | Visas and Passports

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