IRS gains power to revoke passports for failure to pay taxes
By Terri Hall
Selous Foundation for Public Policy Research
January 4, 2016
Many Americans are shocked to find out that the recently passed federal highway bill, Fixing America’s Surface Transportation Act, or the FAST Act, includes a provision that can take away or block them from having a U.S. passport. At a time when political scandals plague the IRS, which has been used to target conservatives, tea party and pro-Israel-affiliated groups, this is an especially shameful revelation brought to you by the House and Senate Republicans.
The GOP has put itself in a box. The Federal Highway Trust Fund has not been collecting enough revenue through the federal gasoline tax to pay for the level of spending thought necessary by the special interests. The GOP has also failed to fight to ensure every penny of the gas tax is, in fact, going to highways, not transit, rail, and bike lanes that automobile users do not use.
The federal gasoline tax, currently at 18.4 cents a gallon, has not been raised since 1993. Republicans do not want to raise taxes, including the gas tax. So, by taking a gas tax increase off the table and lacking the will to cut spending to offset the shortfall, Republicans have locked themselves into other schemes to raise the revenue needed to fund the federal highway program - schemes they’ve deemed more politically acceptable.
So, the GOP turned to tax compliance as their ‘solution.’ By giving the IRS the power to block and even revoke U.S. passports, hence one’s ability to travel internationally, for failure to allegedly pay federal taxes, Congress believes it can make up the difference by collecting more in taxes to help pay for the highway trust fund.
Is it any wonder voters don’t trust the Republican leadership in both the House and Senate?
The FAST Act actually creates a new section of the U.S. tax code, 7345, entitled, “Revocation or Denial of Passport in Case of Certain Tax Delinquencies.” While the focus is on those who owe $50,000 or more, because it includes interest and fees, many will fall into the category as fines and interest add up quickly. Indeed, the harsh new rules aren’t even designed to catch those who the government believes are fleeing the country to avoid paying taxes. It applies universally to those behind on paying their federal taxes, regardless of whether its criminal or civil in nature. The language is also very vague and much of the enforcement and application of this new law will be left up to the IRS to implement through the adoption of administrative rules. So, it’s ultimate reach is truly unknown.
Many view criminalization for failure to pay a debt as an illegal and unconstitutional revival of debtors’ prisons. Congress outlawed debtors’ prisons in 1833 and the U.S. Supreme Court has ruled them unconstitutional multiple times, most notably it ruled in its 1983 case Bearden v. Georgia that it’s a violation of the 14th Amendment’s Equal Protection Clause.
Robert Woods, in his Forbes Magazine article on November 25, questions whether or not this new law will pass constitutional muster, “The right to travel is established, both between states and internationally. And although some restrictions have been upheld, it is not clear that this measure would pass the constitutional test.”
The passport provisions also represent a risk even for domestic travelers from four states. Louisiana, Minnesota, New Hampshire, and New York refused to comply with the REAL ID Act that forced states to issue drivers licenses according to new federal standards. Taking effect in 2016, residents of those states may now be required by the TSA to show a passport instead of a driver’s license in order to board a plane for domestic travel.
None of this tax policy would have made it into this totally unrelated, bloated, 1,300-page transportation bill without the blessing of the tax writing committees and GOP leadership, Senator Orrin Hatch (R-UT) and Rep. Paul Ryan (R-WI-01) prior to becoming Speaker. While the language likely originated in the Senate, the House, which preferred to pay for the bill through tax reform, eventually conceded to include the IRS provisions into its bill, arguing tax reform won’t happen with Obama in the White House.
As part of this tax compliance scheme, the IRS has also gained the ability to utilize private debt collectors to accomplish this goal in Section 32102 of the tax code titled, “Reform of rules relating to qualified tax collection contracts.” You may be thinking, why is that a bad thing? Because private debt collectors use brutal tactics to collect money, and they can even charge the delinquent taxpayer for any costs related to the private company’s debt collection services, piling onto the tab owed .
The IRS already had the ability to use private debt collectors, but now it’s mandated for inactive tax receivables for any tax debt that has been:
- removed from the active inventory for lack of resources or inability to locate the the taxpayer;
- more than 1/3 of the applicable limitations period that has lapsed and no IRS employee has been assigned to collect the receivable; or
- a receivable assigned to collections, but more than 365 days have passed without interaction with the taxpayer or a third party for purposes of furthering the collection.
The private debt collectors do not have to disclose that they’re a private contractor either. Only the Secretary of Treasury decides when companies can disclose the truth to taxpayers.
History has already shown that using private debt collectors hasn’t worked. It was first tried in 1996 and only lasted a year due to complaints of harassment and unfair tactics. Under George W. Bush, they tried it again with the same result - unfair tactics, even harassing the elderly parents of a taxpayer with 150 phone calls after the collections firm knew the taxpayer was no longer at that address. It also resulted in taxpayers paying out penalties to those whose rights the private debt collectors violated.
Both attempts resulted in a net loss to the government, meaning you and I the taxpayer. The first, a net loss of $17 million, and the second a net loss of $4.5 million, this after Congress was told it would reap a net gain of $1 billion. The actual cost to administer the program in the 2000s was $86 million. When you factor in the commissions paid out, add another $16 million cost to the total tab. A 2013 study by the National Taxpayer Advocate (NTA) showed that IRS agents were more effective in collecting debt than private contractors, yet here we are.
Private debt collectors are notorious for not giving accurate information about taxpayers’ rights and options. They have no incentive to help you resolve your claim, only to collect what’s owed. If the taxpayer believes there are inaccurate claims to the amount owed, the debt collector won’t look into it as an IRS agent would. There are also concerns about fraud and protecting the data privacy like your address, bank accounts, social security number, employer, medical bills, etc.
As we all know, there are plenty of scammers out there waiting to pounce on such an opportunity to pose as the IRS (or its contractors). At least 736,000 contacts have been made by scammers over the phone in the past two years alone demanding pre-paid debit cards be sent to them to resolve one’s tax debt, costing 4,550 innocent taxpayers over $23 million in fraudulent tax settlements. The government then issued warnings about such scammers informing taxpayers the IRS doesn’t usually make the initial contact by phone, but private debt collectors routinely initiate contact through phone calls. How’s someone supposed to know the difference?
No matter how you look at these two IRS power grabs, it spells trouble for the taxpayer. Whether you’ll become a prisoner in your own country by being denied a passport, or harassed by unethical and ruthless private debt collectors to settle an alleged IRS tax debt, the Republican leadership in Congress delivered this anti-liberty, big government reality to your doorstep after voters gave them the keys to the Capitol to do the opposite.
Terri Hall is the founder of Texans Uniting for Reform and Freedom (TURF), which defends against eminent domain abuse and promotes non-toll transportation solutions. She’s a home school mother of ten turned citizen activist. Ms. Hall is also a contributor to SFPPR News & Analysis.