Tax News

CCH (cch.taxgroup.com) reports:

The future of the IRS's controversial private tax collection initiative is in jeopardy after the House Ways and Means Committee approved a bill on July 18 to prohibit the Service from entering into any more contracts with private debt collectors. The IRS had planned to expand the initiative in 2008.
The committee also voted to impose an immediate tax on expatriates, delay, but not stop, implementation of three-percent government withholding and repeal the suspension of interest and penalties on certain deficiencies. These and other measures are part of the Chairman's Amendment in the Nature of a Substitute to the Tax Collection Responsibility Bill of 2007 (HR 3056), which was approved by the committee 23 to 18, along party lines.
All of the amendments to HR 3056 that Republicans offered were either defeated or withdrawn. They included amendments to permanently repeal the federal estate tax and make marriage penalty relief permanent. An amendment related to the alternative minimum tax (AMT) was defeated, but House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., said the committee will address AMT reform. An amendment to preserve and extend the Code Sec. 199 manufacturing deduction to Puerto Rico was withdrawn after Rangel indicated his support for adding it to future extenders' legislation.
CCH Comment. The Senate Appropriations Committee has already approved legislation that would limit funding for the privatization initiative to $1 million, which would effectively end it (TAXDAY, 2007/07/13, C.3).
Harassment Claims
Private collection agencies have made "endless calls" to individuals, Rep. John Lewis, D-Ga., said. "One elderly couple was called 150 times in 30 days." Lewis asked Michael Desmond, Tax Legislative Counsel in the Treasury Department's Office of Tax Policy, if he would prefer to have a private collection agency or an IRS representative call him if he owed taxes. "I'm not sure how to respond," Desmond told Lewis. "At the end of the day, it's not much of a difference."
Lewis' criticism was echoed by Rangel. "No one has contradicted (the claim by IRS officials) that given the resources, the IRS can do a better job," he said.
Billions in Potential Revenue
"Ending the privatization program would forego $1.1 billion in revenue," Rep. Jim Ramstad, R-N.M., predicted. Desmond said that the IRS has estimated the initiative could recover as much as $2.2 billion by 2017.
Desmond also reported that 77,000 cases had been placed with private collection agencies as of June 30, 2007. Two private collection agencies, the CBE Group, Inc., Waterloo, Iowa, and Pioneer Credit Recovery, Inc., Arcade, N.Y., are currently working taxpayer accounts. HR 3056 would not terminate the existing IRS contracts with these two firms.
"All funds collected by private collection agencies through the private debt collection initiative are sent directly to the U.S. Treasury. The IRS then pays the private collection agencies based on the amount they've collected," a spokesperson for the Tax Fairness Coalition told CCH. The two of the private collection agencies under contract with the IRS are members of the coalition. "Private collection agencies do not earn anything on those accounts that make payments to the IRS within 10 days of being contacted by the private collection agency. This results in an effective rate to private collection agencies of only about 17.3 cents on the dollar," the spokesperson explained.
Expatriation
HR 3056 would also crack down on individuals who expatriate for tax reasons. The bill would impose mark-to market tax treatment on any individual who relinquishes U.S. citizenship for tax reasons. Individuals would be able to elect to defer payment of the mark-to market tax imposed on the deemed sale of property. Election would be irrevocable and would be made on a property-by-property basis. Individuals making the election would be required to provide a bond.
Government Withholding
Besides terminating the private collection initiative, HR 3056
also would delay the effective date of the three-percent government withholding requirement in the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) (P.L. 109-222). Beginning in 2011, the federal government and state and local governments must withhold tax at the rate of three percent for persons providing any property or service. HR 3056
would delay the start of government withholding until 2012.
Rep. Wally Herger, R-Calif., urged the committee to repeal government withholding altogether. "Three-percent withholding should be considered on its own merits and not combined with debt collectors' legislation."
The committee rejected two amendments proposed by Herger. The first would have fully repealed government withholding. The second would have delayed its start date until 2016.
Suspension of Interest
If an individual timely files a federal income tax return and if the IRS does not timely provide a notice to him or her specifically stating his or her liability and the basis for that liability, the IRS generally must suspend any interest, penalty, addition to tax, or additional amount. Interest is suspended starting 18 months after the filing of the return. The period doubles to 36 months in the case of notices provided after November 25, 2007. HR 3056
would eliminate interest suspension in cases where the IRS has notified a taxpayer after 36 months.
AMT Reform
Rep. Phil English, R-Pa., proposed exempting individuals subject to AMT in 2007, but not in 2006 because of the so-called AMT patch, from penalties for failing to make estimated tax payments to satisfy AMT liability. Although English's amendment was defeated along party lines, Rangel affirmed that the Ways and Means Committee will address AMT reform. "Removing this unfair tax system is the highest priority," Rangel said.
By George L. Yaksick, Jr., CCH News Staff
Amendment in the Nature of a Substitute to Tax Collection Responsibility Act of 2007, as Approved by the House Ways and Means Committee, HR 3056
Tax Collection Responsibility Act of 2007, HR 3056
JCT Description of the Chairman's Amendment in the Nature of a Substitute to HR 3056, the Tax Collection Responsibility Act of 2007, JCX-52-07
House Ways and Means Committee Release: Democrats Vote to End Program that Helps Close "Tax Gap"
NTEU News Release: Ways and Means Committee Markup Includes "Concrete Step" Against IRS Tax Debt Program