States are getting serious about collecting taxes by withholding or taking away from delinquent taxpayers certain privileges controlled by the state in the form of licenses. The idea of withholding or revoking licenses has been around for some time but not with the scope of the current law. Will the federal government follow this trend?
Recently, New York Governor Cuomo announced that his state would begin revoking driver’s licenses of individuals owing more than $10,000. See here. New York expects this to result in over16,000 driver’s license revocations within the next year. New York expects to collect an increase in state collections of $26 million in the coming fiscal year and as much as $6 million annually after that through this program.
read more...States control most licenses. The Service cannot, without the cooperation of states, revoke drivers’ licenses, law licenses, CPA licenses, etc. The recent attempt by the IRS to regulate return preparers has not yet succeeded. See our blog post on this issue here. Over the past decade the Service has picked up its enforcement of tax compliance among attorneys, CPAs and enrolled agents whose practice before the IRS is controlled by Circular 230. Very little communication has come from the IRS on the issue of using licenses to promote compliance among the general population although it is hard to imagine that it would watch the states succeed, if they do, in using licenses to collect taxes without reacting in some fashion.
The federal government issues pilot’s licenses, certain fishing licenses, FCC licenses, passports and some other licenses or similar privileges but does not, with the possible exception of passports, have a broad licensing authority like the states.
If states use the withdrawal or withholding of licenses to successfully collect back taxes, when will the Service follow suit. With appropriate authority, it could extend its cooperation agreements with the states that currently allows for mutual offset of federal and state refunds to use state licenses as a basis for enhancing collection. If states succeed in substantially increasing collection through the use of licenses, look for the Service to join in this program at some point.
If the Service decides to use licenses as a basis for revoking licenses, it must do so with care. It might want to consider targeting business licenses or professional licenses before tackling a program as large and with as many collateral issues as driver’s licenses.
A 2013 ABI Journal article discusses the success of Massachusetts in implementing this type of law. The suspension of a driver’s license seems to have been a good incentive for delinquent tax payers to pay what they owe. The article also discusses the situations in which reinstating the license is appropriate, such as when the delinquent taxpayer’s debts are dischargeable in bankruptcy. See Steven G. Murray and Allen Rosenberg, Driver’s License Suspensions for Delinquent Taxes and Bankruptcy, 32-JUL Am. Bankr. Inst. J. 18 (2013)
All tax preparers are still required to have a PTIN (which I think stands for Preparer Tax Identification Number, although you can spend a lot of time searching the IRS website and not find out for sure). That requirement was not changed by the Loving decision. And, one of the requirements for obtaining or renewing a PTIN is:
All PTIN applicants must attest they are compliant with their personal and business tax obligations, or provide an explanation if they are not. For purposes of obtaining a PTIN, an individual is in tax compliance if 1) all individual and business returns that are due have been filed (or an extension requested) and 2) all taxes that are due have been paid (or acceptable payment arrangements have been established).
I agree with Bob’s comments. The PTIN process works very much like the license process as a means of promoting tax compliance. Tax professionals subject to Circular 230 also have similar compliance requirements. Section 1203 of the Revenue Reform Act of 1998 imposes on IRS employees certain tax compliance requirements. I intend to write about those in the near future. Some federal agencies also place tax compliance requirements on their employees. All of these processes offer relatively cheap compliance mechanisms because of the choke point of the granting of some sort of privilege. Look for more use of these in the future as they prove cheap and effective.
Les pointed out to me a recent law review article on this subject by Josh Blank at NYU. His article can be reached through this link. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2032788