What defines delinquent federal tax debt?
This type of serious tax debt that is certified as delinquent is any unpaid liability. However, it does not include two specific circumstances. If an individual pays their taxes as part of an installment agreement or a compromise arrangement, and/or had a suspension of their collection actions have been suspended as the result of pending due process hearings, is not deemed as delinquent status.
The details of the rule
Under the law, certification for delinquent tax debt involves any liability that the IRS deems unpaid. Its qualifications require that the federal tax debt was assessed at a value more than $50,000 - including interest and penalties - and if a lien has been filed by the IRS. For this final requirement, the lien must have been filed under section 6323 and that the taxpayer rights under section 6320 have been exhausted, or that a levy was made under section 6331.
What happens in the case of decertification?
In the event the IRS de-certifies a delinquent federal tax debt due to processing errors, the liability is satisfied, a taxpayer requests a claim for innocent spouse relief, or the debt is no long considered delinquent due to inflation adjustments, the IRS must alert the State Department. In turn, the notification needs to be made prior to the release of any debt liens issued. The IRS also needs to notify the State Department within 30 days of a taxpayer requesting or electing for innocent spouse relief, and inside 30 days of an installment or compromise agreement is reached with the IRS.
In the case of erroneous certification though, the IRS will need to alert the State department as soon as the inaccuracies are discovered. If and when a tax debt is de-certified due to error, the IRS must notify both the taxpayer and the State Department. In that notice, the taxpayer must also be informed that he or she has the right to file a civil action against the IRS in district or tax court. The court can then decide whether the certification was approved because of the error, and if so, order the Treasury Department to alert the Secretary of State.
The law represents a trend
The IRS is just the latest government agency to have the authority to take more drastic actions due to delinquent tax debt. There was a landmark legislation passed in 2013 to enable the state of New York to suspend drivers licenses for delinquent taxes of more than $10,000. The way this law works is that individuals have within 60 days to respond to a notice of tax delinquency, and 15 more days after receiving a second notification. At which point, if the individual fails to respond, the state can suspend the taxpayer's license until the full back tax amount if paid.
That is just one recent law similar to IRC section 7345, but it remains to be seen how far the IRS will lobby to take special measures to collect taxes.