IRS Begins Implementing the FAST Act: What Will Your Client’s Transcript Show?

by Patti Logan, EA (Speaker at the Tax Alliance Conference)

IRS has begun identifying individuals with seriously delinquent debts so that their passports may be revoked.  What will your client’s tax  transcript show? 

“Intial levy imposed.” Have you seen it on any of your clients’ IRS account transcripts? I have. It suddenly appeared on 1040 transcripts for clients where we are working out a currently uncollectible (CNC) hardship closure or where they have already been reported CNC. I’ve spoken to an assistor who didn’t know what it was. I’ve spoken to Stakeholder Liaison but they didn’t know. A friend called the Practitioner Priority Service who said it was a “glitch.”  I was concerned about this annotation on the transcript because IRS is not allowed to levy if it would cause a hardship so they should not levy if they have already determined that it would be a hardship for the taxpayer to pay.   Since I had tried every other place I knew, I submitted the issue to Systemic Advocacy and guess what?  I got an answer within just a few days.

In 2015, Congress passed the Fixing America’s Surface Transportation Act (FAST).  Section 32101 of the FAST Act added IRC 7345 which charged IRS with the requirement to report individuals owing a “serious delinquent tax debt” to the State Department so that passports may be rejected or applications denied.  A “seriously delinquent tax debt” is one which is assessed, greater than $50,000 and sometime in the past either a levy has been served or a lien filed.  There are three exceptions: 1) Those individual taxpayers who owe more than $50,000 but have worked out a payment arrangement either through an installment agreement or an accepted offer in compromise; 2) When the collection of the debt is suspended because the individual has claimed innocent spouse  relief;  3) When collection is suspended because the individual has requested a Collection Due Process hearing due to a proposed levy or while the request is pending. The State Department will then revoke a passport or may deny a new application.

So what is this “Initial levy imposed” that we are finding on some of our clients’ account transcripts?   It is a first step in identifying which accounts meet the criteria of IRC 7345 for passport revocation, denial or limitation. As mentioned above, there are four criteria for individuals to be reported to the Secretary of State: 1) Tax must be assessed 2) taxpayer must owe over $50,000 3) a levy has been served in the past or 4) a lien was filed on the account. So, IRS came up with a new code transaction code 971 with action code 640 which shows up on the transcript with “initial levy imposed”. This just indicates an account that has had a levy served in the past. It is being put on all individual accounts where a levy has been served no matter if the taxpayer owes $50,000 or not. The other criteria must still be met. It is not telling the taxpayer that they have been reported to the Secretary of State but it is a first step. IRS should notify the taxpayer when their account is sent to the State Department. The only action available to fight this is to take it to court.

If you want to hear more about reading the codes on the IRS transcripts, join me at The Tax Alliance Conference June 6, 7 and 8, 2017.  For more information go to www.taxalliance.org.

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