Joint Committee Report JCS-1-16: General Explanation of Tax Legislation Enacted in the 114th Congress

Under present law, revenues from the highway excise taxes, as imposed through October 1, 2016, generally are dedicated to the Highway Trust Fund. Dedication of excise tax revenues to the Highway Trust Fund and expenditures from the Highway Trust Fund are governed by the Code.²⁷¹ The Code authorizes expenditures (subject to appropriations) from the Highway Trust Fund through December 4, 2015, for the purposes provided in authorizing legislation, as such legislation was in effect on the date of enactment of the Surface Transportation Extension Act of 2015, Part II.

Highway Trust Fund expenditure purposes

The Highway Trust Fund has a separate account for mass transit, the Mass Transit Account.²⁷² The Highway Trust Fund and the Mass Transit Account are funding sources for specific programs.

Highway Trust Fund expenditure purposes have been revised with each authorization Act enacted since establishment of the Highway Trust Fund in 1956. In general, expenditures authorized under those Acts (as the Acts were in effect on the date of enactment of the most recent such authorizing Act) are specified by the Code as Highway Trust Fund expenditure purposes. The Code provides that the authority to make expenditures from the Highway Trust Fund expires after December 4, 2015. Thus, no Highway Trust Fund expenditures may occur after December 4, 2015, without an amendment to the Code.

Section 9503 of the Code appropriates to the Highway Trust Fund amounts equivalent to the taxes received from the following: the taxes on diesel, gasoline, kerosene and special motor fuel, the tax on tires, the annual heavy vehicle use tax, and the tax on the retail sale of heavy trucks and trailers.²⁷³ Section 9601 provides that amounts appropriated to a trust fund pursuant to sections 9501 through 9511, are to be transferred at least monthly from the General Fund of the Treasury to such trust fund on the basis of estimates made by the Secretary of the Treasury of the amounts referred to in the Code section appropriating the amounts to such trust fund. The Code requires that proper adjustments be made in amounts subsequently transferred to the extent prior estimates were in excess of, or less than, the amounts required to be transferred.

Six separate excise taxes are imposed to finance the Federal Highway Trust Fund program. Three of these taxes are imposed on highway motor fuels. The remaining three are a retail sales tax on heavy highway vehicles, a manufacturers' excise tax on heavy vehicle tires, and an annual use tax on heavy vehicles. A substantial majority of the revenues produced by the Highway Trust Fund excise taxes are derived from the taxes on motor fuels. The annual use tax on heavy vehicles expires October 1, 2017. Except for 4.3 cents per gallon of the Highway Trust Fund fuels tax rates, the remaining taxes are scheduled to expire after October 1, 2016. The 4.3-cents-per-gallon portion of the fuels tax rates is permanent.²⁷⁵ The six taxes are summarized below.

Highway motor fuels taxes

The Highway Trust Fund motor fuels tax rates are as follows:²⁷⁶

 Gasoline                           18.3 cents per gallon

In addition to the highway motor fuels excise tax revenues, the Highway Trust Fund receives revenues produced by three excise taxes imposed exclusively on heavy highway vehicles or tires. These taxes are:

1. A 12-percent excise tax imposed on the first retail sale of the following articles: truck chassis and bodies, truck trailer and semitrailer chassis and bodies, and tractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer (generally, the taxes apply to trucks having a gross vehicle weight in excess of 33,000 pounds and trailers having such a weight in excess of 26,000 pounds);²⁷⁸

2. An excise tax imposed on highway tires with a rated load capacity exceeding 3,500 pounds, generally at a rate of 0.945 cents per 10 pounds of excess;²⁷⁹ and

3. An annual use tax imposed on highway vehicles having a taxable gross weight of 55,000 pounds or more.²⁸⁰ (The maximum rate for this tax is $550 per year, imposed on vehicles having a taxable gross weight over 75,000 pounds.)

The taxable year for the annual use tax is from July 1^st through June 30^th of the following year. For the period July 1, 2016, through September 30, 2016, the amount of the annual use tax is reduced by 75 percent.²⁸¹

Moving Ahead for Progress in the 21^st Century ("MAP-21")²⁸³ provided that, out of money in the Treasury not otherwise appropriated, the following transfers were to be made from the General Fund to the Highway Trust Fund:

                                              FY 2013          FY 2014

The Highway and Transportation Funding Act of 2014 transferred $7.765 billion from the General Fund to the Highway Account of the Highway Trust Fund, $2 billion from the General Fund to the Mass Transit Account of the Highway Trust Fund, and $1 billion from the Leaking Underground Storage Tank Trust Fund to the Highway Account of the Highway Trust Fund.²⁸⁴ The provisions were effective on August 8, 2014.

The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, provided, out of money not otherwise appropriated, the following transfers from the General Fund to the Highway Trust Fund: $6.068 billion to the Highway Account, and $2 billion to the Mass Transit Account. The provision was effective July 31, 2015.

Liquefied natural gas, compressed natural gas, and liquefied petroleum gas are exempt from the LUST tax. Additionally, methanol and ethanol fuels produced from coal (including peat) are taxed at a reduced rate of 0.05 cents per gallon.

Returns and return information are confidential and may not be disclosed by the IRS, other Federal employees, State employees, and certain others having access to such information except as provided in the Internal Revenue Code.²⁸⁸ There are a number of exceptions to the general rule of nondisclosure that authorize disclosure in specifically identified circumstances, including disclosure of information about federal tax debts for purposes of reviewing an application for a Federal loan²⁸⁹ and for purposes of enhancing the integrity of the Medicare program.²⁹⁰

Under the provision, the Secretary of State is required to deny a passport (or renewal of a passport) to a seriously delinquent taxpayer and is permitted to revoke any passport previously issued to such person. In addition to the revocation or denial of passports to delinquent taxpayers, the Secretary of State is authorized to deny an application for a passport if the applicant fails to provide a social security number or provides an incorrect or invalid social security number. With respect to an incorrect or invalid number, the inclusion of an erroneous number is a basis for rejection of the application only if the erroneous number was provided willfully, intentionally, recklessly or negligently. Exceptions to these rules are permitted for emergency or humanitarian circumstances, including the issuance of a passport for short-term use to return to the United States by the delinquent taxpayer.

The provision authorizes limited sharing of information between the Secretary of State and Secretary of the Treasury. If the Commissioner of Internal Revenue certifies to the Secretary of the Treasury the identity of persons who have seriously delinquent Federal taxes as defined in this provision, the Secretary of the Treasury or his delegate is authorized to transmit such certification to the Secretary of State for use in determining whether to issue, renew, or revoke a passport. Certification of a seriously delinquent tax debt under this provision is added to the list of actions for which the time in which the action must be performed may be postponed due to the taxpayer's service in a combat zone.²⁹¹ Applicants whose names are included on the certifications provided to the Secretary of State are ineligible for a passport. The Secretary of State and Secretary of the Treasury are held harmless with respect to any certification issued pursuant to this provision.

Applicable only to "seriously delinquent tax debt"

The provision applies only to "seriously delinquent tax debt," which includes any outstanding Federal tax liability (including interest and any penalties) in excess of $50,000²⁹² for which a notice of lien or a notice of levy has been filed. With respect to debts for which a notice of lien has been filed, the debt is considered seriously delinquent only if the taxpayer's administrative review rights have been exhausted or lapsed. The amount is to be adjusted for inflation annually, using calendar year 2014, and a cost-of-living adjustment. Even if a tax debt otherwise meets the statutory threshold, it may not be considered seriously delinquent if (1) the debt is being paid in a timely manner pursuant to an installment agreement or offer-in-compromise, or (2) collection action with respect to the debt is suspended because a collection due process hearing or innocent spouse relief has been requested or is pending.

Taxpayer safeguards

Several measures ensure that the IRS corrects erroneous certifications and considers actions taken by a taxpayer after action has been initiated under this provision if such actions would have the effect of removing the debt from the category of seriously delinquent debt. These measures include limits on the authority of the Commissioner, notification requirements, standards under which the Commissioner may reverse the certification of serious delinquency, and limits on authority to delegate the certification process.

The Commissioner may not delegate the authority to provide certification of a seriously delinquent tax debt except to a Deputy Commissioner for Services and Enforcement, or to a Division Commissioner (the head of an IRS operating division). Neither official may redelegate such authority.

The Commissioner must inform taxpayers regarding the procedures in three ways. First, the possible loss of a passport is added to the list of matters required to be included in notices to taxpayer of potential collection activity under sections 6320 or 6331. Second, the Commissioner must provide contemporaneous notice to a taxpayer when the Commissioner sends a certification of serious delinquency to the Secretary. Finally, in instances in which the Commissioner decertifies the taxpayer's status as a delinquent taxpayer, he is required to provide notice to the taxpayer at the same time as the notice to the Secretary of the Treasury.

The decertification process provides a mechanism under which the Commissioner can correct an erroneous certification or end the certification because the debt is no longer seriously delinquent, due to certain events subsequent to the certification. If after certifying the delinquency to the Secretary, the IRS receives full payment of the seriously delinquent tax debt; the taxpayer enters into an installment agreement under section 6159; the IRS accepts an offer in compromise under section 7122; or a spouse files for relief from joint liability, the Commissioner must notify the Secretary that the taxpayer is not seriously delinquent. In each instance, the "decertification" is limited to the taxpayer who is the subject of one of the above actions. In the case of a claim for innocent spouse relief, the decertification is only with respect to the spouse claiming relief, not both spouses. The Commissioner must generally decertify within 30 days of the event that requires decertification.

The Commissioner must provide the notice of decertification to the Secretary of the Treasury, who must in turn promptly notify the Secretary of State of the decertification. The Secretary of State must delete the certification from the records regarding that taxpayer.

In addition, the provision allows limited judicial review of a wrongful certification (or failure to decertify) in a Federal district court or the U.S. Tax Court. If the court determines that the certification is erroneous, the court may order the Secretary of the Treasury to notify the Secretary of State of the error. No other relief is authorized.

Several steps are involved in the deployment of private debt collection companies. First, the private debt collection company contacts the taxpayer by letter.²⁹⁵ If the taxpayer's last known address is incorrect, the private debt collection company searches for the correct address. Second, the private debt collection company telephones the taxpayer to request full payment.²⁹⁶ If the taxpayer cannot pay in full immediately, the private debt collection company offers the taxpayer an installment agreement providing for full payment of the taxes over a period of as long as five years. If the taxpayer is unable to pay the outstanding tax liability in full over a five-year period, the private debt collection company obtains financial information from the taxpayer and will provide this information to the IRS for further processing and action by the IRS.

The Code specifies several procedural conditions under which the provision would operate. First, provisions of the Fair Debt Collection Practices Act apply to the private debt collection company. Second, the employees of private sector debt collection companies are prohibited from committing any act or omission which employees of the IRS are prohibited from committing in the performance of similar services. Third, subcontractors are prohibited from having contact with taxpayers, providing quality assurance services, and composing debt collection notices; any other service provided by a subcontractor must receive prior approval from the IRS.

The Code creates a revolving fund from the amounts collected by the private debt collection companies. The private debt collection companies are paid out of this fund. The Code prohibits the payment of fees for all services in excess of 25 percent of the amount collected under a tax collection contract.

The Code provides that up to 25 percent of the amount collected may be used for IRS collection enforcement activities. The law also requires Treasury to provide a biennial report to the Committee on Finance and the Committee on Ways and Means. The report is to include, among other items, a cost benefit analysis, the impact of the debt collection contracts on collection enforcement staff levels in the IRS, and an evaluation of contractor performance.

The Omnibus Appropriations Act of 2009 (the "Act"), which made appropriations for the fiscal year ending September 30, 2009, included a provision stating that none of the funds made available in the Act could be used to fund or administer section 6306.²⁹⁷ Around the same time, the IRS announced that the IRS would not renew its contracts with private debt collection agencies.²⁹⁸

The provision requires the Secretary to enter into qualified tax collection contracts for the collection of inactive tax receivables. Inactive tax receivables are defined as any tax receivable (i) removed from the active inventory for lack of resources or inability to locate the taxpayer, (ii) for which more than 1/3 of the applicable limitations period has lapsed and no IRS employee has been assigned to collect the receivable; and (iii) for which, a receivable has been assigned for collection but more than 365 days have passed without interaction with the taxpayer or a third party for purposes of furthering the collection. Tax receivables are defined as any outstanding assessment which the IRS includes in potentially collectible inventory.

The provision designates certain tax receivables as not eligible for collection under qualified tax collection contracts, specifically a contract that: (i) is subject to a pending or active offer-in-compromise or installment agreement; (ii) is classified as an innocent spouse case; (iii) involves a taxpayer identified by the Secretary as being (a) deceased, (b) under the age of 18, (c) in a designated combat zone, or (d) a victim of identity theft; (iv) is currently under examination, litigation, criminal investigation, or levy; or (v) is currently subject to a proper exercise of a right of appeal. The provision grants authority to the Secretary to prescribe procedures for taxpayers in Presidentially declared disaster areas to request relief from immediate collection measures under the provision.

The provision requires the Secretary to give priority to private collection contractors and debt collection centers currently approved by the Treasury Department's Financial Management Service on the schedule required under section 3711(g) of title 31 of the United States Code, to the extent appropriate to carry out the purposes of the provision.

The provision adds an additional exception to section 6103 to allow contractors to identify themselves as such and disclose the nature, subject, and reason for the contact. Disclosures are permitted only in situations and under conditions approved by the Secretary.

The provision requires the Secretary to prepare two reports for the House Committee on Ways and Means and the Senate Committee on Finance. The first report is required annually and due not later than 90 days after each fiscal year and is required to include: (i) the total number and amount of tax receivables provided to each contractor for collection under this section, (ii) the total amounts collected by and installment agreements resulting from the collection efforts of each contactor and the collection costs incurred by the IRS; (iii) the impact of such contacts on the total number and amount of unpaid assessments, and on the number and amount of assessments collected by IRS personnel after initial contact by a contractor, (iv) the amount of fees retained by the Secretary under subsection (e) and a description of the use of such funds; and (v) a disclosure safeguard report in a form similar to that required under section 6103(p)(5).

The second report is required biannually and is required to include: (i) an independent evaluation of contactor performance; and (ii) a measurement plan that includes a comparison of the best practices used by private collectors to the collection techniques used by the IRS and mechanisms to identify and capture information on successful collection techniques used by the contractors that could be adopted by the IRS.

Special compliance personnel program

The provision requires that the amount that, under current law, is to be retained and used by the IRS for collection enforcement activities under section 6306 of the Code be instead used to fund a newly created special compliance personnel program. The provision also requires the Secretary to establish an account for the hiring, training, and employment of special compliance personnel. No other source of funding for the program is permitted, and funds deposited in the special account are restricted to use for the program, including reimbursement of the IRS and other agencies for the cost of administering the qualified debt collection program and all costs associated with employment of special compliance personnel and the retraining and reassignment of other personnel as special compliance personnel. Special compliance personnel are individuals employed by the IRS to serve either as revenue officers performing field collection functions, or as persons operating the automated collection system.

The provision requires the Secretary to prepare annually a report for the House Committee on Ways and Means and the Senate Committee on Finance, to be submitted no later than March of each year. In the report, the Secretary is to describe for the preceding fiscal year accounting of all funds received in the account, administrative and program costs, number of special compliance personnel hired and employed as well as actual revenue collected by such personnel. Similar information for the current and following fiscal year, using both actual and estimated amounts, is required.

The provision relating to the special compliance personnel program applies to amounts collected and retained by the Secretary after the date of enactment.

Similarly, the Employee Retirement Income Security Act of 1974 ("ERISA") requires the administrator of certain pension and welfare benefit plans to file annual reports disclosing certain information to the Department of Labor ("DOL") and, with respect to some defined benefit plans, to the Pension Benefit Guaranty Corporation ("PBGC").³⁰³ Plan administrators also comply with these ERISA filing requirements by filing Form 5500.

Forms 5500 are filed with DOL, and information from Forms 5500 is shared with the IRS and PBGC.³⁰⁴ Form 5500 is due by the last day of the seventh month following the close of the plan year.³⁰⁵ DOL and IRS rules allow the due date to be automatically extended by 2 months if a request for extension is filed.³⁰⁶ Thus, in the case of a plan that uses the calendar year as the plan year, the extended due date for Form 5500 is October 15.

Under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, in the case of returns for taxable years beginning after December 31, 2015, the Secretary of the Treasury is directed to modify appropriate regulations to provide that the maximum extension for the returns of employee benefit plans filing Form 5500 is an automatic 3 month period ending on November 15 for calendar-year plans.³⁰⁷