Frequent overseas deployment, constant address changes, the added complexity of military tax returns, and confusion over complicated tax provisions such as the combat tax exclusion, are just a few of reasons why active duty military members may have a difficult time maintaining their tax obligations. Attesting to this fact, recent IRS data shows that approximately 60,000 active duty service members owe a collective $390 million in back taxes.
Compounding the issue, many service members do not receive the notices that the IRS sends out in order to alert them to the fact that there is an issue. The IRS is required to notify military financial service offices when a service member is found to be delinquent, who will then try to contact the troops cited and advise them on how to proceed. The military pay offices will also seek an immediate halt of enforcement actions if that service member is deployed or hospitalized due to a combat injury.
This issue could potentially mean problems not just for the individual service members, but also for the military as a whole, as a new law allowing the IRS to suspend the travel rights of Americans it claims are delinquent on their taxes is currently before Congress. Senate Bill 1813 was introduced in November 2011 and Section 40304 of the legislation states that any individual who owes more than $50,000 to the IRS may be subject to “action with respect to denial, revocation, or limitation of a passport.” The bill has passed the Senate and moved to the Republican-controlled House of Representatives, where it is expected to face stiff opposition, but may ultimately still pass as it is projected to raise an estimated $750 million in additional tax revenue. The bill does allow for exceptions in the event of emergency, humanitarian situations, limited return travel to the U.S., in cases when any tax debt is currently being repaid in a “timely manner,” or when collection efforts have been suspended. Missing from the bill, however, is any specific language requiring a taxpayer to be charged with tax evasion or any other crime in order to have their passport revoked or any exception for active duty military on deployment.
The news is not all bad. Active duty military can feel comforted in the fact that they seem to have a better track record for paying their taxes than their civilian counterparts, as the IRS delinquency rate for service members, both active and reserve, is approximately 2 percent, which is lower than the rate for federal civilian employees, which averages nearly 3 percent. The delinquency rate for military retirees is the highest, coming in at nearly 4 percent who collectively owe an estimated $1.5 billion in back taxes.
If you are active duty military and find yourself facing tax issues, you may need to speak to someone who is intimately familiar with the tax code as it relates to your circumstances. If this is the case, then it is a good idea to contact a knowledgeable tax attorney who can help you understand your obligations and assist you in navigating the complexities of the Internal Revenue Code, as these issues can often spiral out of control if left unattended.