Delinquent Tax Collections - PowerPoint Presentation

Slide1

Delinquent Tax Collections

OML Conference

2018

Patricia Chittock Amber Greenleaf DuberSlide2

What happens when you fail to

FILE your taxes?

When encouraging taxpayers to file, we utilize some of the following tools:

Inactive Address LetterDelinquent Filing Notice (DFN)Administrative SubpoenaFederal Taxable Income (FTI)Civil lawsuitIn Lakewood:

Failure to comply with a request to file constitutes a misdemeanor and if proved, a taxpayer may be charged and convicted for violation of law and be punished for every individual violation by a fine of up to $1,000.00 and/or six (6) months in jail. Each failure to file and each refusal to assist or respond to the tax administrator may be charged as a separate violation.Slide3

How do we find you? We use the following information resources:

State Tape (everyone should use this)Tenant Information: Building Dept. ordinance requires that landlords submit tenant occupancy lists prior to issuance of an occupancy permit

County transfer records

Ohio Lottery CommissionUS Postal ServiceOnce found, how do we keep people honest?Slide4

Lakewood’s DatabaseOur Database is the single most important tool we have!!We build and maintain the database by: Accessing the GIS program

Connecting county parcel numbers to each addressCross-referencing with the Lakewood Building Department and US Postal Service Good old fashioned canvasingSlide5

Lakewood’s Database (cont.)We categorized every address by defining them as single, double, condo, business

, church, etc. We never type in a Lakewood address, but instead pick the address from the existing database master grid Only the “database master” can add or delete an addressSlide6

Lakewood’s Inactive Address LetterWith the touch of a button, our software allows us to identify all addresses not associated with a registered, active taxpayerWe mail a letter addressed “Dear Current Resident” to all inactive

addresses in JanuaryInactive Address Letter includes a taxpayer registration form for potential new residents, so that they are registered (hopefully) before coming to the front counter to fileSlide7

Delinquency NoticesBoth RITA and Lakewood utilize delinquency letters in an attempt to get taxpayers who have one or more years of returns that have not been filed, to file the missing return(s) or provide information to otherwise resolve the account.

Delinquency letters are sent prior to any administrative subpoena. Slide8

RITA’s Delinquency NoticesRITA sends delinquency letters to taxpayers from July through December for those member-municipalities that choose to participate in the program. In 2017, RITA sent out 248,319 delinquency letters.Slide9

Lakewood’s

Delinquent LettersWe mail our standard Delinquent letter on June 1st

Why?We have to be fast…

before taxpayers move!We NEED vacations in July and August!But our first question on the DFN is……did you file a Federal Extension?Slide10

Delinquency Letters - SamplesSlide11

Administrative SubpoenasAdministrative subpoenas are generally used as a follow-up for those taxpayers who did not respond to the delinquency letter.

The subpoena requires the taxpayer to appear with their tax records on a specific date and time. Slide12

Administrative Subpoenas (cont.)Lakewood: About 5,000 yearlySent over the course of five months:

Sept, Oct, Nov, Jan & FebRITA

: Similar to the delinquency letters, RITA sends their subpoenas to taxpayers from July through December.In 2017, RITA sent out 110,239 subpoenas and established $33,468,514 in liabilities from the delinquency letters and subpoenas sent.Slide13

Administrative Subpoenas - SamplesSlide14

Is an administrative subpoena considered an audit under Chapter 718 after

H.B

. 5?

718.01(

UU

) -- “Audit” defined:

The examination of a person or the inspection of the books, records, memoranda or accounts of a person for the purpose of determining municipal income tax liability.

Subpoena vs. AuditSlide15

Revised code language implies an audit is where the taxpayer sits across the desk from the auditor and answers questions and shows documentation – face-to-face.

Similar to taxpayers at a subpoena program.

So,

what

IS

an audit?Slide16

R.C

. 718.36 -- Sets forth procedure for

c

onducting an audit:

Reasonable notice of date/time of audit;

Conducted during regular business hours;

Notice when audit has commenced;

Written description of roles of TA and

TP

; and

Written statement of

TP

rights during audit.

What is an audit? (cont.)Slide17

718.36 also provides taxpayer rights during audit:

Represented by attorney, accountant, bookkeeper, etc.;

Right to refuse to answer questions until taxpayer speaks with attorney, accountant, etc.; and

Record the audit.

Failure of TA to comply = penalties.

What is an audit? (cont.)Slide18

Federal Tax Information (“FTI”)What is FTI?FTI is confidential federal tax information that is disclosed to designated municipalities for purposes of tax administration under Internal Revenue Code Section 6103(d). FTI includes:

Tax Returns (return, declaration of estimated tax, refund claim); andReturn information (taxpayers name, address, income, etc.).Slide19

Who has access to FTI?

Municipalities which are defined as a “State” under 61039(b)(5) are permitted access to FTI. These include:A municipality with a population in excess of 250,000 and imposing a tax on income; or

Regional income tax agencies – a qualified group of municipalities (2 or more) with a collective population in excess of 250,000, each municipality imposing a tax on income.- Examples – RITA and

CCA.Slide20

RITA bumps the IRS file of federal individual taxpayers against its own database. Taxpayers residing in a RITA member-municipality, filing an individual annual federal return - Form 1040,

with the IRS and not having an annual municipal tax return in RITA’s database, or showing a discrepancy between their federal and local income reported, will receive an FTI delinquency notice.

This allows RITA to discover taxpayers who should be filing with RITA, but are not, and provides the taxpayers’ income that should be reported.

If a taxpayer does not respond to the series of notices sent, a civil action may be filed to recover the balance.

How does RITA use FTI to find delinquencies?Slide21

RITA Sample FTI NoticeSlide22

Lakewood’s approach to FTI

Lakewood is among the thirty municipalities that are “special members” of CCA for the purposes of procuring the FTI

Used as a last resortSlide23

Lakewood - 2017 Delinquent CollectionsDelinquent Collections: $2,518,808 (11%)

Current Collections: $23,436,422 (89%)Delinquent collections are our bread & butter

Slide24

What happens when you fail to PAY your taxes?

When tracking down taxpayers who have established outstanding balances, we utilize some of the following tools:Collections – payment plans and settlementsCivil actions – small claims and other

Post-judgment collectionSlide25

CollectionsIn an attempt to get outstanding balances paid, there are collections options available, including offering payment plans and settlements to taxpayers.

When an account is current in its filings, and if the member-municipality authorizes abatements, RITA may offer the taxpayer an abatement of penalty and/or interest for a lump sum payment of the remaining balance dueLakewood offers abatements and settlements under much the same circumstances

Similarly, Lakewood and RITA both allow taxpayers to set up monthly payment plans.…but the taxpayer must be current on their filings first!Slide26

Payment Plans

Payment

plan length, monthly payment amount and due dates are determined based on each taxpayer’s

circumstances.

Lakewood’s policy prioritizes monthly automatic withdrawal through ACH Electronic Funds Transfer, but allows billed payment plans for extenuating circumstances

When an account is current in its filings, and if the member-municipality authorizes abatements, RITA may offer the taxpayer an abatement of penalty and/or interest for a lump sum payment of the remaining balance dueSlide27

Lakewood’s Payment PlansTotal of 1,500 payment plans$1.2 MillionACH Plans:

1,100Coupons: 400Allow a taxpayer to cancel ACH pull only twiceA return payment is treated as an NSF Default Rate - ACH: 2% Default Rate - Coupon: 33%Slide28

Civil Actions and Small ClaimsIn the event that a taxpayer doesn’t resolve an outstanding balance on their account through a payment plan or settlement, municipalities have the option to file civil actions to recover those balances by filing a complaint.

Cases are filed to secure the City’s interest in collecting a debt.Cases are filed in the hope that the defendant will pay the debt in full, or that a judgment can be obtained for potential future use.

3-year statute of limitations for filed returns.6-year statute of limitations for unfiled returns, fraud or omission of 25% or more of income.Slide29

Civil Actions vs. Small Claims: What’s in a name?Where to file depends on the amount of the balance sought:A small claims case may be filed so long as the claim does not exceed $6,000 (not counting court costs and statutory interest

).Small claims cases are less formal and do not require an attorney – only a representative of the political subdivision. The representative can supply documents such as returns, and testimony as to balances and calculations.If the balance exceeds $6,000, it may be filed in municipal or common pleas court.If the balance exceeds $15,000, it must be filed in common pleas court.Slide30

Civil Actions: What if…?If the defendant pays the balance prior to their scheduled hearing a dismissal is filed terminating the case.

If the defendant fails to appear or file an answer in response to the complaint, the court may enter a default judgment against the taxpayer for the full amount sought in the complaint.If the taxpayer sets up a payment plan, or can’t afford a payment plan, but doesn’t dispute the balance, an agreed or consent judgment entry may be entered awarding judgment for the balance.Slide31

Civil Actions: End Game

After judgment is granted, if the taxpayer doesn’t set up a payment plan or otherwise resolve the balance, further collection efforts may be utilized to collect the balance:GarnishmentsBank attachmentsLiens

Lakewood utilizes an outside law firm to handle its post-judgment collectionsSlide32

Lakewood’s Law

Firm Stats

Approximately 1,200 active delinquent tax cases are currently with the outside law firmThese cases are valued at $

800,000…and they work their magic!Slide33

Tax Collection and Civil Actions/Small ClaimsWhy talk about tax collection and filing civil actions/small

claims cases? Because of HB 5, of course!Slide34

H.B. 5’s Influence

R.C. 718.27(G) provides:The municipal corporation may impose on the taxpayer, employer, any agent of the employer, or any other payer the municipal corporation's

post-judgment collection costs and fees, including attorney's fees.Slide35

What Does This Mean?

If a tax department retains an outside law firm to file cases, attorney’s fees cannot be collected until after a judgment is issuedSlide36

Collection Fees

This is a problem because most cities charge collection fees to taxpayers through a collection fee ordinanceLakewood Ordinance 129.61 COLLECTION FEES.“All delinquent accounts placed by the City to a law firm or collection agency for collection shall be assessed a fee on the entire balance due equal to the contingency fee charged by each law firm or collection agency as set forth in the firm or agency's agreement with the City. The balance due prior to the assessment of the collection fee shall be the principal balance due plus any interest, penalties, late fees and charges already incurred under this chapter. The collection fee shall be assessed against all payments made on the delinquent account by the law firm or collection agency after the account has been placed for collection. Court costs shall be added to the balance due as they are incurred but shall not be assessed a collection fee.”Slide37

Options in Dealing with the

Provision

ORC

718.27(G) may not exist forever as it does

today

One option in dealing with this provision

is to wait while the wheel of time turns slowly and hope that something will change

The other option is to be proactive by handling small claims cases in-house

The latter is the option Lakewood chose in the 1990sSlide38

S.B. 187Sponsored by Senator John Eklund (R-Munson Twp)Goal of bill is to remove “post judgment” from R.C. 718.27 (G)

Sitting in CommitteeNo hearings to date, but there have been meetings involving the OSCPANo movement on billPossibility of a compromise billSlide39

RITA’s Post-Judgment CollectionsTo ensure that we are permitted to recover these related costs, RITA has added language to its complaints and judgment entries.

Sample language:plus statutory interest, the costs associated with this action, and, if applicable to tax years 2016 or later, post-judgment collection costs and fees as provided in R.C. 718.27(G); plus interest at the statutory rate of 4% from the date of judgment, the costs of this action and all other fees and costs as permitted by lawSlide40

Questions? Comments?

Patricia ChittockAssistant Finance Director ICity of Lakewood – Income Tax Division12805 Detroit Ave., Suite 1Lakewood, OH 44107(216) 529-6622

patricia.chittock@lakewoodoh.net

Amber E. Greenleaf DuberAssistant Legal CounselRegional Income Tax Agency10107 Brecksville RoadBrecksville, OH 44141(440) 526-0900, ext. 5005

agreenleaf@ritaohio.com