NYS May Suspend Driving Privileges for Delinquent Taxpayers
By: The Attorneys of Tenenbaum Law, P.C.
As published in New York State Society of Certified Public Accountants (NYSSCPA) Newsletter – Vol. 58/ Issue 1 – September, 2013.
The New York State Department of Taxation and Finance has two new tools for enforcing payment of outstanding tax liabilities. The 2013-2014 Budget Bill, passed in late March, 2013, and effective immediately, provided that the State can suspend the drivers’ licenses of taxpayers who owe $10,000 or more of tax, interest and penalties to the State. The provision was modeled after a similar program which suspends the drivers’ licenses of those who are delinquent in payment of child support. The Budget Bill also modified the law to permit the State to issue income executions without first filing a tax warrant for the assessments concerned.
The new law requires the State to notify the taxpayer of the impending suspension of his or her driver’s license in advance of the action. The taxpayer will have sixty days to resolve the liabilities, from the mailing date of the notice to the taxpayer. If the taxpayer does not do so, then the Department of Motor Vehicles will advise the taxpayer that the license will be suspended in fifteen days. If the liabilities are still not resolved at the end of that period, the license will be suspended. The suspension will stay in place until the taxpayer pays the liabilities in full, or makes other acceptable payment arrangements. The law permits the State to continue with other collection action while the suspension is in place.
Making it easier for the taxpayer to become compliant, the State will not proceed with the suspension if the taxpayer enters into an Installment Payment Agreement. An IPA permits a taxpayer to pay his outstanding liabilities in full over time, with interest and penalties continuing to accrue. Payments are monthly and by direct debit whenever possible. While an IPA is in effect, other collection action is generally halted.
There may be roadblocks for a taxpayer seeking an IPA quickly so as to avoid having his driver’s license suspended. If the outstanding liabilities are based on estimated returns, the taxpayer may need to file all missing returns before the IPA can be considered. It is possible that, as with any other request for an IPA, the State may seek a down payment, or require written financial information about the taxpayer, before making a determination as to whether an IPA should be granted.
For taxpayers who are not able to proceed with an IPA, there may still be a way to avoid the suspension of driving privileges. The law provides an exception for taxpayers subject to an income execution for payment of the outstanding taxes. Thus, a taxpayer may be able to consent to a ten percent wage garnishment, and keep his driver’s license.
Other provisions soften the application of the law. The taxpayer may be eligible for a restricted use license rather than a suspension in certain circumstances, which may allow the taxpayer to drive to and from work. Commercial driver’s licenses are not subject to suspension under the law. If the taxpayer’s license is suspended, it may be some comfort to know that insurance companies are specifically prohibited from increasing rates due to a license suspension based on nonpayment of taxes.
It would seem, at first glance, that delinquent taxpayers will also be negatively impacted by another provision in the Budget Bill allowing warrantless income executions. Upon further examination, however, it appears that this change in the law may benefit taxpayers.
Tax warrants are filed routinely by the State for outstanding liabilities, creating a lien and acting as a judgment against the taxpayer. A warrant is filed with the county clerk and with the NYS Department of State, providing notice to the public of the debt. A taxpayer’s credit rating is severely affected by a warrant. Credit reporting agencies may include the details of a warrant for seven years in their reports, even if the warrant was satisfied promptly. Prospective employers may become aware of warrants filed, affecting a taxpayer’s ability to find work, thereby making it more difficult for a taxpayer to satisfy his liabilities.
The State has been restricted in its ability to collect against a taxpayer without filing a warrant. Warrants are a necessary prerequisite for issuing levies or seizing assets. If a taxpayer did not respond to the State’s attempts to contact him and obtain payment, the State had few options other than to file a warrant and proceed with collection. The new law allows the State to take action to collect the debt owed, without the harmful consequences inherent in filing a warrant.
In general, the State has a limited time in which to issue a warrant. If no warrant is filed within six years of the date of assessment of income tax, for example, the debt is extinguished and the State can no longer enforce collection. The State will surely be mindful of these restrictions in determining whether a warrantless income execution is appropriate for a specific taxpayer.
As the State continues to refine its collection procedures, practitioners and taxpayers should be alert to the changing repercussions of failing to pay overdue taxes. Especially when faced with the inconvenience or hardship of not driving legally, taxpayers may reconsider their financial priorities, and practitioners may find that taxpayers are more willing to work with the State to resolve their outstanding liabilities.