IRS Collections for U.S. Military Personnel
Military Tax Rights under the SCRA
Judicial and administrative proceedings are temporarily suspended for those serving in the United States military. This includes a temporary hold on IRS collection actions. These laws are not provided in the Tax Code. Rather, they are set out in the Servicemembers Civil Relief Act or SCRA.
Military Tax Rights Under the SCRA
Section 570 of the SCRA addresses state and federal income taxes. Specifically, it addresses the collection of income taxes, the time for collecting income taxes, and the accrual of penalties and interest.
IRS and State Tax Collections
With respect to the collection of these taxes by the IRS or state governments, the act says that:
Upon notice to the Internal Revenue Service or the tax authority of a State or a political subdivision of a State, the collection of income tax on the income of a servicemember falling due before or during military service shall be deferred for a period not more than 180 days after termination of or release from military service, if a servicemember’s ability to pay such income tax is materially affected by military service.
The term “materially affected” means that the taxpayer’s current monthly income (military income) is less than the monthly income immediately prior to active duty. Their ability to pay the balance due is deemed to be “materially affected” by reason of active military status.
IRS and State Tax Collection Statutes
With respect to the time to for the IRS and state governments to collect tax, the act provides that:
The running of a statute of limitations against the collection of tax deferred under this section, by seizure or otherwise, shall be suspended for the period of military service of the servicemember and for an additional period of 270 days thereafter.
IRS and State Tax Penalties and Interest
With respect to the accrual of interest and penalties, the act says that:
No penalty or interest shall accrue for the period of deferment by reason of nonpayment on any amount of tax deferred under this section.
Thus to sum up the rights under the SCRA, upon application by the taxpayer, collection may be deferred during the taxpayer’s period of military service and up to 180 days afterward. Interest and penalties do not accrue during this period. The running of a statute of limitations against the collection of tax is suspended for the period of military service plus 270 days thereafter.
It should also be noted that if the taxpayer is not eligible for deferment, he is entitled to a reduction in the interest rate to 6% (unless the applicable interest rate is below 6%) on the tax liabilities arising before he entered military service.
Who Does the SCRA Cover?
The SCRA does not cover everyone who is associated with the military. The SCRA only covers:
- active duty members of the Army, Navy, Air Force, Marine Corps, or Coast Guard,
- members of the National Guard who are under a call to active duty for more than thirty consecutive days,and
- commissioned officer of the Public Health Service or the National Oceanic and Atmospheric Administration on active service.
It also covers these servicemembers who are absent from duty on account of sickness, wounds, leave, or other lawful cause.