The Grassroots Corner October 7th, 2024

TAXING AMERICAN HOSTAGES

           The stories of Evan Gershkovich and Paul Whelan highlight the vulnerability that American citizens face at the hands of hostile nations.  Oftentimes, these authoritarian governments will arrest American citizens, hold them on fabricated espionage charges, and subject them to harsh detentions.

            At the time of this article’s writing, four Americans were among the hostages that Hamas took in Israel on October 7, 2023, and many other Americans are languishing in foreign prisons for the crime of being Americans in the wrong place at the wrong time. Getting them back on American soil often requires a prisoner swap, returning detestable characters to corrupt nations such as Russia and Iran.

            However, there’s an ugly side to these stories that is never mentioned, and that’s the incredibly shameful treatment that our repatriated citizens face from the IRS when they finally return home.  A recent NPR article by Barbara Sprunt chronicles the wrongful detention of journalist Jason Rezaian, who sat in the notorious Evin prison in Teheran, Iran, for 544 days on espionage charges. You can read the article here https://www.npr.org/2024/06/11/nx-s1-4964638/americans-detained-abroad-tax-penalties.
 

           Rezaian was released in January 2016 in a swap for seven Iranian prisoners and the dropping of charges against fourteen other Iranians, plus the release by the United States of $1.7 billion in frozen Iranian accounts.

            Unfortunately, Rezaian’s release from Iranian custody did not mark the end of his troubles. Once home, Rezaian told NPR, “I got one of those bills from the IRS saying, you owe this much on this year, you owe this much on this year because of failure to pay on time — here's the interest that's accrued.” The bill was for more than $6,000 — representing late fees, penalties, and interest on taxes he couldn’t pay while imprisoned.

            NPR’s Sprunt writes, “… as time went on, Rezaian’s bills from the IRS still ballooned to $22,000.”

           One would think eliminating interest, late fees, and penalties for American hostages would be common sense. However, “Rezaian said the agency told him they wanted to help, but were limited in how much they could do to eliminate the fees. … [W]hile the agency has discretion to waive various fines, it doesn't have the authority to fully forgive interest or penalties.”

            Sprunt writes that, ultimately, Rezaian paid $6,000 to the IRS.

            Sometime later, Rezaian, a journalist, was interviewing Delaware Senator Chris Coons.  During the course of the interview, he shared his ordeal with the IRS with Coons. Coons reacted with an expletive and, a short time later, introduced a bill in the Senate. Today, the bill is S4057, the Stop Tax Penalties on American Hostages Act of 2024. You can read the bill here https://www.congress.gov/118/bills/s4057/BILLS-118s4057is.pdf, and follow it here https://www.congress.gov/bill/118th-congress/senate-bill/4057?q=%7B%22search%22%3A%22s4057%22%7D&s=1&r=1. The current version of the bill has seven sponsors, including Coons. Among the sponsors are three Democrats and four Republicans. The bill sits in the Senate Finance Committee.

            The bill would help former hostages by directing the IRS not to count any period during which an “applicable individual” was unlawfully detained abroad when calculating tax payment deadlines. The bill also provides for refunds and the elimination of certain penalties and fines.

            It’s insane that it takes an act of Congress to force the IRS to make special provisions for American citizens who are held hostage in a foreign country.  Of course, there’s an even better way to deal with this situation—pass the FAIRtax.  If the FAIRtax had been in effect when the Revolutionary Guard snagged Rezaian, there would have been no IRS for him to contend with upon his return. As a consumer, Rezaian would have taken care of his tax obligations on the spot before he left for Iran.  Since the FAIRtax does not apply to retail purchases made in Iran, his tax obligation for the period in which he was held would have been zero.

           Rezaian, as far as we know, was not a “registered seller.” If he had been, he could have left an outstanding obligation to his State Sales Tax Administering Authority in his “separate segregated account” when he left for Iran. The FAIRtax would still have given him a break. Section 504(f) imposes a penalty for late filing but does not impose the penalty if the taxpayer shows "reasonable cause." Unquestionably, detention in Iran is “reasonable cause.” Subsection (h) imposes a penalty for late remittance but again cancels the penalty for reasonable cause.  

           If the statute's text does not provide former hostages enough protection, Section 603 provides for problem resolution officers with the power to issue Taxpayer Assistance Orders. A Taxpayer Assistance Order can enjoin action against a former hostage.

           Let’s stop punishing former American hostages and pass the FAIRtax! I would love to hear from you about other ways the Internal Revenue Code mistreats honest taxpayers.

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