Congress and foreclosure tax relief

OK, I just picked on the IRS for not doing its job. Now it’s time for Congress to get the same treatment.

Charles Grassley, the Iowa Senator who is the ranking Republican on the Senate Finance Committee, has written the Treasury Secretary asking for immediate action to alleviate the tax pressures faced by some homeowners who have lost their residences to foreclosure.

Grassley’s request, co-signed by Sens. Gordon Smith (R-Ore.) and Pat Roberts (R-Kan.), comes in the wake of recent media coverage of the tax implications of foreclosure (a link list is at the end of this post), as well as Dubya’s support of such changes.

Homeowners in foreclosure, or "working families" in the favored political vernacular, are getting hit with huge tax bills, writes Grassley. So the ranking GOP member of the SFC has two requests of the IRS in this area.

First, in view of reports of erroneous tax bills, he urges the IRS to make sure its foreclosure tax calculations are correct. (Duh!)

But in addition, Grassley says "the IRS should offer the taxpayer every opportunity to negotiate the size of the bill and a fair payment plan. The agency has plenty of authority to treat taxpayers reasonably in these situations. It needs to use that authority to serve taxpayers."

Why not legislative relief? Grassley tells Treasury that he and his colleagues know "that it would be simpler to change the law to provide relief."

And he says Congress is going to get around to doing its job and look into legislation in this regard.

But in the meantime, Grassley argues that "Americans shouldn’t have to wait to get the relief that is needed right now."

Or, as TaxProf asks, Why Should Congress Bother to Fix the Tax Law It Wrote When It’s Easier to Blame the IRS?

Maybe because not every lawmaker is on board with the proposal, although they’re loathe to speak out against "working families."

Then there’s the issue of how slowly Capitol Hill’s legislative wheels tend to grind. A couple of bills (that "simpler" procedure Grassley noted) have been introduced: Mortgage Cancellation Relief Act of 2007 (H.R. 1876 in the House; S. 1394 in the Senate) and the Foreclosure Tax Relief Act of 2007 (H.R. 3506). They’re still languishing in the committee stage.

And, of course, there’s the cost. A legislative fix, points out TaxProf, would require revenue offsets under Congressional budget rules. That’s not an issue with IRS administrative actions.

But mainly, Congress wants something done, and done quickly, and which members can point to as evidence of having acted in the public interest on a hot-button issue.

And we all know what old meanies the IRS are, so if it doesn’t happen, after Congress asked for it, then we can point the finger of blame at them.

New IRS foreclosure Web page: The tax agency is taking action in the area of foreclosure taxes, although not exactly like Grassley wants.

It has added a new page to its Web site to help homeowners get information on possible tax implications of foreclosure. Check it out here.

Additional information: You can read more about the tax implications of foreclosures in the articles below.

• New York Times article (also reproduced in Grassley’s letter)
• New York Times editorial 
• Bankrate.com article
• Bradenton, Fla., Herald article
• TheStreet.com article
• Heritage Foundation Web memo and
• Mauled Again’s look at Greed, Stupidity, Poor Judgment, and Taxes.