Washington State Bar Association Taxation Section Newsletter
Taxation Section Newsletter
Winter 2016
Happy New Year & New Newsletter

Welcome to the first Taxation Section newsletter in its new online format.  We hope you like it.  We have also re-tooled the content and plan to use the newsletter to inform our membership of upcoming events, committee meetings, and provide other short updates.  If you have any announcements or updates you would like us to include in the newsletter, please send them to the newsletter editor, Jennifer A. Gellner, at jennifer@gellnertaxlaw.com. 

Upcoming Committee Meetings
Estate and Gift Tax Committee Meeting Dates 
Time:  Noon
Location:  K&L Gates; 925 Fourth Avenue, Suite 2900
March 11, 2016
May 6, 2016
June 24, 2016
International Tax Committee Meeting
Time: noon-1:30pm
Location: K&L Gates; 925 Fourth Avenue, Suite 2900
Date: February 22, 2016
Save the Date- Annual Lunch
The Taxation Section Annual Lunch is Monday , May 16, 2016.

Professor Lily Kahng from Seattle University School of Law will give a presentation on her article,  The Not So Merry Wives of Windsor: The Taxation of Women in Same-Sex Marriages.

More details will follow as the event nears.  
WSBA Proposes Sweeping Changes to Section Policies
The WSBA Sections Policy Workgroup  was formed by the WSBA Board of Governors at their meeting in July 2015. The Workgroup’s purpose is to review WSBA policies related to WSBA sections  and make recommendations for consideration by the Board of Governors.  On December 31, 2015 the WSBA issued the first draft of proposed new section policies.  The overall aim of the new policies is to clarify that sections are not independent of the WSBA and standardize policies that are applicable to all sections.  Some highlights include: 
  • The WSBA will set annual dues that will be the same for all sections;
  • All section dues collected will be pooled to a WSBA Sections Fund;
  • Each section's Executive Committee would submit a work plan and proposed budget to the WSBA, and the WSBA Budget & Audit Committee would allocate and approve the section's budget;
  • Voting for Executive Committee members would be administered by the WSBA, rather than the section;
  • Each section's Executive Committee would be composed of up to 15 members, including 3 officers, past Chair, and up to 11 other members.

The Executive Council has submitted comments in opposition to some of the changes on behalf of the Taxation Section.  Twenty-seven of the twenty-eight sections submitted comments.  The Section was represented at the feedback forum held on February 4th, where many of the section representatives spoke in opposition to the proposals and the process.  A video of the meeting is available here.  The Workgroup will consider the feedback it received at a meeting on February 19th.  The Board of Governors will consider the proposed policies in March, and intends to adopt them in April.  The process is moving quickly.  If you would like to share your comments, you may submit them directly to the Sections Policy Workgroup at sections@wsba.org.  

More information and draft policy proposals can be found at:


Washington Tax Appeals Reform
Is There Consensus Among Section Membership on the Creation of a Washington Tax Appeals Division? 

In the 2015 Legislative Session, SB 5449 was introduced.   SB 5449 would create a Tax Appeal Division within the Judicial Branch to promote public confidence in the tax system.  SB 5449 exhibited nine key attributes.  Specifically:

            1.  No requirement to pay tax;

            2.  Publication of decisions;

            3.  Direct review by appellate courts;

            4.  Addressed compensation of judges;

            5.  Eliminated political affiliations of judges;

            6.  Set judicial qualifications;

            7.  Created an informal process or magistrate division;

            8.  Provided geographic flexibility;

            9.  Encouraged settlement. 

Ultimately, SB 5449 was not enacted into law during the 2015 session.  However, it is expected that the Legislature may take up this issue in the near future, and the Council will need to decide whether to recommend to WSBA Legislative Affairs that the WSBA weigh in on this legislation, and if so, the goals for the legislation.  

The Council will only make a recommendation to the WSBA if there is consensus among the membership on the ultimate goals for the legislation.  The State and Local Tax Committee surveyed the committee members to determine if a consensus exists.  If you missed the survey and would like to provide comments, please contact Jim Hunt at jim@jghuntlaw.com.   
Washington's Low Income Taxpayer Clinics: What They Do And How You Can Help
About Low Income Taxpayer Clinics (LITC)
Both the University of Washington School of Law and the Gonzaga University School of Law hold Federal Tax Clinics in their Clinical Law programs.  These programs train law students while also assisting low-income taxpayers with controversies against the IRS and in the United States Tax Court.  The IRS awards grants each year to help maintain the programs, and the funding is administered by the National Taxpayer Advocate.

The UW and Gonzaga tax clinics are helping many low-income taxpayers while preparing students for the practice of law, and helping attorneys in the community with pro bono cases and mentoring opportunities.  

Both tax clinics have video equipment that local tax practitioners may use to video conference with IRS Counsel, IRS Appeals, and the Taxpayer Advocate.  Also, the general public may use the equipment to have a video conference with the Taxpayer Advocate.

For more information on the valuable services provided by the clinics, click here:

Opportunities To Get Involved
The University of Washington Federal Tax Clinic (LITC) is seeking volunteer private practice attorneys for a new, joint program with the LITC and the IRS to assist pro se taxpayers attempting to resolve their cases in advance of a trial in the Tax Court.  The time commitment is limited; if the case cannot be resolved, the volunteer lawyers need not represent the clients in the Tax Court proceeding.

 Both clinics also welcome volunteer attorneys who can take on pro bono cases.

The clinics are also seeking tax practitioners who would be willing to do informational interviews with tax clinic students so students can learn about attorneys' practice areas. 

If you are interested in volunteering at the UW clinic in any of these capacities, please contact John Clynch at clyncher@u.washington.edu.  

If you are interested in volunteering at the Gonzaga tax clinic, please contact Jennifer Gellner at jgellner@lawschool.gonzaga.edu.

New MCLE Rules
New Mandatory Continuing Legal Education Rules became effective January 1, 2016.
The 2014-2016 reporting group will be the first group affected by the new MCLE rules.                                               

Find out more about new MCLE Rules here.

Some highlights: 
  • 24 credits can be earned in professional development, personal development and mental health, office management, and improving the legal system;
  • NO requirement for live credits;
  • Maximum of 5 prep time hours for one hour of presentation time.

Have Clients Who Owe The IRS? Their Passports May Be at Risk 
by Claire Taylor and John Colvin, Colvin + Hallett, P.S.
In early December, Congress fundamentally reshaped the consequences of owing past due taxes to the government by putting taxpayers’ passports at risk. Buried deep in the bill was Section 32101, which authorizes the revocation or denial of a passport if an individual owes over $50,000 and a federal tax lien has been filed or a levy has been issued. The new law sweeps thousands in its net and will create nightmares for citizens and expats alike.

New section 7345 to the Internal Revenue Code provides: “If the Secretary receives certification by the Commissioner of Internal Revenue that any individual has a seriously delinquent tax debt, the Secretary shall transmit such certification to the Secretary of State for action with respect to denial, revocation, or limitation of a passport …” A “seriously delinquent tax debt” is an assessed, unpaid tax liability which “is greater than $50,000” and for which a lien has been filed or a levy has been made. 7345(b)(1).

The new law, in effect this month, is likely to affect hundreds of thousands of taxpayers.  To its credit, the bill exempts from passport denial/revocation the following circumstances: a taxpayer’s Offer in Compromise has been accepted; a taxpayer is current under an installment agreement; collection is suspended under a request for a Collection Due Process (CDP) hearing; or a taxpayer is seeking innocent spouse relief. 7345(b)(2).

While essential, these exemptions fail to provide for a number of taxpayers whose passports should not be at risk. For instance, the statute does not exempt someone in Currently Not Collectible (CNC) status. If a taxpayer is in CNC status, the IRS has decided that the taxpayer cannot pay. Denying or revoking such an individual’s passport would generate no additional revenue; it would only punish an individual who cannot pay.

Further, many taxpayers are attempting in good faith to pay, but will still fall within the ambit of the statute. For example, taxpayers who are attempting to enter into installment agreements or Offers-in-Compromise, but have not yet (because the IRS can take a year or two to review the submission) would be covered. The statute does not do enough to distinguish between a “can’t pay” and “won’t pay” taxpayer.

While the statute provides that a taxpayer must be notified of the generalized potential for a certification and subsequent passport denial/revocation with the issuance of a Notice of Lien or Levy, the notice is insufficient because taxpayers subject to certification may have previously received a Notice of Lien or Levy.  Accordingly, those taxpayers will have no notice or opportunity to enter into a collection alternative before a notice of certification is sent.  Further, because notices relate to a single tax period which may not exceed $50,000, taxpayers may not understand their risk of certification, which is based on their aggregate liabilities. 

Under the statute, the next notice a taxpayer will receive is a notice from Treasury that it has certified the taxpayer’s seriously delinquent tax debt to the State Department for passport revocation/denial. 7345(d). At that point, the taxpayer has only a few options.

  • Fully pay the debt;
  • enter into an installment agreement or other collection alternative, which could take many months or up to a year;
  • request innocent spouse relief;
  • wait until the debt becomes legally unenforceable (e.g. statute of limitations expires). 
On the occurrence of any one of the above, the IRS has 30 days to notify the State Department to reverse the certification. 

However, the statute does not require the IRS to notify the State Department of a certification reversal where the amount of the taxpayer’s outstanding liability falls below the $50,000 threshold and is no longer “seriously delinquent” as defined in the statute. Also, even if a taxpayer attempts to enter into a collection alternative, it can take the IRS a significant amount of time to consider and accept a proposal, and under the statute, the taxpayer’s passport would be held hostage during that period.

There is also no guidance on how a taxpayer is to proceed administratively, if at all, to contest a certification that was in error at the outset.  And there is no review process whereby a taxpayer would have a right to be heard administratively about any such error, or any instructions requiring the IRS to contemplate such error.

Fortunately, the taxpayer has the opportunity to bring a civil action in U.S. district court or the Tax Court if the certification was erroneous or the IRS fails to reverse a certification at all or within the timeline provided for under section 7345(c). This is an important mechanism to protect taxpayers, but it is potentially an expensive, time-consuming mechanism. 

There are other problems: 1) there is no requirement of actual notice prior to certification, and given the historical problems with IRS notification (i.e., last known address problems, particularly with expats [1]), there is high likelihood that taxpayers never receive notice before their passport is revoked; 2) there is no mandate requiring the State Department to act on any de-certification and no judicial remedy if it fails to do so; and 3) section 7345(e)(3) provides that the Secretary of Treasury, the Secretary of State, and any of their designees shall not be liable to an individual for any action with respect to a certification.

While immunizing the State Department for acting on information provided by the IRS is reasonable, why is the IRS immunized for negligent, reckless or intentional mistakes that might otherwise fall within the ambit of the wrongful collection statute (section 7433)? Additionally, why would the State Department be immunized if it improperly acts on information provided by the IRS, i.e. by failing to de-certify? Fundamentally, while a taxpayer does have a judicial remedy, it is limited, and it is particularly toothless if the involved agencies are immunized from suits deriving from their negligence or recklessness.

At bottom, this new law, set to go into effect at the end of January, will affect a lot of taxpayers and leaves many unanswered questions about how it will be applied. In the interim, taxpayers with delinquencies who wish to travel internationally should be advised to seek collection alternatives before losing or being denied their passports.

[FN 1] IRS problems with foreign addresses were detailed in a September, 2015 TIGTA report.
A Note From the Newly Appointed Department of Revenue Director
By Vikki Smith
Director, Washington State Department of Revenue

After 45 years working for the Washington State Department of Revenue, I was deeply honored when in June of this year, Governor Jay Inslee appointed me as the agency’s director. I started out at the agency in 1970 as temporary clerk and have had the distinct opportunity to provide leadership to many of the agency’s divisions. I most recently served as the Deputy Director and was appointed in January as Acting Director after former Director Carol Nelson left to take a job in the banking industry.
 I’ve seen tax administration, policy and laws evolve throughout the years. While the challenges and daily tax issues we tackle may change, my focus and that of the agency remains the same. We are committed to the goals that have always served as our agency’s compass: deliver customer-focused service; simple and efficient collection of taxes and program administration; develop, retain, and value a high-quality workforce; promote correct and timely reporting and payment of taxes; and fair and consistent tax policy administration.

During the past year, the Department of Revenue team has made significant strides in meeting these goals. For instance:
  • We’ve worked to improve transparency by publishing more state tax determinations – almost 40 percent more in Fiscal Year 2015 than Fiscal Year 2014.
  • We’ve nearly completed the process of amending “Rule 100,” which outlines our administrative appeals and review processes.
  • We continue to work with the Legislature, providing information on adopting laws that promote fair and consistent tax policy. An example is House Bill 1550, adopted in 2015, which better defines the taxes that apply to recreational activities and activities provided at fitness facilities.
 I’m committed to furthering our priorities as they relate to Revenue’s goals.  Some of our top priorities include:
  • Continuing our efforts to foster relationships with the tribes in our state and other stakeholders. We’ve made strides through our Tribal Tax Advisory Workgroup, where representatives from the tribes, our tribal liaison, and our agency’s leadership meet to consult on a variety of tax issues affecting tribal and state government. We’re also working to implement a process to meet quarterly with the Association of Washington Business Tax and Fiscal Policy Council to exchange important information and help the agency develop tax policy. We continue to meet with various business associations throughout the year.
  • Overseeing the replacement of our aging tax and licensing systems. In 2015, the Legislature authorized Revenue to finance $75 million over three years to replace 40 of these vital, but outdated, systems. These systems provide critical services to the state, businesses, and local governments. The first phase to be released in summer 2016 will replace our business licensing application.
  • Developing a plan to use agency data to help better shape our agency’s tax education efforts and support voluntary compliance. We want to take advantage of important data gathered across the agency to determine which taxpayers need education on specific subjects and how to best deliver that education. We are committed to this project as part of our effort to increase voluntary compliance.
  • Promoting innovation and increased use of technology to better serve taxpayers. We’re always looking for the best way to meet the changing needs of taxpayers. Much of the expectation of doing business these days is online. We’re working on refreshing our website, dor.wa.gov, and continuing to build it as a valuable tool for taxpayers, tax professionals, and the public.
As Director of the Department of Revenue, I’m sure there will be more changes and challenges ahead. But I’m also excited about the opportunities that can happen when we all work together.

Quick facts about the Washington State Department of Revenue:
Businesses we serve: 514,112
Tax returns processed: 2.2 million
Business licenses applications and renewals processed: 569,000
Number of full-time employees: 1,151
Cost per $100 collected by Revenue: 68 cents

2015/2016 Officers & Committee Chairs
If you are interested in becoming a member of a committee listserv or contributing to a committee, please do not hesitate to contact the committee chair. 
President: Cory Johnson, cjohnson@c-hlaw.com
Vice-President: Tiffany Gorton, tgorton@khbblaw.com
Secretary: Sandra Veliz, sveliz@lesourd.com
Treasurer: Vijay Gosalia, vgosalia@gosalialaw.com
Committee Chairs: