The Hidden Burden of State Tax Debt Collections

Professor Sakinah Tillman of the University of the District of Columbia David A. Clarke School of Law discusses how the complexities of state tax debt collections disadvantage low-income taxpayers.

For more, read Tillman's article, "Impact of Vague State Tax Collection Alternatives on Low-Income Taxpayers."

Listen to more Tax Notes Talk episodes from our critical tax theory series:

• Addressing Tax Policy Challenges for Workers With Disabilities
• The Inadvertent Price of a Gender-Neutral Tax Code
• Race-Based Poll Taxes and 20th-Century Discrimination
• Examining Treasury’s Review of Racial Bias in the U.S. Tax Code
• State Tax Authority and Native Americans: Complex and Convoluted
• Wealth, Inequality, and Taxes in the U.S.
• Taxes and the LGBTQ Community

**
Credits
Host: David D. Stewart
Executive Producers: Jeanne Rauch-Zender, Paige Jones
Producer: Jordan Parrish
Audio Editor: Laura Kondourajian

****
This episode is sponsored by Portugal Pathways. For more information, visit portugalpathways.io.

This episode is sponsored by the University of California Irvine School of Law Graduate Tax Program. For more information, visit law.uci.edu/gradtax.

Transcript

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: past due.

Navigating state tax laws and debt collections can be complicated. Each state has its own rules and ways of handling tax debt. But are the options for paying off debt straightforward? And do they disproportionately affect low-income taxpayers?

This week's episode is part of a series we've been doing examining how tax rules affect marginalized groups. We'll include links in the show notes to our previous episodes on the intersection of tax and racial inequality, LGBTQ rights, feminism, diversity in the tax bar, tribal taxation, and wealth and inequality.

Here to talk more about this is Tax Notes managing legal reporter Caitlin Mullaney. Caitlin, welcome back to the podcast.

Caitlin Mullaney: Hi, Dave. Always honored to be back on the podcast.

David D. Stewart: Now, I understand you recently had a conversation with someone about this subject. Could you tell us about your guest?

Caitlin Mullaney: Yes. I spoke with Sakinah Tillman, who is an assistant professor and director of the Tax Clinic at the University of the District of Columbia David A. Clarke School of Law.

David D. Stewart: And what all did you talk about?

Caitlin Mullaney: We discussed Sakinah's recent article titled, "Impact of Vague State Collection Alternatives on Low-Income Taxpayers." Through the article, Sakinah explores how the unnecessary complexness and vagueness of state tax collection alternatives disproportionately affect economically vulnerable groups, particularly Black and Brown people, along with some potential solutions proposed by Sakinah to address the taxpayer consequences. Sakinah also touched on advocate work that she's doing with the Maryland Legislature.

And since we recorded with her, Maryland actually passed House Bill 1149, which was based on the reform that Sakinah had proposed. The bill means that business owners who cease operations will no longer have to wait two years before settling their tax debts. And you'll hear her mention the background of this at the end of our discussion.

David D. Stewart: All right. Let's go to that interview.

Caitlin Mullaney: Sakinah, first of all, welcome to the podcast.

Sakinah Tillman: Thank you. It's such a pleasure to be here today.

Caitlin Mullaney: We're happy to have you. Your article explores how state tax collection agencies create difficulties for taxpayers to understand tax collection alternatives through unnecessary complexity and vagueness and how this has a disproportionate effect on low-income taxpayers. Do you want to give us some background on your research?

Sakinah Tillman: So yes, I think you mentioned a summary of it, but collection alternatives is a way to pay your taxes if you're unable to pay in full. And with this research, I really just focus on the collection alternatives that are available for taxpayers at the state level. And I've noticed how these options disproportionately burden low-income taxpayers, especially Black and Brown taxpayers. And while these collection alternatives are available and are similar to the IRS, the statutes that govern them are often vague and ambiguous or absent. And so as a result, this leads to a misunderstanding of the law, noncompliance, to desperate enforcement, such as professional and driver's licenses being suspended.

Caitlin Mullaney: And when you were doing your research on the guidance in each state, you give a good summary of each one in the article. Were there any states that stood out to you for good or bad reasons?

Sakinah Tillman: Yeah. Me being a resident of Maryland, I would think that Maryland's one of the best states, although I wasn't born in Maryland, but I currently live there. And Maryland was the state that stood out to me for all the bad reasons. One, Maryland is the only state that collects taxes indefinitely. Compared to the IRS, there's a collection statutory expiration date, which is 10 years. So if you have a tax liability from 1996, Maryland can still collect that.

Also, with Maryland, there's no minimum threshold for unpaid taxes before suspending a driver's license. So you can owe $300 and they can still suspend your driver's license. I will say Wisconsin, that is the only state when it comes to offer in compromises that allows you to appeal. However, they had this rule that after three years, they can reopen up your case to see if you can pay the taxes that are owed. The issue is that there's no criteria to determine when the case should be reopened.

Caitlin Mullaney: And so now moving into the framework of your article a little bit. Your first point in the article focuses on the racial equity framework and state tax collection systems disproportionately affecting the low-income taxpayers, particularly Black and Brown individuals as you previously mentioned. Can you outline the factors that contribute to this occurring?

Sakinah Tillman: Yes. So Black and Brown families are overrepresented among low-income taxpayers due to systemic barriers such as homeownership, education, employment. The priority rate is the highest among African-Americans, around 17.9 percent. And then also Black and Brown taxpayers earn $35,000 less than white families.

Caitlin Mullaney: And can you give us some background on how this has played out over time to our current situation?

Sakinah Tillman: Yes. It first started with a Supreme Court case in 1976, Washington v. Davis. This was an employment discrimination case involving the D.C. Metropolitan Police Department, where they were trying to figure out whether their Test 21 is deemed as racially discriminatory toward Black applicants. And in this case, Justice Byron White mentioned that tax statutes may be more burdensome to the poor and the average Black Americans compared to more affluent white Americans. And then almost 20 years later, the legal academy only began to address these racial inequities within tax policy in the 1990s, starting with Dorothy Brown's article, "Racial Equality in the Twenty-First Century: What's Tax Policy Got to Do with It?" And then after that article, in 2021, Dorothy Brown published her book, The Whiteness of Wealth, where she highlighted all of the racial inequities in tax policy. And then after that, two years later, the IRS formally acknowledged that there's racial inequities in the IRS audit rhythm and how they're able to audit more low-income taxpayers and the wealthy.

Caitlin Mullaney: And moving to the second point in your article: the hindrance that vague collection alternatives on taxpayers' ability to understand their options for relief. Can you elaborate on this a little bit for us?

Sakinah Tillman: Yes. What I've found is that in most states, the statutes that govern payment plans did not specify the duration of the payment plan. With the IRS, you have up to six years. That's the longest time that you can get into a payment plan, but with most states, it's not really clear in the statute. So that will require taxpayers to go online to look at the website to see what it says or even call the departments.

Also, what I have learned is that there's some absence of the statutes when it comes to payment plans. Taxpayers may see it on their website, but there's no statute to govern it. And then when it comes to offer in compromises, most states lack clear calculation guidance on what's considered a reasonable offer. Compared to the IRS, the form is very detailed, and it gives you detail about all the things that are taken in consideration for submitting an offer and what's considered a minimal offer that the IRS can accept.

Caitlin Mullaney: And in the article, you discuss doubt a lot. Can you tell us a little about what you found with the differences between state and IRS's approaches to doubt?

Sakinah Tillman: Yes. I think you're referring to doubt as to liability. And so Michigan stood out the most to me. They have a clear and convincing evidence standard, and this standard is pretty high. It's higher than preponderance of evidence as I've learned in law school and things that you read throughout cases today. But with this clear and convincing evidence, this standard is requiring that the taxpayer needs to show that they will have prevailed in a contested case. Compared to preponderance of evidence is more likely than not, but the IRS, they use a burden of persuasion, and you're just being able to show that there's a likelihood that this liability is not the taxpayer. When I did further research, the clear and convincing evidence standard, you typically see this for more fraud cases, but I'm not really concerned about the fraud cases. I'm more concerned about the audit cases or if there's a dispute with the taxes that the state will assess or amended returns. And so having this standard for different types of tax issues is very high and it may be impossible for a taxpayer to meet it.

Caitlin Mullaney: It's really interesting that there would be such a difference in the standard between the two. Moving on to the next part of your article, you touch on research on a number of collection alternative programs that you've also touched on in this interview offered at both the state and federal level. Would you say there were greater issues seen with any of these programs over others?

Sakinah Tillman: I think the one thing that stood out to me the most is the fact that most of the states that offer in compromises, they're non-appealable. Compared to the IRS, you have the ability to appeal. And this just is very harmful for taxpayers. The right to appeal doesn't mean that you're going to eventually win, but you should have your voice. As you know, humans make mistakes; so do the tax agencies. And so because there's no right to appeal, there's no case law or precedent to guide tax petitioners or taxpayers how to move forward in their case.

Caitlin Mullaney: With the inability to appeal for the state level that you said you saw shared amongst a number of states, were there any exceptions if there were mistakes like you mentioned?

Sakinah Tillman: California would allow you to do an individual review where you are going over the offer in compromise and asking questions so you can resubmit, but it doesn't give you that ability to appeal. And the individual review is most likely with someone that has made a determination on your offer. Compared to the IRS, there's a different department that's reviewing what was submitted at the lower level.

Caitlin Mullaney: And as you've mentioned, there's a lot of vagueness in these state collection alternatives, which is the main point of your research. Can you outline some of the barriers that are built out of this vagueness?

Sakinah Tillman: Sure. Taxpayers don't know the options that are available to them. They are lost in how to calculate what is a reasonable offer or what documents are even required for offer in compromise. And as a result, their offers can get rejected because they don't have all of the necessary documents for submission. There's no appeals rights. So that means that because you don't understand what you submitted before, then you may either try to resubmit again the same issue or you may decide that "I'm just not going to do that at all." And as a consequence, taxpayers will fall further into noncompliance. And this as a collateral consequence, this leads to more punitive enforcements due to the noncompliance, such as one, as I've stated before, the driver's license and the professional license suspension. And with these enforcements, it can also make it difficult to earn income to pay the necessary debt because these enforcements are in place.

Caitlin Mullaney: And that goes straight into my next question. In the article, as you've done here, you go pretty in-depth into the harm that punitive collection enforcement of these license suspensions has had on Black and Brown taxpayers specifically. What would you say is the greatest impact of the taxpayers in their daily lives from this?

Sakinah Tillman: Yeah, I think if you don't have a driver's license and you need that to drive back and forth to work, then it can cause inability to maintain employment. Taxpayers are struggling with just basic necessities, such as food and rent and childcare. And now you add this second piece without having a driver's license. There's penalties that accrue from not having a driver's license. So now they have to figure out what is more important? Should I pay my rent, which I need to have a house, or should I pay the state? And I would just say from my experience, taxpayers will most likely pay their necessities, which is food.
Also, it affects their quality of life. What if you need your vehicle to get back and forth to your medical appointments, the grocery store? I also think about taxpayers that live in rural areas where even though you may not have a driver's license — just using public transportation may not be a viable alternative or a resource for them. And then if you suspend their driver's license, even in metropolitan areas, public transportation can extend commute times, and it could be unreliable.

Caitlin Mullaney: Absolutely. And I think all of us living in an area where there's a lot of reliance on public transportation, you never really know what the next day is going to show for you. And for the next question, it's , I guess, like the buildup question for everything that you've spoken about so far and the codes and the vagueness and everything that goes into them was why are low-income taxpayers the most affected by these state policies?

Sakinah Tillman: I think this is one of my favorite questions. For me, as someone that is a director of a low-income taxpayer clinic, this is a very important question for people to really understand is that low-income taxpayers, they are the most affected because navigating complex tax statutes require professional help. And many low-income taxpayers cannot afford to hire an attorney or CPA. And some don't even know that clinics like at the University of the District of Columbia David A. Clarke School of Law provides — they don't know that they even exist. Also, there's stats that show in 2023, 36.8 million people living in poverty in the U.S. with Black Americans representing 7.9 perent of that population, as I said before. And so when we think about it, this is a huge population that's being affected. And my goal with this paper is to tell states that the rules that you have in place for these collection alternatives need to be clear, so that way all taxpayers can comply.

Caitlin Mullaney: Finally, moving into your research conclusions, your article proposes three different solutions to address the compounding collateral consequences that taxpayers face due to vague state tax collection statutes, including deference to IRS guidelines, eliminating license suspensions, and online publication of relief options. Can you elaborate on the benefit of these proposals?

Sakinah Tillman: Sure. Let's start with the IRS. Although the IRS is not perfect, I think that their framework includes clear statutes that a tax professional can read and understand and apply it. There are regulations. If you don't understand the code, you can go to Treasury regulations for a deeper understanding. And then there's the Internal Revenue Manual that gives instruction to employees on how to follow the rules and what is required when you're evaluating these collection alternatives. And although the states may take a long time to have some of the framework that I outline in my article, I at least want them to start with making sure that the statutes are clear and then also providing a time frame for agency responses. For example, if a taxpayer applies for an offer in compromise at the state level, taxpayers should know how long it would take for the state to make a determination, and there should be a time frame for agencies to respond, and the agencies should be held accountable for those deadlines. I think that with this first proposal, I think this will help improve the transparency and the consistency and equitable outcomes at the state level.

The second part is the states' websites. Most states have what's called a hardship opportunity, and that just means that based on your financial circumstances at the time, you are unable to make monthly payments toward your debt. And some states omit this information on their website, but if you call the state agencies, they will tell you that it exists. And this just makes me think about the burden this has on the nine-to-five taxpayer where you're waiting online for 30 minutes but your lunch break is 30 minutes. So just making sure that this information is available on the websites.

And then the last proposal is eliminate the license suspension. In my research, I found that 75 percent of individuals continue to drive on a suspended license, and this is to travel to work, school, etc. But the issue with this: that this can ultimately lead to unnecessary arrests. So you go from a civil issue to now a potential criminal issue. And for states that are reluctant to eliminate these suspensions, I think that they should align the enforcement thresholds with the federal poverty guidelines. And so what this will mean is that based on your income, if your income is a certain threshold aligned with the federal poverty guidelines, then you're not going to have this driver's license or professional license suspension. And the goal with this proposal is to ensure that the most financially vulnerable taxpayers are not targeted.

Caitlin Mullaney: Thank you so much. And I am not ashamed to admit that until I read your article, I did not realize that unpaid taxes could lead to driver's license or professional license suspension, which to me personally was even crazier. Can't pay your tax bills if you can't make your money. But yes, so is there anything else that you would like to add on the podcast today?

Sakinah Tillman: I would just encourage people to read the piece. There's so much detail in the article, and I look forward for more people to reading about this and bringing awareness about these issues. There's one thing that I will add that I forgot all about this. What made me really interested in this article was two years ago I got a call from one of my colleagues about a Maryland issue dealing with offer in compromises. The taxpayers submitted an offer two years after the due date of the tax return that had a liability, and Maryland said, "No, you did not apply for offer in compromise within two years," which I really highlight in the article, but the Maryland statute says that you have to follow offer in compromise if your tax debt is two years in arrears. However, there's no definition of what arrears mean. And so I've done research to figure out what does this mean? When does the time frame start?

And from that conversation from my colleague two years ago, it really inspired me to do more research about Maryland. And then I realized that although Maryland is the only state that has this two-year requirement, I looked at other states and realized Maryland's the only state that had this issue with the two-year requirement, but other states have other horrible issues regarding collection alternatives. But this led me to write an op-ed last year that was published in the Baltimore Sun about Maryland. And then now I'm in a process of working with Maryland legislators to change the Maryland law. So it all started from a conversation about a taxpayer and his fight in providing advocacy for Maryland taxpayers, and this is where we're at today.

Caitlin Mullaney: Wow. Thank you so much for sharing that inspiration. And I very much look forward to following what happens with the Maryland Legislature and saying that I know somebody helping with that. Well, sadly, that is all the time we have for today. Sakinah, thank you for joining us on the podcast.

Sakinah Tillman: Thank you. This was fun, and I had a pleasure talking about my article and all things tax.

Caitlin Mullaney: I would like to refer our audience for anyone interested to Sakinah's article. It's titled "Impact of Vague State Tax Collection Alternatives on Low-Income Taxpayers."

David D. Stewart: That's it for this week. You can follow me online @TaxStew, that's S-T-E-W, and be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.

Anthony Zoppo: Tax Notes Talk is a production of Tax Notes. You can learn more about us by visiting www.taxnotes.com/podcast. When major media wants the straight story, they turn to Tax Notes. Thank you for listening, and join us again for another edition of Tax Notes Talk.

Tax Analysts Inc. does not provide tax advice or tax preparation services. Nothing in the podcast constitutes legal accounting or tax advice. A full disclaimer is included in the transcript.

Tax Analysts Inc. does not provide tax advice or tax preparation services. The information you have seen and heard today represents the views of the presenters, which may not be the same as those of Tax Analysts Inc. It may include information obtained from third parties, and Tax Analysts Inc. makes no warranties or representations of any kind and is not responsible for any inaccuracies. Nothing in the podcast constitutes legal, accounting, or tax advice. The tax laws change frequently, and neither Tax Analysts Inc. nor the presenters can guarantee that any information seen or heard is accurate. Also, due to changing tax laws, any information broadcast or downloaded after its original air date may no longer represent the current views of the presenters. If you have any specific questions about any legal or tax matter, you should always consult with your attorney or tax professional.

All content in this broadcast is protected under U.S. and international laws. Copyright © 2026 Tax Analysts Inc. Unauthorized recording, downloading, copying, retransmitting, or distributing of any part of the podcast is strictly prohibited. All rights reserved.