House OKs use of credit cards for taxes

May 18, 1994|By Bloomberg Business News

WASHINGTON -- Uncle Sam wants your plastic.

The House of Representatives yesterday voted to allow Americans to use their credit cards to pay taxes, part of a larger package of legislation passed by the House to streamline procedures for paying taxes.

The credit card method is designed to corral the hundreds of thousands of Americans who each year find themselves short of cash April 15 and make the mistake of failing to file a tax return.

Although the idea of paying the tax bill in the same manner as buying a dress or a suit appeals to many people, the issue is more complicated than that.

"In general, we'd give it a lukewarm endorsement," said Pete Sepp, a spokesman for the National Taxpayers Union. "There's something rather ironic about a government that's already $4.5 trillion in debt allowing its citizens to go into debt to pay taxes."

In fact, one of the only reasons the National Taxpayers Union supports the concept at all is because it might keep would-be tax evaders from running afoul of the Internal Revenue Service.

"Other than that, we don't think the IRS should have the convenience of being able to debit taxpayers," Mr. Sepp said.

There are other concerns, as well. Under the version of the bill that passed yesterday, credit card companies fear they might wind up holding the bag for people who put taxes on their Visas or Mastercards, then file for bankruptcy.

As a "secured creditor," the IRS is first in line to collect its debts when a taxpayer files for bankruptcy. Under the bill that passed the House, the tax burden of bankrupt people who charge their tax bills would shift to the credit card company.

The companies want the legislation to acknowledge that regardless of the financial solvency of the taxpayer, he or she would never be relieved of tax liabilities.

That issue wasn't resolved in the House, according to a spokesman for Rep. Dan Rostenkowski, D-Ill., chairman of the tax-writing House Ways and Means Committee.

For credit-card holders, a different issue arises: one of privacy. Once a cardholder puts his taxes on his credit card, that information could become part of internal analyses conducted by the credit card company. Or, though nearly all companies claim they don't do this, the information could be sold to a third party.

Another fear is what might happen if the IRS makes a mistake on a person's tax return and he or she winds up paying too much. How does the filer collect a refund?

"You'd be surprised what the IRS told us," said one Citicorp executive who declined to be identified. "That's your problem, because if it's charged [on a credit card], it's you who has to resolve it."

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