We expect to occasionally hit a chuck hole as we travel the road through life. But Congress created a giant crater to swallow us up when it allowed a line to be quietly slipped into the 2008 Farm Bill that empowers the federal government to collect on "bad debts" older than 10 years.
It's no surprise that neither bureaucrats, nor lawmakers want to claim credit for this trick. But after the IRS has long advised that we do not have to keep our financial records for more than three years, it seems they were just kidding. The federal government can now go back decades to collect what they say taxpayers owe. It's tough luck if we cannot prove otherwise.
A few days ago, The Washington Post reported the case of Mary Grice, a 58-year-old employee of the U.S. Food and Drug Administration, who lives in Maryland. Grice's father died in 1960, when she was 4 years old. Her mother raised five children on the father's Social Security survivor's benefits. Also receiving benefits was the father's first wife, who Grice never met.
The Social Security Administration claims that they overpaid someone from her father's account $2,996 in 1977. Grice's mother is now dead. And the administration says it cannot be sure who was overpaid. But in such cases, they start collecting from the oldest sibling. Although Grice is actually a middle child, her federal and state tax refunds were withheld to pay the debt. Grice is suing.
The Post reported that since the drive to collect on very old debts began in 2011, the Treasury has collected $424 million in debts that were more than 10 years old. The Social Security Administration alone has identified 400,000 taxpayers who collectively owe $714 million on debts more than 10 years old.
After reading news stories about the Grice case, a client walked into my office in near panic.
Now retired, my client is the oldest of six children. His 41-year-old father died of a massive heart attack in 1964, when my client was 16 years old. His stay-at-home mother supported the family with the father's Social Security survivor benefits.
When he turned 18, my client got a full-time job and was no longer eligible to receive Social Security benefits. In her later years, his mother moved to the Midwest to live with her sister. When she died a decade ago, other family members closed out her accounts and disposed of her financial records. If the IRS comes knocking on his door, my client fears he will have no way to fight a claim.
"What should I do?" he asked. "Pray they don't come knocking," I answered.
None of us should think this is just someone else's problem. If the federal government can collect on an alleged debt that is 20, 30 or 40 years old, anyone can be targeted. And who keeps records that old?
Not long ago, an aging boomer client complained to me that he had suddenly begun receiving calls from bill collectors claiming he had not repaid his 1964 federally-insured student loan. Each call cited a different debt amount; some claimed he owed on multiple loans. In truth, my client took out only one loan for $500 to attend a summer abroad program. His parents paid off the debt as a graduation gift. His parents now are dead and he has no records of the loan or repayment. He is refusing to pay.
There is no advice I can give someone to make this problem go away. Only Congress can do that by returning to a reasonable 10-year limit on collecting a debt that often stems from a mistake the government made.
Steven Van Metre is a Bakersfield financial planner who specializes in retirement income strategies and teaches a course on retirement planning for the Levan Institute for Lifelong Learning at Bakersfield College. His website is http://www.myretirementplanningcoach.com/. These are his opinions, not necessarily The Californian's.