HJR 23 - SALE OF LTD ENTRY PERMITS BY IRS Number 073 CO-CHAIRMAN HUDSON announced the committee would hear HJR 23, Relating to the seizure and sale of Alaska commercial fishing entry permits by the United States Internal Revenue Service. Number 0195 BRUCE TWOMLEY, Chairman/Commissioner, Commercial Fisheries Entry Commission, Department of Fish and Game, came before the committee to give testimony. He informed the committee that for more than ten years the Internal Revenue Service (IRS) had attempted to seize and force the sale of limited entry permits. Therefore, it might be helpful to review what the legislature had in mind when it established limited entry permits. He explained, they were a privilege and that the state reserved the right to take them away. They were awarded initially to individual fishers, primarily Alaskan fishers, who most needed their fisheries. They were awarded on the basis of need and the permits were the means by which Alaska fishers protected their access to their traditional fisheries-that was often the case in rural communities where commercial fisheries were the only source of cash income to many residents. Limited entry permits represented both the right to work and a way of life. MR. TWOMLEY explained the permits were also important in terms of the state's enforcement of its conservation laws. The legislature thought in establishing a permanent interest in a fishery that it would give fishermen a stake in the fishery and an incentive to conserve the resource over time. "If you know your going to be there next year, there's an incentive to make sure that the fish are coming back." At the same time, the state reserved the right to take away limited entry permits from individual fishers who did not obey conservation laws. The state had a powerful enforcement tool and this was one reason why it had not been eager to have third parties, such as, the IRS, come in and take limited entry permits away; it undermines the conservation incentive. MR. TWOMLEY informed the committee members, that during the ten year period the IRS attempted to force the sale of entry permits, there had been some changes in the federal law for the IRS too. Congress attempted to make the IRS a somewhat kinder and gentler collection agency. It directed the IRS to not take items held by taxpayers when doing so would cause hardship to the tax payers. As a consequence, the IRS came to the Commercial Fisheries Entry Commission in 1992, and asked for help in collecting taxes from permit holders around the state. The commission agreed to help the IRS in any way it could without compromising state law. As a starting point, the commission pressed the IRS to provide statistics on the extent of the problem and where, geographically, in the state permit holders had this problem. The IRS produced the statistics which were both revealing and encouraging. It was encouraging because the numbers were not as great as even the IRS feared. The IRS was talking about some 4,000 Alaskan permit holders who were not in compliance with federal taxes when in fact, the number turned out to be something over 2,000. The permit holders resided all over the state-in urban and rural communities. In addition, the amount of taxes owed really wasn't terribly great. It was a manageable number. He cited 80 percent of the permit holders owed $30,000 or less which made the problem look more manageable than what was feared. Upon receiving the information from the IRS, the commission came to the legislature in 1994 and shared the statistics. The legislature responded by creating a new category of loans within the existing commercial fisheries loan program-the tax obligation loan program. These were secured loans. The legislature put a limit at $30,000, and required that an individual could only apply for one of these loans one time in their life. The legislature called for the expiration of the program in May of 1997 giving it a life of three years. MR. TWOMLEY further stated that the loan program turned out to be a very valuable tool because a number of people around the state had already been alerted to the problem and were helping, particularly in the rural communities, to bring fishers into compliance. He cited Jerry Liboff, from Dillingham and the community development quota (CDQ) outfit for the Bristol Bay Economic Development Corporation that started a local private agency in Dillingham, headed by Bernice Heyano. In addition, the Alaska Business Development Center, a quasi-public agency in Anchorage, had been tremendously helpful by working around the state in virtually every community to help fishermen come into compliance. The loan program, he reiterated, had been a very valuable tool. It had helped fishermen come forward with more hope and with less fear of the IRS. It also had generated a lot of revenue for the IRS. Mr. Twomley was trying to get current statistics from the IRS to measure the improvements from 1994. The statistics that he did have came from IRS summons. The commission, he explained, was hit with a summons that named individual permit holders identified by the IRS as non-filers for the year 1992. It included more than 2,000 individuals from communities statewide. The commission was recently hit with the same summons that applied to non-filers for the years 1993 and 1994. The numbers were down from 2,000 to 684 over the two years. There was something to show for the cooperation that had gone on for both the IRS and for the state. The bad new, however, was that the IRS was no longer managed in Alaska. The IRS Alaska district was rolled into other districts to include Hawaii, Washington and other states. It was now managed out of Seattle, Washington. Furthermore, the IRS gave the commission a terrible surprise just before Christmas, despite cooperative efforts and various commitments from the IRS. It gave the state two days notice and scheduled for sale two limited entry permits from Cook Inlet. The permits were held by individuals who needed them as a primary source of income for their families and themselves. The IRS threatened to sell the permits, valued at $30,000, for as little as $3,375. The sale was also accompanied by a written threat from the IRS Director to do more of the same. In addition, a revenue officer said that he would go to Dillingham and see some seven limited entry permits. Mr. Twomley personally received a call from an Anchorage widow who told him that a revenue officer had threatened her with the sale of her and her deceased husband's permits for as little as $3,000. In addition, the people who had been calling the revenue officers about the sales, began calling the commission. The commission had affidavits from them as to what the revenue officers told them about the sales. The affidavits said that the sales were known about at the highest level in the IRS, the Commissioners Office in Washington D.C., and that it was designed to help the IRS win its fight with the state. Finally, the affidavits said, that if the IRS could just get one of these permits transferred, it would open the flood gates to permit seizures and transfers. He was grateful to Representative Hudson for introducing the resolution. He was also grateful to Representative Ivan for introducing a bill to extend the loan program because it had been a valuable tool. Number 0842 C0-CHAIRMAN HUDSON thanked Mr. Twomley for his testimony. He summarized the contents of the bill to show justification for introducing it. C0-CHAIRMAN HUDSON explained there had been considerable action of the IRS to take $30,000 permits and to sell them for $3,000. And, in that process, it took away the opportunity for the people who owed money to earn any money to pay their obligations. There were significant changes in the tax laws at the federal level around 1989. Was that correct, Mr. Twomley? MR. TWOMLEY replied it was 1988. Number 0906 C0-CHAIRMAN HUDSON further stated that the tax laws tried to level the field on behalf of the tax payer. The resolution compliments the efforts of the Governor to try to get the congressional delegation to rein in on the IRS from actions that were not good for the interest of the public. If people owed a great deal of money and the IRS seized property that was worth more than what it could sell it for, and they took away their livelihood, the IRS loses, and the American tax payer loses. The resolution did not try to eliminate the IRS from collecting taxes that were due and payable; it just asked the congressional delegation to use any means available to them to assure that the IRS collect past due taxes from the income generated by the sale of fish and the voluntary sale of entry permits, as opposed to a seizure. And, to ensure that the IRS complied with federal law to avoid inflicting economic hardship on the tax payer while, at the same time, protecting the fishing privileges and the right to work by Alaska fishermen. The limited entry permit was an effort to try to manage the fisheries and to provide an opportunity for people who had fished for a long period of time to continue that type of livelihood. He reiterated the resolution was complimentary. It was a strong appeal on the part of the legislature and a strong statement to the congressional delegation. It would be useful to the congressional delegation when they went to the IRS because they could say that the people of Alaska, who had spoken through the legislative process, were offended by the sale of permits that were valued at $30,000 and sold for $3,000, and by taking away the livelihood that the people needed to pay their taxes. Number 1040 REPRESENTATIVE JOE GREEN asked Co-Chairman Hudson if he was ready for questions? C0-CHAIRMAN HUDSON replied he was ready for questions either way. REPRESENTATIVE GREEN stated this seemed like a worthwhile endeavor. He wondered if the state of Washington was doing something similar to add to the movement, because Alaska was in constant competition with fishermen from Washington. Number 1063 MR. TWOMLEY replied he did not know if there was specific action in Washington. He did know that the actions by the IRS had been directed at Alaskan fishermen-exclusively-as far as he could see. "And, so we have a problem here that largely resides in our communities." Number 1085 C0-CHAIRMAN HUDSON stated that the permits were the province of the state of Alaska so by taking this action it called for an even playing field on behalf of the fishermen and women. It also guaranteed that the use and the control of the limited entry permit was maintained on Alaska's behalf. Number 1106 REPRESENTATIVE GREEN stated there were several out-of-state permits granted. Mr. Twomley indicated that the IRS targeted only Alaskan fishermen rather than all of the people who had an Alaskan permit. MR. TWOMLEY replied, to date, the only enforcement action had been directed towards Alaskan resident entry permit holders. Number 1127 REPRESENTATIVE GREEN asked, wouldn't that smack of prejudicial treatment and wouldn't that be held unconstitutional by singling out Alaskan residents rather than Alaskan permits? If that was the case, it would strengthen the resolution. He suggested that the legislature look into very serious actions against the IRS. Number 1151 C0-CHAIRMAN HUDSON said he was not an attorney, but that was a valid point. Number 1157 MR. TWOMLEY stated one of the requests from the resolution was that the IRS simply observe federal law. It was the restraining elements of the federal law that would keep the IRS from causing hardship to the tax payer. The resolution would help all tax payers, as a result, throughout the United States. It served a general purpose by keeping the IRS honest under those restraints. Number 1198 REPRESENTATIVE GREEN stated he belonged to the Energy Council which got its clout as a result of the union of several states; it spoke in one accord. Therefore, "We would get more bang for our buck, I would think, if we could get through the Washington Legislature a similar thing, since it affects-certainly should-affect some of their citizens as well. And, from that stand point, I think, we would have a little more clout against the IRS than just this resource state that's way up in the North Pole that nobody really cares much about back in Washington." Number 1232 C0-CHAIRMAN HUDSON stated his intentions, as a representative of the people of Alaska, were to try to protect the livelihoods and the interests of the constituents; and at the same time, to try to protect the limited entry permits. He would like to see if there was any overt discrimination against Alaskans. He did not want to slow down the resolution, however. If there was discrimination, then there should be additional proceedings through the court from the attorney general. It was a very good point. He thanked Representative Green for bringing it up. Number 1313 JERRY MCCUNE, Representative, United Fishermen of Alaska, was the first person to testify in Juneau. He stated that the United Fishermen of Alaska were being targeted unfairly as Representative Green pointed out. The IRS had many avenues to collect money. And, one was to not take a person's livelihood away. The IRS could take boats, it could make arrangements while one was fishing to pay the back-taxes, or one could voluntarily sell a permit and other assets. "I think it's just a thing that the IRS has been trying to do for 10 years and they want to break the barrier to get their hands on these permits because they know they sell them real cheap and fast, and it might not be to state residents either." The United Fishermen of Alaska, he declared, did not support people not filing or paying their taxes or not making arrangements with the IRS to try to attempt to pay their taxes. Number 1391 C0-CHAIRMAN HUDSON stated he would like to move the resolution out of the committee. Number 1404 REPRESENTATIVE GREEN moved that HJR 23 move from the committee with individual recommendations and the attached zero fiscal note. There was no objection, HJR 23 was so moved from the House Resources Standing Committee.