More than a year ago, Congress passed law HR 22, which resulted in IRC section 7345 “Revocation or denial of passport in case of certain tax delinquencies”
This is a far-reaching law which covers all taxpayers owing more than $50,000 in back taxes. The intent of the taxpayer to leave the country is not a criterion, nor is it limited to criminal cases, civil penalties are enough.
Before the IRS can revoke your passport, or prevent you from obtaining a new one, these seriously delinquent tax debt needs to be debt for which a:
- Notice of federal tax lien has been filed by the government and all administrative remedies under IRC § 6320 have lapsed or been exhausted or
- Levy has been issued by the government
Some tax debt is not included in determining seriously delinquent tax debt even if it gets to the point described above. It includes tax debt:
- Being paid in a timely manner under an installment agreement entered into with the IRS
- Being paid in a timely manner under an offer in compromise accepted by the IRS or a settlement agreement entered into with the Justice Department
- For which a collection due process hearing is timely requested in connection with a levy to collect the debt
- For which collection has been suspended because a request for innocent spouse relief under IRC § 6015 has been made
It’s not all tax debt that will be enough to revoke a passport: the IRS must complete certain steps before a debt can reach the status of “seriously delinquent tax debt”. For instance, a notice of deficiency should be issued.
Before denying a passport, the Department of State will hold your application for 90 days to allow you to either pay your tax debt, resolve a certification issue (if the IRS asked for such application to be denied when it was the case, either the tax was not owed or it felt in one of the exceptions) or enter into a payment agreement with the IRS.
That said, this 90 days period applies for applications for new passports. Revocation of existing passports would not be subject to any grace period.
While it may seem that the $50,000 is out of reach for most taxpayers, it does include penalties, both penalties assessed under the Internal Revenue Code (which include a few $10,000 penalties for failure to file a form 5471 or a form 3520) as well as the FBAR penalties (also ranging from $10,000 per unreported account to 50% of the account balance), making it easy to reach $50,000.
While the law was passed in late 2015, it is only since February 2017 that the IRS and the Department of State issued the regulations to allow for the two administration to coordinate the implementation of that law.
The IRS has not yet started certifying tax debt to the State Department. Its website states that certifications to the State Department will begin in January 2018. You can check this page to see the current status.
A crucial question will have to do with the internal work that the IRS will have to go thru in order to identify and certify the tax debt. The IRS has many systems listing tax owing, and information may become stale, not reflecting the current status of a debt. Likewise, after certification, the question will remain on the IRS to properly inform the Department of State once a taxpayer has resolved his/her “seriously delinquent tax debt”.
It is a therefore recommended for taxpayers to make arrangements with the IRS such as establishing a payment plan to insure that they are not flagged as such since removing the “seriously delinquent tax debt” classification might not be straight forward.
Prior to revocation, the Department of State will make the passport valid only for travel to the United States. Or it could likewise issue a limited validity passport valid only for travel to the United States.
As such, a US citizen will still be able to travel back to the United States.
It is still possible to comply, contact us now at 1040 Abroad.