By Mitchell B. Dubick & Joshua P. Katz
With the 2015 enactment of the Fixing America’s Surface Transportation (“FAST”) Act, Congress provided the IRS with a new tool for putting pressure on taxpayers to pay outstanding tax debts. In addition to an already broad arsenal allowing the IRS to levy assets and accounts, garnish wages, intercept federal payments and state tax refunds, and file notices of lien, the IRS can now notify the State Department of taxpayers who are certified as owing a “seriously delinquent tax debt.” Under this new law, such taxpayers will be denied a new passport, may not have their current passport renewed, and may even have their current passport revoked.
Although this provision was enacted in 2015, the IRS and State Department took some time deciding how to implement it. However, by mid-2018, the IRS began sending letters informing taxpayers that their debts had been certified to the State Department and that their passports would neither be issued nor renewed until they either paid the back taxes in full or made other payment arrangements satisfactory to the IRS.
A “seriously delinquent tax debt” is defined under Code Section 7345 as an assessed tax liability greater than $50,000 for which either a notice of tax lien has been filed or a levy has previously been made. This $50,000 threshold is indexed for inflation; the 2019 threshold is $52,000. Because a notice of lien or intent to levy must first be filed before a taxpayer is considered seriously delinquent, taxpayers who have been delinquent for a short time are less at risk than those with outstanding liabilities for many years.
What is less apparent from much of the publicity surrounding this new law is that those at risk because they owe more than $52,000 have several options to protect their passports without paying the debt in full. For example, the IRS is barred from notifying the State Department of the debts of taxpayers who have:
– Entered into an installment agreement with the IRS
– Had an offer in compromise accepted
– Entered into a settlement agreement with the Department of Justice
– Timely requested a Collection Due Process Hearing following a notice of levy
– Submitted a request for innocent spouse relief
In addition to these statutory restrictions, the IRS has issued guidance that they will not notify the State Department regarding debts of taxpayers who:
– Are in bankruptcy
– Are identified by the IRS as a possible victim of tax-related identity theft
– Are determined to be currently not collectible due to hardship
– Are located within a federally declared disaster area
– Are serving in a combat zone
– Have an installment agreement request pending with the IRS
– Have a pending offer in compromise with the IRS
– Have an IRS-accepted adjustment that will satisfy the debt in full
The IRS notification to the State Department does not automatically revoke a taxpayer’s passport. Rather, passports are still valid until the State Department notifies a taxpayer in writing that a passport is either being revoked or restricted. In addition, the State Department must provide a 90-day holding period for passport applicants who have been certified as tax delinquent to allow for resolution through payment or other arrangements before the application is denied. Moreover, if taxpayers are abroad when they learn their passports have been cancelled or revoked, there are provisions for allowing return to the U.S., either with a current passport being limited to return-travel only, or by issuance of a separate return-only passport. Finally, if the IRS issues a certification of delinquency in error, a phone call directed through proper channels may reverse the error; if not, there are legal avenues for filing suit in either federal district court or the Tax Court.
On balance, this new tool in the IRS arsenal is well-designed to force delinquent taxpayers to deal with federal tax liabilities before traveling abroad for business or pleasure. Tax advisors — whose clients often prefer procrastination rather than dealing with tax problems — can also tout the benefits of arranging a plan in lieu of a passport revocation.
Mitchell B. Dubick & Joshua P. Katz are tax litigators at Higgs, Fletcher & Mack.