Are you about to embark on a business trip to Latin America or a well-needed family vacation to Italy or Paris? Do you work for a technology company and frequently travel overseas to Singapore or other Asian countries for work? Are you married to a person who has an outstanding tax liability? Well, it may come as a surprise to you, but if you have a large balance due to the IRS, you may find yourself without a passport and permanently grounded unless you handle your tax issue relatively soon. This means, for example, entering into an installment agreement, filing an offer in compromise, filing a request for innocent spouse relief, or taking some other steps to properly take care of a delinquent account.
Congress amended the Internal Revenue Code by adding new Code Sec. 7345, effective December 4, 2015. This new code section authorizes the IRS to certify a seriously delinquent tax debt to the State Department for action. Upon receiving this certification, the State Department shall deny a taxpayer’s passport application and/or may revoke a current passport. The IRS has not yet started certifying tax debt to the State Department, but certifications to the State Department will begin in January 2018, according to the IRS’ website.
More than $50,000
Not all tax liabilities are subject to the new procedures that authorize the revocation of a passport. The balance due to the IRS must be more than $50,000 (including interest and penalties), and:
- Notice of federal tax lien has been filed and all administrative remedies under IRC § 6320 have lapsed or been exhausted; or
- Levy has been issued.
If a tax debt meets these conditions, it’s considered a “seriously delinquent tax debt” and is subject to the new passport rules. The IRS automatically issues collection notices to taxpayers with delinquent accounts, and, if the balance remains unpaid, the IRS has the authority to file a notice of federal tax lien and/or levy the taxpayers’ bank accounts to collect the balance due. This typically occurs when taxpayers have ignored the IRS collection notices and failed to offer a collection alternative, such as an installment agreement or offer in compromise. Consequently, it’s important for taxpayers to carefully and slowly read the collection notices issued by the IRS and properly handle their tax issues. Ultimately, the ball is in taxpayers’ court to handle their collection issue or run the risk of facing collection action.
Some tax debt is not included in determining seriously delinquent tax debt even if it meets the above criteria. 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; and
- For which collection has been suspended because a request for innocent spouse relief under IRC § 6015 has been made.
Consequently, taxpayers with a large balance due to the IRS should avail themselves of one of these options to prevent the IRS from taking collection action and risk having their passports revoked. Competent tax counsel can assist a taxpayer in these collection procedures.
Notification and Right to Judicial Review
Under the new law, the IRS is required to notify a taxpayer if the IRS certifies that a taxpayer has a seriously delinquent tax debt. After the taxpayer receives such notification, he or she has a right to bring a civil action against the United States in a district court or the Tax Court to determine whether the certification was erroneous or whether the IRS failed to reverse the certification. No cases have yet to be heard in court because the law is new, but expect litigation in the upcoming years as taxpayers seek to hold onto their passports and challenge the IRS’ certification under the new law.
Taxpayers who have a balance due to the IRS greater than $50,000 should timely to handle their tax collection issue or risk losing the ability to travel overseas. Taxpayers facing this issue should contact competent tax counsel, who can explain their options and formulate a defensible solution.