Thinking About Traveling Outside the US and Leaving Large Tax Debts Behind? Think Again.
Does the IRS really the power to revoke or deny the issuance or renewal of a US taxpayer’s passport? The answer is yes. Under the Fixing America’s Surface Transportation (FAST) Act of 2015, the IRS may certify that a taxpayer with seriously delinquent tax debts should not receive a newly issued or renew a passport, and the Department of State generally will follow the IRS certification. The IRS certification may also result in revocation of a passport. The FAST Act defines what is a seriously delinquent tax debt and provides specific exceptions to seriously delinquent tax debt definition that allow taxpayers to receive or renew their passport.
A seriously delinquent tax debt is generally defined as an unpaid, legally enforceable and assessed Federal tax liability of an individual totaling more than $52,000 (including interest and penalties) for which a Notice of Federal Tax Lien has been filed and all administrative remedies under IRC § 6320 have lapsed or been exhausted or a levy has been issued. Various penalties may apply, including failure to file, failure to pay, underpayment of estimated taxes and other penalties. Penalties for substantial underpayment of tax or fraud may result in higher maximum penalty amounts. Taxpayers may find that substantial penalties and interest may cause an initial tax assessment of $25,000, for example, may result in a total tax debt of more than $52,000 after penalties and interest have accrued over numerous years. Further, the IRS would likely file a Notice of Federal Tax Lien against a taxpayer’s property for such a large debt. If a taxpayer ignores notices or fails to timely respond to IRS notices, administrative remedies may be lost, and by that point a levy notice would likely be issued. At this point, a taxpayer with large delinquent tax debts would likely need to review the exceptions to issuing or renewing a passport.
The exceptions provided by the statute generally apply when specific actions are taken by a taxpayer to resolve the delinquent tax debts. Among these actions are a taxpayer who is current on an accepted installment agreement related to the delinquent tax debts, a taxpayer who is currently paying on an accepted offer in compromise or settlement agreement, a taxpayer currently in bankruptcy, a taxpayer in currently not collectible status, a taxpayer who has applied for innocent spouse relief, and a taxpayer who is currently using administrative means to challenge a levy. These are the more common exceptions, but there are others to consider.
Taxpayers who satisfy an exception may not receive expedited review automatically. The IRS will reverse the notification to the Department of State within 30 days to allow a passport to be issued or renewed. A taxpayer generally must still qualify for a one of the programs to either reduce or full pay the delinquent tax debts over time. This may not be immediately possible for some taxpayers and is subject to the IRS review process. Taxpayers with delinquent tax debts who have concerns related to the status of their passports or need immediate help reversing a revoked passport can contact attorney Andrew Steiger at Steiger Tax Law via email (andrew.steiger@steigertaxlaw) or (248) 259-6367 for a free consultation.