In the past, the U.S. Internal Revenue Service (IRS) could garnish wages, file liens or levy assets and accounts of tax defaulters. Now, the latest addition to this list is revocation of the taxpayer’s U.S. passport.
In 2015, the U.S. government passed a law under the Fixing America’s Surface Transportation Act (FAST) Act, that allows the IRS in collaboration with Department of State (DOS) to withhold someone’s U.S. passport from being issued, renewed or revoked. Although the law was passed in 2015, the IRS began sending certifications of unpaid tax debt to the State Department in February 2018.
The following is a brief overview of this IRS regulation.
IRS Allowed To Revoke U.S. Passports of Certain Tax Defaulters
The Passport Revocation Law
Under Internal Revenue Code (IRC) Section 7345, the IRS is authorized to report those taxpayers to the U.S. Department of State (DOS) who have seriously delinquent tax debt. The Department of State will not issue or renew a passport to any individual who has been certified by the IRS as having a seriously delinquent tax debt, and may revoke a passport previously issued to such individual.
Qualifying Delinquent Taxpayers
A seriously delinquent tax debt is an unpaid and legally enforceable federal tax debt. As of now, tax debt above $51,000 (including interest and penalties) is the threshold amount, which will be adjusted for inflation on an annual basis.
IRS will revoke passports of only those delinquent U.S. taxpayers who have been notified of their federal tax lien and the IRS has exhausted all administrative remedies for collection available under IRC §6320 to obtain the tax amount or those for which a levy has been issued.
Delinquent taxpayers who are making installment payments, are participants to an offer-in-compromise agreement do not need to worry as long as the payments are being made regularly. This rule, also, does not apply to taxpayers whose tax debt has been forgiven due to innocent spouse relief request made under IRC §6015 or taxpayers currently in the process of court hearings regarding a levy against their tax debt.
Additionally, a passport will not be at risk under this program for any taxpayer:
- Who is in bankruptcy
- Who is identified by the IRS as a victim of tax-related identity theft
- Whose account the IRS has determined is currently not collectible due to hardship
- Who is located within a federally declared disaster area
- Who has a request pending with the IRS for an installment agreement
- Who has a pending offer in compromise with the IRS
- Who has an IRS accepted adjustment that will satisfy the debt in full
NOTE: Certification will be postponed while an individual is serving in a designated combat zone or participating in a contingency operation.
The Passport Revocation Process
Firstly, the IRS will issue ‘Notice CP 508C’ to the taxpayer by mail after all measures have failed. This notice will basically notify the delinquent taxpayer that the IRS is certifying their seriously delinquent tax debt to the State Department. The notice will be mailed to the address used while filing your most-recent tax return. If you have moved in-between this period it is your responsibility to inform the IRS.
The DOS will hold this passport revocation application for 90 days before denying a passport. Within this 90-day period, the taxpayer may resolve this situation by either taking court action or making full payment of their tax debt, or negotiating with the IRS and arriving at an alternative payment arrangement. If the matter is not resolved within the 90 days, the DOS will simply revoke the passport with no additional time to resolve the situation.
If a taxpayer’s passport application is denied or the passport is revoked while the person is overseas, the State Department may issue a limited validity passport good only for direct return to the United States.
Resolving the Passport Revocation Situation
The situation is resolved when the tax debt is:
- Fully satisfied,
- Declared legally unenforceable,
- No longer seriously delinquent , or
- The certification is erroneous.
A tax debt is no longer seriously delinquent when:
- The taxpayer enters into an installment agreement to pay the debt over time.
- The IRS accepts an offer in compromise to satisfy the debt.
- The Justice Department enters into a settlement agreement to satisfy the debt.
- Collection is suspended because the taxpayers requests innocent spouse relief..
- The taxpayer makes a timely request for a collection due process hearing regarding a levy to collect the debt.
The IRS will not reverse certification where a taxpayer requests a collection due process hearing or innocent spouse relief on a debt that is not the basis of the certification. Also, the IRS will not reverse the certification because the taxpayer pays the debt below $51,000.
The IRS will then issue ‘Notice CP 508R’ notifying the DOS and taxpayer that the tax debt is no longer delinquent. The IRS, generally, tries to issue this notice within 30 days from the date the situation is resolved.
Legally Unenforceable & Erroneous Passport Revocation
Taxpayers who feel that the IRS made a mistake or the situation is explainable, can file suit in the U.S. Tax Court or a U.S. District Court to have the court determine whether the certification is erroneous or the IRS failed to reverse the certification when it was required to do so.
If the court determines the certification is erroneous or should be reversed, it can order reversal of the certification. However, the court does not have authority to release a lien or levy or award money damages in a suit to determine whether a certification is erroneous. You are not required to file an administrative claim or otherwise contact the IRS to resolve the erroneous certification issue before filing suit in the U.S. Tax Court or a U.S. District Court.
Taxpayers who have received a notice regarding passport revocation should contact the IRS on the contact numbers mentioned on the Notice. However, as a safe practice, it is best to consult a tax professional for advice and resolution based on your personal tax situation.
AG TAX LLP CAN HELP
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance.
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