Passport Revocation Gives the IRS More Leverage Against Taxpayers

The IRS already has many tools at its disposal to force taxpayers to pay delinquent tax debts. Recently, the IRS added another weapon to its arsenal. Now, taxpayers with significant tax deficiencies could be barred from traveling internationally, as the IRS is revoking or denying passport applications and renewals for taxpayers with significant tax liabilities. This raises potential complication for domestic travel as well. For taxpayers living in states whose driver's licenses and identification cards do not meet certain standards (as part of the REAL ID Act), their passports will no longer be available as a valid ID alternative for use with TSA while traveling by air within the United States.

The Internal Revenue Code §7345(e) in conjunction with the "FAST Act" (see Fixing America' s Surface Transportation Act, Pub. L. No. 114-94, § 32101), enacted on December 4, 2015, authorizes the IRS to send notice to the State Department to deny, revoke, or limit a taxpayer's passport if the taxpayer has a "seriously delinquent tax debt" and other collection procedures, including filing a lien or placing a levy, have been exhausted.

Is Your Passport at Risk? - Implementation Will Start Soon

The IRS website indicates that implementation of the passport revocation procedures will begin in early 2017 with certifications being issued to the State Department. Don't wait for the IRS to send notice to the State Department to take your passport and limit your ability to travel for work or pleasure. Once the Notice of "Certification of Individuals with Seriously Delinquent Tax Debt" has been issued by the IRS, the State Department can revoke your passport at any time. The IRS is required to send the taxpayer written notification - Notice CP 508C - which will be sent to the taxpayer's last known address by regular mail.

There is no grace period to resolve your tax debt or additional notice of passport revocation, except for taxpayers who are currently traveling outside the United States. In these situations, the State Department will likely limit your passport to allow you to return to the United States. In terms of denying passport applications or renewals, the State Department may give taxpayers 90 days to resolve the issue with the IRS, either through payment in full, an approved installment agreement or by resolving any errors on the part of the IRS. Although a taxpayer may bring a civil action against the Service to contest the validity of the certification, the specific procedures for doing so have not yet been defined, and a "quick fix" is unlikely.

What is "Seriously Delinquent Tax Debt?"

The IRS has a low threshold to pass in order to issue a certification to deny, revoke, or limit a taxpayer's passport, given the amount of what constitutes a seriously delinquent tax debt. First, the total amount of unpaid, legally enforceable, assessed debt owed, including penalties and interest, must be more than $50,000. This amount will be adjusted yearly for inflation. Second, the IRS must have already taken formal collection action, including filing a lien or placing a levy on the taxpayer.

The IRS does not consider taxpayers who are repaying tax debts in an approved installment plan or offer in compromise to have seriously delinquent tax debt. Furthermore, taxpayers who have requested a collection due process hearing regarding a levy or taxpayers who have requested innocent spouse relief are not considered seriously delinquent under this rule.

How can a Taxpayer with Significant Debt Avoid Passport Revocation?

Simply paying enough of the tax debt to get below the $50,000 threshold will not stop the IRS or the State Department from taking action. Rather, the taxpayer must make arrangements to resolve the outstanding balance through an approved installment agreement, offer in compromise, or payment in full. (It is not yet clear whether the automatic stay imposed by a bankruptcy filing will stop the passport revocation or application denial process.) If the taxpayer believes some or all of the debt is not legitimate, he or she can contest the liability or bring a claim against the IRS. Taxpayers may bring a civil action against the Internal Revenue Service for failing to reverse the certification or for the issuance of an erroneous certification.

Once your passport has been placed on the notice list, it will take time to get the process reversed, even if you have paid the taxes in full. The IRS will send notice to the State Department within 30 days of satisfaction of the debt or when the debt is no longer considered a seriously delinquent debt; however, it will then take the State Department a while to restore the taxpayer's right to travel. Whether this process will impact those taxpayers with dual citizenship is not yet clear.

Any taxpayer with seriously delinquent tax debt needs to consider enlisting the services of an experienced lawyer. With decades of experience, Attorney Christin M. Bucci of Bucci Law Offices provides effective, skilled representation to taxpayers across the United States and globally.