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Passport restrictions a reality for some unpaid taxes

President Donald Trump recently signed a new travel order that limits entrée to the U.S. for people coming from certain countries. This highly publicized notice has many American companies scrambling to work around travel restrictions for remote or traveling employees that could leave them stranded outside the U.S.

A much less attention-grabbing travel restriction has also quietly gone into effect this month, however, one involving the loss of international travel privileges for some American citizens with tax debt.

"Seriously delinquent tax debt"

The travel restriction at hand doesn't apply to everyone who happens to be a bit behind on their taxes, or to people who only owe a few thousand dollars. Instead, these consequences will only fall to those taxpayers who:

  • Owe at least $50,000 (inclusive of interest and penalties, so it is possible to owe less in actual tax debt)
  • Have tax debt formally assessed by the IRS (the restrictions at issue here don't flow under federal law for debts owed to individual state taxing authorities, though states may have their own significant penalties for nonpayment of taxes)
  • Are subject to an IRS notice of lien or levy

Basically, these travel restrictions are the proverbial "nuclear option" for the IRS; they are only to be used in situations where the debt is substantial in nature and standard, less-extreme collection methods have proven ineffective.

State Department involvement

After the IRS has certified that someone does have "seriously delinquent tax debt" and no action has been taken to pay the debt, set up a payment plan arrangement or present an offer in compromise for payment, the IRS can petition the U.S. State Department to limit, revoke or deny passport privileges. Interestingly, someone just in the passport application stage has more rights here than someone with an existing passport.

A passport applicant with qualifying tax debt will, upon certification of IRS request for State Department involvement, be subject to a 90-day hold during which time he or she can take steps to mitigate the tax issue by payment in full, offer in compromise or payment plan arrangements. It is not sufficient to just pay down the debt to under the $50,000 threshold, however.

Someone with an existing passport won't have the luxury of that 90-day window in which no further action is taken. Once the State Department has certified that action has been requested, an existing passport can immediately be revoked or limited. This potentially means that U.S. citizens currently traveling abroad for business or pleasure could find their entrée back into America fraught with difficulty. It is possible to have "return-only" privileges instated that will allow for travel back to the U.S. to settle the tax debt; the State Department doesn't want to strand Americans abroad, so provisions have been included in the law to prevent that from happening.

Avoiding such serious consequences

Of course, these consequences aren't taken for your run-of-the-mill delinquent tax debts. Ignoring the IRS' attempts at collections will never be a good strategy for managing your business or personal finances, though. If you have delinquent taxes, it is possible to work with a qualified tax attorney to have the tax amount lowered or to get on a payment plan that gives you much-needed time to make good on your debts without the IRS resorting to such extreme measures.

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