If you owe taxes to the IRS, you may want to hold off on planning your next international trip. A new law just took effect that will revoke passports for Americans who owe $50,000 or more to the IRS.
The most vocal critics of the law are American expatriates living abroad. Such Americans need their passports for ordinary activities, such as using a bank account, registering a child for school, or maintaining residency permits. Such individuals may not be receiving their mail from the IRS and may not even be aware that they owe taxes.
According to the Joint Committee on Taxation, the new measure is expected to bring in $398 million in tax revenue within the next 10 years. The provision would not apply to taxpayers who are in the process of resolving their tax debt with the IRS, such as those who have active arrangements with the IRS to resolve their liability.
There are several options for taxpayers who owe. The most common arrangement is an Installment Agreement, with the taxpayer paying the liability over time in monthly installments. The amount of monthly payment typically depends on the taxpayer's ability to pay. For taxpayers who owe less than $50,000, it is possible to setup a Streamlined Direct Debit Installment Agreement, which is easier to set up and allows the taxpayer to avoid federal tax liens.
Another option is an Offer in Compromise (OIC), which is essentially an offer to settle your tax liability for less than the full amount. Whether the IRS will accept an offer, and the amount that they will be willing to accept, is based on the taxpayer's ability to pay. A third option is to place the account in Currently Not Collectible (CNC) status. A taxpayer is eligible for this option is paying any amount to the IRS would create a financial hardship. Under this arrangement, the IRS temporarily stops all collections activities.