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Tax-related passport restrictions to become reality in March

The 2015 Fixing America's Surface Transportation Act added a tool for the IRS to collect large tax debts. This was likely included as a measure to pay some of the cost of the bill.

The IRS working in coordination with the U.S. State Department was granted the power to deny, revoke or limit the ability of seriously delinquent taxpayers (who owe more than $50,000 in back taxes) to use their U.S. passports. In our April 2016 blog post, we answered the question of whether your passport could be seized at the border. Here we'll provide an update.

Letter 508C: What is it?

Similar to nearly all IRS forms, this one comes with a long title: Notice of certification of your seriously delinquent tax debt to the State Department. In late March, this letter will be sent to your last-known address.

A notification will also go to the State Department. It is also still unclear how the State Department will decide to deny, revoke of limit your passport.

How can you remove passport restrictions?

The threshold definition for seriously delinquent is $50,000. Could you pay off enough to get below that amount to avoid issues?

It's not exactly clear, but you'd probably need to pay the balance under $50,000 and also set up a streamlined installment agreement. Payment terms on these plans offer up to 72 months to pay off the tax debt.

If you owe more than $100,000, you can follow the same process as above. Pay the debt down to under $100,000 and enter the new IRS expedited installment agreement process. When you need more than 84 months to pay a back tax debt between $50,000 and $100,000, filing a detailed collection information statement may be an option. It can however take months to receive IRS approval.

Settling debt through an offer in compromise is another way to avoid the passport restrictions. But you cannot delay, if you know that know that you will never be able to pay off the amount you owe. While not a common exception, the IRS did approve 27,417 of the 67,000 the case submitted in 2015. The odds of having an offer approved increase with the assistance of an experienced tax attorney advising you through the process.

Each situation is unique. While the new process is still in development, please contact one of our tax attorneys at Brown PC for individualized advice.

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