November 29, 2022
IRS newly serious about blocking passport access for high tax debt
The procedures are complex and the agency appears fairly rigid in it enforcement of the law.
While the law restricting passport access for taxpayers with serious tax debts has been on the books for a while, until 2018, the IRS had refrained from enforcing it. Everything changed in February, when the agency went ahead, apparently full throttle, putting into place a coordinated procedure with the Department of State, which administers passports, to restrict passports for taxpayers certified to have “seriously delinquent tax debt.”
The IRS submits a certification to the State Department when a taxpayer has seriously delinquent tax debt, so the Department can restrict (revoke or deny) the person’s passport. If a taxpayer is abroad when the State Department restricts his or her passport, the State Department will let the passport holder return directly to the U.S.
For 2018, the debt level is set at more than $51,000 in federal tax delinquency, including penalties and interest. Annually, the agency will adjust the amount for inflation. It does not include state or local tax debt, FBAR penalties for failing to file forms about certain foreign bank accounts, Affordable Care Act assessments and some other items. It does include tax preparer penalties and employer trust fund recovery penalties assessed to individuals.
Other aspects of the law
A new article in The CPA Journal lays out the law and IRS procedures in detail. Importantly, not only must there be an assessed tax debt at the defined level, but also the IRS must have filed a notice of lien and one of these be true:
- The taxpayer exhausted his or her right to hearing on the notice of lien.
- The taxpayer’s right to hearing on the lien has lapsed.
- The IRS has made a levy on the debt.
Many exceptions exist and the IRS could create more. Some include:
- The IRS has approved an offer in compromise or installment agreement and the taxpayer is current on payments.
- Collection is suspended pending a requested collection due process hearing.
- An innocent spouse relief request is pending.
- The taxpayer is on active military duty in certain theaters.
- The delinquency resulted from identity theft.
- The taxpayer has filed a petition for bankruptcy.
- There is a pending request for an installment agreement or offer in compromise, but only if the taxpayer made the request in good faith and not to put off collection action.
- And others
Pay attention to IRS correspondence
The IRS will send only one notice of certification of seriously delinquent tax debt to the taxpayer by U.S. mail, so it is important that any taxpayer with significant tax debt, even if the taxpayer has contested the delinquency, pay close attention to all IRS correspondence received. The IRS will send the notice at the same time the certification goes to the State Department, so once notice arrives, the passport is already in jeopardy. After certification, if the taxpayer applies for a passport, he or she will have 90 days to work out an acceptable resolution with the IRS. Options are narrow and include paying the full amount or getting an installment agreement or offer in compromise approved.
There are only narrow remedies if the taxpayer needs to travel sooner. According to the article, the IRS is not making significant efforts to expedite debt resolution requests for these taxpayers despite plans for international travel, except in “emergency circumstances or for humanitarian reasons.”
The law provides for decertification in certain instances or the taxpayer may request review in Tax Court or federal district court.
Passport restrictions could impact business opportunities
The CPA Journal cites the Taxpayer Assistance Service for the estimate that 270,000 taxpayers have seriously delinquent tax debt without falling under an exception.
This new threat to international mobility could have significant impact on business executives and other business taxpayers whose livelihoods depend on regular or even occasional travel if the trips are crucial to negotiating or closing important transactions. Anyone in this situation should talk to an experienced tax attorney as soon as possible so that all options for resolution are considered and enough time is available to negotiate with the IRS or prepare submissions.
The tax attorneys at Brown, PC., in Fort Worth represent taxpayers and tax preparers facing potential passport problems related to tax debt across Texas, nationally and around the globe.