Newly Signed Law Allows the IRS to Inform the Department of State That Delinquent U.S. Taxpayers Should Have U.S. Passports Revoked 

Effective December 4, 2015, the IRS may now have the U.S. State Department revoke the passports of U.S. taxpayers, including 7 million U.S. citizens living outside the United States (“expats”), if they owe more than $50,000 in delinquent tax debts. This could impose significant hardships, especially on expats who use their U.S. passports for registering in a hotel, accessing a bank account, or obtaining a residency permit or work visa and who may not be receiving mail from the IRS.

On Friday, December 4, 2015, the President signed into law Fixing America’s Surface Transportation Act (“FAST Act”). Section 32101 of the FAST Act adds section 7345 to the Internal Revenue Code (“IRC”), which allows the IRS to coordinate with the State Department to revoke or deny a passport to a U.S. person with a “seriously delinquent tax debt.” According to the Joint Committee on Taxation, this provision is expected to raise $395 million over 10 years.

Serious Delinquent Tax Debt

Pursuant to new IRC section 7345, an individual has a serious delinquent tax debt when:

1.     it has been assessed by the IRS;

2.     it is greater than $50,000, including interest and penalties; and

3a.   a notice of federal tax lien has been filed against the individual and all administrative rights have been exhausted; or

3b.   a levy has been issued against the individual’s assets.

Exceptions

Important exceptions include:

  1. a tax debt that is owed but is being timely paid pursuant to an installment agreement or offer in compromise with the IRS; and
  2. if the collection of the tax debt is suspended because the individual is pursuing relief in a collection due process hearing or has requested innocent spouse relief.

New Tax Collection Tool

For those taxpayers who thought that the IRS could not collect against their foreign assets, this new law is a significant new tool for the IRS to utilize. In order to maintain their U.S. passport, all U.S. citizens will need to take steps to address any delinquent tax liabilities.

Challenging the Certification

In order to challenge an erroneous certification by the IRS, taxpayers may bring an action in a U.S. district court or the U.S. tax court.