Buried deep in H.R. 22 – Fixing America's Surface Transportation Act, the “FAST Act” – which President Obama signed into law on December 4, is a new section 7345 to the Internal Revenue Code which gives the State Department the right to revoke the passports of delinquent taxpayers. The controversial provision will have significant implications for international travelers who owe federal taxes. Section 7345 states that the State Department can revoke, deny or limit passports for anyone the IRS certifies as having a seriously delinquent tax debt in excess of $50,000.
Like much of the FAST Act, section 7345 lacks many administrative details. However, the section clearly allows the State Department to deny new passports and renewals to delinquent taxpayers. The provision allows the State Department to rescind existing passports. Scarier yet, the decision to take such action will be based on the advice of the IRS, which will compile a list of affected taxpayers, using the threshold of $50,000 in unpaid federal taxes. However, many taxpayers with even smaller tax deficiencies could be impacted because the $50,000 threshold includes penalties and interest.
The provision should prompt taxpayers to deal with their delinquent tax notices. Importantly, taxpayers can still travel if they are contesting a proposed tax bill administratively with the IRS or in court (because the debt has not become final). Moreover, the State Department cannot take action against someone who is paying their tax debt in a timely manner, as under an installment agreement. This should make installment agreements, which allow for an extended payment plan for tax debt, very appealing to taxpayers with modest to large tax debts. An installment agreement can be applied for and worked out in a fairly efficient manner.