In 2015, a new law was passed to allow the IRS to use travel as a way to collect taxes by placing restrictions on a U.S. person’s passport if such U.S. person owes seriously delinquent tax debt. Generally, if a U.S. taxpayer has seriously delinquent tax debt, then the IRS can notify the State Department. The State Department can take action to deny issuing or renewing the taxpayer’s passport, revoke the existing passport or limit the usage of the passport.
The IRS has not yet started certifying tax debt to the State Department, although it expects to start in early 2017. In February 2017, the IRS published new guidance on its website providing clarification and update of the law.
Generally, a seriously delinquent debt means an unpaid, legally enforceable federal tax debt in the total amount of more than $50,000 (including interest and penalties, but subject to adjustment for inflation), for which a notice of lien has been filed and certain administrative rights have been exhausted or lapsed, or a levy has been issued.
It is important to note that some tax debt falls outside the scope of “seriously delinquent tax debt.” It includes tax debt:
- Being timely paid under an installment agreement entered into with the IRS
- Being timely paid under an offer in compromise entered into with the IRS
- Under agreement entered into with the Justice Department
- For which a collection due process hearing is timely requested in connection with a levy to collect the debt
- For which the collection has been suspended due to an innocent spouse relief request
Before denying a taxpayer’s passport, the State Department gives the taxpayer a 90 day grace period (i.e., holding the passport application for 90 days) to allow the taxpayer to resolve the tax issues with the IRS. However, no such grace period is provided in passport revocation cases.
If the IRS certifies seriously delinquent tax debt to the State Department, the IRS is required to provide notice to the taxpayer in writing. Written notification is also required to be provided to the taxpayer if the certification is reversed.
The IRS will reverse the certification if the tax debt has been paid in full or is no longer legally enforceable, the tax debt is no longer seriously delinquent, or the certification is erroneous.
Merely paying the tax debt to bring it below the $50,000 threshold does not eliminate the delinquency. To be no longer seriously delinquent, the tax debt must fall into one of the following categories:
- Taxpayer and the IRS enter into an installment agreement
- The IRS accepts the taxpayer’s offer in compromise
- The Justice Department enters into a settlement agreement
- Collection is suspended due to taxpayer requesting innocent spouse relief (provided that this was the basis of the certification)
- Taxpayer makes a timely request for a collection due process hearing (provided that this was the basis of the certification)
If the taxpayer disagrees with the IRS certification to the State Department, the taxpayer can file suit in the U.S. Tax Court or a U.S. District Court. The court can decide whether the certification should be reversed and whether the IRS made a mistake. The court, however, has no authority to release a lien or levy or otherwise award monetary damages to the taxpayer.
If the taxpayer is unable to pay the full tax debt, then the taxpayer can make arrangements with the IRS, such as entering into an installment agreement or an offer in compromise arrangement, which can be a viable way for the taxpayer to keep the passport. If the taxpayer recently filed tax returns and is due a refund by the IRS, the IRS will apply the refund towards the seriously delinquent tax debt.
If the State Department denies a passport application or revokes a passport, the State Department will notify the taxpayer in writing. Once the tax debt is resolved with the IRS, the IRS will reverse the certification within 30 days. Thus, for someone who needs the passport to keep their job, if a seriously delinquent tax debt is certified, it is recommended to fully pay the debt or make payment arrangements with the IRS.
If a taxpayer has a seriously delinquent tax debt and is planning to travel internationally, then it is best practice to consult with tax professionals before traveling outside the U.S.