Audit Reveals Problems in IRS Passport Revocation Procedures
For the last few years the IRS has certified taxpayers with seriously delinquent tax debt to have their passport applications denied or their existing passports revoked. The program may be successful in collecting overdue taxes, but as a recent audit shows, problems in the IRS passport revocation procedure can mean real problems for U.S. taxpayers living or traveling overseas.
IRS Uses Passport Revocation to Enforce Tax Obligations and Resolve Tax Debt
If you are an officer in the Internal Revenue Service (IRS), success looks like taxes paid and taxpayers coming into compliance with filing and reporting requirements. The 2015 Fixing America’s Surface Transportation Act (FAST Act) gave the IRS a new tool to motivate taxpayers to pay what they owe: passport revocation.
Under the FAST Act, the IRS is authorized to identify taxpayers with “seriously delinquent tax debt” and certify them to the State Department for passport consequences. “Seriously delinquent tax debt” includes legally enforceable, unpaid tax debt that adds up to at least $52,000 (in 2019). There are exceptions for innocent spouses and taxpayers on active duty in combat zones, as well as taxpayers who are meeting their payment obligations under:
- An installment agreement
- An offer in compromise
- A settlement agreement.
The IRS has also outlined several types of taxpayers it chooses not to certify. These discretionary exclusions include:
- Uncollectible taxes due to taxpayer hardship
- Identity theft cases
- Taxpayers living in disaster zones
- Bankruptcy cases
- Deceased taxpayers
- Pending offers in compromise
- Pending installment agreements
- Pending claims which, if adjusted, will reduce the balance to $0.
IRS Celebrates Increased Collections through Passport Revocation Procedures
As of May 17, 2019, the IRS had certified 388,701 taxpayers as having “seriously delinquent tax debt” under the FAST Act. And the program is getting results. During that time, $961 million has been credited to taxpayer accounts, including $550.7 million in fully paid balances. As a result of these collections efforts, over 40,000 taxpayers have received decertifications for having paid in full, or at least entering into payment arrangements. This accounts for 40% of all decertifications.
The remaining 60% of decertifications result from taxpayers falling into one of the exclusions or discretionary exclusions listed above. Topping the list are taxpayers living in disaster zones (27%), whose tax debts have become uncollectible (12%), or qualifying for hardship exemptions (9%).
Treasury Inspector General Audit Reveals Problems in IRS Passport Revocation Procedures
But it seems all is not well for the IRS passport revocation program. On September 19, 2019, the Treasury Inspector General for Tax Administration issued a report of its audit of the IRS passport revocation procedures. While the report categorized the program as “generally successful”, it included three problem areas:
- Changes in the IRS passport revocation procedures meant that some taxpayers were certified before October 2018 even though they had recently come into compliance or entered a qualifying payment arrangement.
- Spouses of deceased taxpayers were inappropriately decertified even though their tax debt remained collectible.
- The IRS lacks objective criteria for deciding when passport revocation is appropriate under discretionary exemptions.
The first problem was perhaps the most concerning. The audit reported that at least 19 taxpayers lost their right to receive or renew their passport even though they had communicated with the IRS and come into compliance with their tax obligations. This was because of a several-week delay in the process of certifying taxpayers with seriously delinquent tax debt. Under the old process, for example, a taxpayer identified as having an outstanding balance on June 7, 2018 didn’t have the certification sent to the State Department until July 6, 2018. If the taxpayer made payments bringing their tax debt below the threshold amounts or entered into a qualifying payment arrangement in the meantime, they would be inappropriately certified and deprived of their right to travel.
In October 2018, the passport revocation program was updated to include a “threshold check” immediately before the certification was sent. This check removed the delay and prevented this improper certification from happening. However, for at least 19 taxpayers, that month-long delay between identification and certification created a potentially expensive denial of their rights.
IRS Agrees to Update Passport Revocation Procedures, to an Extent
The audit report included three recommendations to improve the IRS passport revocation procedures, protect taxpayer rights, and ensure proper certification and decertification processes. The IRS has agreed to:
- Decertify the 19 taxpayers identified who were improperly certified due to a delay in the certification process, and to investigate if others fell into this same category.
- Update their program to designate primary and secondary taxpayers to prevent decertification of spouses when one taxpayer passes away with an unpaid balance.
- Creating an objective criteria for selecting who will be certified for passport revocation.
However, the IRS didn’t agree to everything recommended by the audit. Specifically, it said that it will consider the internal classifications of taxpayers who “will pay”, “won’t pay”, and “can’t pay”, but it would not promise that those criterias would control certification in the end.
Regardless of the IRS’s promises to change its passport revocation procedure and monitor its application, one thing remains clear: passport revocation can create big challenges for taxpayers designated as having “seriously delinquent tax debt.” Don’t wait to receive notice that you have been certified. If you are behind on your taxes or owe the IRS, work with a CPA or experienced tax attorney now to work out a payment arrangement and protect your right to travel.
Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 30 years experience. If you have questions regarding seriously delinquent tax debt or Notices of Certification for the revocation or denial of passports due to tax debt, contact Joe Viola to schedule a consultation.