Could Unpaid Taxes Cost You Your Passport?
Unfortunately, Yes: You Can Lose Your Passport for Unpaid Taxes
A new law allows the IRS and the State Department to revoke a taxpayer's passport if he or she has "seriously delinquent tax debt." Find out how you could be affected / when you can lose your passport for unpaid taxes and what to do if you receive a Notice of Certification.
U.S. taxpayers who travel and invest money abroad have a lot to think about during tax season. FBARs and mandatory disclosures of foreign assets and income can make filing their individual tax returns and related forms complicated at best. It is far too easy to accidentally become involuntarily non-compliant with the U.S. tax code. Now implementation of a 2015 law could add another challenge: a limit on taxpayers' ability to travel abroad.
In December 2015, the federal government passed Internal Revenue Code § 7345, which authorizes the Internal Revenue Service (IRS) to certify seriously delinquent tax debt to the State Department. Upon certification, the State Department may cut off a taxpayer's passport, effectively tethering him or her to U.S. soil until the debt is paid. The IRS has announced that it will begin issuing certifications "in early 2017". That means now is the time to get ahead of the law and protect your right to travel.
What is Seriously Delinquent Tax Debt?
The label "seriously delinquent tax debt" (SDTD) applies when a taxpayer has more than $50,000 in unpaid, legally enforceable federal tax debt. This amount includes assessable penalties and interest, and is adjusted annually for inflation. Before an account is labelled an SDTD, the IRS must issue either a:
- Tax levy
- Notice of federal tax lien (after all administrative remedies have lapsed or been exhausted)
However, certain accounts are legally excluded from SDTD designation. The exceptions include cases where:
- Installment agreements with the IRS are being paid on time
- Offers-in-compromise with the IRS are being paid on time
- Settlement agreements with the Justice Department are being paid on time
- Collections due process hearings have been requested regarding a levy in a timely way (and are still pending)
- Collections have been suspended because of a request for innocent spouse relief under IRC § 6015
How Do You Know You Have a SDTD?
The IRS is required to send you a Notice of Certification when it sends your case to the State Department. You are also entitled to receive written notice if your passport has been revoked or application denied. These notices will be sent by regular mail to your last known address, generally the address on your most recent tax return. This can cause problems for U.S. taxpayers who live or spend extended periods abroad. To make sure you receive IRS notifications while you are out of the country, be sure to file a Form 8822 "Change of Address" before you leave.
What the State Department Does with Certifications
If you currently have a passport when the IRS issues its Notice of Certification, the State Department has the authority to:
- Revoke your passport
- Limit your existing passport to allow you to return to the United States and nothing else
- Issue a limited validity passport to allow you to return to the United States and nothing else
If your passport application is currently pending, the State Department will hold your application for up to 90 days to allow you to resolve the Notice of Certification. After that, the law says the State Department "shall" deny your passport application. This suggests that it will happen automatically.
What to Do if You Receive a Notice of Certification
If you receive a Notice of Certification you need to act right away to preserve your right to travel overseas. The law allows you to file a lawsuit in the U.S. Tax Court or U.S. District Court to determine if the certification was erroneous. This could happen if:
- You were the victim of identity theft or tax fraud
- There was a clerical error in the entry of your tax return
- You did not receive notices of your delinquent tax debt prior to certification
- Other clerical or tax-related defenses exist
You may not sue the State Department or Department of Treasury for their roles in revoking or denying your passport. You may also be able to avoid certification if your tax debt becomes legally unenforceable (generally after 10 years have passed or in some bankruptcy circumstances).
How to Get Your Passport Back Through Decertification
If the certification was proper, you can also receive "decertification" and reinstate your passport by making arrangements to pay your tax debt. This can include:
- Paying the delinquency in full with all interest and penalties
- Entering into an installment agreement with the IRS to pay the tax owed over time
- Entering into an "Offer in Compromise" with the IRS to satisfy the debt for part payment
- Entering into a settlement agreement with the Justice Department
- Requesting innocent spouse relief if the tax debt is the result of your husband's or wife's conduct.
- Timely requesting a collection due process hearing regarding a levy.
If you fall into any of the above categories, or if a court determines the certification was in error, the IRS has 30 days to issue a Notice of Decertification to the State Department. However, the law is not clear on what the State Department is required to do with a decertification notice once it is received.
Revocation or denial of passports can be devastating to U.S. taxpayers with family or business interests overseas. If you believe you may qualify for seriously delinquent tax debt, don't wait to receive a Notice of Certification. Talk to an experienced tax attorney now. Being proactive and making arrangements before certification could save you months or even years of hassle after your passport is taken away.
Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 30 years experience. If you have questions regarding SDTD or Notices of Certification for the revocation or denial of passports due to tax debt, contact Joe Viola to schedule a consultation.