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American citizens living abroad rely on their local U.S. embassy to be their connection to their home country. That includes processing passport renewal applications. But if the IRS has certified you to the State Department for having seriously delinquent tax debt, you could be running the risk that the U.S. Embassy will seize your passport without even knowing it.
U.S. citizens living overseas have long faced difficulty knowing how much tax they owe to the IRS, what forms need to be filed, and what income must be disclosed. All too often, these expatriates find themselves owing unpaid taxes for income earned and kept overseas.
Then in 2015, the U.S. legislature passed the Fixing America’s Surface Transportation Act (FAST Act), giving the IRS a new tool to collect seriously delinquent tax debt from U.S. citizens living at home and abroad. Under the law, the IRS has the ability to identify taxpayers with “seriously delinquent tax debt” over $51,000 and certify them to the State Department. The State Department then must deny any new or pending passport applications and renewals. It also may revoke an existing passport.
Federal tax law and internal State Department regulations say that taxpayers are supposed to receive written notice when they are certified for passport consequences because of seriously delinquent tax debt. The IRS also recently announced that it would be sending out warning letters before certifying individuals to the State Department in an effort to collect the unpaid taxes. But when you live overseas, sometimes those notices don’t find their way to you before it is too late.
Imagine living overseas and trying to renew your U.S. passport. Typically, you would send in the application, and then schedule a visit to the embassy to have it approved and receive the new passport. Because of the importance of having proof of your citizenship overseas, most foreign residents start this process months before their passport is set to expire.
Now imagine that when you show up with the embassy with a valid but aging passport in hand, the U.S. Embassy staff seized your passport for seriously delinquent tax debt and told you to contact the IRS if you wanted it back. Living overseas, you may never have received any notices or have any knowledge of tax problems back home. Now you are stuck in a foreign country trying to negotiate with the IRS, the State Department, and your local embassy, all without the passport that documents your legal citizenship.
When a taxpayer is certified for seriously delinquent tax debt it is based on IRS records and software the agency uses to detect accounts with large balances. But sometimes certification happens incorrectly. The IRS has no objective criteria to decide which taxpayers with serious delinquent tax debt it will or will not certify under the FAST Act. A recent audit shows that internal processes have caused some taxpayers to become certified even after they paid their outstanding tax bill. There are also a number of criteria -- including identity theft -- that can exclude a taxpayer from passport consequences even if there is money owed to the IRS.
The FAST Act gives taxpayers who are incorrectly certified the right to appeal that certification to the IRS, or to file a federal lawsuit to reverse the IRS’s certification if:
But this process takes time, and even after it is complete, decertified taxpayers are still at the discretion of the State Department to reinstate their passports and approve their new applications.
This is especially serious because some U.S. citizens living abroad never receive the mandatory and discretionary notices required before his passport could be revoked. If everything were going according to the rules, you should have received written notice from:
But when the IRS is using an outdated U.S. address or the postal service is forwarding the mail multiple times, you may never receive notices of your outstanding debt, certification by the IRS, or that your passport has been revoked.
While the State Department has the authority to revoke an existing passport, that does not automatically give an embassy employee the right to take it when a taxpayer shows up at the office. The Foreign Affairs Manual dealing with passport fraud investigations instructs embassy employees:
“Department employees should typically only retain a passport if there are reasonable grounds to believe that there is sufficient unclassified evidence to support revocation, and revocation is pursued expeditiously. To revoke a passport, the Department must establish by a preponderance of the evidence that the individual is not entitled to a passport.”
Consular officers are instructed to “retain all original citizenship evidence and other documentation” in suspected fraud cases. However, they must then notify the citizen that his application has been suspended and request any additional documentation.
It seems, however, that U.S. Embassy employees are taking on front-line roles in the IRS’s battle to collect unpaid taxes from U.S. taxpayers living overseas. There are reports of passports being seized right in the embassy office with no advanced notice any no opportunity to promptly respond to the claim that debts are owed. It isn’t clear that embassy personnel have that authority. Still, when U.S. taxpayers face passport problems overseas, prompt negotiations with the U.S. Embassy, the IRS and the State Department are the best way to resolve the unpaid taxes, obtain decertification, and get your passport back.
Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 30 years experience. If you have questions regarding the revocation or denial of passports due to seriously delinquent tax debt, contact Joe Viola to schedule a consultation.