Owe the IRS more than $50,000.00? You might want to hold off on making those travel plans.
If you were to assume that a transportation bill would not have a direct impact on tax policy in the United States, you would be making a reasonable assumption, but you would be wrong. Tucked away into a transportation bill that sailed through the house and senate last week, and was signed into law on Friday, is a provision regarding the revocation of passports and the denial of a passport applications for any taxpayer with a “seriously delinquent tax debt.”
What is a “seriously delinquent tax debt”?
Any taxpayer who owes the IRS more than $50,000.00 is at risk of losing his privilege to travel outside of the United States if either: 1) a lien has been filed on the underlying tax liability and the taxpayer no longer has the right to file for a Collection Due Process hearing (because 35 days have passed) and no Collection Due Process hearing is pending for the liability, OR 2) the IRS has actually issued a levy on the underlying tax liability.
Timing Issues and Other Exceptions
Certification to the State Department that a “seriously delinquent tax debt” exists will not occur until after a taxpayer’s due process rights have been exhausted for either the lien or proposed levy action. In general, taxpayers have a short period of time to challenge the IRS’s attempt to collect on an assessed tax debt. Once the IRS issues a Notice of Federal Tax Lien or a Notice of Intent to Levy, a taxpayer has 35 days (for a lien) or 30 days (for a notice of intent to levy) to challenge the agency action. During that time period – and while any hearing is pending- the IRS will not be sending notice to the State Department that a seriously delinquent tax liability exists – and your passport should not be revoked. What this means is that there is more at stake than ever in making sure that taxpayers with liabilities over $50,000 challenge proposed (levy) or actual (lien) collection action by the IRS.
Taxpayers who are being held jointly and severally liable for a tax debts that really belongs to their ex or current spouses can also protect themselves from the loss of their passports by filing for innocent spouse relief when warranted. A pending Innocent Spouse claim can both prevent the notice from being sent to the State Department in the first place, or – if a notice has already been sent – the IRS will send a second notice after an Innocent Spouse claim is filed allowing the state department to issue or reinstate a passport.
Just another collection tool for the IRS
The IRS will not request the revocation of a passport for taxpayers who are currently enrolled in an installment agreement with the IRS, as long as that Installment Agreement is in good standing. So, if that is the case in your situation – you do not need to worry about losing your passport. In addition, once an Installment Agreement has been established, the IRS will notify the State department within 30 days that your passport can now be issued or renewed. BUT, If you are looking to submit an offer-in-compromise, you will need to wait until the offer has been accepted to get your passport back. Requesting/Electing Innocent Spouse relief will result in a taxpayer being able to get her passport back in (hopefully) about 30 days while the request is pending.
The bottom line is that this new collection tactic clearly disadvantages taxpayers who submit an Offer outside of a Collection Due Process hearing. It creates an incentive for taxpayers who are deciding between submitting an offer-in-compromise or establishing an Installment Agreement to opt for the latter in certain circumstances – namely when they need their passports back.
See the full text of the new provisions below.