The IRS Wants Your Passport

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.

 

SEC. 32101. Revocation or denial of passport in case of certain unpaid taxes.

(a) In general.—Subchapter D of chapter 75 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

“SEC. 7345. Revocation or denial of passport in case of certain tax delinquencies.

“(a) In general.—If the Secretary receives certification by the Commissioner of Internal Revenue that an individual has a seriously delinquent tax debt, the Secretary shall transmit such certification to the Secretary of State for action with respect to denial, revocation, or limitation of a passport pursuant to section 32101 of the FAST Act.

“(b) Seriously delinquent tax debt.—

“(1) IN GENERAL.—For purposes of this section, the term ‘seriously delinquent tax debt’ means an unpaid, legally enforceable Federal tax liability of an individual—

“(A) which has been assessed,

“(B) which is greater than $50,000, and

“(C) with respect to which—

“(i) a notice of lien has been filed pursuant to section 6323 and the administrative rights under section 6320 with respect to such filing have been exhausted or have lapsed, or

“(ii) a levy is made pursuant to section 6331.

“(2) EXCEPTIONS.—Such term shall not include—

“(A) a debt that is being paid in a timely manner pursuant to an agreement to which the individual is party under section 6159 or 7122, and

“(B) a debt with respect to which collection is suspended with respect to the individual—

“(i) because a due process hearing under section 6330 is requested or pending, or

“(ii) because an election under subsection (b) or (c) of section 6015 is made or relief under subsection (f) of such section is requested.

“(c) Reversal of certification.—

“(1) IN GENERAL.—In the case of an individual with respect to whom the Commissioner makes a certification under subsection (a), the Commissioner shall notify the Secretary (and the Secretary shall subsequently notify the Secretary of State) if such certification is found to be erroneous or if the debt with respect to such certification is fully satisfied or ceases to be a seriously delinquent tax debt by reason of subsection (b)(2).

“(2) TIMING OF NOTICE.—

“(A) FULL SATISFACTION OF DEBT.—In the case of a debt that has been fully satisfied or has become legally unenforceable, such notification shall be made not later than the date required for issuing the certificate of release of lien with respect to such debt under section 6325(a).

“(B) INNOCENT SPOUSE RELIEF.—In the case of an individual who makes an election under subsection (b) or (c) of section 6015, or requests relief under subsection (f) of such section, such notification shall be made not later than 30 days after any such election or request.

“(C) INSTALLMENT AGREEMENT OR OFFER-IN-COMPROMISE.—In the case of an installment agreement under section 6159 or an offer-in-compromise under section 7122, such notification shall be made not later than 30 days after such agreement is entered into or such offer is accepted by the Secretary.

“(D) ERRONEOUS CERTIFICATION.—In the case of a certification found to be erroneous, such notification shall be made as soon as practicable after such finding.

“(d) Contemporaneous notice to individual.—The Commissioner shall contemporaneously notify an individual of any certification under subsection (a), or any reversal of certification under subsection (c), with respect to such individual. Such notice shall include a description in simple and nontechnical terms of the right to bring a civil action under subsection (e).

“(e) Judicial review of certification.—

“(1) IN GENERAL.—After the Commissioner notifies an individual under subsection (d), the taxpayer may bring a civil action against the United States in a district court of the United States or the Tax Court to determine whether the certification was erroneous or whether the Commissioner has failed to reverse the certification.

“(2) DETERMINATION.—If the court determines that such certification was erroneous, then the court may order the Secretary to notify the Secretary of State that such certification was erroneous.

“(f) Adjustment for inflation.—In the case of a calendar year beginning after 2016, the dollar amount in subsection (a) shall be increased by an amount equal to—

“(1) such dollar amount, multiplied by

“(2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year, determined by substituting ‘calendar year 2015’ for ‘calendar year 1992’ in subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is not a multiple of $1,000, such amount shall be rounded to the nearest multiple of $1,000.

“(g) Delegation of certification.—A certification under subsection (a) or reversal of certification under subsection (c) may only be delegated by the Commissioner of Internal Revenue to the Deputy Commissioner for Services and Enforcement, or the Commissioner of an operating division, of the Internal Revenue Service.”.

(b) Information included in notice of lien and levy.—

(1) NOTICE OF LIEN.—Section 6320(a)(3) of such Code is amended by striking “and” at the end of subparagraph (C), by striking the period at the end of subparagraph (D) and inserting “; and”, and by adding at the end the following new subparagraph:

“(E) the provisions of section 7345 relating to the certification of seriously delinquent tax debts and the denial, revocation, or limitation of passports of individuals with such debts pursuant to section 32101 of the FAST Act”..”.

(2) NOTICE OF LEVY.—Section 6331(d)(4) of such Code is amended by striking “and” at the end of subparagraph (E), by striking the period at the end of subparagraph (F) and inserting “, and”, and by adding at the end the following new subparagraph:

“(G) the provisions of section 7345 relating to the certification of seriously delinquent tax debts and the denial, revocation, or limitation of passports of individuals with such debts pursuant to section 32101 of the FAST Act”..”.

(c) Authority for information sharing.—

(1) IN GENERAL.—Section 6103(k) of such Code is amended by adding at the end the following new paragraph:

“(11) DISCLOSURE OF RETURN INFORMATION TO DEPARTMENT OF STATE FOR PURPOSES OF PASSPORT REVOCATION UNDER SECTION 7345.—

“(A) IN GENERAL.—The Secretary shall, upon receiving a certification described in section 7345, disclose to the Secretary of State return information with respect to a taxpayer who has a seriously delinquent tax debt described in such section. Such return information shall be limited to—

“(i) the taxpayer identity information with respect to such taxpayer, and

“(ii) the amount of such seriously delinquent tax debt.

“(B) RESTRICTION ON DISCLOSURE.—Return information disclosed under subparagraph (A) may be used by officers and employees of the Department of State for the purposes of, and to the extent necessary in, carrying out the requirements of section 32101 of the FAST Act”..”.

(2) CONFORMING AMENDMENT.—Paragraph (4) of section 6103(p) of such Code is amended by striking “or (10)” each place it appears in subparagraph (F)(ii) and in the matter preceding subparagraph (A) and inserting “, (10), or (11)”.

(d) Time for certification of seriously delinquent tax debt postponed by reason of service in combat zone.—Section 7508(a) of such Code is amended by striking the period at the end of paragraph (2) and inserting “; and” and by adding at the end the following new paragraph:

“(3) Any certification of a seriously delinquent tax debt under section 7345.”.

(e) Authority to deny or revoke passport.—

(1) DENIAL.—

(A) IN GENERAL.—Except as provided under subparagraph (B), upon receiving a certification described in section 7345 of the Internal Revenue Code of 1986 from the Secretary of the Treasury, the Secretary of State shall not issue a passport to any individual who has a seriously delinquent tax debt described in such section.

(B) EMERGENCY AND HUMANITARIAN SITUATIONS.—Notwithstanding subparagraph (A), the Secretary of State may issue a passport, in emergency circumstances or for humanitarian reasons, to an individual described in such subparagraph.

(2) REVOCATION.—

(A) IN GENERAL.—The Secretary of State may revoke a passport previously issued to any individual described in paragraph (1)(A).

(B) LIMITATION FOR RETURN TO UNITED STATES.—If the Secretary of State decides to revoke a passport under subparagraph (A), the Secretary of State, before revocation, may—

(i) limit a previously issued passport only for return travel to the United States; or

(ii) issue a limited passport that only permits return travel to the United States.

(3) HOLD HARMLESS.—The Secretary of the Treasury, the Secretary of State, and any of their designees shall not be liable to an individual for any action with respect to a certification by the Commissioner of Internal Revenue under section 7345 of the Internal Revenue Code of 1986.

(f) Revocation or denial of passport in case of individual without social security account number.—

(1) DENIAL.—

(A) IN GENERAL.—Except as provided under subparagraph (B), upon receiving an application for a passport from an individual that either—

(i) does not include the social security account number issued to that individual, or

(ii) includes an incorrect or invalid social security number willfully, intentionally, negligently, or recklessly provided by such individual,

the Secretary of State is authorized to deny such application and is authorized to not issue a passport to the individual.

(B) EMERGENCY AND HUMANITARIAN SITUATIONS.—Notwithstanding subparagraph (A), the Secretary of State may issue a passport, in emergency circumstances or for humanitarian reasons, to an individual described in subparagraph (A).

(2) REVOCATION.—

(A) IN GENERAL.—The Secretary of State may revoke a passport previously issued to any individual described in paragraph (1)(A).

(B) LIMITATION FOR RETURN TO UNITED STATES.—If the Secretary of State decides to revoke a passport under subparagraph (A), the Secretary of State, before revocation, may—

(i) limit a previously issued passport only for return travel to the United States; or

(ii) issue a limited passport that only permits return travel to the United States.

(g) Removal of certification from record when debt ceases to be seriously delinquent.—If pursuant to subsection (c) or (e) of section 7345 of the Internal Revenue Code of 1986 the Secretary of State receives from the Secretary of the Treasury a notice that an individual ceases to have a seriously delinquent tax debt, the Secretary of State shall remove from the individual’s record the certification with respect to such debt.

(h) Clerical amendment.—The table of sections for subchapter D of chapter 75 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

“Sec. 7345. Revocation or denial of passport in case of certain tax delinquencies.”.

(i) Effective date.—The provisions of, and amendments made by, this section shall take effect on the date of the enactment of this Act.