Jonathan W. Benowitz, CPA
Loyola University Chicago School of Law, JD 2019
Beginning January, 2018, U.S. citizens with unpaid taxes may find their U.S. passport applications denied and their existing passports revoked. The I.R.S. announced that it will begin implementation of procedures to notify the State Department of taxpayers the I.R.S. certifies as owing a “seriously delinquent tax debt.” This may come as a rude awakening to many Americans, although both the press and television news issued warnings going back more than a year ago.
What Triggers the I.R.S. to Revoke Passports?
These procedures implement Internal Revenue Code section 7345, enacted in 2015 as part of the Fixing America’s Surface Transportation Act (FAST Act). The Act applies to tax debt in excess of $50,000, but because that amount is indexed for inflation, the threshold now is $51,000. The penalty is not tied to any judgment regarding risk of expatriation to avoid tax. Tax debt for this purpose includes all taxes under Title 26 of the U.S. Code (the Internal Revenue Code), including not only income taxes, but also gift and estate, excise, employment, and other taxes. However, it does not include penalties for failure to file a Foreign Bank Account Report or child support amounts that the I.R.S. is authorized to collect.
The triggering amount includes not only tax, but penalties and interest. Therefore, the amount of tax owed can be considerably less. As interest and some penalties continue to accrue on unpaid amounts, a tax debt well under the threshold can grow over time to exceed the threshold and the taxpayer will be subject to the I.R.S. certifying the individual to the State Department for passport revocation. The I.R.S. will not reverse the certification, however, just because the taxpayer pays the debt below $50,000.
How Does the Passport Revocation Work?
A tax debt will not invoke certification under Internal Revenue Code section 7345(b)(1)(C) until a notice of a federal tax lien has been filed and all administrative remedies have been exhausted or lapsed or a levy has been issued. Also, when a certified taxpayer applies for a passport, the State Department generally will provide the applicant with 90 days to resolve their tax delinquency, such as by making full payment, entering into an installment agreement under section 6159, or receiving IRS acceptance of an offer in compromise under section 7122, before denying the application. If a taxpayer needs a passport to travel within those 90 days, the taxpayer must contact the IRS and resolve the matter within 45 days from the date of application so that the IRS has adequate time to notify the State Department.
Once a passport has been revoked, the IRS will not reverse certification until the debt is fully satisfied, becomes unenforceable, or the taxpayer enters certain agreements such as the installment agreement or offer in compromise, or the taxpayer requests innocent spouse relief or a collection due process hearing. When a reversal happens, the I.R.S. has 30 days to make the reversal and will notify the State Department “as soon as practicable.”
What Information is Available?
The State Department’s website provides little information other than to notify persons viewing the site that if they have been certified by the I.R.S. as having a seriously delinquent tax debt, they cannot be issued a U.S. passport or their current passport may be revoked, and to refer persons to the I.R.S. It is the I.R.S.’s website which informs a person that before denying a passport, the State Department will hold their application for 90 days to allow the person to resolve any erroneous certification issues, make full payment of the tax debt, or enter into a satisfactory payment arrangement with the I.R.S. There apparently is no grace period before the State Department revokes a passport when it receives a certification.
The only notice that a person receives that they are being certified for passport revocation is a Notice 508C letter sent by the I.R.S. by regular mail to the taxpayer’s last known address with the I.R.S. The person has only 30 days from the date of the notice to contact the I.R.S. if the person believes the certification is erroneous.
Legal Recourse Limited
The opacity of the process is certain to frustrate any international traveler who has the misfortune of finding that their passport was revoked. The time it takes for both the I.R.S. and the State Department to restore a passport, once revoked, is not swift. A taxpayer whose passport is erroneously revoked has little recourse. The State Department is given immunity to lawsuits in acting on this matter, and the I.R.S. can be sued only to withdraw the certification of delinquency, but not for monetary damages caused by the revocation. Anyone planning to travel outside the U.S. who may owe money to the I.R.S. should contact the National Passport Information Center to inquire about their situation before they incur the cost of the trip.