Are you planning a trip outside of the United States? Well, make sure that you go down your checklist to make sure that you have everything in place before you head off on that trip: Itineraries, tickets and reservation confirmations, cell phones and chargers, back taxes and your passport.
Whoa, wait a minute, Bruce. What were the last two on the list you ask? Back taxes and your passport? Eh?
Well since you’re wondering, there is a definite connection.
As I mentioned in my last post, President Obama recently signed into law (December 4, 2015) the Fixing America’s Surface Transportation Act, or the “FAST Act.” The purpose of the bill was to provide long-term funding for transportation projects, including new highways. But also stuffed into the bill were a few new tax laws: one (which I talked about in my last post), a requirement that the Internal Revenue Service (IRS) use private debt collection companies and another that requires the Department of State to deny a passport (or renewal of a passport) to a seriously delinquent taxpayer or revoke any passport previously issued to a seriously delinquent taxpayer. I will talk about the latter requirement in this post.
So, to start with, the IRS has not been charged with revoking passports. That’s not within their scope of duties.The administration of passports has been and remains the responsibility of the Department of State.
Currently, the Secretary of State may refuse to issue or renew a passport for a number of reasons, including delinquent child support obligations. Procedurally, the names of noncustodial parents who owe more than $2,500 in back child support are submitted to the Department of State from an individual state; the Department will then deny the applicant a U.S. passport until the debt is satisfied. There was no similar rule which applied to delinquent federal taxes………………until now.
Under the new law, the Secretary of State is required to deny a passport or turn down the renewal of a passport to a seriously delinquent taxpayer. The Secretary of State is also permitted to revoke any passport previously issued to a seriously delinquent taxpayer. The new law also authorizes the Secretary of State to deny a passport if the passport applicant fails to provide a Social Security Number (SSN) or provides an incorrect or invalid SSN (but only if the wrong SSN was provided “willfully, intentionally, recklessly or negligently”). Exceptions are permitted for emergency or humanitarian circumstances, such as if there’s a need for the applicant to return to the United States.
So, what the heck is a “seriously delinquent debt” you ask? For purposes of the new law, a “seriously delinquent tax debt” is defined as “an unpaid, legally enforceable federal tax liability” when a debt greater than $50,000, including interest and penalties, has been assessed and a notice of lien or a notice of levy has been filed. The $50,000 threshold will be adjusted each year for inflation and cost of living – but overall, it’s a pretty low threshold. The limit is not a per year limit but a cumulative total: if you’ve ever owed money to the IRS, you know that with penalties and interest, the amount you owe can add up pretty quickly. The result? This has the potential to affect a lot of taxpayers. Fortunately though, exceptions will apply if the tax debt is subject to an Offer-in-Compromise (OIC) or an installment agreement or if collection action has been suspended because the taxpayer has requested a Collection Due Process (CDP) hearing or has made an application for innocent spouse relief. However, just how effective IRS will be in ensuring that taxpayers on the list aren’t subject to any of those exceptions remains to be seen.
Since the Department of State doesn’t have access to an individual’s tax records, how exactly will the Secretary know which taxpayers are subject to the new law? As with child support delinquencies, the names of the affected taxpayers have to be turned over. In this case, because of the way that privacy laws work, the Commissioner of Internal Revenue must certify to the Secretary of the Treasury a list of names that meet the criteria. The Secretary of the Treasury is then authorized to transmit that information to the Secretary of State. Any names on that list are ineligible for a passport. If your name is on the list, you will also be separately notified.
What if there’s a mistake? There is a provision for “reversal of certification” under the new law. The IRS is required to notify the Secretary of the Treasury who will then notify Secretary of State if the original certification was made in error or if the tax debt is fully satisfied or ceases to be “a seriously delinquent tax debt.” And because the potential for a lengthy reversal process exists, the law also provides a limited right to seek injunctive relief by a taxpayer who is wrongly certified.
Since disclosure and process are so important here, the new law insists that the IRS follow its normal examination and collection procedures and allow taxpayers the chance to exercise their full administrative rights. To alert taxpayers, there’s also a provision that additional notice of the potential loss of a passport is included in collections communications. So in theory, this is a good idea – but if you’ve ever received a letter from the IRS, you know that it’s very much full of notices. Most taxpayers can’t decipher all of the information and generally tend to ignore them. Hopefully, the additional notice requirements will be sufficient.
This isn’t the first time Congress has considered such a proposal. Two years ago, the House introduced a similar bill; it never got anywhere. But tucked away in the 1,301 page highway bill, it sailed through with virtually no amendments. The new law is effective immediately.
You can read the text of the law here (it downloads as a pdf). You’ll find the passport provision at Section 32101: Revocation Or Denial Of Passport In Case Of Certain Unpaid Taxes (it’s on page 1113).
Bruce – Your Host at The Tax Nook
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