Volume No. US-18-03
If you are a U.S. citizen and you have a “seriously delinquent tax debt” with the IRS, you may lose your U.S. passport.
On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act (The FAST Act, P.L. 114-94). As part of this legislation the IRS is required to notify the State Department of those U.S. persons who have a “seriously delinquent tax debt.” The State Department must then deny any passport application or renewal request from these persons, and has the power to revoke an existing passport. If the U.S. person happens to be outside of the United States, the State Department may issue a limited validity passport good only for a direct return to the United States.
Though the legislation was passed, the IRS was not certifying tax debt to the State Department. On January 16th, 2018 the IRS issued IR-2018-7, and Notice 2018-01 (Part III being relevant), where the IRS announced that they will begin implementation of new procedures in January 2018. As such, impacted taxpayers will now have to deal with this issue.
Revoking or denying a passport is not the first step in collecting overdue taxes, but is more of a last resort after other methods have failed. The IRS will certify a taxpayer to have a “seriously delinquent tax debt” only if:
- The debt is over $51,000 USD (for 2018, will adjust for inflation); and
- A notice of federal tax lien has been filed and all administrative remedies have lapsed or been exhausted; or
- A levy has been issued.
A “seriously delinquent tax debt” does not include amounts that are currently being paid under an approved installment agreement with the IRS or are being paid under an offer in compromise. It also does not include amounts for which a collection due process hearing has been requested or for which collection has been suspended because a request for innocent spouse relief has been made.
If the above factors have been met, the IRS will certify the taxpayer as having a “seriously delinquent tax debt” and will notify the State Department. The IRS will send a notice of this action at the taxpayer’s last known address. The first notices went out in January 2018.
Once a “seriously delinquent tax debt” has been certified, the only way to reverse the certification is:
- Pay the tax debt in full;
- Enter into an installment agreement with the IRS to pay the debt over time;
- Propose an offer in compromise to the IRS and have it accepted;
- Enter into a settlement agreement with the Justice Department to satisfy the debt;
It’s important to note that cases being resolved through the Taxpayer Advocate Service are not excluded from these provisions. Nina Olson, the National Taxpayer Advocate, has expressed her concern about this lack of exemption and has taken steps to protect those cases already registered with her office. She has also expressed her concern to Congress regarding the lack of a notice period allowing the taxpayer to take action before information is provided to the State Department.
If you have an outstanding debt with the IRS, it is important to seek professional advice and assistance to resolve the issue. The Cadesky U.S. Tax Team can assist you in resolving debt collection and other matters with the IRS.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.
U.S. TAX TIP is provided as a free service to clients and friends of Cadesky U.S. Tax.
The material provided in this U.S. Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither Cadesky Tax nor Cadesky U.S. Tax can accept any liability for the tax consequences that may result from acting based on the contents hereof.