May 2019 JD Supra
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Is your Passport at Risk? was published by JD Supra on 5/21/19.

Certain US Taxpayers that have been identified by IRS with

overdue tax bills maybe at risk of losing US passport privileges.  IRS has been trying to encourage US Taxpayers that are seriously behind on their taxes to pay what they owe or enter into a payment agreement with the IRS to avoid putting their passports in jeopardy.  IRS Section 7345, signed into law in December 2015, requires the IRS to notify the State Department regarding US Taxpayers that IRS has certified as owing a “seriously delinquent tax debt”. In the case of IRS certified “seriously delinquent debt”, it also requires the US State Department to deny a delinquent US Taxpayer’s passport application or deny renewal of their passport and in some cases, revoke their passport.   

Why was this program launched?

The US Government accountability Office (GAO) identified the limitation of the issuance of passports as an area where the federal government could enhance its collection efforts, reduce the US Tax Gap and promote voluntary compliance through giving Taxpayers a sense that others are paying their fair share.  The IRS passport program is intended to help the IRS collect from “recalcitrant taxpayers” and to “serve as an incentive to individuals wishing to obtain passports to comply with their tax obligations, thus reducing the level of tax delinquencies and promoting compliance.”

The IRS ability to deny or revoke the Passports of Taxpayers with “seriously delinquent tax debt” is a challenge for those Taxpayers

If under Internal Revenue Code Section (IRC) 7345, the Internal Revenue Service (IRS) has identified a Taxpayer’s federal income tax debt as seriously delinquent, the IRS is authorized to certify a Taxpayer’s seriously delinquent federal income tax debt to the State Department for the purpose of denying a U.S. Taxpayer’s passport application and/or revoking a U. S. Taxpayer’s current passport.

What is seriously delinquent tax debt?  

  • An “unpaid, legally enforceable federal tax liability of an individual,” which has been assessed;
  • Is greater than $50,000 (adjusted for inflation); and meets either of the following criteria:
  1. A notice of lien has been filed under Internal Revenue Code (IRC) § 6323 and the Collection Due Process (CDP) hearing rights under IRC § 6320have been exhausted or lapsed; or
  2. A levy has been made under IRC § 6331.

Taxpayers are Notified via IRS Notice CP508C

The IRS is required to notify Taxpayers in writing at the time that the IRS certifies seriously delinquent tax debt to the U.S. State Department. IRS sends written notices by regular mail to the Taxpayer’s last known address. A Taxpayer’s Power of Attorney (POA) representative does NOT receive a copy of the CP508C.

Taxpayers ought to avoid having the IRS notify the State Department of their seriously delinquent tax debt by:  

  • Paying the tax debt in full
  • Paying the tax debt timely under an approved installment agreement,
  • Paying the tax debt timely under an accepted offer in compromise,
  • Paying the tax debt timely under the terms of a settlement agreement with the Department of Justice,
  • Having requested or have a pending collection due process appeal of a levy, or
  • Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief.

Taxpayers may not learn the IRS has certified their tax debts until after certification

IRS is understaffed and may be pursuing Taxpayers who are already actively trying to resolve their seriously delinquent tax debt non-payment problems. Taxpayers ought to consider that:

  • IRS is NOT sending separate and stand-alone pre-certification notices that could potentially provide taxpayers with the right to challenge the IRS’s position and be heard.  
  • There are timing issues that further jeopardize a Taxpayer’s passport.  
  • The National Taxpayer Advocate report stated that there are Taxpayers that have received CP508C notices despite the fact that a Taxpayer’s tax liability had been paid in full, as well as Notices one month after a liability was paid in full, or after having an existing installment agreement in place.   

Don’t be a Victim of your Own Making

According to the 2019 Taxpayer Advocate Report, there are approximately 436,400 Taxpayers who meet certification criteria as of April 2018.  Taxpayers ought to understand that IRS will reverse the certification to the U.S. Department of State only when:

  • The tax debt is fully satisfied or becomes legally unenforceable
  • The tax debt is no longer seriously delinquent
  • The certification is erroneous

The IRS states that they will reverse a certification within 30 days of resolution of the issue and provide notification to the U.S. State Department “as soon as practicable”;  which is not defined by IRS.

Don’t let the IRS block your freedom to travel.  Taxpayers that are seriously behind on their taxes ought to pay what they owe or enter into a payment agreement with the IRS to avoid putting their passports in jeopardy.  If you are a Taxpayer that is behind on your tax obligations, you ought to come forward and pay what you owe or enter into a payment plan with the IRS. Consult your specialized tax advisor to establish a payment plan with IRS.