September 2017 JD Supra
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According to the US Department of State, there are approximately nine (9) Million US passport holders living overseas.  There continues to be a misimpression by certain US Taxpayers living overseas that they are not required to file US income tax returns because they have taken residency in another country.  Others believe that since they are paying taxes in their new country of residency, they are exempt from paying US taxes.  These misunderstandings by US Taxpayers living abroad can become very costly and now involve the US Passport.

Under Section 7345 of the Internal Revenue Code – “Revocation or Denial of Passport in Case of Certain Tax Delinquencies”, IRS has something to say about whether a US Taxpayer’s Passport is usable. Beginning in 2017, IRS began certifying seriously delinquent tax debt to the US State Department.  After receiving certification from IRS, the US State Department may be required to revoke or deny a US Passport.  This can be dangerous if the Taxpayer is living overseas or is traveling.

So what is seriously delinquent certified tax debt?

  • Federal tax debt totaling more than $50,000  (including interest and penalties)
  • Notice of federal tax lien has been filed
  • Levy has been issued

There are exceptions to certifying seriously delinquent tax debt to the US State Department.  The exclusions are for tax debt that:

  • Is currently being paid under an IRS Installment Agreement, Offer in Compromise with IRS or a settlement agreement entered into with the US Justice Department
  • For which a collection due process hearing is timely requested in connection with a levy to collect the debt  or the collection has been suspended because a request for innocent spouse relief

When the State Department receives certification from IRS, it will hold a Taxpayer’s Passport application for 90 days in order to allow the Taxpayer to:

  • Resolve any erroneous certification issues
  • Make full payment of the tax debt
  • Enter into a satisfactory payment alternative with the IRS

If a Taxpayer’s U.S. Passport application is denied or revoked, the US State Department will notify the Taxpayer in writing. The US State Department is held harmless and cannot be sued for any erroneous notification to Taxpayers.

IRS is required to notify Taxpayers in writing via IRS Notice CP 508C when it certifies seriously delinquent tax debt to the US State Department.  If IRS reverses its certification, it must also notify the Taxpayer in writing.  All written notices are sent by regular mail to the Taxpayer’s last known address contained in the IRS Master File.

IRS is not able to determine the effectiveness of its international mail delivery.  It does not have a systematic process that identifies undelivered international mail.   Effective US mail correspondence with Individual US Taxpayers residing abroad is critical for these Taxpayers in order for them to certify their tax status.  US Taxpayers could be in the category of seriously delinquent and not be aware of it due to international mail correspondence issues.

The worldwide income of US citizens and US Resident Aliens is subject to U.S. income tax regulations, regardless of where they reside or if they are fully tax compliant in the country where they reside.  They must file US tax returns every year – even if no taxes are due.

There are US Taxpayers living abroad and visiting the US that could be restricted from traveling back home to a foreign country from a business trip or vacation in the USA; or, who could find themselves living illegally in another country in violation of that country’s law.   With Passport restrictions now placeable on seriously delinquent Taxpayers, IRS has gained control of those Taxpayers’ ability to travel.  Don’t be a victim of your own making.  If you are a US Taxpayer living abroad and you have not filed US tax returns or payed assessed US taxes, you could be in a seriously delinquent status and your Passport could be at risk.   Consult a tax specialist now.