Where Do You Think You’re Going?

By Jeffrey D. Davine

Maybe nowhere if you owe the IRS more than $50,000.

Congress recently passed H.R.22. It was signed by the President on December 4th and it became Public Law No: 114-94. The law is known as the “Fixing America’s Surface Transportation Act” (“FAST”).

For taxpayers who owe the IRS more than $50,000, the FAST Act might be more appropriately classified as the STOP Act because it may prevent them from leaving the country.

Among other things, the FAST Act adds Section 7345 to the Internal Revenue Code. Internal Revenue Code Section 7345 authorizes the IRS to disclose certain tax information with respect to taxpayers who owe the IRS more than $50,000 to the State Department. The State Department will then use this information to make passport-related determinations.

As a practical matter, the State Department can use the information that it receives from the IRS to revoke, deny, or place limitations on, passports for taxpayers who owe the IRS more than $50,000 and with respect to which a notice of federal tax lien has been recorded or a levy has been served.

There are a few additional points worth noting.

First, as written, the $50,000 threshold includes interest and penalties. As a result, taxpayers who actually owe less than $50,000 in taxes will be impacted by this law because of the inclusion of interest and penalties in the computation. This could trap a taxpayer who originally had a relatively small liability that he or she allowed to accrue over a number of years.

Second, the new law will not apply to taxpayers who have entered into an installment agreement or an offer in compromise to repay their outstanding taxes.

Third, beginning in 2017, the $50,000 threshold is indexed for inflation.

Similar to the policy of many state motor vehicle departments of not allowing someone to renew his or her driver’s license or vehicle registration if he or she has unpaid tickets, the IRS is seeking to get tougher with taxpayers who have unresolved tax liabilities.

The take-away is that, if someone owes the IRS more than $50,000, he or she had better make arrangements to satisfy the liability before planning that Summer trip if the trip involves leaving the country.

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