A taxpayer with a “seriously delinquent tax debt” may be in for a surprise if he or she has overseas travel plans. This is because the IRS has begun implementing its authority to instruct the State Department to pull delinquent taxpayers’ passports.
In 2015, Congress passed the Fixing America’s Surface Transportation Act, (“FAST”). In this context, FAST should be renamed “STOP” because it added Section 7345 to the Internal Revenue Code, which authorizes the IRS to disclose certain tax information to the State Department concerning taxpayers who owe the IRS more than $50,000. Armed with this information, the State Department may revoke, deny, or place limitations on, the delinquent taxpayer’s passport.
Now that we have your attention, here are a few details:
A “seriously delinquent tax debt” is an unpaid, legally enforceable, and assessed federal tax liability of an individual that is greater than $50,000 and for which a notice of federal tax lien has been filed (and the taxpayer’s right to a hearing to contest the filing of the lien has been exhausted or lapsed) or a levy has been issued.
The $50,000 threshold includes interest and penalties. This means that a taxpayer who owes the IRS less than $50,000 in actual taxes could still lose his or her passport if, when interest and penalties are added to the amount, the sum is greater than $50,000.
There are a few exceptions to these rules. For example, they do not apply to taxpayers who have entered into an installment agreement or an offer in compromise to repay their outstanding taxes and who are in compliance with these arrangements. As a result, a taxpayer who has a substantial liability would be well advised to contact the IRS and try to enter into an installment agreement or an offer in compromise to resolve the liability.
Beginning in 2017, the $50,000 figure is adjusted annually for inflation. For 2018, the threshold amount is $51,000.
The IRS had not been enforcing its authority pursuant to Section 7345 in earnest until earlier this year. In January, 2018, the IRS issued Notice 2018-1 that made it clear the IRS is serious about implementing this compliance tool.
The IRS is required to notify a taxpayer when he or she is the subject of a certification (or the reversal of a certification) to the State Department. The notice is required to inform the taxpayer, in simple nontechnical terms, of the taxpayer’s right to bring a civil suit to request judicial review as to whether the certification to the State Department was erroneous or whether the IRS failed to properly reverse a certification. The suit may be brought in either the U.S. District Court or the U.S. Tax Court. Unfortunately, taxpayers do not have the ability to enlist the assistance of the IRS Appeals office in this context.
In sum, if someone owes the IRS more than $50,000 (currently, $51,000) in taxes, interest and penalties, he or she should make arrangements to satisfy the liability before planning that winter vacation if it involves leaving the country.
Please feel free to contact any member of the MSK Tax Practice Group if you have any questions.
David Wheeler Newman
Allan B. Cutrow
Jeffrey D. Davine
Jeffrey K. Eisen
Robin C. Gilden
Robert J. Lowe
S. Eva Wolf