Many of you will remember the transportation bill signed into law by President Obama. Did you also know that there is a provision in that bill that requires the Internal Revenue Service (IRS) to refer serious delinquent taxpayers to the US Department of State for passport denial or revocation? The Repair of America’s Surface Transportation Act (FAST Act), PL 114-94, added Sec. 7345, which authorizes the IRS to certify to the Secretary of State that a taxpayer is seriously delinquent on their taxes. . The Department of State can then deny, revoke, or limit the taxpayer’s passport.
To qualify as a seriously delinquent taxpayer, the taxpayer must have at least $50,000.00 in outstanding tax debt, including interest and penalties. In addition, a binding notice must have been filed and all administrative remedy rights exhausted or lapsed, or a lien notice must have been filed. It is also required that both the notice alerting the taxpayer to the filing of a tax lien and the notice of attempted IRS levy must include information related to Sec. 7345, certification of seriously delinquent tax debt, and the denial, revocation, or limitation of passports for people with said tax obligation.
The US Department of State also requires the Internal Revenue Service to provide contemporaneous notice to the taxpayer. Once the IRS certification is received by the Department of State, no passports will be issued and existing passports may be limited or revoked. Exceptions are made in certain circumstances, but these exceptions are generally limited to emergency or humanitarian reasons. If the taxpayer is already out of the country, the Department of State will limit the taxpayer’s return travel to the United States.
Taxpayers who meet the “seriously delinquent taxpayer” criteria may be granted an exception if they meet one of the following:
• Requested spousal innocence relief
• Collection activity has been suspended due to a request for a “Due Process” hearing.
• Entered into an acceptable payment agreement called an Installment Agreement (IA)
Although the offer in compromise (OIC) may be an appropriate resolution and is worth pursuing, waiting for the outcome of a submitted offer does not prevent the Department of State from affecting a seriously delinquent taxpayer’s ability to travel.
Unfortunately, the only way to reverse certification once it has been made is to resolve the outstanding debt, either by paying the debt in full, entering into an installment agreement, receiving innocent spouse relief, or a successful offer in compromise. . Even if you pay the debt below the $50,000.00 amount, the certification will remain in effect until the debt has been paid in full. Once the tax liability is resolved, the IRS must contact the Department of State to withdraw the certification.
Notices of levies and intent to levy sent prior to the effective date of the previous bill (December 4, 2015) should not cause the taxpayer to become certifiable due to a lack of required language in the sent notices. If you find yourself in the above situation, here are some things you could do to help. Please note that nothing in this article in any way overrides the advice of a licensed tax professional. The first thing to consider is proper planning. This will help you stay current on your tax obligations and avoid the situation before it gets out of hand. Second, if you can’t pay the balance in full, try to get the balance below the $50,000.00 mark before certification takes place. Remember, if the balance is less than that amount, you are not in danger of being certified. It is only after certification that the balance reduction has no effect. You can then avoid certification by entering into an installment agreement, requesting innocent spouse compensation, requesting a “due process” hearing, and requesting an offer in compromise (OIC).