IRS Passport Revocation or Denial for Unpaid Taxes
Two years ago, Congress passed Internal Revenue Code Section 7345. This law allows the Internal Revenue Service (IRS) to work with the US State Department to suspend and/or deny the passports of taxpayers with seriously delinquent tax debts. The IRS plans to start using this penalty in January 2018.
Specifically, if you have a so called “seriously delinquent tax debt”, Section 7345 authorizes the IRS to certify that tax debt to the State Department. The State Department will not issue or renew a passport to you after receiving this certification from the IRS. Upon receiving certification, the State Department may also revoke your passport. If the Department decides to revoke it, prior to revocation, the State Department may limit your passport to return travel to the US (thus preventing you from being trapped in limbo if you are outside of the US).
Below some frequently asked questions received from our clients:
Can You Lose Your Passport for Not Paying Taxes?
Yes, under the new law, you can lose your passport for not paying your taxes. This applies to people with tax debt in excess of $50,000. That includes interest and penalties, and the threshold changes annually based on inflation. According to Mary Beth Murphy, commissioner of the IRS Small Business/Self-Employed Division, the first phase will focus on denying passport renewal applications for delinquent taxpayers. In the second phase, the IRS and State Department will focus on revoking passports held by delinquent taxpayers. The IRS is rolling out the law in phases so as to lessen the chances that an individual will be stuck in a foreign country without a valid US passport. The idea to use a passport as leverage to compel payment of taxes, has cropped up again and again in the past several years. The IRS was very aware of the potential for using the US passport as an effective means of increasing the collection of unpaid US taxes.
Can You Get a Passport if You Owe the IRS?
If you have been considered “seriously delinquent”, the IRS will send certification of the debt to the State Department. Once the State Department receives the certification from the IRS, they generally will not issue a passport.
A seriously delinquent tax debt is an individual’s unpaid, legally enforceable federal tax debt totaling more than $50,000 for which a:
- IRS Notice of federal tax lien has been filed and all administrative remedies under IRC § 6320 have lapsed or been exhausted or
- IRS Levy has been issued
Thus, you will not have a “seriously delinquent” tax debt simply because you know you have not filed your tax returns for a number of years and have at least $50,000 in unpaid amounts, but with respect to which the IRS has not taken any action to date. The IRS has to take one of the above specified actions (e.g., issued a levy) in order for you to have a “seriously delinquent” tax debt.
How Does the IRS Take Away Passports?
The IRS doesn’t take away passports per se. Rather, the agency creates a certification list and sends it to the State Department. If you’re on the list, you can’t get a new passport, renew your existing passport, or use your current passport.
How Can You Keep Your Passport If You Have Tax Debt?
If you have a lot of tax debt and you don’t want the IRS to take your passport, you need to act quickly. Any of the following steps can protect your passport:
- Set up and make payments on an installment agreement.
- Convince the IRS to accept an offer in compromise.
- Secure a settlement agreement with the Justice Department.
- Initiate a Collection Due Process Hearing—a hearing with an impartial third party for taxpayers who don’t agree with the amount due.
- Apply for innocent spouse relief.
- You can also pay down your tax debt so that it’s below the $50,000 threshold. This only works if you do it before the IRS suspends your passport. Once you have lost your passport, this will not work.
How Do You Know If the IRS Plans to Suspend Your Passport?
If it plans to put you on the certification list, the IRS will send Notice CP 508C to your last known address. The IRS will send written notice by regular mail. The agency sends a notification to the State Department at the same time.
What Happens If You Lose Your Passport?
Once the State Department receives the notice, it suspends your passport immediately. If you are out of the country, you are allowed to travel home, but that’s it. You won’t be able to leave again. If you need to travel for work or personal reasons, the IRS doesn’t care. There aren’t exceptions.
If you have just submitted an application for a passport, the State Department holds the application for 90 days. Take that time to fix your issue with the IRS. If there are still issues at the end of that time period, the State Department will notify you in writing that your application has been denied.
How Can You Get Your Passport Back If You Lose It From a Tax Debt?
Once your passport has been taken away, you can get it back by setting up a payment plan or an offer in compromise. Unfortunately, making a payment so that the bill is under $50,000 will not help you get your passport back.
For example, if you owe $52,000 and you send in $3,000, the IRS will not authorize you to get your passport back. However, if you work with the IRS to set up a payment plan, you can get your passport back even if your total balance is still above the threshold.
If you have just filed a new tax return and the IRS owes you a refund, the refund will be applied to your tax debt. If the refund covers the full debt, you will also get your passport back.
How Long Does It Take to Get Your Passport Back After Paying Your Tax Debt?
Once your tax debt is paid in full or you’ve made the necessary payment arrangements with the IRS, the IRS will let the State Department know. This takes about 30 days on the IRS’s end, but the IRS has not explained how long it takes the State Department to update the issue.
At this point, the IRS sends you Notice CP 508R. This just explains that you are no longer on the list. You can now apply for a passport, renew your passport, or use your existing passport.
Has Your Passport Been Suspended?
If you’re worried that your passport has been suspended but you’re not sure, there are a couple steps to take. This may happen in cases where you have moved or not received notices for other reasons.
First, you need to contact the IRS to see how much you owe. Then, you can find out what’s happening with your passport by contacting the National Passport Information Center at (877) 487-2778
How to Ascertain my Passport Status?
If you need to verify whether your US passport has been cancelled or revoked, contact the State Department by calling the National Passport Information Center at 877-487-2778. If you’re leaving in a few days for international travel and need to resolve passport issues, you should call the phone number listed on Notice CP 508C. If you already have a US passport, you can use your passport until you’re notified by the State Department that it’s taking action to revoke or limit your passport.
What If Your Tax Debt Is Wrong?
If the IRS sends you Notice CP 508C and you don’t agree with the amount on the notice, you need to take action quickly before your passport gets suspended. Call the number on the letter as soon as possible. If you’ve already paid your tax bill, send proof of your payment to the IRS.
What If the IRS Takes Away Your Passport Erroneously?
If you believe that your passport was suspended erroneously, you can file suit with the US Tax Court or a US District Court. This also applies if you pay your bill, but the IRS fails to remove you from the list.
Unfortunately, your passport will remain suspended throughout the trial. However, if the suit is successful, the courts will order the IRS to withdraw your name from the certification list. The courts can’t remove liens or award you financial damages. Under the law, you cannot sue the State Department for mistakenly taking away your passport.
Can the IRS Take Away Your Passport If You Live Abroad?
If you have excessive tax debt (over $50,000), the IRS can initiate the process to suspend your passport regardless of where you live.
Remember the United States is one of the only countries in the world that requires you to report income regardless of where you live or where it was earned. Luckily, in most cases, you can qualify for a credit if you pay income tax to the country where you reside, so you usually don’t have to worry about double taxation.
The IRS also requires taxpayers to report any amounts over $10,000 in foreign accounts, and failure to notify the IRS can result in serious penalties.
Time to Take Action
If you have forgotten to file these reports and the IRS assesses your tax debt retroactively, that could instantly increase your tax debt over the threshold, and that may lead to losing your passport. At that point, you would have the ability to travel back home, but your ability to use your passport to go anywhere would be seriously compromised.
Given the growing trend of international tax enforcement, it is clear that US citizens who have not been tax compliant will face serious travel and passport difficulties in the near future. Tax penalties for Americans overseas can often be higher than for domestic taxpayers. This is due to foreign asset information reporting that typically applies more often to the US individual residing abroad who would have foreign financial assets such as interests in foreign entities or foreign financial accounts. Now is the time to become tax compliant, there are various options to achieve this. You may want to participate in the IRS’ Streamlined Filing Compliance Procedures (SFCP) or Offshore Voluntary Disclosure Program (OVDP). Contact our law office to learn more.