US citizens who do not keep their US tax affairs in order and end up with 'seriously delinquent tax debts' could find themselves denied a US passport.
In today’s complex world, possession of a valid passport with in-excess of six months to run before expiry can be a vital piece of personal documentation. Quite apart from being essential for international travel, passports are frequently required as proof of identity under the ‘know your client/customer’ checks that pervade modern life.
It is not unknown for US Internal Revenue Service (“IRS”) records to show misleading amounts due in terms of tax, interest and penalties. This could be because a tax payment made to the IRS has been posted to the wrong account, is sitting in a suspense account, or is otherwise somehow ‘lost in the system’. Such a situation could have serious practical repercussions if IRS internal procedures have in the meantime reached the stage of escalating debt collection to the issue of a Notice of Federal Tax Lien. For example, the time line involved in a passport renewal could be delayed for as long as it takes to get IRS records corrected.
Statutory obligations imposed on the IRS and the US State Department
The Fixing America's Surface Transportation ("FAST") Act of 2015 contained the following statutory requirements:
Latest developments in implementing the rules
- That the IRS notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt.
- That the State Department deny either first time passport applications or passport renewal requests submitted by any US citizen who the IRS has so certified.
- Where the certified person is in possession of a valid passport with a distant expiry date, the State Department has the power to either revoke that passport or limit the ability of the holder to travel outside the US.
Work on the implementation of these procedures began in early 2018.
On 27 February 2019, the IRS issued a News Release which was both a progress report on implementation and a warning of the consequences of being a person certified as owing a seriously delinquent tax debt.
IRS News Release, IR-2019-23 can be viewed here
Highlights from that IRS News Release are:
- A seriously delinquent tax debt is an amount of $52,000 or more;
- For which the IRS has filed a Notice of Federal Tax Lien, and either:
a) The period in which that lien can be challenged has expired, or
b) The IRS has issued a levy.
- The threshold amount of $52,000 is not restricted to unpaid taxes but can include penalties and interest.
- When the IRS certifies a US citizen to the State Department, the taxpayer in question is issued with a Notice CP508C.
- Amongst other things, this Notice explains what steps need to be taken to clear the debt.
- The Notice CP508C is not copied to anyone holding a Power of Attorney for the taxpayer.
- So a tax professional acting for the taxpayer will only be aware of a Notice CP508C if/when their client indicates that such a Notice has been received.
- Before denying a passport renewal or new passport application, the State Department will hold the taxpayer’s application for 90 days to allow them to:
a) Resolve any erroneous certification issues,
b) Make full payment of the tax debt, or
c) Enter a satisfactory payment arrangement with the IRS.
- Within 30 days of the debt no longer appearing in its records (e.g. because payment has occurred), the IRS will reverse the taxpayer’s certification and inform the State Department accordingly.
- Decertification by the IRS can be expedited for a person who resolves their debt and either:
a) Has a pending passport application and has close travel plans, or
b) Lives outside the USA and has an urgent need for a passport.
For more information, please contact John Harvard