Starting January 1, 2018, the State Department commenced to deny the requests for US passport issuance and renewal made by individuals with “seriously delinquent tax debt”. Moreover, the State Department has been granted the authority for US passport revocation with respect to these individuals. Let’s explore this new law on passport revocation and denial for tax debt.
Passport Revocation and Denial: IRC Section 7345
Section 32101 of the 2015 Fixing America’s Surface Transportation Act (“FAST Act”) added IRC section 7345, which requires the IRS to notify the State Department of taxpayers that the IRS has certified individuals as having “seriously delinquent tax debt.” This is called “Section 7345 Certification.” Once the State Department receives such a Certification, it is generally required to deny a passport application for the certified individuals and may even revoke or limit passports that were previously issued to these individuals.
Passport Revocation and Denial: Who Can Make Section 7345 Certifications
Only designated IRS officials may certify an individual or reverse Certification. IRC Section 7345(g) specifically reserves this right to the Commissioner of Internal Revenue, the Deputy Commissioner for Services and Enforcement of the Internal Revenue Service (IRS), or the Commissioner of an operating division of the IRS (collectively, “Commissioner or specified delegate”).
Passport Revocation and Denial: Seriously Delinquent Tax Debt
The term “seriously delinquent tax debt” is defined in IRC Section 7345(b)(1), which sets up four requirements. First, the debt must be “unpaid, legally enforceable Federal tax liability of an individual.” Id. Note that the seriously delinquent tax debt is limited to liabilities incurred under Title 26 of the United States Code (i.e. the Internal Revenue Code). The term does not include items such as FBAR penalties and child support.
Second, this federal tax liability must have been “assessed.” IRC Section 7345(b)(1)(A).
Third, the assessed liability must be greater than $50,000. IRC Section 7345(b)(1)(B). Pursuant to the IRC Section 7345(f), the $50,000 amount is adjusted for inflation each calendar year beginning after 2016. In fact, for 2018, the threshold amount is $51,000.
Finally, either a levy pursuant to IRC Section 6331 or a lien pursuant to the IRC Section 6323 has been issued with respect to the assessed tax liability. IRC Section 7345(b)(1)(C). Moreover, the administrative appeal rights under IRC Section 6320 with respect to the lien must have been either exhausted or lapsed. Id.
Passport Revocation and Denial: More Than $50,000 Threshold
In calculating whether the $50,000 federal tax liability threshold is met, the IRS will aggregate all of the current tax liabilities for all taxable years and periods assessed against an individual. It will also include penalties and interest.
Passport Revocation and Denial: Exclusions
Under the newly-issued IRS guidance, the term “seriously delinquent tax debt” for the purposes of passport revocation and denial does not include the following:
1. A debt that is being timely paid under an IRS-approved installment agreement under section 6159.
2. A debt that is being timely paid under an offer in compromise accepted by the IRS under section 7122.
3. A debt that is being timely paid under the terms of a settlement agreement with the Department of Justice under section 7122.
4. A debt in connection with a levy for which collection is suspended because of a request for a due process hearing (or because such a request is pending) under section 6330.
5. A debt for which collection is suspended because the individual made an innocent spouse election (section 6015(b) or (c)) or the individual requested innocent spouse relief (section 6015(f)).
Passport Revocation and Denial: Exceptions
Additionally, the State Department will not revoke or deny the US passport of a taxpayer if one of the following exceptions apply:
1. The taxpayer is in bankruptcy;
2. The IRS identified the taxpayer as a victim of tax-related identity theft;
3. The IRS determined that the taxpayer’s account is currently uncollectible due to hardship;
4. The taxpayer is located within a federally declared disaster area;
5. The taxpayer has a request pending with the IRS for an installment agreement;
6. The taxpayer has a pending offer in compromise with the IRS;
7. The taxpayer has an IRS-accepted adjustment that will satisfy the debt in full; or
8. If the taxpayer is serving in a designated combat zone or participating in a contingency operation, the IRS will postpone the Certification.
Passport Revocation and Denial: 90-Day Delay
Before denying a passport, the State Department will grant a taxpayer 90 days to allow him to either resolve any erroneous certification issues, make a full payment of the tax debt or enter into a payment arrangement with the IRS.
Passport Revocation and Denial: Main Remedy in Case of Erroneous Certification
In cases where the IRS makes an erroneous Certification or fails to revers a certification, a taxpayer does not have many choices. It appears that the taxpayer will not be able to appeal to the IRS Office of Appeals. The main course of action in these situations appears to be a civil action in court under IRC Section 7345(e).
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