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Tax and Financial News for March 2016

Pay Up or Stay Home

If you’re looking to use your U.S. passport on your next international trip and you’re delinquent on your taxes, some recent changes to federal law may have you grounded.

When President Obama signed the FAST Act (Fixing America’s Surface Transportation Act) into law, he expanded the federal government’s ability to restrict who can obtain a new passport or renew an existing one. Previously, the Secretary of State was empowered to deny new and renewed passports for non-custodial parents if their state of residence informed the Department of State of a child support debt of more than $2,500. However, the FAST Act also empowers the Secretary of State to deny delinquent taxpayers the ability to obtain a new passport or renew an existing one.

This new law will require the Secretary of State to withhold issuing new passports and renewal requests for anyone who is a seriously delinquent taxpayer. Similarly, the Secretary of State also is allowed to invalidate and rescind any active passport held by a seriously delinquent taxpayer.

Under this FAST Act, taxpayers are considered delinquent when their federal tax liability exceeds $50,000, including penalties and interest and a lien or notice of levy is filed against the debt. Moving forward, the $50,000 threshold will be indexed according to inflation. An exception for the passport issuance or renewal may be made in certain cases: for taxpayers with federal tax debt that qualifies for an Offer-in-Compromise (OIC); for taxpayers who are eligible for innocent spouse relief; for taxpayers who have debt that is frozen due to an appeal for a collection due process (CDP) hearing; or for taxpayers who have worked out a collection agreement.

The question persists as to how to make sure that the innocent or exempted taxpayers can still exercise their right to travel internationally with a passport. This depends on the identification of seriously delinquent taxpayers by the Commissioner of Internal Revenue and verification by the Secretary of the Treasury. These individuals’ names would then be transferred for identification from the Secretary of the Treasury to the Secretary of State.

As part of the law, taxpayers whose passport privileges may be revoked if they don’t satisfy outstanding federal tax debt are first notified through the IRS’ standard mailed debt notices so they can address the issue. This is done to help taxpayers resolve their federal tax obligations and prevent passport suspension or revocation in the future. However, one potential pitfall of this method of notification is once a taxpayer sees their notification for tax debt, they may not always pay attention to the potential passport issue.

For those taxpayers who believe they are incorrectly assigned to the no passport list, the law allows for a “reversal of certification” provision. If the determination was made incorrectly or the federal tax debt is satisfied or no longer meets the threshold, the IRS must inform the Secretary of the Treasury who in turn will make the Secretary of State aware of the error. Additionally, since the corrective action to get removed from the list can be time intensive, taxpayers may petition the court to have their passport privileges restored while the administrative procedures are ongoing.

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