Can The IRS Revoke My Passport?
Yes. Yes It Can.
If You Owe the IRS a Seriously Delinquent Tax Debt Your Passport Will Be Revoked. Let Us Help You Prevent Revocation or Work to Get It Back For You.
We are often asked by clients what the IRS can really do when back taxes are owed. Previously, the threshold for punitive IRS actions was pretty high. That has changed dramatically.
The IRS will now begin revoking US passports for taxpayers that owe a Seriously Delinquent Tax Debt. This is truly game changing.
Approximately two years ago, Congress decided that the penalties and interest it was already charging taxpayers wasn't punitive enough to incentivize payment. Congress stepped in and passed the Fast Act, which provided for the non-renewal or revocation of the passport of individuals who owed "seriously delinquent tax debt." This provision was unused for the last two years, but now the IRS announced that it has begun enforcement as of January 2018. Initial reports stated that the IRS would slowly ramp up enforcement under these new draconian provision, but the worm has turned as the latest reports are that the IRS is issuing 100,000 certifications per month!
What is a “Seriously Delinquent Tax Debt”?
Seriously Delinquent Tax Debt is tax debt which exceeds $51,000. The Fast Act statute states that the threshold is $50,000, but it's indexed for inflation so the correct amount for 2018 is $51,000. It doesn't include FBAR penalties, but it does include all types of penalties, and interest. It also only includes "assessed" amounts.
In addition to being over $51,000, the IRS must have already filed its Notice of Federal Tax Lien, and you must have exhausted all of your rights under IRC Section 6320; or
A tax levy has been issued.
Your first line of defense is to demonstrate that your tax debt, or a portion of your tax debt, falls within one of ten enumerated exceptions. The portion falling within one of these exceptions is not included in calculating the threshold amount.
How to Determine the Amount Assessed?
In order to determine whether an amount is assessed you will need to obtain a copy of your record of account from the IRS, by calling (800) 908-9946. Don't be surprised if you spend an hour on hold. You may also obtain transcripts online. To use this service, you will need:
The record of account will be on a year-by-year basis. At the top of the record of account, there will be a total amount owed. That is NOT the amount assessed. You will need to subtract out the accrued penalties and interest to arrive at the assessed amount. Then add up the total for each year or period to determine if you exceed the threshold. Do not rely on the amount stated in the IRS' Notice of Federal Tax Lien because it may include accrued, but un-assessed amounts.
The Revocation Process
Once the tax debt has been determined to be "seriously delinquent" the IRS will certify the tax debt to the Secretary of State, who will then revoke the passport. The IRS will issue a Notice 508C to the taxpayer at the time the debt is certified. It will be sent by regular mail, NOT certified mail, to your "last known address." If you don't get it, it will be an uphill battle proving that the IRS didn't send it. The IRS will notify the State Department on a weekly basis of the certifications.
By the time you have received the Notice 508C it will be too late! It is more difficult to fix the problem once the tax debt has been certified, and there will be time delays in getting things fixed. However, under 22 U.S.C. § 2714a, the State Department may, notwithstanding a certification from the IRS, issue a U.S. passport to a taxpayer if the State Department determines emergency circumstances or humanitarian reasons justify issuance of the passport. In addition, the Secretary of State may limit a previously issued passport only for return travel to the United States; or issue a limited passport that only permits return travel to the United States.
According to Internal Revenue Manual Section, the Secretary of State will not revoke a passport for 90 days to allow the taxpayer time to clear up any certification issues. Unfortunately, that may not be enough time for the IRS to resolve the problem, and send the information to the Secretary of State.
Defenses Available Against Certification
1. Pay The Debt to Below the Threshold Limit: The simplest way of dealing with the problem is to pay down the tax debt below $51,000. However, it is extremely important that the taxes be applied properly, or else your plan won't succeed. Review the example below for a better understanding of how this would work.
2. File a Valid Request for an Offer in Compromise (OIC): This is not merely to be used as delay tactic where you file a clearly insufficient OIC and significantly delay the process. If you don't meet basic criteria it will be rejected quickly, and you will lose your defense. For example, if you are not in "current compliance" with your IRS filing and payment requirements, your offer will not be accepted for processing. Also, if you have previously had an offer rejected the IRS may determine that the new request is filed solely for purposes of delay, and, therefore, it will not be an adequate defense to passport revocation.
3. Request an Installment Payment Agreement: However, protection doesn't start until it is accepted by the IRS as "pending." The IRS has detailed requirements for when they will treat a request for a payment agreement as "pending" within the meaning of these rules.
4. Timely Respond to a Notice of Intent to Levy and Right to Request a Hearing: You must file a written request for a hearing within the statutory 30-day deadline. A phone call to the IRS is insufficient to protect your rights. Having your accountant "work" with the IRS will NOT protect your rights. The written request is a must. If you are unable to come to an agreement with an IRS Appeals Officer, consider filing a Petition within the United States Tax Court. For your Petition to be successful it is important that you document all of your interactions with the IRS Appeals Division. As a general matter, the Tax Court will only review information that you submitted to the Appeals Division, and will not consider new information that you later decide to submit to the Tax Court. If you can't prove you gave the information to the IRS Appeals Division, you may lose your case. This is why we document all information shared with the Appeals Bureau, even going so far as to tape record meetings at times.
5. Request "innocent spouse" relief if you believe you may qualify: If you remain married, or if IRS collection from your former spouse could impact your alimony or child support keep in mind that filing for innocent spouse treatment won't prevent your spouse's passport from being revoked;
6. File for bankruptcy.
Properly Designating Payments to the IRS: A Practical Demonstration
The trap to avoid is simply sending the IRS a payment that you believe will bring your assessed amount below $51,000. The IRS generally applies payments to the earliest tax year owed, which will usually include assessed tax owed (which applies to the threshold amount) plus unassessed interest and penalty (which will not count towards the threshold amount of $51,000).
Let’s consider a hypothetical Taxpayer who owes the IRS a total of $85,000. This consists of a 2013 tax bill of $25,000 consisting of $5,000 in tax, and $20,000 of accrued, but un-assessed interest and penalty. This taxpayer also has a 2014 balance due of $60,000. This 2014 debt consists of $45,000 in tax, and $15,000 in interest and penalties, all of which has been assessed. The first thought is to send the IRS $35,000 if you can beg, borrow, or steal it. That's not necessary.
The assessed balance is only $65,000 and, therefore, a $15,000 payment should suffice. However, if you simply send the IRS a payment of $15,000 that won't work! Using the IRS’ general rule of applying payments to the earliest tax year owed, in this instance a $15,000 payment, without proper designation, would be applied to wipe out $5,000 in assessed 2013 tax, plus $10,000 in un-assessed interest and penalty.
When the dust clears, this Taxpayer will owe $70,000 consisting of $60,000 of assessed 2014 liability, and $10,000 of un-assessed 2013 interest and penalty. The Taxpayer will have wasted $15,000 since they are still going to have their passport revoked because they fall within the definition of seriously delinquent tax debt.
On the other hand, the IRS is required to apply voluntary payments in the manner you tell them. So if the Taxpayer had designated the payments to 2014 taxes Taxpayer will still owe $70,000, but the amount of assessed taxes, interest and penalty will only be $50,000 consisting of the balance of $45,000 in 2014, and $5,000 assessed tax for 2013.
What If Your Tax Debt Was Mistakenly Certified?
To challenge the IRS’ Certification of your tax debt you may have to bring a lawsuit.
Although you can speak to the IRS, there is not Appeals Division review of IRS errors. Collection Due Process rights don't apply, nor are CAP (Collection Appeals Program) rights available. The Taxpayer Advocate may take on your case, but there is no telling what the results will be.
Internal Revenue Code Section 7345(e) allows a taxpayer to bring suit in the U.S. Tax Court or the U.S. District Court to determine whether the certification was erroneous or whether the Commissioner has failed to reverse the certification. If the court determines that such certification was erroneous, then the court may order the IRS to notify the Secretary of State that such certification was erroneous. The Tax Court has not yet adopted rules for filing a Petition, but in 2016, the Court issued proposed rules covering this issue which closely track the Tax Court rules for other types of actions.
Important issues will need to be litigated as to what will constitute an erroneous certification. For example, pending installment agreements are not mentioned in the statute. However, IRS guidance proves that tax debt subject to pending installments will remove it from the category of seriously delinquent tax debt. If the IRS determines that a request for an installment agreement is not pending because it was filed for the purposes of delay, will that be treated as an erroneous certification?
Decertifying the Tax Debt After Being Certified By the IRS as Seriously Delinquent
Some of the actions which will result in decertification:
“How Long Before I Can Get My Passport Back?”
IRS guidelines provide that in some situations it will decertify the tax debt within 30 days. In other situations, it will do so "as soon as possible". Who knows that that means in this era of reduced IRS budges, but presumably more than 30 day. Even if the debt is decertified within 30 days that doesn't mean that you will have your passport back that quickly.
According to a report by the Taxpayer Advocate's Service, the State Department may take up to 45 days from the time it receives the decertification from the IRS for it to reflect this information in its computer systems.
The IRS does provide a procedure for expedited decertification. However, IRS employees are not supposed to tell you about it. You may qualify if:
You may also qualify for expedited decertification, IF you are currently overseas, and you inform the IRS that you have an "urgent need" for decertification.
If you are at risk of losing your passport and you would like to discuss all of your options, call my office at (646) 490-0072 to schedule an appointment. All conversations with our office are protected by attorney client privilege.
- Cornelius J. O'Reilly [firstname.lastname@example.org] LoPresti & O'Reilly, LLP [(c) 2018]