In Notice 2018-1, the IRS has provided guidance on the federal government denying passport applications for individuals who are certified to have “seriously delinquent tax debt.”
Once the IRS notifies the U.S. Department of State of taxpayers owing large amounts of debt, the department is generally required to deny those individuals a passport or revoke or limit already-issued passports. The relevant section of the code allowing this was added by the Fixing America’s Surface Transportation (FAST) Act, which was signed into law in 2015.
Note: Passports are handled by the State Department, not the IRS. This new provision effectively authorizes disclosure of certain tax information from the IRS to the State Department, which in turn will use this information in making passport-related determinations.
A seriously delinquent tax debt is generally defined as exceeding $50,000 (adjusted for inflation for calendar years beginning after 2016) and for which a notice of lien has been filed. However, a “delinquent” certification doesn’t include debt for which:
- There’s an agreement in place to repay the debt,
- There’s a collection due process hearing (collection is then suspended), or
- Innocent spouse relief is requested or pending.
In addition, certification of a seriously delinquent tax debt will be postponed while an individual is serving in an area designated as a combat zone or participating in a contingency operation.
The FAST Act provides procedures for, and restrictions on, the IRS’s disclosure of the return information for purposes of passport revocation. It also provides procedures for how an individual who was certified by the IRS as having a seriously delinquent tax debt can have that certification reversed (for example, if an error was made).
If, after the State Department has been notified of a seriously delinquent tax debt and the IRS Commissioner (or a delegate) determines that the debt shouldn’t have been certified, the IRS will notify the State Department that the certification has been reversed. The law then requires the State Department to remove the certification from the individual’s record.
The certification of a seriously delinquent tax debt will be reversed if the tax debt no longer qualifies as seriously delinquent. Thus, taxpayers who have been told that certification has been sent to the State Department should consider:
- Paying the tax owed in full,
- Entering into an installment agreement with the IRS, or
- Arranging an “offer in compromise” with the IRS to lower the amount owed.
When a passport applicant has a significantly delinquent debt, the State Department generally will allow a 90-day window to resolve the delinquency before denying the application. Taxpayers who need to travel outside the country within those 90 days must resolve the matter with the IRS within 45 days from the date of the passport application.
Only one remedy
Generally, filing a civil action in court is the sole remedy available for a taxpayer who believes that a certification is in error, or that the IRS has incorrectly failed to reverse a certification because the tax debt is either fully satisfied or ceases to be a seriously delinquent tax debt. The taxpayer can’t make a challenge with the IRS Appeals Office.
For a no-obligation discussion on the possible impact and steps you should take now, contact Lien Le, the head of our International Tax practice.