Helping U.S. clients with passport revocations from U.S. tax debt
On Dec. 4., 2015, the Fixing America’s Surface Transportation Act (FAST Act) was enacted and included Sec. 7345, Revocation or denial of passport in case of certain tax delinquencies, allowing the IRS to notify the Secretary of State to deny, revoke or limit a U.S. passport upon certification of an SDTD (Seriously Delinquent Tax Debt).
An SDTD is defined as “an unpaid, legally enforceable federal tax liability of an individual” which has been assessed, is more than $50,000 indexed for inflation (current threshold is $51,000), and for which a lien has been filed under Sec. 6323, Validity and priority against certain persons. Also, the administrative Collection Due Process (CDP) rights under Sec. 6320, Notice and opportunity for hearing upon filing of notice of lien, have been exhausted or lapsed or a levy has been made under Sec. 6331, Levy and distraint. Note that the tax liability includes the actual tax plus assessed penalties and interest.
Simply put, if an individual taxpayer currently owes more than $51,000, a federal tax lien was filed against the taxpayer for all the tax periods covering the federal tax liability, CDP rights have been exhausted and a levy has been issued, then the individual could be subject to passport revocation. Submitting a payment to bring the liability under the $51,000 threshold after an individual has been certified will not reverse the notification of certification.
There are many facets to the passport revocation process. Here are some considerations and details to keep in mind:
- · IRM 184.108.40.206.19.2 (12-26-2017) states that an SDTD includes tax assessments made under an individual’s Social Security number (SSN) or federal employer identification number (FEIN) including U.S. individual income taxes, trust fund recovery penalties, business taxes for which the individual taxpayer is liable and other civil penalties.
- · Assessments, including FBAR penalties assessed under Title 31 of the Bank Secrecy Act and other non-tax liabilities outside the scope of the IRS, do not constitute an SDTD.
- · The $50,000 threshold does not include accrued interest and penalty (IRM 220.127.116.11 (12-20-2017)).
- · The statutory exceptions to passport revocation or denial include a tax debt being paid in a timely manner under Sec. 6159, Agreements for payment of tax liability in instalments, or Sec. 7122, Compromises, a debt where collection is suspended due to a requested or pending CDP hearing or a request for relief under the innocent spouse rules of Sec. 6015, Relief from joint and several liability on joint returns. Other statutory exclusions are detailed in IRM 18.104.22.168.3 (12-20-2017).
- · The IRS also has the discretion to exclude categories of tax debt from certification (IRM 22.214.171.124.4 (12-20-17) and 126.96.36.199.19.4 (12-26-17)), even if the debt meets the criteria of an SDTD. Some of these include debt deemed uncollectible due to hardship, debt resulting from identity theft or taxpayers in a disaster zone.
- · The IRS is required to notify the taxpayer, in writing, at the time the certification of an SDTD is made to the State Department (IRM 188.8.131.52.7 (12-20-17)). The IRS can reverse the certification of an SDTD as outlined in IRM 184.108.40.206.8 (12-20-17).
There is no administrative appeal process for certification of a taxpayer’s account. Taxpayers whose accounts are certified to the State Department as an SDTD can file suit in U.S. Tax Court or a District Court of the U.S. If the court determines the certification is erroneous or should have been reversed, it can order the certification reversal (IRM 220.127.116.11.9 (12-20-2017)).
What can a U.S. Qualified Tax Consultant can do?
Practitioners and their clients should be proactive in attempting to resolve unpaid tax liability issues. Alternatives include an installment agreement, offer in compromise, full payment of the liability or request for uncollectible status due to financial hardship.
- . Remember, a pending instalment agreement request will stop the CP508C letter from being issued. Use this request for an instalment agreement template as a guide.
- . Look at the IRS Collection Appeal Options Quick Reference Chart to help you navigate the hurdles.
The process of decertification does work. In a recent case, a husband and wife each received notice of certification (CP508C) on Aug. 20, 2018. The husband and wife’s outstanding tax liability was placed in uncollectible status due to financial hardship through a Revenue Office and notice CP508R was issued on Oct. 22, 2018.
In another case where the taxpayer owed over $300,000, the taxpayer was able to enter into an installment agreement of $100 per month and within two months received notice CP508R.
Always work and attempt to resolve cases at the lowest possible level. Make sure that all unfiled tax returns have been filed and, if needed, an estimated tax payment submitted for the current year.