Tax Law Insights

The Fixing America’s Surface Transportation (FAST) Act, signed into law December 4, 2015, created new Internal Revenue Code § 7345 which requires the IRS to notify the United States State Department when an individual is certified as owing a “seriously delinquent tax debt”. When this notification of certification is received from the IRS, the State Department is generally required to deny the individual a U.S. passport (or renewal of a U.S. passport) or may revoke any U.S. passport previously issued to that individual. The State Department has the sole authority to revoke or limit a passport held by any individual. Whether a passport will be revoked or limited is left solely to the discretion of the State Department. If an individual certified as having a seriously delinquent tax debt applies for a passport or a passport renewal, the State Department will hold the application of a certified taxpayer open for 90 days to allow the taxpayer to resolve his or her tax and related certification issues, such as making payment of the taxes or entering into a  payment plan or other tax collection alternative with the IRS, before denying an application for a passport or renewal.

The IRS will only make its certification to the State Department if a taxpayer has a “seriously delinquent tax debt”, which is where a taxpayer owes more than $52,000 in taxes to the IRS (originally $50,000, but now adjusted annually for inflation), the IRS has filed a tax lien notice for the taxes, and the taxpayer has generally exhausted administrative “Collection Due Process” rights for the taxes with the IRS.   Certain IRS assessments are not considered “taxes” for purposes of these passport certification rules, and include (1) Affordable Care Act assessments; (2) Employer Shared Responsibility Payments (ESRP); (3)  Criminal Restitution assessments; (4) Child Support Obligations; and (5) assessments related to a Report of Foreign Bank and Financial Accounts (FBAR).  Additionally, there are also important exceptions to the definition of a “seriously delinquent tax debt”.

Taxes owed to the IRS are not considered “seriously delinquent” where:

• The total tax liabilities of a taxpayer, including penalties and interest, are $52,000, or less;
• A taxpayer is paying his/her federal taxes under an installment payment plan with the IRS;
• The taxes are being paid under an accepted Offer in Compromise with the IRS;
• The taxpayer is challenging his/her liability for taxes or otherwise under a pending Collection Due Process appeal;
• The taxpayer has filed a pending request for innocent spouse relief from his or her liability for joint federal income taxes;
• The taxpayer is serving in a combat zone;
• The taxes are currently not collectible (CNC) due to hardship as determined by the IRS;
• A tax liability resulted from identity theft;
• The taxpayer has filed a pending application for an Offer in Compromise or for an installment agreement payment plan with the IRS, but the Offer or payment plan has not yet been accepted by the IRS, except where the application has been filed solely for delay;
• The taxpayer has proposed to fully pay taxes within a certain limited period of time;
• The taxpayer is in bankruptcy; or
• The taxpayer has died, although his or her estate may then owe the taxes.

The IRS is required to send notice of its proposed passport certification to a taxpayer at the time certification is made to the State Department, and the IRS must send this notice by regular mail to the “last known address” of the taxpayer on file with the IRS.  A taxpayer may challenge the IRS passport certification by filing an action with the United States Tax Court.

Individuals seeking to travel abroad on a U.S. passport, and including those seeking re-entry into the United States, must be aware of whether they owe taxes to the IRS.  If these taxes are over $52,000, and the taxpayer has not made arrangements for the payment or resolution of these taxes, the taxpayer could be barred from leaving the U.S. and/or coming back home.