Tax Law Insights

Beginning December 4, 2015, if you owe significant taxes to the IRS, the U.S. State Department now has the authority to deny or even revoke your passport.

Congress recently passed the Fixing America's Surface Transportation Act, Public Law 114-94 (FAST Act), and, as part of this broad-reaching effort to fix our nation's roads, adopted a little-publicized tax collection provision requested by the IRS where individuals can be prevented from receiving, or, worse still, can lose their passports if they owe taxes to the federal government.

Section 32101 of the FAST Act adopted a new Internal Revenue Code provision, Section 7345. Under FAST Act Section 32101 and new Internal Revenue Code Section 7345, if the IRS certifies to the State Department that an individual "has a seriously delinquent tax debt", the State Department shall not issue a passport to the individual. If the IRS makes this certification to the State Department for a tax-delinquent individual with an existing passport, the State Department may revoke the person's passport, or can limit the passport for return travel only to the U.S. The State Department also the authority to issue a passport, despite receiving a certification notice from the IRS, for "emergency and for humanitarian reasons."

In addition to denying or revoking passports for individual's owing taxes to the IRS, the State Department has also been given the authority to deny or revoke passports for individuals that do not have a U.S. social security number.

Section 7345 defines a "seriously delinquent tax debt" as unpaid federal taxes over $50,000 (which includes penalties and interest), and where the IRS has filed a tax lien notice or issued a levy/garnishment against an individual. There are important exceptions, however.

A tax debt to the IRS is not considered "seriously delinquent" if an individual is making payments to the IRS under an approved payment plan or offer-in-compromise, or if the taxpayer is challenging the tax debt with the IRS through "collection due process" proceedings.

The new laws require the IRS to provide notice to an individual that the IRS is sending a certification to the State Department for denial or revocation of a passport, giving the individual the right to challenge the certification in court. The IRS is also required to notify the State Department when an individual's taxes have been paid in full, and where the tax debt is no longer considered "seriously delinquent", which would include where the taxes have been paid below the $50,000 threshold, or where the taxpayer has entered into a payment plan/offer in compromise with the IRS, or is challenging the taxes under a valid "collection due process" proceeding.

These new laws are filled with other important rules and exceptions. Any individual now seeking to leave or come into the U.S. through a U.S. passport, if taxes are or may be due, must consult with a tax adviser. If not, a planned business trip or vacation, or, worse, re-entry back into the U.S., may be barred.