On August 8th, the Internal Revenue Service (IRS) reminded taxpayers with “seriously delinquent tax debt” that they can lose their US passports. I will provide more detail on this below, but first, the “good news”. It was announced on August 14, 2019 that Charles Rettig, the IRS Commissioner, has granted a reprieve for some tax debtors facing non-issuance, non-renewal and/or or loss of their passports. Specifically, effective July 25, 2019, all cases that are open with the Taxpayer Advocate Service (TAS) that involve a taxpayer who has already been certified by the IRS to the Department of State as having a “seriously delinquent tax debt”, will be “decertified”. In addition, new TAS taxpayer cases will also be “decertified” on a systemic basis. What this means is that the taxpayers will not be in jeopardy of losing their passports while TAS is actively involved in the case.
A TAS memo (TAS-13-0819-0014) issued on August 14 by the Acting National Taxpayer Advocate, Ms. Bridget Roberts, advised this “temporary change” related to the non-issuance or non-renewal and/or revocation of passports for taxpayers working with the TAS. Note, the change is temporary and is pending Commissioner Rettig’s final determination on this matter.
Taxpayer Advocate Service
Prior to this announcement the IRS had refused to exclude from certification taxpayers who already had open TAS cases. This was of grave concern to TAS’ former leader, Ms. Nina Olson and had been raised as a “Most Serious Problem”. It’s great to see action has now been taken and this latest development is a most welcome change.
Generally, taxpayers with TAS cases are those having tax problems that cannot be resolved through the usual IRS channels. In addition, TAS has sought to redress situations involving large groups of taxpayers having a systemic tax issue. Last year, for example, TAS issued hundreds of so-called “Taxpayer Assistance Orders” (TAOs) ordering the IRS not to “certify” taxpayers identified by TAS with “seriously delinquent tax debt” to the Department of State if the taxpayer had an open TAS case. By operation of law (IRC § 7811(c)) the IRS had to refrain from “certifying” any of these taxpayers until the TAOs were rescinded or modified by the National Taxpayer Advocate, the IRS Commissioner, or IRS Deputy Commissioner. Those lucky taxpayers were not “certified” due to the TAOs, but this help did not extend to those opening new TAS cases. Nina Olson continued to advocate for taxpayers in jeopardy of losing passports who were seeking assistance from TAS. Unfortunately, no formal policy was ever implemented. Now, thanks to the new procedure we have something to help such taxpayers.
If you are having tax problems and have not been able to resolve them with the IRS, the Taxpayer Advocate Service may be able to help you with its free services. If you need TAS assistance, information about eligibility is here.
Passport Non-Issuance, Non-Renewal & Revocation – Some Background
Internal Revenue Code Section 7345 authorizes the IRS to certify to the State Department that a taxpayer has “seriously delinquent tax debt”. Once the State Department receives certification of the tax debt from the IRS it will not issue or renew the individual’s US passport, and in fact, it may also revoke the passport. In the case of passport revocation, the State Department may limit the passport to return travel to the US (thus preventing the individual from being trapped in limbo if he or she is already outside of the country).
Taxpayers affected by this law are those with a seriously delinquent tax debt. A taxpayer with a seriously delinquent tax debt is generally someone who has “an unpaid, legally enforceable federal tax liability” for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired or the IRS has issued a levy. The tax debt must be greater than $50,000, including interest and penalties. The dollar threshold is adjusted each year for inflation and cost of living. For 2019, the threshold is $52,000. There are several ways taxpayers can avoid having the IRS notify the State Department of their seriously delinquent tax debt. They include the following:
- Paying the tax debt in full
- Paying the tax debt timely under an approved installment agreement,
- Paying the tax debt timely under an accepted offer in compromise,
- Paying the tax debt timely under the terms of a settlement agreement with the Department of Justice,
- Having requested or have a pending collection due process appeal with a levy, or
- Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief.
A passport won’t be at risk for any taxpayer:
- Who is in bankruptcy
- Who is identified by the IRS as a victim of tax-related identity theft
- Whose account the IRS has determined is currently not collectible due to hardship
- Who is located within a federally declared disaster area
- Who has a request pending with the IRS for an installment agreement
- Who has a pending offer in compromise with the IRS
- Who has an IRS accepted adjustment that will satisfy the debt in full
For taxpayers serving in a combat zone who owe a seriously delinquent tax debt, the IRS postpones notifying the State Department and the individual’s passport is not subject to denial during this time.
If You are At Risk — Time to Take Action
You can read more about this entire topic at my earlier blog post here. The blog is specifically geared to overseas Americans, who may have an easier time in handling their US tax liabilities due to eligibility for the “foreign earned income and housing exclusions” as well as penalty-free Streamlined Foreign Offshore Procedures.
The key is taking early action before the IRS certifies the tax debt over to the Department of State. Contact me if you need help in regaining US tax compliance and avoid the headaches of a possible loss of your US passport.
Posted August 29, 2019
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