Owe Federal Taxes? Your U.S. Passport Could Get Yanked

If you have fallen behind with the Internal Revenue Service, you now have a new concern to keep you up at night. In addition to penalties, interest, liens, and levies, under a new federal act just signed into law on December 4, 2015, the State Department could soon revoke your U.S. passport.

Congress enacted the “Fix America’s Surface Transportation Act” (FAST Act) in order to provide funds for roads, bridges, railroads, and transit systems. Buried within the FAST Act’s 490 pages, available here, though, is a provision amending the Internal Revenue Code to add a new Section 7345, authorizing the revocation or denial of a passport for “seriously delinquent” unpaid taxes.

Under the new law, the State Department is required to revoke or deny the passport of any individual who has been certified by the IRS as owing a seriously delinquent tax debt. A seriously delinquent tax debt is defined as an unpaid, legally enforceable federal tax liability of an individual that has been assessed, that is greater than $50,000, and for which a federal tax lien or notice of levy has already been issued. In other words, you’ve run out of your administrative rights, and you owe tens of thousands of dollars.

However, there are four notable exceptions: your passport is protected from revocation or denial if you are timely paying your federal tax debt under an installment plan; if you are timely paying through an offer in compromise; if you have an application pending for a collection due process hearing; and, lastly, if you have an application pending for innocent spouse relief.

In other words, because of this new law there will be a significant number of taxpayers who will soon be facing revocation or denial. While the $50,000+ threshold is indexed for inflation, this is, in actuality, a fairly low threshold. With the accrual of interest and penalty, it can be quite easy for an average taxpayer to amass a liability well in excess of $50,000. Further, it is quite easy to imagine scenarios where taxpayers, especially those living overseas (who obviously need their passports to a greater degree than those living in the United States), fail to receive key pieces of mail, leading to all sorts of potential trouble.

Not only will some taxpayers find that they cannot take needed trips outside of the United States, there could be many Americans who become, at least temporarily, effectively stranded abroad in foreign countries due to having their passports revoked. When appropriate, the State Department may nonetheless issue a passport under emergency circumstances or for humanitarian reasons. Further, the IRS is required to provide notification to each affected individual, and taxpayers are afforded the right to seek judicial review.

It bears mentioning that a few states have similar laws allowing a tax delinquent’s driver’s license to be suspended due to a failure to pay. Most notably, New York adopted a driver’s license suspension program in 2013. Under that program, if a taxpayer owes more than $10,000 in back taxes, the Department of Motor Vehicles, working in tandem with the Department of Taxation and Finance, will suspend his or her New York driver’s license. We wrote about it here.

Once your license is suspended, your only remedy, at that point, is either to apply for a restricted-use license that only allows for transiting to and from work or to and from childcare and health care, or negotiating a payment plan in order to restore your regular license. Naturally, many taxpayers have worked out some form of payment plan. In fact, New York’s program has been highly successful in raising revenue: $278 million since the law went into effect in 2013. The federal passport program will surely raise even more money for federal coffers.

We will eagerly await the Treasury’s issuance of regulations interpreting this new law. Congress has just wielded a heavy hammer aimed squarely at tax delinquents. While this will surely, and likely quickly, start to raise revenue, the reach and scope of this initiative could prove problematic. In fact, for many taxpayers, the effects could become downright ugly. We can easily imagine a scenario where a New Yorker, who falls behind on his income taxes, will come to realize New York has suspended his driver’s license and the United States has revoked his passport. This could make transacting business and leading a “normal” life quite difficult; which of course is the point of these types of programs. For those who may soon be confronted by similar scenarios, while it might be tempting merely to bury your head, you would be better off contacting a reputable tax professional who can help you in negotiating a workable solution.

Our friends at Forbes (we are fans of Taxgirl blog), have additional information on this subject, available here.

While the risks associated with tax noncompliance are growing increasingly more severe, we remind you that traveling is good for the soul and suggest you take steps to safeguard your rights to travel. As such, we leave you with these parting thoughts:

“Travel is fatal to prejudice, bigotry, and narrow-mindedness, and many of our people need it sorely on these accounts. Broad, wholesome, charitable views of men and things cannot be acquired by vegetating in one little corner of the earth all one’s lifetime.” – Mark Twain, The Innocents Abroad

Lastly, we welcome your comments in the comment section.

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