United States

IRS releases information on delinquencies that may revoke passports

IRS Notice contains information on tax debts that may restrict travel

TAX ALERT  | 

On Jan. 12, 2018, the IRS released Notice 2018-1 to provide taxpayers with information about the implementation of section 7345, “Revocation or denial of passport in the case of certain tax delinquencies.” Section 7345 was enacted as part of the Fixing America’s Surface Transportation (FAST) Act, Pub. L.114–94, on Dec. 4, 2015, but was not applicable until Jan. 1, 2018. The rule requires the Department of Treasury to notify the State Department if the IRS certifies an individual as having a ‘seriously delinquent tax debt.’ Upon receipt of the certification, the State Department may deny an application for a new, or renewal of, a passport and may revoke or limit a previously issued passport.

Under section 7345(b)(1), a ‘seriously delinquent tax debt’ is an unpaid, legally enforceable and assessed federal tax liability that is greater than $50,000. In order for the liability to be deemed a seriously delinquent tax debt, a lien or levy must have been issued and the taxpayer’s right to a lien hearing must have been exhausted or lapsed. The $50,000 federal tax liability is calculated by combining the amount of all current federal tax liabilities that meet the ‘seriously delinquent’ criteria while also including penalties and interest assessed.

A seriously delinquent tax debt does not include a debt being timely paid under an approved installment agreement, a debt that is being timely paid under an accepted offer-in-compromise, a debt that is being timely paid under a Department of Justice settlement agreement, a debt that is suspended because of a due process hearing, or a debt that is suspended due to an innocent spouse election. If the IRS reverses the certification because it was erroneous or if the debt is fully satisfied, becomes unenforceable, or ceases to be a seriously delinquent tax debt then the IRS must notify the State Department. The State Department must then remove the certification from the individual’s record.

When the IRS notifies the State Department of the seriously delinquent tax debt certification, it must also send notice to the taxpayer (in the form of Notice CP508C). The taxpayer has the right to bring a civil suit against the IRS pursuant to section 7345(e). Further, the taxpayer has the right to judicial review of whether the certification was made in error or whether the IRS failed to reverse a certification in either a United States district court or the United States Tax Court. If a court determines that the certification was made in error, then it can compel the IRS to notify the Secretary of State of such.

If a taxpayer’s debt has been certified as seriously delinquent and then the taxpayer applies for a passport, the State Department will generally provide the applicant with 90 days to resolve the delinquency before denying the application. If the taxpayer needs the passport to travel within those 90 days, the taxpayer has 45 days from the date of application to contact the IRS and resolve the debt in order to give the IRS enough time to notify the State Department.

Taxpayers who have an aggregate tax debt that might meet the definition of ‘seriously delinquent tax debt’ should consult their tax advisor to determine whether this provision applies to them and to develop a plan to satisfy the debt. Taxpayers should discuss the options of paying in full, entering into an installment agreement under or an offer-in-comprise with the IRS. Taxpayers should also be aware of the time limitations for curing the debt if they need a passport issued after a debt was certified as seriously delinquent.

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