Tax alert

Fifth Circuit upholds constitutionality of passport revocation

Sep 21, 2022
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Executive summary

Taxpayers can lose their U.S. passports over seriously delinquent tax debts. The Fifth Circuit Court of Appeals joins the Tenth Circuit to uphold the constitutionality of section 7345, the passport-revocation scheme. As a result, the IRS is charging ahead with section 7345 as a collection tool.

In Franklin v. United States, the Fifth Circuit Court of Appeals upheld the constitutionality of section 7345, Revocation or denial of passport in case of certain tax delinquencies. The Fifth Circuit concluded that section 7345 does not violate the Fifth Amendment’s due process clause.

The IRS assessed the taxpayer in Franklin $421,766 of additional tax and penalties. He failed to file accurate tax returns and report a foreign trust. The IRS filed a notice of federal tax lien (NFTL) and levied his Social Security benefits in an effort to collect the unpaid debt. In addition, the IRS certified the debt as seriously delinquent to the Department of State pursuant to section 7345. The State Department revoked his passport. The taxpayer brought various claims regarding the IRS assessment and challenged the constitutionality of section 7345 in district court.   The court dismissed all of the taxpayer’s assessment claims for lack of jurisdiction and held that section 7345 passes constitutional muster, applying the rational basis standard of review.

Congress added section 7345 to the internal revenue code late in 2015 as part of the Fixing America’s Surface Transportation (FAST) Act.  It provides that if the Commissioner of the IRS determines that an individual has a seriously delinquent tax debt and “certifies” such debt to the Secretary [of the Treasury], then the Secretary will transmit that certification to the Secretary of State, who will then deny, revoke, or limit the U.S passport of that individual (section7345(a)).  The decision to deny, revoke, or limit a U.S. passport lies solely with the U.S. Department of State. A seriously delinquent tax debt means an unpaid federal tax liability that is (1) assessed, (2) exceeds $50,000 (adjusted for inflation, which for year 2022 is $55,000 pursuant to Rev. Proc. 2021-45, section .59), and (3) the IRS filed an NFTL or  levied with respect to the debt, and collection due process (CDP) rights have been exhausted or lapsed ( section 7345(b)(1)). 

The Fifth Circuit Court of Appeals affirmed the district court’s decision. Following the Supreme Court’s reasoning in Califano v. Aznavorian, 439 U.S. 170 (1978), and Haig v. Agee, 453 U.S. 280 (1981), the Court of Appeals concluded that the right to international travel is not a fundamental right affording strict scrutiny standard of review. The court further concluded that the government’s interest in collecting taxes is so important that it survives even an intermediate scrutiny test. Under intermediate scrutiny, a restriction is upheld if it serves an important governmental objective and is substantially related to those objectives

The Court in Franklin reasoned that the Government has an important interest in recouping the $5.8 billion in delinquent taxes, and the passport revocation procedure will encourage taxpayers to pay their tax debts. According to the court, the practice will make it difficult for taxpayers to hide assets in other countries when they are not allowed to leave the country. The Court observed that section 7345 is limited and does not authorize the Government to seize the passport of any taxpayers who owe taxes, but rather, it is only applicable to taxpayers with tax debts of more than $50,000. The Court characterized this provision as Congress providing the IRS “an arrow, not a bazooka” to combat seriously delinquent tax debts.

The Fifth Circuit joins the Tenth Circuit in upholding the constitutionality of section 7345. In Maeher. v. U.S. Department of State, the Tenth Circuit also affirmed a lower court’s determination that section 7345 does not violate substantive due process. 

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