In December of last year, Congress enacted the Fixing America’s Surface Transportation (“FAST”) Act a law seeking the attention of seriously delinquent taxpayers by taking away their right to hold an active U.S. passport. On December 4th, 2015, President Obama signed it into law. Denial of passport privileges applies to persons with Federal tax debts of more than $50,000.
The Department of State’s Expanded Authority. Passport administration has been the domain of the Department of State (the “State Department”). The Secretary of State has authority to refuse to issue or renew a passport if the applicant owes child support in excess of $2,500 or an assistance loan from the Department of State. Thanks to the FAST Act, the State Department can revoke a passport or deny its renewal if a person has a seriously delinquent Federal tax debt. The procedures to put this authority into effect are currently being implemented.
How Will the Department of State Know? The Federal government is working on coordinating its efforts to collect taxes. The Internal Revenue Service (“IRS”) will be certifying a taxpayer’s identity and delinquency status to the Department of State. In turn, the State Department can use this information to determine whether to issue, renew, or revoke a passport.
Passport Control Mechanics. This is not entirely new. The IRS and the Department of Homeland Security (“DHS”) have already been collaborating on monitoring those who go through Passport Control. The IRS has been using the Treasury Enforcement Communications System (TECS), a database maintained by the DHS, to track delinquent taxpayers. IRS Revenue Officers can request that delinquent taxpayers be entered into the TECS database. Once the names are on a DHS lookout indicators list, the DHS should advise the IRS when these persons travel into the United States for business, employment, or personal reasons. IRS employees are responsible for maintaining the TECS database by requesting that appropriate taxpayers be entered into or deleted from TECS. As with any database, delays and human error may occur.
What Is Seriously Delinquent Tax Debt? A seriously delinquent tax status means having outstanding Federal tax debt of more than $50,000, including interest and any penalties. Interest and penalties can add up quickly, so the actual tax liability amount may be lower than $50,000.
Only Tax Court: Once the Department of State has denied a passport application for tax delinquency, the applicant’s only option is petition in the United States Tax Court. If a certification is erroneous or the IRS has not properly reversed a certification, the only recourse is, again, the United States Tax Court.
Is There A Safe Zone? Yes, if the tax debt is being paid in a timely manner under and Installment Agreement or an Offer in Compromise arrangement accepted by the IRS. Innocence Spouse relief and a Collection Due Process hearing are alternative means to remain in the safe zone. This new regime, however, may haunt taxpayers who believe they are in the safe zone because collection has been merely suspended and they are in not collectible status.
The only difference between death and taxes is that death doesn't get worse every time Congress meets.
Galina "Allie" Petrova is a Tax and Business Law attorney based in North Carolina. If you are facing a tax problem, please feel free to contact the firm directly. Call Petrova Law to set up an appointment in our Greensboro office at 336.310.1210.