Posted on Jun 29, 2018 by J. David Johnson, IV
Suntan lotion? Check. Surfboard? Check. Passport? Not so fast.
Some summer sojourns abroad could be disrupted this season, as the Internal Revenue Service recently began enforcing a little-known provision of the Fixing America's Surface Transportation (FAST) Act that allows the agency, through the U.S. State Department, to revoke – or prevent the issuance of – a passport to any taxpayer who is found to have a "seriously delinquent tax debt."
The relevant provision – section 7345 of the Internal Revenue Code – was originally enacted during the 2015-2016 Congressional Session and languished until this February, when the IRS suddenly began exercising its power to send certifications of unpaid tax debt to the State Department. This seems to be a "hammer" the IRS long desired and one that aligns with President Trump's aim to bring in additional revenue by collecting overdue tax debt.
Under this process, anyone with a "seriously delinquent tax debt" – any "unpaid, legally enforceable federal tax debt more than $51,000 (including interest and penalties)" – is subject to having their passport seized or new application denied.
Before the IRS can start this procedure, however, it must either (1) file a notice of federal tax lien or (2) issue a levy on the debt (e.g. against the taxpayer's bank account, a garnishment on their wages).
Note that this is an "OR" test, despite some statements to the contrary that are out there. Once the IRS meets either requirement, it can certify the debt to the State Department, which is then empowered to deny the taxpayer's passport application and/or revoke a current passport.
In any case, before the State Department takes this action, taxpayers are allowed 90 days to try to resolve any certification issues, make full payment of the tax debt or enter into a payment arrangement with the IRS.
If you really want to ride those foreign waves but think you may be at risk, you must take some affirmative action. Obviously, the first lesson is to pay any taxes if you plan to leave the country. But if you don't, for whatever reason, remember these pointers:
Other Important Things to Know
Although taxpayers have the right to represent themselves when challenging the IRS (or the State Department), it's always best to consult with a tax lawyer instead of going solo against the "world's most powerful debt collector."
Turner Padget lawyers have helped individuals from all walks of life, as well as numerous estates and businesses, to obtain installment plans, file offers in compromise and otherwise challenge these actions. Please let us know if there's any way we can assist.
David Johnson is of counsel at Turner Padget, where he handles various types of complex tax and transactional issues for businesses and individuals throughout South Carolina. He has significant experience in negotiating settlements with the Internal Revenue Service and the South Carolina Department of Revenue for individuals and businesses in tax collection matters, including offers in compromise and installment agreements. He formerly was a tax consultant for one of the nation's largest accounting firms. He may be reached at (843) 656-4419 or by email at email@example.com.