In case taxpayers didn't already have enough reasons to keep current with their tax obligations, the Fixing America's Surface Transportation Act (FAST Act), signed into law in December, has added one more. This law contains a provision adding a new section to the Internal Revenue Code (Section 7345) which empowers the IRS and the Secretary of State with the ability to limit, deny, or revoke a seriously delinquent taxpayer's passport.
A "seriously delinquent" taxpayer is defined by the Act as someone who owes the IRS more than $50,000 in assessed taxes, interest, and penalties. However, even if taxpayers meet this definition, they would not be considered delinquent in any of the following cases:
- They are making payments under an installment arrangement or offer in compromise.
- They have requested a collection due process hearing.
- They have requested innocent spouse relief.
There are many steps involved before the IRS can send the certification to the State Department, including taxpayer notification of a lien filed, or intent to levy, which must specifically mention how the delinquency could affect the taxpayer's passport.
When the State Department receives the certification, it may revoke the delinquent taxpayer's passport. Further, the State Department is prohibited from issuing a passport to a delinquent taxpayer except for emergency or humanitarian reasons. If the taxpayer is abroad at the time, the State Department can issue a limited passport permitting travel to the U.S. only.
The IRS will notify the State Department to lift the restriction once any of the following occurs:
- The debt is satisfied in full.
- The taxpayer enters into an installment agreement.
- The debt is no longer collectible due to expiration of the collection statute of limitation.
- The IRS accepts the taxpayer's offer in compromise.
- The taxpayer requests innocent spouse relief.
Bringing the balance due below $50,000 is not considered a valid reason to lift the restriction unless it is brought to zero.
There are some uncertainties that are not clearly addressed by the law, including bankruptcy. Another uncertainty is whether taxpayer accounts that have been classified by the IRS as "currently not collectible" (CNC) could be certified as delinquent taxpayers, because this classification implies that the IRS is no longer attempting to collect from the taxpayer.
A potentially troubling aspect of the law is that the IRS is not required to certify taxpayers that meet the definition of a delinquent taxpayer, implying that the IRS commissioner has discretion in determining which taxpayers are subject to action.
Certainly the best way for a taxpayer to avoid getting caught up in this process, if possible, is to minimize any accumulation of tax debt, especially debts in excess of $50,000. If taxpayers do find themselves in this situation, they should pay down the debt or request an installment agreement as soon as possible, to ensure that they continue to have access to a valid passport.