US IRS Debt: Can you travel?

INTRODUCTION

If you are a U.S. Citizen in the Philippines and owe back taxes, you may have heard that your passport may be revoked. That is true, so if you are in this situation this article will be of interest to you.

The Law

Tax code Section 7345 is labeled, "Revocation or Denial of Passport in Case of Certain Tax Delinquencies." The law isn't limited to criminal tax cases, or even cases where the IRS thinks you are trying to flee. The idea of the law is to use travel as a way to enforce tax collections. It was proposed and rejected in 2012. But by late 2015, Congress passed it and President Obama signed it.

The IRS web Site says this...

IRS Site

Revocation or Denial of Passport in Case of Certain Unpaid Taxes

The IRS has not yet started certifying tax debt to the State Department. Certifications to the State Department will begin in 2017, and this message will be updated to indicate when the process has been implemented. The content presented here is for informational purposes only.

(as of today June 10, 2017, it has not changed)

If you have seriously delinquent tax debt, IRC § 7345 authorizes the IRS to certify that debt to the State Department for action. The State Department generally will not issue a passport to you after receiving certification from the IRS.

See https://www.irs.gov/businesses/small-businesses-self-employed/revocation-or-denial-of-passport-in-case-of-certain-unpaid-taxes for more details and links.

Upon receiving certification, the State Department shall deny your passport application and/or may revoke your current passport. If your passport application is denied or your passport revoked and you are overseas, the State Department may issue you a limited validity passport good only for direct return to the United States.

Certification Of Individuals With Seriously Delinquent Tax Debt

Seriously delinquent tax debt is an individual's unpaid, legally enforceable federal tax debt totaling more than $50,000* (including interest and penalties) for which a:

  • Notice of federal tax lien has been filed and all administrative remedies under IRC § 6320 have lapsed or been exhausted or
  • Levy has been issued

Some tax debt is not included in determining seriously delinquent tax debt even if it meets the above criteria. It includes tax debt:

  • Being paid in a timely manner under an offer in compromise accepted by the IRS or a settlement agreement entered into with the Justice Department
  • For which a collection due process hearing is timely requested in connection with a levy to collect the debt
  • For which collection has been suspended because a request for innocent spouse relief under IRC § 6015 has been made

So what can you do?

  1. Seriously - Don't be 'seriously delinquent.' A seriously delinquent tax debt is a key term. If you don't have one, your passport is safe. So if you owe the IRS back taxes, keep your debt below $50,000. This however includes penalties and interest, so beware. A $20,000 tax debt could eventually grow to $50,000. And be careful, once your tax debt is labeled 'seriously delinquent,' you paying it down to $49,999 may not help. The IRS will not reverse a certification because the taxpayer pays the debt below $50,000.
  2. Keep it going - Keep your dispute with IRS going. You can usually contest tax bills if you do so promptly. The IRS usually sends multiple notices for any tax debt, and you should respond. Explain why the IRS is incorrect, and keep protesting. If you receive an IRS Notice of Proposed Deficiency or Examination Report, respond. It is sometimes called a "30-day letter," because of the deadline for response. Prepare a protest, and sign and mail it before the deadline. Keep a copy, and proof of mailing, preferably certified mail. Normally a protest will land you in the IRS Appeals Office, where you have another chance to resolve it.
  3. Go To Court - Go to Tax Court. If you fail to protest or you don't resolve your case at IRS Appeals, you probably will receive a Notice of Deficiency. An IRS Notice of Deficiency comes via certified mail. It is often called a "90-day letter," because you have 90 days to respond. Only one response to a Notice of Deficiency is permitted: filing a Tax Court petition in the U.S. Tax Court clerk's office in Washington, D.C. The U.S. Tax Court cannot hear your case if you miss the 90-day deadline. You want to keep your tax dispute going so the tax debt does not become final.
  4. Extend - Get extensions. You can sometimes get extensions from the IRS, so keep communicating. For many notices, the IRS will grant an extension of time to respond. In some cases, though, they can't. For example, when you receive a Notice of Deficiency (90-day letter), you must file in Tax Court within 90 days, and this date cannot be extended. Most other notices are less strict. If you do ask for an extension, confirm it in writing. In fact, confirm everything you do with the IRS in writing.
  5. Communicate - Communicate with IRS. If you get a certification that your debt is 'seriously delinquent' contact the phone number listed on the IRS Notice. If you've already paid the tax debt, send proof to the address on the Notice.
  6. Need Proof - Prove you need your passport. If you need your U.S. passport to keep your job, once your seriously delinquent tax debt is certified, you must fully pay the balance, or make an alternative payment arrangement to keep your passport. Once you've resolved your tax problem with the IRS, the IRS will reverse the certification within 30 days of resolving the issue.
  7. Agree - Make an installment agreement. It is often not too hard to get an installment agreement with the IRS to pay your tax debt over time. If you sign one, stick to its terms. Even if your debt is huge, the IRS doesn't call it 'seriously delinquent' if you are paying the installments on time.
  8. Settle - Offer in compromise or settlement. You can also try this route too to settle with the IRS. If the IRS accepts an offer in compromise to satisfy the debt, the rest of it can be forgiven. See IRS Offer in Compromise and IRS Payment Plans, Installment Agreements. In some cases, the Justice Department too can enter into a settlement agreement to satisfy a tax debt.
  9. Innocent - Innocent spouse relief. If the tax debt was your spouse's, and you are saddled with it because of joint tax returns, you might qualify for innocent spouse treatment. This is a separate big topic, and rules are more complex than you might think. See IRS Tax Topic 205, Innocent Spouse Relief. However, it's significant that the IRS can suspend collection efforts if you request innocent spouse relief (under IRC Section 6015)
  10. Due Process - Due process. There are many taxpayer protections when it comes to IRS collections. One set of protections is collection due process hearings. If you make a timely request for a collection due process hearing in connection with a levy to collect the debt, you may at least buy time to work out a deal with the IRS. See Taxpayer Advocate 2016 Annual Report to Congress, Appeals From Collection Due Process Hearings Under IRC §§ 6320 and 6330.
Finally

Before denying a passport, the State Department will hold your application for 90 days to allow you to:

  • Resolve any erroneous certification issues
  • Make full payment of the tax debt
  • Enter into a satisfactory payment alternative with the IRS

By all means, contact an attorney to help you before you find yourself stranded.


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