Congress has passed, and President Obama has signed, the Fixing America’s Surface Transportation Act (FAST Act) . Title 32 of the bill includes several tax provisions , including Section 32101, which permits the IRS to seek the denial or revocation of a citizen’s passport when that person owes a “seriously delinquent tax debt.” The FAST Act accomplishes this by adding Section 7345 to the Internal Revenue Code. The new Section 7345 authorizes the Secretary of the Treasury to certify to the Secretary of State that a taxpayer has a “seriously delinquent tax debt,” at which point the Secretary of State can deny a passport application by that taxpayer or revoke a passport already issued.
This is new ground in tax enforcement for the IRS. Some states have taken this approach for years. For example, Maryland will often freeze a taxpayer’s driver’s license or vehicle registration, making it impossible to renew them without dealing with the tax problems. Arguably, these can be self-defeating actions if they prevents a taxpayer from going to work and earning the income from which they will pay their Maryland taxes. But such actions have overwhelming success in capturing a taxpayer’s attention. This new federal passport provision is undoubtedly intended to do the same thing. In addition, it will make it harder for taxpayers with serious tax problems to flee the country. However, we think Congress was far more concerned with the first concern — getting a delinquent taxpayer’s attention. Here’s why.
A “seriously delinquent tax debt” is defined as one in excess of $50,000, for which the taxpayer has already been notified of their CDP rights, i.e. a “Final Notice of Intent to Levy” has already been issued (see our article on CDP hearings ), or a debt on which the IRS has already issued levies. Exceptions exist for balances that are being paid through an installment agreement, for which a CDP hearing is pending, or for which an innocent spouse claim has been filed. With those exceptions, the law’s teeth will sink only into those taxpayers who have been issued many notices and continue to ignore their tax debts. Those that respond by requesting a hearing, requesting innocent spouse relief, or who set up a payment plan and make the required payments, will not be subject to the passport revocation or denial provisions.
There are two other provisions that demonstrate that Congress is trying to whack recalcitrant taxpayers into addressing their tax problems.First, the IRS must notify the taxpayer directly of the certification to the Secretary of State. Such taxpayers will get a letter from the IRS saying “we notified the State Department and you’re going to have your passport revoked.” So the taxpayer will clearly know why this is being done. However, if they have already been issued a long series of collection notices and possibly levies, it is unlikely the existence of a federal tax debt in excess of $50,000 will come as a surprise. Second, if the delinquency ceases to be a “seriously delinquent tax debt,” meaning it is reduced to under $50,000 or falls into one of the exceptions, e.g. it is covered by a payment plan, then the certification can be reversed. In other words, “you can have your passport back, just enter into a payment plan for what you owe.”