American expatriates living outside of the United States are all too aware of the various tax difficulties and hurdles that exist. Unfortunately, in recent years, law-abiding expats have been caught in the crossfire as Congress attempts to crackdown on wealthy Americans who use foreign trusts and offshore accounts to conceal wealth and income. These efforts have resulted in the start of enforcement of the Report of Foreign Bank Account (FBAR) obligation under the Bank Secrecy Act and the enactment of the Foreign Account Tax Compliance Act. These and other reporting obligations create significant burdens for expatriate taxpayers. Since filing requirements are relatively opaque and penalties can be imposed even when one did not intend to violate the law, penalties can quickly accumulate.
Expatriates and other Americans may be well aware of these and other tax enforcement efforts, but the IRS is about to implement yet another tool to secure payment of overdue taxes and penalties. Legislation passed in 2015 authorizes the IRS to cancel an individual’s passport through the State Department. This program is not yet in effect, but if you have significant tax debts it is wise to begin developing a plan to avoid this potential collection tactic. Our Sacramento tax relief lawyers explain further below.
Why Is Passport Denial or Revocation for Tax Debts Authorized?
The provision inserting passport denial and revocation procedures was passed into law as part of the FAST Act. The bill was signed into law in December of 2015. The full text of the passport revocation provisions can be found at §7345 – Revocation or denial of passport in case of certain tax delinquencies.
Under this law, the IRS Commissioner is permitted to petition the State Department to deny, revoke, or limit an individual’s passport. This type of tax enforcement action can occur when the taxpayer has a seriously delinquent tax debt of $50,000 or more that has been previously assessed and levied. The denial, cancellation, or revocation of your passport can mean that your travel and freedom of movement will be restricted. If you have business operations, property, assets, or interests in foreign nations your ability to travel to manage them may be restricted.
Why Is Careful Planning the First Step in Avoiding a Passport Denial?
It is essential to note that the law contains several exceptions where even if the taxpayer’s debt would otherwise qualify for passport-based enforcement, such action will not be taken. Taxpayers who recognize these exceptions and take action can theoretically avoid having their passport revoked. A tax debt will not be considered seriously delinquent when the debt is being paid in a timely manner pursuant to a payment plan or payment agreement and collection is suspended due to relief being granted or a pending appeal.
If the IRS does take steps to cancel your passport by sending a certification to the State Department, §7345(d) provides that contemporaneous notification will be sent. The notice will contain a statement of your right to appeal. If you receive a notice of this type, it is wise to contact a tax lawyer immediately to discuss your appeal options.
When Will the IRS Start Passport Denials for Tax Debts?
The IRS has not yet started utilizing passport revocation as a tax debt collection tool. However, the IRS website does contain a notice on its Revocation or Denial of Passport in Case of Certain Unpaid Taxes page stating:
The IRS has not yet started certifying tax debt to the State Department. Certifications to the State Department will begin in early 2017, and this webpage will be updated to indicate when this process has been implemented. The information presented here is for informational purposes only.
The webpage was last update on February 6, 2017. This means that the IRS does still plan to implement this collection tool. While the IRS is not willing to nail down a specific date of implementation, the language on the page does suggest that it will occur rather contemporaneously. Therefore, taxpayers who know they have significant tax debts due to unpaid taxes, FBAR mistakes, or FATCA errors should begin planning for this new collection tactic as soon as possible.
Work with Strategic Tax Lawyers when Facing IRS Tax Debts
If you have significant tax debts, the lawyers of the NewPoint Law Group can help you secure relief in the form of a payment plan, offer-in-compromise, or through other relief options. If you fear that your passport will be denied or revoked when the IRS implements its passport tactics, we can discuss your options to protect your passport and resolve your tax debt. To schedule a confidential consultation, call our Sacramento tax lawyers 1-800-358-0305 today.