U.S. citizens who owe taxes to the Internal Revenue Service may soon find themselves subject to travel restrictions. In December of 2015, Section 7345 was added to the Internal Revenue Code. This provision authorizes the IRS to certify to the U.S. State Department that a taxpayer has “seriously delinquent tax debt,” and forthwith permits the State Department to revoke or limit the issuance of a passport to such taxpayers. The IRS has recently indicated on its website that it is now ready to begin the implementation of these certifications.
“Seriously delinquent tax debt” is defined as 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 or a levy has been issued. This amount will be adjusted annually for inflation. A taxpayer who has entered into an installment agreement or an offer in compromise, or who has requested a collection due process hearing or innocent spouse relief will not be considered as having seriously delinquent tax debt even if the amount owed exceeds $50,000.
After receiving certification, the State Department will hold the applications of seriously delinquent taxpayers for issuance or renewal of passports for 90 days, to allow such taxpayers to resolve any erroneous certification issues or make full payment or payment arrangements. However, the State Department may also decide to immediately revoke a passport without any grace period, or limit the passport to only allow return travel to the United States.
A taxpayer will receive Notice CP 508C at the time the IRS certifies seriously delinquent tax debt to the State Department. This Notice will be written and sent via regular mail. Once certified, the certification can only be reversed when 1) the debt is fully satisfied or becomes legally unenforceable, 2) the certification is erroneous, or 3) the debt is no longer seriously delinquent. In order for the debt to no longer be considered seriously delinquent, the taxpayer must either enter into an installment agreement, a settlement agreement, or an offer in compromise with the IRS, or make a request for a Collection Due Process hearing or innocent spouse relief.
A taxpayer who has been certified to the State Department as seriously delinquent can file a lawsuit in the U.S. Tax Court or a federal district court to challenge the certification. A taxpayer can also file suit to challenge an IRS refusal to reverse the certification. A court can order the reversal of the certification if it finds the certification to be erroneous or should have been reversed.
The ability of the IRS to cause the revocation, denial or limitation of a passport gives the IRS strong leverage over taxpayers who are delinquent in their tax debts. Individuals who owe the IRS more than $50,000 and are concerned about their ability to travel internationally should take immediate steps to address their tax liabilities.