If you owe more than $51,000 in back taxes, penalties and interest, your U.S. passport/renewal application might be denied. The IRS estimates approximately 362,000 taxpayers fall into this category.
We have been following the progress of this new enforcement tool for several years. Since this provision of the Fixing America’s Surface Transportation Act (FAST Act) became law in December 2015, the IRS and State Department have been working to develop regulations and a coordinated process.
When does the IRS issue a certification of seriously delinquent tax debt?
The Service has been scouring its records to identify taxpayers with cumulative tax debt above the inflation-adjusted “greater than $50,000” amount. Several conditions apply:
- The IRS has assessed the taxes
- The cumulative amount of back taxes, penalties and interest is $51,000 or more
- A notice of lien was sent and administrative remedies are no longer available
Affordable Care Act assessments and penalties for failing to file a report of foreign bank accounts (FBAR) will not affect the calculation.
How can you avoid certification?
Pay off the tax debt in full. One taxpayer reportedly paid more than one million dollars to avoid passport denial.
But if paying off the full balance is not a realistic option, other exceptions exist to avoid passport denial, they include:
- An installment agreement that you pay in a timely manner (this must be more than a nominal amount and not designed to delay collection efforts)
- Request for a collection due process hearing or innocent spouse relief
- Active military service in a designated combat zone
The IRS may agree not to certify a debt in other circumstances. Debt classified as currently not collectible or resulting from identity theft are some. A taxpayer in bankruptcy or with a pending installment payment agreement/offer in compromise might not be certified.
Asking for help from the Taxpayer Advocate Service is not a reason the IRS will accept however.
What notice will you receive?
The IRS must send you notice of a certification in the mail. This is not advance notice.
Currently, the Service is working through a backlog of certifications. It expects to send all certification notices to the State Department by year end.
If you have a current U.S. passport, this will not yet affect you. The State Department is not revoking valid U.S. passports. The legislation does authorize it, but so far, the agency has only denied passport applications for taxpayers on the seriously delinquent tax debt list.
Stay off the certification list by seeking professional tax advice to solve tax problems. Options exist depending on your situation and it is much easier to deal with an issue before it becomes an emergency with upcoming international travel.