IRS: Pay your taxes or Lose Your Passport

 

The IRS now may have power to revoke your passport

Americans who owe lots of money to IRS and have received a notice they they could have their passports revoked by the State Department or blocked from receiving new passports. Both the Senate and the House has approved the bill and is now awaiting final approval from a conference committee at the time of writing this article. Should the bill pass in December 2015, it would come into effect on the 1st of January 2016.

Senate Bill 1813

The movement started in 2012 by Sen. Harry Reid (D-Nev.) and transformed into Senate Bill 1813 introduced by Sen. Barbara Boxer (D-CA). It appeared in the pending Highway Bill titled, “Moving Ahead for Progress in the 21st Century Act” or “MAP-21”. The code titled, “Revocation or Denial of Passport in Case of Certain Tax Delinquencies” will now have a new section 7345. In 2014, Sen. Ron Wyden (D-Ore) responded by joining in with the rest of them.

But what do past-due taxes and passports have in common, one may wonder. The measure is partly to raise finances for the proposed highway project. By targeting people who are seriously in “delinquent tax debt,” the Joint Committee on Taxation estimates that this measure will raise $398 million over a decade and that it can defray some of the cost of the highway-funding bill, H.R. 22 since lawmakers decided not to raise the federal gas tax.

It is easy to amass large amounts in back taxes, penalties and interest today as people with a big tax bill get overwhelmed and postpone tax payments for a while. Eventually even when and if you come forward with a repayment plan, you may still lose your passport for a time.

IRS routinely and automatically sends out a tax lien or levy when you owe taxes as a way of putting creditors on notice or seizing your assets hoping that eventually the IRS gets paid. The lien covers all your property and is used by courts to establish priority in bankruptcy proceedings.

Passport Bill Exceptions

However, there are some exceptions to the rule. Your passport is safe under the following circumstances:

  • You have not yet received a tax lien or levy from IRS
  • You have worked out a repayment plan and are paying it promptly
  • You are contesting the administration of tax collection in the tax court
  • You are travelling on an emergency basis or humanitarian grounds
  • You are actively disputing a tax case or resolving a tax debt with the IRS

But it is not clear how long it would take State Department to rule on the above exceptions. As for now, the legislation is still pending and neither the Treasure Department nor the State Department would comment on it. Some advocates have attacked the proposal saying that the right to travel is constitutional.

Other Expat Tax Concerns

The most vulnerable to the provision are the 8 million Americans living abroad because their tax affairs are more complex than others’. They need their passports for many activities of daily life. Moreover, all financial institutions are required by the Foreign Account Tax Compliant Act (FATCA) to report back to IRS any accounts held by U.S. citizens. Hence, if you are a U.S. citizen living or traveling overseas it is in your best interest to pay attention to IRS notices and to be tax compliant by the New Year 2016. But be aware that IRS system is not very efficient in dealing with expat addresses, and hence there is a possibility that you may have missed the IRS mail.

About the author...

Joshua Katz, CPA

After working for several accounting large firms, I founded Universal Tax Professionals because I knew I could give expats more personalized services at lower rates. Feel free to email me directly at josh@universaltaxprofessionals.com.

Joshua Katz, CPA