Today, I want to talk about the impact the IRS can have on our passports.
Did I just say that? Is it possible that the IRS can impact our passports?
Well, folks, the bad news is Congress has passed a law that allows the IRS to impact our passports. And that law was recently modified.
Here’s the story.
In the normal course of events, the IRS cannot disclose our confidential information, including our tax liabilities, except under very specific and limited exceptions that are described in the tax code.
However, Congress has given the IRS the authority to disclose our tax liabilities to the U.S. State Department, which is responsible for issuing or revoking our passports.
So, if you owe more than $54,000 and a federal tax lien has been filed or a levy imposed, then the IRS has the authority to disclose that information to the State Department. This is called a certification of a seriously delinquent tax liability.
Once this certification has been made, the State Department is prohibited from issuing a passport to that person who owes those taxes. Further, if that person already has a passport, the State Department may (but is not required to) revoke that passport.
There are several important modifications of this complex rule, some of which I want to address now:
• Because of COVID-19, the IRS had stopped issuing the certifications on April 1, 2020. I think it would be reasonable to assume that it will begin that process again sometime in the near future.
• The IRS will not send a certification, nor will it reverse a prior certification, if you have made certain efforts to pay the taxes, such as through an offer in compromise, an installment agreement or current hardship classification.
• For purposes of determining whether you have reached the $54,000 threshold, penalties and interest are included with the taxes. As we all know, penalties and interest can double the amount that’s owed, so this can be a real hardship.
We do have the right to challenge the denial or revocation of our passport. However there is no administrative process to do so. Instead, we must file suit in either the U.S. Tax Court or the U.S. District Court. This is a real hardship because normally the IRS is barred from taking drastic action until we’ve had an opportunity to exercise our due process rights without payment. It is also expensive and time consuming.
So, folks, this is a brief description of the statute. The point is, if you owe taxes, penalties and interest exceeding $54,000 and the use of your passport is significant to you, I urge you to meet with your tax adviser and make plans to avoid this kind of hardship.