Important Passport Ramifications for Unpaid Federal Taxes
The Fixing America’s Surface Transportation Act of 2015 added new Internal Revenue Code Section 7345, requiring the IRS to notify the State Department (send a “certification”) when a taxpayer owes more than $50,000 (now indexed at $51,000) in legally enforceable federal tax debt, including interest and penalties. For the debt to be seriously delinquent, either:
- Notice of federal tax lien must have been filed and all administrative remedies under IRC § 6320 must have lapsed or been exhausted; or
- A levy must have been issued.
Following certification to the State Department by the IRS that a taxpayer has seriously delinquent tax debt, the State Department has the authority to do one of the following:
- Revoke a U.S. passport;
- Refuse to issue or renew a U.S. passport; or
- Prior to revocation, limit the passport to return travel to the U.S., or issue a limited passport that only permits return travel to the U.S.
The State Department will not grant any grace period prior to revoking a passport, although it will grant a grace period of 90 days before denying the issuance or renewal of a passport to allow for the taxpayer to pay the tax, resolve any erroneous certification issues, or arrange to pay the tax.
Tax debt is not treated as seriously delinquent tax debt where the federal tax debt is being paid off in a timely manner pursuant to an arrangement with the IRS, or for which collection is suspended. The IRS will postpone certification for individuals who are serving in a combat zone, or are participating in contingency operations.
The IRS will mail Notice CP508C, “Notice of certification of your seriously delinquent federal tax debt to the State Department,” to a taxpayer impacted by this provision. The Notice will be mailed to the individual’s last known address. The IRS will mail Notice CP508R if the certification is eventually reversed.
The IRS will notify the State Department to cancel this certification only when the entire federal tax debt is satisfied. A taxpayer who believes that a certification is erroneous may file suit in the U.S. Tax Court or U.S. District Court. No notice to the IRS is required before filing a suit.
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.