By Emily Kingston, Steven Katz and Jay Weill
On November 5, 2015, the U.S. House of Representatives resolved to amend the Internal Revenue Code in a Highway and Transit bill currently under consideration in Congress. Buried within the bill, in Title XXXII, entitled “Offsets, Subtitle A, Tax Provisions,” § 32101 provides for the revocation or denial of U.S. Passports in cases of certain unpaid taxes. If passed by the Senate and signed into law by President Obama, as is expected, this provision, which would be effective January 1, 2016, would allow the federal government to revoke or limit a U.S. citizen’s passport, or deny the issuance of a passport, if the person owes more than $50,000 in “seriously delinquent tax debt,” including penalties and interest.
The Bill provides for the addition of a new section to the Internal Revenue Code, I.R.C.
§ 7345. “Revocation or Denial or Passport in Case of Certain Tax Delinquencies.” This section would provide that “[i]f the Secretary [of Transportation] receives certification by the Commissioner of Internal Revenue that any individual has a seriously delinquent tax debt in an amount in excess of $50,000, the Secretary shall transmit such certification to the Secretary of State for action with respect to denial, revocation, or limitation of a passport pursuant to section 52102(d) of the Transportation Funding Act of 2015.” Proposed I.R.C. § 7345(a). Proposed I.R.C. § 7345(b) defines “seriously delinquent tax debt” as “an outstanding debt under this title for which a notice of lien has been filed in public records pursuant to section 6323 or a notice of levy has been filed pursuant to section 6331….” If you’re wondering how the Department of State could possibly find out about taxpayers with unpaid taxes, penalties and interest exceeding $50,000, proposed I.R.C. § 7345(c) provides for an amendment of I.R.C. § 6103(l)’s general ban on the IRS’s disclosure of taxpayer information, by adding a new subsection, I.R.C., § 6103(l)(23), that will allow the IRS to disclose certain return information of taxpayers to the Secretary of Transportation which can then pass the information on to the Department of State for the purposes of passport revocation.
The proposed legislation does contain key exceptions to the application of this proposed provision. First, because the legislation only applies to debts for which there is a filed lien or levy, it would not apply to taxpayers who have pending disputes with the IRS regarding whether they actually have a liability. In addition, if the taxpayer is either paying the debt over time through an Installment Payment Agreement with the IRS under I.R.C. § 6159, or the IRS has agreed to a taxpayer’s offer in compromise under I.R.C. § 7122 (proposed I.R.C. § 7345(b)(1)), the proposed legislation would not apply to them. Further exceptions apply if collection of the debt is suspended because the taxpayer has requested a collection due process hearing under I.R.C. § 6330, or if the taxpayer has requested innocent spouse relief under I.R.C. § 6015(b)(c) or (f) (proposed I.R.C. § 7345(b)(2)). Finally, proposed I.R.C. § 7345(d)(1)(B) provides that the Secretary of State may issue passports to taxpayers with outstanding tax debts in excess of $50,000 in emergency circumstances or for humanitarian reasons.
What is the takeaway? Once this proposed bill comes into effect on January 1, 2016, as is expected, U.S. taxpayers residing in or out of the U.S. or those who must travel abroad for work or family obligations, who have tax debts exceeding $50,000 that they’ve ignored, or are not yet in one of the payment or dispute programs mentioned above, should immediately start working with a knowledgeable tax professional who can assist them in working with the IRS to resolve their outstanding liabilities and help them retain their ability to travel abroad.