Comments and Proposed Guidance on the Irs' Revocation or Denial of Passport in Case of Certain Unpaid Taxes Under Internal Revenue Code Section 7345

• Publication year: 2020
• Author: By Steven L. Walker and Adria S. Price

Comments and Proposed Guidance on the IRS' Revocation or Denial of Passport in Case of Certain Unpaid Taxes Under Internal Revenue Code Section 73451

By Steven L. Walker and Adria S. Price²

I. EXECUTIVE SUMMARY3

This paper provides comments and recommendations from practitioners with respect to the Service's implementation of Internal Revenue Code (IRC) Section 7345⁴, revocation or denial of passport in case of certain tax delinquencies.

The authors recognize that the Service must take steps to collect seriously delinquent tax debts and that denying an individual a U.S. passport (or renewal thereof) or revoking any U.S. passport previously issued to an individual can motivate a certain class of taxpayers to take steps to handle their tax compliance issue. However, the authors believe that there are adjustments that the Service could make to the implementation of Section 7345 to make this process less onerous on taxpayers, encourage compliance, and enable taxpayers' representatives to work within the system and resolve the collection issue prior to a loss of passport rights.

The authors hope that the Service will take these comments and suggestions into consideration and make appropriate changes to the Internal Revenue Manual (IRM) 5.1.12.27 (12-20-2017) (Passport Certification in Case of Certain Tax Debts).

With the foregoing thoughts in mind, the authors provide the following comments and suggestions for consideration.

II. DISCUSSION

A. Background: Revocation or Denial of Passport on Case of Certain Tax Delinquencies

On December 4, 2015, as part of the Fixing America's Surface Transportation (FAST) Act⁵, Congress enacted Section 7345, which requires the Internal Revenue Service ("IRS") to notify the State Department of taxpayers certified as owing a seriously delinquent tax debt. The FAST Act generally prohibits the State Department from issuing or renewing a passport to a taxpayer with seriously delinquent tax debt.

1. Overview

Section 7345 provides that if the Secretary of Treasury receives certification by the Commissioner of the IRS that an individual has a seriously delinquent tax debt, the Secretary shall transmit such certification to the Secretary of State ("State Department") for action with respect to denial, revocation, or limitation of a passport (the "Passport Program").⁶ Only the Commissioner, Deputy Commissioner for Services and Enforcement, or the Commissioner of an operating division of the IRS may certify or reverse certification of a seriously delinquent tax debt.⁷

The State Department may thereafter deny or revoke the passport of a taxpayer.⁸ Notwithstanding the certification, the State Department may issue a passport "in emergency circumstances or for humanitarian reasons" and may allow travel on a revoked passport for the limited reasons of returning to the United States or issue a limited passport for the sole reason of return travel to the United States.⁹

2. Seriously Delinquent Tax Debt

For the purpose of passport certification, seriously delinquent tax debt is the unpaid, legally enforceable federal tax liability, which has been assessed, of an individual totaling more than $50,000¹⁰ for which:

• Notice of Federal Tax Lien: A Notice of Federal Tax Lien has been filed and all administrative remedies under Section 6320 have lapsed or been exhausted, or
• Levy: A levy has been issued.¹¹

Unless otherwise listed as statutory or discretionary exclusions in IRM 5.1.12.27.3 or IRM 5.1.12.27.4, a seriously delinquent tax debt includes, but is not limited to, tax assessments made under an individual's taxpayer identification number (SSN or EIN) such as U.S. individual income taxes, trust fund recovery penalties, business taxes for which the individual is liable and other civil penalties. This does not include other non-tax liabilities such as:

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• ACA assessments, Individual SRP modules (MFT 35 or 65);
• Employer Shared Responsibility Payments (ESRP) modules (MFT 43);
• Criminal Restitution assessments (MFT 31 with unreversed TC 971 AC 102);
• Child Support Obligations (NMF MFT 59);¹² and,
• Report of Foreign Bank and Financial Accounts ("FBAR") assessments.¹³

3. Statutory Exclusions from Certification

Section 7345(b)(2) excludes the following from the determination of seriously delinquent tax debt, even if it meets the criteria in IRM 5.1.12.27.2, Seriously Delinquent Tax Debt:

• Installment Agreement: Debt that is being paid in a timely manner under an installment agreement entered into with the IRS under Section 6159;
• Offer in Compromise: Debt that is being paid in a timely manner under either an Offer in Compromise accepted by the IRS or a settlement agreement entered into with the Department of Justice under Section 7122;
• CDP Hearing under Section 6330: Debt on which collection is suspended because a Collection Due Process hearing under Section 6330 is timely requested, or pending, in connection with a levy to collect the debt; or,
• Innocent Spouse: Debt on which collection has been suspended because a request for innocent spouse relief under Section 6015 has been made.¹⁴

4. Discretionary Exclusions from Certification

Section 7345 provides the IRS discretion to exclude categories of tax debt from certification, even if the debt meets the criteria in IRM 5.1.12.27.2, Seriously Delinquent Tax Debt.¹⁵ The following categories of tax debt will be excluded from the determination of seriously delinquent tax debt of the IRS:

• Currently Not Collectable: Debt that is currently not collectible ("CNC") due to hardship (unreversed TC 530 cc 24 - 32);
• Identity Theft: Debt that resulted from identity theft (unreversed TC 971 AC 501, 505, 506, 522, 523, and 525);
• Bankruptcy: Debt of a taxpayer in bankruptcy;
• Deceased Taxpayer: Debt of a deceased taxpayer;
• Pending Offer in Compromise: Debt that is included in a pending Offer in Compromise (unreversed TC 480);
• Pending Installment Agreement: Debt that is included in a pending installment agreement (unreversed TC 971 AC 043);
• Full Pay: Debt with a pending adjustment that will full pay the tax period (unreversed TC 470 AC 90); and,
• Disaster Zone: Taxpayers in a Disaster Zone (-O or -S Freeze).¹⁶

5. Identification of Certified Seriously Delinquent Tax Debt

The Internal Revenue Manual sets forth the procedure by which a taxpayer's debt is identified as a certified seriously delinquent tax debt.

• Seriously delinquent tax debt will be identified as certified by an unreversed TC 971 AC 641 on each module of a taxpayer's account eligible for certification.¹⁷
• Each individual identified as certified is systemically sent a certification Notice CP508C displaying each certified module balance.¹⁸
• On a joint module where both the primary and secondary taxpayers are identified as certified, each individual will have their own TC 971 AC 641.¹⁹

The IRS provides taxpayer certifications systemically to State Department on a weekly basis.²⁰

The Internal Revenue Manual states that a certified module is decertified when the TC 971 AC 641 is reversed with a TC 972 AC 641.²¹ A certified module is reversed when it meets one of the conditions listed in IRM 5.1.12.27.8, Reversal of Certification.²²

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6. Taxpayer Notification

The IRS is required to notify the taxpayer in writing at the time the certification of seriously delinquent tax debt is made to the State Department. Notice CP508C serves this purpose.²³

If a taxpayer certified as having a seriously delinquent tax debt applies for a passport or a passport renewal, the State Department will hold the application open for 90 days to allow the taxpayer to resolve any certification issues, make full payment of the tax debt, or enter into a satisfactory payment alternative with the IRS before denying an application for a passport or renewal.²⁴ The 90 day period starts from the date the taxpayer is notified by the State Department, not from the date the Notice CP508C is issued by the IRS.

The taxpayer is similarly required to be notified in writing when their account is decertified, meaning their liability no longer qualifies as a seriously delinquent tax debt.²⁵ Decertification may occur by reason of a number of circumstances such as the taxpayer's account meeting a statutory or discretionary exclusion from certification, the liability becoming unenforceable or payment of the liability in full.²⁶ Decertification is to be automatic upon the happening of one of these events and the CP508R is to be issued to the taxpayer to provide notice her of this action.²⁷ Note, while decertification is automatic, it may take up to 30 days for the IRS to notify the State Department of the certification reversal.²⁸

7. Judicial Review of Certification

A taxpayer whose debt was certified to the State Department as a seriously delinquent tax debt can file suit in the Tax Court or a District Court of the United States to have the court determine whether the certification is erroneous or if the IRS failed to reverse the certification when it was required to do so.²⁹ If the court determines the certification was erroneous or should have been reversed, it can order the certification reversed.³⁰

B. Comments and Recommendations to the IRS Passport Program

This paper provides the following comments and recommendations with respect to the revocation of denial of a passport in the case of certain unpaid taxes.

1. IRS Should Enhance the Quality and Clarity of Taxpayer Notification in Notices CP508C, CP504, CP523, and LT11 and Letters 3172 and 1058.

For a Notice of Federal Tax Lien ("NFTL") and certain Notices of Intent to Levy, and prior to the issuance of the CP508C, the Code now requires "in simple and nontechnical terms . . . the provisions of section 7345 relating to the certification of seriously delinquent tax debts and the denial, revocation, or limitation of passports of individuals with such debts pursuant to section 32101 of the FAST Act."³¹ The language contained in these notices, which has the potential for passports to be revoked or denied, is wholly inadequate to properly educate and advise...