Passport revocation as a collection tool.

• Author: Stone, Evan M.

The IRS has announced its intention to increase enforcement. Given the annual tax gap and anticipated federal budget increases, this should come as no surprise. The annual tax gap--the estimated difference between taxes owed and taxes collected--is about $600 billion (Sarin, "The Case for a Robust Attack on the Tax Gap," Treasury website (Sept. 7, 2021)). Tax professionals can expect increased numbers of examinations, deficiency notices, liens, and levies.

Tax professionals should also consider one of the latest tools in the IRS enforcement arsenal that might not have come to mind--Sec. 7345 (revocation or denial of passport in case of certain tax delinquencies). Taxpayers can lose their U.S. passports over unpaid tax debts that meet certain criteria. This column discusses the statutory provisions of Sec. 7345, current IRS guidance in Internal Revenue Manual (IRM) Section 5.19.25, Passport Program (Aug. 12, 2020), and a recent court of appeals decision upholding the constitutionality of Sec. 7345.

Sec. 7345 basics

Congress added Sec. 7345 to the Internal Revenue Code in late 2015 as part of the Fixing America's Surface Transportation Act, RL. 114-94. It provides that if the IRS determines that an individual has a seriously delinquent tax debt and "certifies" the debt to the Treasury secretary, then the Treasury secretary will transmit that certification to the secretary of state, who will then deny, revoke, or limit the U.S passport of that individual (Sec. 7345(a)). In practice, the IRS commissioner of the Small Business/Self Employed (SBSE) Division has been delegated the authority to certify a seriously delinquent tax debt directly to the secretary of state (Sec. 7701 (a)(11)(B); IRM [section][section]5.19.25.2(3) and (4), Passport certification overview (Aug. 12, 2020)). The decision to deny, revoke, or limit a U.S. passport lies solely with the State Department.

A seriously delinquent tax debt means an unpaid federal tax liability that is (1) assessed; (2) exceeds $50,000 (adjusted for inflation, which for year 2022 is $55,000, pursuant to Rev. Proc. 2021-45, Section 3.59); and (3) with respect to which the IRS has filed a Notice of Federal Tax Lien or levied with respect to the debt, and Collection Due Process (CDP) rights have been exhausted or have lapsed (Sec. 7345(b)(1)). Thus, any individual taxpayer with a tax debt meeting these criteria could be at risk for passport denial, revocation, or limitation unless he or she qualifies...