Internal Revenue Code [section]7345 allows the IRS to certify to the secretary of state that an individual has a seriously delinquent tax debt that will cause the secretary of state to deny, revoke, or limit a passport. Section 7346 was enacted on December 5, 2015, as part of the Fixing America's Surface Transportation Act (FAST Act). (1) However, it was not until 2018 that the IRS started enforcing that statute as the IRS and Department of State had to work out both the internal and cross-departmental processes and procedures to effectuate enforcement. Given the relatively low threshold of outstanding tax liability required for certification, as well as the impact of limiting international travel, all attorneys should be aware of the implications of this newly enforced law for themselves and for their clients, regardless of the legal discipline they practice.
Certification for passport revocation (or denial or limitation) only occurs when there is a "seriously delinquent tax debt." A seriously delinquent tax debt is an unpaid, legally enforceable Federal tax liability of an individual--which has been assessed, which is greater than $50,000, and for which a notice of lien has been filed pursuant to [[section]]6323 and the collection due process rights under [[section]]6320 have been exhausted or lapsed or a levy is made pursuant to [[section]]6331. (2)
The requirement of having due process rights expire under the statutory lien and levy provisions is an important component to the certification statute as it requires that due process protections under lien or levy provisions be expended first before passport revocations can occur. Consequently, there are no new due process rights and procedures as part of the revocation procedure. As such, the legislative drafters decided that a pending equivalency hearing will not preclude a liability from being considered a seriously delinquent tax debt. (3)
The IRS is required to provide a taxpayer notice of the certification of a seriously delinquent tax debt contemporaneously with the notice that the IRS sends to the Department of State. Some critics, including the National Taxpayer Advocate, take issue that there is not a stand-alone prior notice that is required and, as such, there is no meaningful opportunity to contest a certification before it occurs. (4) Another common complaint is that the letter is not required to be sent via certified mail. Because due process rights are at play with notices of liens and notices of intent to levy, those notices are sent certified. The passport revocation certification notice is IRS notice number 508C. As with all IRS notices, the notice is sent to the last known address of the taxpayer, which is usually the address listed on the most recent return filed. If an individual has not filed returns for several years, or moved during the year, then he or she may not receive the notice. The 508C notice itself is lacking in that it does not inform a taxpayer of his or her various options to resolve the issue or to have the certification reversed.
What Happens After Certification
When a taxpayer applies for a passport, the taxpayer will receive a letter from the Department of State indicating that they are ineligible to receive passport services due to the certification of seriously delinquent tax debt. It further informs the taxpayer that the Department of State or passport agency does not have information concerning the seriously delinquent tax debt and to contact the IRS within 90 days of the letter. The state department's letter also does not indicate how to resolve the tax debt or identify the taxpayer's various options. Nor does it advise an individual of a procedure for obtaining a passport in an emergency or life-threatening situation.
The state department not only has the right to deny a new passport application but also has the right to revoke or limit an existing passport. (5) However, the statute provides that a previously issued passport will be limited to allow for return travel to the U.S., or, if there was not a previously issued passport, that a limited passport may be issued that only permits return travel to the U.S.
The "greater than $50,000" requirement is indexed for inflation, which is calculated by using cost-of-living adjustments. (6) For 2019, a seriously delinquent tax debt includes liabilities of $52,000 and above. (7) Seriously delinquent tax debt includes tax assessments made under an individual taxpayer's identification number, such as U.S. individual income taxes, trust fund recover penalties, business taxes for which the individual is liable, and other civil penalties. (8) It does not include accrued interest and penalties. (9) It also does not include any Affordable Care Act assessment, employer-shared responsibility payments, criminal restitution assessment, child support obligations, or Report of Foreign Bank and Financial Accounts (FBAR) assessments. (10) Once a taxpayer is certified, paying down the balance below the threshold amount effective at the time of certification will not result in decertification. (11)
The statute itself provides certain exceptions to the "seriously delinquent tax debt" definition. A seriously delinquent tax debt does not include a debt in which payments are being made under an...