Thanks to an obscure provision that Congress slipped into the Fixing America’s Surface Transportation (FAST) Act in 2015, the IRS is permitted to request that the U.S. State Department deny new passport applications and renewals, or revoke the currently active passports of taxpayers who have been certified by the IRS to have seriously delinquent tax debt.
This provision in the tax code should be on the radar of every tax practitioner, for the impact of a client’s passport being revoked can be utterly devastating to them and their family, especially for those who depend on crossing the Canadian or Mexican borders daily for employment purposes. Furthermore, if your client is already overseas when their passport is revoked (yes, a taxpayer’s passport can be revoked even if they are already overseas), the State Department may issue the taxpayer a “limited validity” passport that allows them to return directly to the United States. But this is not a certainty, as there have been horror stories of U.S. citizens being stranded in a foreign country after their passport was revoked.
Understanding these provisions and guiding clients who are in danger of having or have already had their passports revoked through this process adds an invaluable service to your practice and may even gain you an ardent client that will refer your services to others.
The FAST Act defines seriously delinquent tax debt as:
● A tax debt which has been assessed (this does not include other debts the IRS collects such as FBAR penalties or back child support), AND
● That is greater than $50,000, including penalties and interest and indexed yearly for inflation (for 2019 the amount was $52,000, and for 2020 the amount is $53,000), AND
● Where the IRS has filed a tax lien under IRC §6323, and the taxpayer’s rights to dispute through a Collection Due Process (CDP) hearing under IRC §6320 have been exhausted or lapsed, OR
● Where a levy has been issued under IRC §6331.
In February 2018, the IRS began sending to the State Department certifications of taxpayers who had seriously delinquent tax debt. Once the IRS contacts the State Department, the IRS is required to send affected taxpayers notice CP 508C to their last known address to notify them of the impending passport revocation. Frustratingly to both taxpayers and tax practitioners, the IRS does not send a copy of Notice CP 508C to the taxpayer’s Power of Attorney on file. This means that if a taxpayer who submitted a completed Power of Attorney to the IRS giving their tax practitioner authority to contact the IRS on their behalf while they are overseas, their practitioner will not be aware of the situation until the taxpayer can reach them.
In July 2019, the IRS began sending Letter 6152 Notice of Intent to Request U.S. Department of State Revoke Your Passport to taxpayers who are at risk of having their passports either revoked or their application denied. The letter gives taxpayers who are currently state-side 30 days from the date printed on the letter to call the IRS and resolve the dispute, while taxpayers who are already abroad when receiving the letter will have 90 days to settle the matter. If a taxpayer misses this initial window, the State Department will generally hold their application to obtain their passport for 90 days in order to give them additional time to resolve the controversy with the IRS.
However, there is no grace period for those who already have a currently active passport, as the State Department will immediately revoke the currently active passports of taxpayers who have been certified as having seriously delinquent tax debt. Previously, taxpayers found respite with the Taxpayer Advocate’s Office (TAS). Taxpayers who were actively working with TAS to resolve their collection issues were able to keep their passport if the IRS had not already certified to the State Department the taxpayer’s debt. However, as of October 2019, this reprieve is no longer available as the IRS was concerned taxpayers would take unfair advantage of the benefit.
If a taxpayer receives Letter 6152 and has imminent plans to travel out of the country, the IRS should be contacted immediately, because, under certain circumstances, the IRS may be able to expedite their case. Taxpayers may qualify for expedited service from the IRS to resolve their passport issue if they provide documentation showing they are scheduled to travel internationally within the next 45 days or provide proof that they live abroad. Furthermore, the taxpayer must provide a letter from the State Department that shows their passport application has been denied or that their active passport is being revoked.
So, how can we assist a taxpayer who may find themselves vulnerable to having their passports revoked? Making clients aware of the provision and the ways to ward off a passport revocation is the first line of a good offense and defense. One way this can be accomplished is by providing information on your website and on your tax questionnaire. Another proactive recommendation you can give your clients is to remind them of the importance of monitoring their credit with the three main credit bureaus, bank and investment accounts, and credit card statements. The proliferation of identity theft can leave an unsuspecting taxpayer holding the bag for a tax debt that does not belong to them.
If your client has the means to pay the amount due in full, the taxpayer should do so immediately, and follow-up with the IRS 30 to 45 days later to make sure the payment was received and applied correctly. Before your client pays the amount in full, it is worth the time and effort to check their account transcripts and record of account online to make sure the tax that is due is still within the collections Statute of Limitations. Generally, the IRS has ten years from the date the tax is assessed to collect the tax due. Keep in mind that the collection statute can be extended due to certain actions such as filing for bankruptcy, requesting an Installment Agreement, or if a taxpayer leaves the U.S. for at least six continuous months. There are certain situations where the IRS is supposed to refrain from revoking or denying a taxpayer’s passport. The IRS generally will not request the State Department to revoke or deny the taxpayer’s passport in any of the following cases where:
● A taxpayer has set up and is making timely payments on an Installment Agreement;
● Is working with the IRS on an Offer in Compromise (also known as an OIC agreement);
● Has filed a valid and timely Collection Due Process (CDP) hearing;
● Has filed for innocent spouse relief; or
● Has entered into a settlement agreement with the Department of Justice.
The law is intended to protect taxpayers with certain hardships from having their passports revoked. These hardships include taxpayers who are in bankruptcy, a victim of tax-related identity theft, who are placed in currently not collectible status by the IRS, located in a federally declared disaster area, in the military serving in a combat zone, or deceased. However, as with most large bureaucratic institutions, mistakes can happen, and there have been instances when taxpayers who were already cooperating with the IRS in resolving their tax debt have had their passports erroneously revoked. This is why staying in close contact with the IRS while representing a taxpayer with seriously delinquent tax debt is half the job. You know what they say about that squeaky wheel.
The IRS has stated that it takes approximately 30 days to reverse a passport revocation, and then will provide notification to the Department of State of the decertification “as soon as practicable.[1]” Guidance has not been provided as to the length of time “practicable” is to the IRS. Both taxpayers and the Taxpayer Advocate Service (TAS) have reported that it is taking much longer than 30 days. The IRS has a process in place to reduce the processing time for those who have an urgent need to travel from 30 days down to between 14 and 21 days. Per TAS, the top three reasons why the IRS decertified a taxpayer’s debt and did not follow through with sending the certification of serious tax debt to the Department of State were taxpayers currently in a disaster zone, those who had an Installment Agreement Request pending with the IRS, and on tax debt with the federal statute of limitation on collections had expired.
For most people, dealing with the IRS is frightening enough. Adding the hardship of losing their passport can feel overwhelming and impossible to overcome. This is where we, as tax practitioners, can walk beside our clients and help them through this frightening time with sound advice and solutions. For those CPAs and Enrolled Agents who are representing their client’s in a passport revocation case, part of excellent service is knowing when to call for reinforcements. If your client has their passport revoked while overseas and they are facing imminent jeopardy, referring them to a qualified attorney specializing in this field can be the greatest act of representation you can provide your client.
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[1] IRS.gov. “Revocation or Denial of Passport in Case of Certain Unpaid Taxes.” https://www.irs.gov/businesses/small-businesses-self-employed/revocation-or-denial-of-passport-in-case-of-certain-unpaid-taxes
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Dave Du Val, EA, is the Chief Customer Advocacy Officer at TaxAudit.
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