A New United States Tax Collection Tool: Revocation or Denial of a U.S. Passport
By Laurie B. Kazenoff, Esq., Moritt, Hock & Hamroff LLP
The United States Internal Revenue Service will soon begin implementing a new tactic for collecting delinquent taxes. Although the IRS has not yet begun certifying tax debt to the State Department, they have stated implementation will begin in 2017.
If a taxpayer has "seriously delinquent tax debt" totaling more than $50,000 (indexed for inflation) including interest and penalties and a lien has been filed or a levy has been issued, IRC § 7345 authorizes the IRS to certify that debt to the U.S. State Department for action. The State Department will then deny a passport application and/or revoke a current passport. If the taxpayer is overseas when this occurs, the State Department may issue a "limited validity" passport but this is good only for a direct return to the U.S.
Denial or revocation of a passport does not occur automatically; before denying a passport, the State Department will hold the application for 90 days to allow the taxpayer to resolve erroneous certification issues, fully pay the tax debt or enter into a payment alternative with the IRS. The IRS is also required to issue a Notice CP 508C (C for Certification) notifying the taxpayer in writing that the IRS has certified seriously delinquent tax debt to the State Department. In the event that a taxpayer has planned international travel upon receiving the Notice CP 508C, the IRS recommends calling the number on the Notice. The passport can be used until the State Dept. has notified the taxpayer that the passport has in fact been revoked.
Denial or revocation can be prevented in the following situations: (1) the tax debt is being paid timely pursuant to an installment agreement or an Offer in Compromise; (2) there is a settlement agreement with the Justice Dept. (if the case has been referred there); (3) there is a timely requested Collection Due Process hearing; or (4) there has been a request for Innocent Spouse relief.
Taxpayers can also file suit without having to exhaust their administrative remedies: although the State Dept. cannot be sued, a taxpayer who has had their debt certified can file suit in the U.S. Tax Court or a U.S. District Court to determine whether or not the certification is erroneous or if the IRS failed to properly reverse a certification. Note, however, the court has no authority to release a lien or levy or award money damages.
The IRS is also required to notify the taxpayer in writing at the time it reverses certification. The Notice CP 508R (R for Reversal) is issued when the tax debt is fully satisfied or becomes legally unenforceable, the tax debt is no longer seriously delinquent, or the certification is erroneous. The IRS will make this reversal within 30 days and provide notification to the State Department. The reversal can occur if the taxpayer has entered into an installment agreement or an Offer in Compromise, the Justice Dept. settles the case, there is a timely Collection Due Process request, or there is a claim for Innocent Spouse relief. It is important to note that the IRS will not reverse certification where a taxpayer requests a collection due process hearing or innocent spouse relief on a debt that is not the basis of the certification. More importantly, the IRS will also not reverse the certification because the taxpayer pays the debt below $50,000.
Laurie B. KazenoffMoritt, Hock & Hamroff LLP, New York, United States
Laurie B. Kazenoff, Esq. is a Partner in the New York law firm Moritt, Hock & Hamroff LLP and Co-Chair of the Tax department. She is formerly a Senior Tax Attorney with the Internal Revenue Service's Office of Chief Counsel.
Published: August 2017 l Photo: Melpomene -Fotolia.com