Beginning this year, in March of 2017, the IRS will begin punishing delinquent taxpayers by revoking and withholding their passports. Not only will this impact the ability to travel but since a passport also serves as proof of citizenship, without it can make things like getting a job much harder. This article serves to educate those who owe a substantial debt to Uncle Sam on the specifics of the new rule, and some available options.
In 2011, a report conducted by the Government Accountability Office explored how the IRS could increase its collection of unpaid taxes. The report showed that of those who currently owed the government, 224,000 had passports. Together, these passport holders owed the government 5.8 billion dollars. From that report, the FAST Act was passed in 2015.
The FAST Act allows the IRS to hire private debt collectors, as well as revoke passports from delinquent payers. While passports usually fall under the authority of the State Department, the FAST Act allows the IRS to contact the Department and notify them of seriously delinquent accounts (accounts in excess of $50,000). The Department can then refuse to issue or renew a passport, apply travel restrictions, or even revoke a current passport.
Who will be affected?
Passport revocation will affect taxpayers who owe $50,000 (including interest and penalties) or more and travel abroad for pleasure, work or are American expats living abroad. However, the IRS will not go after seriously delinquent accounts should they already be:
- In an installment agreement
- Filed for an Offer In Compromise
- Appealing an IRS levy or lien
- Requesting for Innocent Spouse Relief
How will I know my passport is in trouble?
Before sending an account to the State Department, the IRS is required to notify the taxpayer. Those being notified will receive Notice CP 508C by mail to the taxpayer’s last known address.
Before denying a passport application, the State Department will hold the application for 90 days, giving the taxpayer time to either pay the debt in full or enter into an alternative payment plan with the IRS. If a taxpayer already holds a valid passport, before revoking it the State Department may limit travel on the passport, so the taxpayer can only travel back to the U.S.
Once the tax debt issue is resolved, the IRS will reverse its position within 30 days and notify the State Department.
When can I get my passport reinstated?
It’s not as easy as getting your balance under the $50,000 threshold. The IRS will only lift the revocation once the taxpayer is in good standing. This means that they have either paid the debt in full or have applied for other financial remedies. Available options are:
Offer in Compromise
For those unable to pay, or payment of tax debt that results in financial hardship, these persons may want to consider this option. It is a settlement with the IRS on paying less than the total amount owed. The IRS will consent if it believes it is the greatest amount it can get in a reasonable period of time. When considering these applications, the IRS will look at a persons’ ability to pay, income, expenses, and assets. This option is not available to those in the middle of bankruptcy proceedings. To be considered, Form 433- A (for individuals) or 433-b (for businesses), along with a $186 application fee and an initial payment will need to be submitted. However, in 2015, out of 67,000 applications the IRS only accepted 27,000 – thus it is highly recommended to employ the help of a tax attorney, as they can ensure a solid application is submitted.
Innocent Spouse Relief
For those who owe taxes due to actions of their current or former spouse (like reporting the incorrect income), or taxes which have arisen from a divorce, separation or annulment, may be eligible to apply for Innocent Spouse Relief. Must submit IRS form 8857 within 2 years of being contacted by the IRS, notifying you of any unpaid taxes. Widowers are also eligible for this relief.
While the IRS would rather a taxpayer pay a fine in full, for those facing large sums, or are unable to fully pay at once, can ask for an installment plan. This results in paying off tax debt in monthly installments, not to exceed 3 years. Beware, this option will cause you to pay more than the initial amount due to the application of interest on the debt owed.
What if I think I’ve received Notice 508C in error?
If you have received notice of delinquency and believe you do not owe taxes or believe you owe less than the stated amount, under section 7345(e) a taxpayer may appeal their status in U.S. tax court.
Why a tax attorney?
It’s common for taxpayers to feel as if they are drowning in IRS paperwork and phone calls. However, the pros of seeking legal help are that you no longer have to deal directly with the IRS – your attorney will redirect all calls and paperwork to themselves.
“But I can’t afford an attorney!” you say! Take a breath and do your research. Statistics overwhelmingly show that attorneys can actually save you money. With strong negotiation skills, insider knowledge and connections with IRS agents, most often than not, an attorney can substantially argue your debt down. Additionally, most attorneys offer a range of payment options to fit your budget – from flat fees and hourly billing, to partial representation, in which you pay for only advice or if you need help handling paperwork.
Professional ethical standards require that an attorney work in the best interest of a client – that means never taking financial advantage by offering services you don’t need. Call now to schedule your free initial consultation, where one of our tax attorneys will review your case and offer advice on how best to proceed.