“Seriously Delinquent” Tax Debts May Result in Passport Complications
Delinquent taxpayers may soon face major roadblocks when attempting to travel. Internal Revenue Code § 7345 requires the IRS to notify the State Department when an individual has a “serious delinquent” tax liability. The State Department, in turn, will generally deny an application for a new or renewed passport after receiving such a certification. The State Department may also revoke or limit a previously issued passport. Thus, although § 7345 was enacted over two years ago on December 4, 2015 as part of the FAST Act (P.L. 114-94), the IRS’s current plan to implement its provisions in January of 2018 may bring its effects to the forefront of many taxpayers’ attention.
Under § 7345(b)(1), a “seriously delinquent” tax debt means an individual’s unpaid, legally enforceable and assessed Federal tax liability in an amount greater than $50,000 and for which (a) a notice of levy has been filed under § 6323 and the administrative rights under § 6320 with respect to such filing have been exhausted or lapsed; or (b) a levy is made pursuant to § 6331. The calculation of the amount of federal tax liability for purposes of reaching the $50,000 threshold consists of the total amount of all current tax obligations, including penalties and interest. Debts that are timely being paid pursuant to an approved installment agreement, offer in compromise, or settlement agreement with the Justice Department, however, do not fall within the auspices of § 7345. Exceptions are also made in instances where the collection of a debt is suspended as the result of a Collection Due Process hearing request or where the individual made an innocent spouse election or requested innocent spouse relief.
Generally, once the State Department is notified that an individual has triggered § 7345, it will provide a certified applicant with 90 days to resolve the tax delinquency before denying any passport application. In addition, the IRS’s certification will be reversed when the tax debt no longer qualifies as “seriously delinquent”. Accordingly, if a taxpayer receives notification that certification of their debt has been transmitted to the State Department, the following options should be considered: (1) when possible, paying the tax debt in full; (2) entering into an installment agreement or offer in compromise; or (3) filing a civil action under § 7345(e) in a district court of the United States or the Tax Court to determine whether the certification was erroneous or whether the Commissioner has failed to reverse the certification.