Before planning that big overseas vacation you’ve always dreamed of, make sure you’ve paid your overdue income taxes or Uncle Sam may spoil all the fun!
A new act passed by U.S. Congress and signed into law by President Obama last month now allows the Internal Revenue Service (IRS) to revoke the passport of anyone who owes the U.S. government $50,000 or more in unpaid taxes.
Included in recently approved legislation known as H.R. 22, Fixing America’s Surface Transportation Act (FAST Act), the new law – effective January 1, 2016 – gives the IRS and U.S. Department of the Treasury permission to pursue or deny passport privileges for delinquent taxpayers.
According to Section 7345 of the Internal Revenue Code, anyone owing more than $50,000 in taxes may now have their U.S. passport denied, revoked, or limited by the State Department. Exceptions can be made for emergencies and for humanitarian reasons. In addition, those outside the U.S. when their passport is revoked will be allowed to return home.
A joint explanatory statement by the Senate Committee provides the following:
“A seriously delinquent tax debt generally includes any outstanding debt for Federal taxes in excess of $50,000, including interest and any penalties, for which a notice of lien or a notice of levy has been filed. This amount is to be adjusted for inflation annually, using calendar year 2014 as a base year, and a cost-of-living adjustment.”
“Even if a tax debt otherwise meets the statutory threshold, it may not be considered seriously delinquent if (1) the debt is being paid in a timely manner pursuant to an installment agreement or offer-in-compromise, or (2) collection action with respect to the debt is suspended because a collection due process hearing or innocent spouse relief has been requested or is pending,” the statement says.
As you can see, the law doesn’t apply to U.S. taxpayers who have agreed to deal with the IRS over taxes owed such as installment payments or an offer in compromise. The law also allows exceptions for minors with large unpaid-tax amounts, innocent spouses, and some military personnel.
The IRS reported that in 2014, there were 12.4 million delinquent tax accounts in the U.S. which represented about $131 billion in assessed taxes, interest, and penalties. Congressional analysts expect the new law to raise about $400 million over the next 10 years as many individuals with delinquent accounts begin to settle their outstanding debts.
Some “minor” details still need to be worked out, such as the constitutionality of the new provision. It's also unclear how many of the estimated 126 million valid U.S. passport holders might be affected. However, if you owe more than $50,000 in taxes or have concerns about your specific situation, it’s important you speak with a tax professional right away to ensure that overseas vacation you’re planning is everything you dreamed it would be!
William D. Truax and his friendly team of Enrolled Agents (EAs) and licensed tax preparers have been helping individuals and business handle even the most complex tax situations for over 30 years. They understand how the tax system works and offer a full spectrum of financial services to help ensure the IRS doesn’t come knocking.
In addition, Mr. Truax is a member of the Bar of the United States Tax Court – a privilege very few EAs are granted. He is also a fellow and Accredited Tax Advisor of the National Association of Tax Professionals and a member of the National Association of Enrolled Agents.
For more information, please visit www.truax.net or click below to schedule a free consultation today!