Pay Your Taxes or Lose Your Passport

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In January 2018, the Internal Revenue Service (IRS) began implementing new procedures affecting individuals with “seriously delinquent tax debts.” These new procedures implement provisions of the Fixing America’s Surface Transportation (FAST) Act, signed into law in December 2015. The law requires the IRS to notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt of $52,000 or more.

The FAST Act also requires the State Department deny their passport application or renewal of their passport. In some cases, the State Department may even revoke their passport or limit the ability to travel outside the United States. That being said, we’d like to remind those with significant tax debt, there are some pretty hefty consequences if you don’t settle up in a timely manner. The good news is… we may be able to help!

When the IRS certifies a taxpayer to the State Department as owing a seriously delinquent tax debt, they receive Notice CP508C from the IRS. This notice outlines the amount due, due date, what you need to know, and what you need to do to prevent the State Department from denying, revoking, or limiting your passport. We know it's tempting to ignore all those nasty tax notices which show up, but this is one you really should get up and do something about.

Before denying a passport renewal or new passport application, the State Department will hold the taxpayer’s application for 90 days to allow them to:

  • Resolve any erroneous certification issues

  • Make full payment of the tax debt

  • Enter a satisfactory payment arrangement with the IRS

Taxpayers affected by this law are those with a seriously delinquent tax debt. A taxpayer with a seriously delinquent tax debt is generally someone who owes the IRS more than $52,000 in back taxes, penalties and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired, or the IRS has issued a levy. In simpler English, if you're way behind on your taxes and have been stonewalling the IRS, they might just decide to have the State Department revoke your passport as a way to get your attention.

WHAT TO DO IF YOU OWE

Fortunately, things don't have to go this far south. There are several ways taxpayers can avoid having the IRS notify the State Department of their seriously delinquent tax debt. They include the following:

  • Paying the tax debt in full

  • Paying the tax debt timely under an approved installment agreement

  • Paying the tax debt timely under an accepted offer in compromise

  • Paying the tax debt timely under the terms of a settlement agreement with the Department of Justice

  • Having requested or have a pending collection due process appeal with a levy

  • Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief

A passport won’t be at risk under this program for any taxpayer: 

  • Who is in bankruptcy

  • Who is identified by the IRS as a victim of tax-related identity theft

  • Whose account the IRS has determined is currently not collectible due to hardship

  • Who is located within a federally declared disaster area

  • Who has a request pending with the IRS for an installment agreement

  • Who has a pending offer in compromise with the IRS

  • Who has an IRS accepted adjustment that will satisfy the debt in full

For taxpayers serving in a combat zone who owe a seriously delinquent tax debt, the IRS postpones notifying the State Department and the individual’s passport is not subject to denial during this time.

To avoid trouble, taxpayers who are behind on their tax obligations simply need to come forward and begin working with the IRS to handle their back taxes. Many taxpayers qualify for one of several relief programs.

All taxpayers have the right to request a payment agreement with the IRS by filing Form 9465.. Some taxpayers can use the online payment agreement to set up a monthly payment agreement for up to 72 months.  If you owe less than $50,000, this can be easy to do. For debts greater than $50,000, the IRS will be looking for detailed financial data, and it might be in your best interest to seek help from a tax professional who can navigate the minefield of requirements in this area.

Additionally, many taxpayers who are financially incapable of settling their debts can work out an agreement with the IRS to suspend collection – in some cases for several years. Having a debt handled like this is called assigning it to “currently not collectible” status. Seeking assistance from a licensed tax professional is highly recommended as this process is very complicated.

Some financially distressed taxpayers may qualify for an offer in compromise. This is an agreement between a taxpayer and the IRS that settles the taxpayer’s liabilities for less than the full amount owed. This can be a long and drawn out process, with no guarantees of success. The IRS likes to promote it because the taxpayer is usually required to send money in with the Offer as a deposit, and the IRS gets to keep the money even if the Offer is rejected. The IRS looks at taxpayers' finances in great detail to determine the their ability to pay. To help determine eligibility, use the Offer in Compromise Pre-Qualifier, a free online tool available on IRS.gov.

GET HELP FROM A TAX PROFESSIONAL

William D. Truax and his friendly team of Enrolled Agents (EAs) and licensed tax preparers have been helping individuals and business handle back taxes 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 CONTACT US or click below to schedule a free consultation. We’re here to help!