State Department Revocation or Denial of U.S. Passport for Taxpayer’s Unpaid Taxes Which Exceed $51,000

The State Department is responsible for granting, issuing and verifying passports for U.S. persons seeking travel abroad. Pursuant to the Fixing America’s Surface Transportation (“FAST”) Act (the “Act”) signed into law in December 2015, the State Department’s mandate now includes the revocation or denial of passports based upon outstanding federal tax obligations.

The Internal Revenue Service, in its Notice 2018-01, has begun implementing the provisions of IRC § 7345, which was created by the Act. The Act provides the Commissioner of the Internal Revenue Service the ability to notify the State Department when it has “certification” of a taxpayer’s “seriously delinquent tax debt.”

Seriously delinquent tax debt is defined by IRC § 7345(b) as a federal tax liability of an individual in excess of $50,000, for which: (1) a notice of lien has been filed under IRC § 6323, and the administrative rights under IRC § 6320 for that filing have been exhausted or have lapsed, or (2) a notice of levy has been filed under IRC § 6331. The definition, however, does not include a debt: (1) that is being paid in a timely manner under an installment agreement or offer-in-compromise, and (2) for which a collection action is suspended because a collection due process hearing has been requested, or is pending, or innocent spouse relief has been requested. For purposes of determining the $50,000 threshold, tax, interest and penalties are included. The $50,000 threshold will be adjusted annually for inflation. The inflation adjusted threshold for 2018 is $51,000.

Upon receipt of the certification of tax debt, the State Department is prohibited from issuing a new passport and is permitted to revoke a previously issued passport. The State Department can make exceptions in time of an emergency and humanitarian circumstances. The State Department can also limit a passport or issue a passport for return travel to the U.S. only. Further, such denial or revocation action is suspended for those serving in the armed forces or supporting the armed forces in a combat zone, or for an individual hospitalized while serving in a combat zone.

The Internal Revenue Service is required to simultaneously notify the taxpayer and the State Department. Such certification is limited to the taxpayer’s identity information and the amount of the seriously delinquent tax debt.

A reversal of the certification is issued by the Internal Revenue Service to the State Department when: (1) the certification has been determined to be erroneous, or (2) the debt is fully satisfied, legally unenforceable, the taxpayer has requested a collection due process hearing, or innocent spouse relief is requested. Once reversal of certification has been determined, the Internal Revenue Service is required to issue a certificate of release not later than 30 days after agreement or acceptance by the Internal Revenue Service.

Given this new information sharing provision between the Treasury and State Departments, it is now as important as ever to resolve past tax debts. Contacting your tax advisor is an important first step in avoiding embarrassing situations where international travel, whether it be for business or personal purposes, may be required.