Passports and Delinquent US Taxes

Opinion

By Orlando Gotay, tax attorney

By now you may have heard about the passport provisions of the Transportation bill currently being considered by Congress. This is the most recent attempt by Sen. Orrin Hatch (R-UT) to take passports away from people who have “seriously delinquent” tax debt. If enacted into law, those who owe more than US$50,000 could be in for special treatment.

Under the bill, the IRS could choose to let the Treasury Department know a person was seriously delinquent. This means over US$50,000 in debt (interest and penalties are included in arriving at the dollar amount) and having a previously filed lien or a levy to collect the tax.

Those with installment agreements, offers in compromise, or collection due process hearings would not be includable as “seriously delinquent.” However—this is not explicit in the bill but I can tell—liabilities labeled “currently not collectible” by the IRS could be “seriously delinquent” despite being uncollectible. So, on one side, the IRS could acknowledge that the debt is not currently collectible because the taxpayer doesn’t have the means to pay, and on the other hand, report it to the Treasury Department.

Names reported to Treasury would be turned over to the State Department. State, in turn, would not authorize issuance or renewal of passports for those on the list. It also can, but is not required to, revoke previously issued passports. As a side note, not providing a Social Security number would be grounds for denial of a passport. There are many US citizens out there—especially abroad—who do not have a Social Security number, an exceptionally difficult thing to get residing overseas.

Especially in the expat context, where huge penalties arise quickly for failure to file something as simple as an information return, these developments are cause for alarm. Thank Sen. Hatch for his diligence.

Meanwhile, the Transportation bill has another gem that should not go unexamined. It also requires the IRS to turn over to private debt collectors part of its old inventory of uncollected tax liabilities. The IRS had authority to do this, but the new bill would instead require the IRS to contract with outside bill collectors.

The Congress is clearly mad at the IRS. Some in Congress are mad at expats in general. Stay tuned.

Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the US Tax Court, and other taxing agencies. His love of things Mexican has led him to devote part of his practice to the tax matters of US expats in Mexico. He can be reached at tax@orlandogotay.com.

 

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