The Seriously Delinquent Taco

By Orlando Gotay, Tax Attorney

Last year, Utah Senator Orrin Hatch’s brainchild, passport revocation for “seriously delinquent” taxpayers, became law. It stirred quite a bit of controversy, and we now begin to see how the IRS implements this directive. To my readers who hail from Utah, I invite you to close your eyes and meditate!

If you owe more than $50,000 in federal tax, penalty, and interest and have had a notice of federal tax lien issued, you are at risk of being labeled as “seriously delinquent.” Those folks are put on a list sent to the State Department. New passports will not be issued or renewed, and existing ones may even be cancelled. This is, folks, a really harsh result. This is a copycat of the provisions that do something similar to folks who owe more than $2,500 in child support payments.

As some of my colleagues have observed, this may be compounded if IRS notices to you about this go to an address you have long left. They send a notice—maybe to nowhere—and you find out when your passport does not renew. The remarkable thing is that it is actually easy to rack up $50,000 in federal tax liability.

So if you are a full-time expat who has not filed returns in some time (like since when you left the states) and left behind a debt, it may be time to look into it. The other issue that comes to mind is that when a taxpayer is outside the US for more than 6 months, the normal ten-year collection statute of limitation stops. It then becomes indefinite, open ended, until you return to the states.

Short of outright payment, there are ways to deal with the odious label and its consequence. An installment payment agreement or an accepted offer in compromise gets you off the list. Taxpayer Advocate Nina Olson writes in a blog that the IRS may expand the conditions that will enable relief (such as “currently not collectible” status), but that is not yet forthcoming.

Prior to the law being enacted, I recommended folks to renew their passport immediately (even with time left on the old one), but I can’t do so anymore because of the risk that the renewal will not be processed.

The important thing to understand is that the IRS is now sending notices to those who have been designated. Once on the list, writing a check to get you below $50,000 will not get you taken off the list. Forewarned is forearmed!

 

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, online radio at mixlr.com/orlandogotay, or Facebook: GotayTaxLawyer.

 

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