Flier Beware: You May Get Your Passport Revoked for Delinquent Tax Debt

In an increasingly global economy, more and more business professionals are heading abroad. Unfortunately, the ability to travel internationally isn’t always guaranteed. If you owe a significant amount of federal tax debt, for instance, there is a real possibility that you will get your passport revoked — or be denied one altogether.

While most affected individuals are already aware of the status of their debt, this is not always the case. Here’s a brief overview on the government’s revised authority regarding passports and how you can take action to protect your ability to travel.

A New Alliance

In December 2015, the IRS was given the authority to provide the State Department with the names and social security numbers of individuals who owe a “seriously delinquent tax debt” of $50,000 or more. As of right now, the IRS plans to implement this program sometime in 2017.

While the IRS and the State Department (which owns the passport issuance process) are both government agencies, the two entities were previously prohibited from sharing individuals’ personal information. However, a U.S. Government Accountability Office (GAO) study indicated a need for change. Why? Because of the approximately 16 million individuals who received state-issued passports during fiscal year 2008, “over 224,000 individuals (over 1 percent) collectively owed over $5.8 billion in unpaid federal taxes as of September 30, 2008.”

The result? The U.S. GAO expressed their opinion that restricting passport issuance and usage would recoup a significant amount of funds that were due to the United States. Now that the IRS will communicate delinquent debt to the State Department, the latter will be able to use this certification to deny your application — or even revoke your current passport.

Liens, Exceptions and Remedies

The IRS provides a variety of stipulations that come into play in these passport matters. For example, the IRS is required to notify affected parties in writing when they certify “seriously delinquent tax debt” to the State Department. Of course, if your passport is revoked, the best way to remedy the situation is to settle the debt as soon as possible. You can do so by paying the funds owed, entering into an installment agreement that allows the debt to be paid over time or offering a compromise accepted by the IRS.

If the certification is believed to be in error, it can be disputed through the U.S. Tax Court or U.S. District Court. However, this new process “does not provide the court authority to release a lien or levy or award money damages in a suit to determine whether a certification is erroneous.”

As the $50,000 tax debt threshold is quite high, it’s unlikely that many individuals owing that amount wouldn’t be aware of that fact. The exceptions, though, are a major concern. For example, imagine an individual who is a U.S. citizen by birth but moved overseas as a child before entering the workplace: It’s possible that this citizen doesn’t know that he or she is required to file an annual tax return with the United States. In this case, foreign bank account reports may list the citizen’s social security number, allowing the IRS to file substitute returns in their place. Over time, it is possible that tax liability on unfiled returns could accrue to an amount exceeding the $50,000 liability threshold.

U.S. citizens, including dual passport holders, whether living in or out of the States, all need to be aware of the latest IRS provision. Professionals who plan to travel abroad or conduct work overseas should contact a CPA familiar with the U.S. Tax Code to examine their options and work toward resolving any potential compliance concerns.