Let's say a person is planning to take a plane trip out of the country. And further suppose that individual owes the federal government a fair amount of back taxes. The person may not be able get a passport if he or she owes the government a significant amount of back taxes. The IRS is now reminding taxpayers that legislation passed in 2015 allows the tax agency to revoke passports or deny new ones to major debtors.
Taxpayers Free to Go Overseas
The IRS says it won't certify a taxpayer as owing a seriously delinquent tax debt or will reverse the certification for an individual who:
- Is in bankruptcy;
- Has been identified by the IRS as a victim of tax-related identity theft;
- Has an account the IRS has determined is currently not collectible due to hardship;
- Is located within a federal disaster area;
- Has a request pending with the IRS for an installment agreement;
- Has a pending offer in compromise with the IRS; or
- Has an IRS accepted adjustment that will satisfy the debt in full.
Background of the Law
Under the Fixing America's Surface Transportation Act of 2015, a highway spending measure, the IRS was granted the authority to notify the State Department about taxpayers who have "seriously delinquent tax debts." The State Department is then tasked with denying the individual their passport application or renewal. It took awhile to put the wheels in motion, but the IRS began enforcing this provision of the law last year.
For these purposes, a seriously delinquent tax debt is defined as $50,000 or more, indexed for inflation. The threshold for 2019 is $52,000. This includes back taxes, penalties and interest for which the IRS has filed a tax lien or issued a levy.
How It Works
If a taxpayer is certified as owing a seriously delinquent tax debt, he or she receives a Notice CP508C from the IRS. This notice explains the steps that must be taken to resolve the debt. For instance, IRS representatives may help a taxpayer set up a payment plan or explain other payment alternatives. People who owe back taxes shouldn't delay — especially if they're planning a trip abroad.
Once the tax obligations are met, the IRS will reverse the taxpayer's certification within 30 days. Matters may be expedited under certain circumstances.
Before denying a passport renewal or new passport application, the State Department will hold a taxpayer's application for 90 days to allow him or her to resolve any erroneous certification issues, make full payment of the tax debt or enter into a satisfactory payment arrangement with the IRS.
In an IRS announcement, the agency presents several ways that an individual can avoid having the State Department notified of a seriously delinquent tax debt, including the following:
- Pay the tax debt in full;
- Pay the tax debt in a timely manner under an approved installment agreement;
- Pay the tax debt in a timely manner under an accepted offer in compromise (OIC);
- Pay the tax debt in a timely manner under the terms of a settlement agreement with the Department of Justice (DOJ);
- Have requested or have a pending collection due process appeal with a levy; or
- Have collection suspended because you've made an innocent spouse election or requested innocent spouse relief.
The IRS also has provided details on two key relief programs available to taxpayers who could have their passports revoked or denied.
1. Payment agreements. A taxpayer can formally request to use a payment plan by filing Form 9465. This form can be sent with a tax return bill or notice or a taxpayer can arrange a monthly payment agreement online.
2. Offers in compromise. With an OIC, a taxpayer settles up with the IRS for an amount that's less than the actual tax liability. The IRS will examine the individual's income and assets to determine his or her ability to pay. An individual can use an online pre-qualifier to see if he or she is likely to qualify for an OIC.
Other special rules apply to taxpayers who are currently serving in a combat zone.
Moral of the story: As you can see, there are several available options for avoiding a worst-case scenario. With assistance from a tax advisor, a person who owes back taxes should be able to find a happy tax landing.