Section 7345 entitled “Revocation or denial of passport in case of certain tax delinquencies” was added to the Internal Revenue Code in late 2015. The IRS has announced that it will begin sending tax debt certifications to the State Department in early 2017 for revocation or denial of passports. Denying or revoking a person’s freedom to travel can have devastating effects including disrupting business, impeding or eliminating an individual’s ability to generate income and potentially separating families. Therefore, it is imperative that any person with an IRS tax debt who regularly travels internationally or plans to do so, understand when they may become subject to Section 7345, what type of debts can be excluded from Section 7345 and their options if they receive notice of a tax debt certification.
Section 7345 requires the IRS to send the State Department a notice for any taxpayer with a “seriously delinquent” tax debt. A seriously delinquent tax debt is an individual’s unpaid, legally enforceable federal tax debt totaling more than $50,000, including interest and penalties, for which a:
- Notice of federal tax lien has been filed and all collection due process rights have either lapsed or been exhausted, or
- Tax levy has been issued.
A taxpayer who owes more than $50,000 and meets the other criteria, may not be considered to have a serious delinquent tax debt if the tax debt is:
- Being paid in an installment agreement;
- Being paid as part of an offer in compromise;
- Being paid in a settlement with the Department of Justice;
- Subject to a timely filed Collection Due Process request; or
- Subject to a timely filed Innocent Spouse request.
When the State Department receives a notice of a seriously delinquent tax debt, it is required to either deny an individual’s application for a passport or revoke a current passport. If a delinquent taxpayer is applying for a passport, the State Department will hold the application for 90 days to allow the taxpayer to resolve any erroneous certification issues, make full payment or enter into a payment arrangement with the IRS. Because the IRS budget has been drastically cut in the last few years, it will be difficult for an individual to resolve a tax debt by either an installment agreement or offer in compromise within the 90-day grace period, leaving full payment as the only viable option for many taxpayers. Importantly, the 90-day grace period for resolving the tax debt does not apply where the State Department revokes a passport.
When the IRS certifies a seriously delinquent tax debt to the State Department, the taxpayer will receive a Notice CP 508C. There are numerous unresolved due process questions regarding the certification that is provided to the State Department and a taxpayer’s right to challenge the certification. For example, a taxpayer who receives a Notice CP 508C does not have any opportunity to challenge a certification administratively, but instead must challenge the certification by filing a lawsuit in U.S. Tax Court or U.S. District Court. Pursuing a lawsuit in Tax Court or District Court can take significant time and resources and can be especially challenging for someone who is having difficulty paying taxes. A taxpayer lawsuit asks the court to determine whether the certification is erroneous or the IRS failed to reverse a certification when it was required to do so. The court is not authorized to release a lien or levy or award money damages in a suit to determine whether a certification is erroneous. It is not clear if an individual who prevails in a lawsuit will be able to collect attorney’s fees.
Anyone who owes the IRS more than $50,000 and needs a passport to keep a job or is leaving for international travel needs to address the IRS debt before Section 7345 becomes an issue. Failure to do so could have devastating financial and personal effects.
For any questions on this or any other tax-related matter, please feel free to contact me at (214) 749-2456 or firstname.lastname@example.org.