In a prior blog post (here), we discussed IRC Section 7345 which allows the IRS to take actions to either revoke or deny a passport to a taxpayer with a seriously delinquent tax debt. On April 5, IRS Chief Counsel issued Notice CC-2018-005 which provides guidance for Chief Counsel attorneys regarding how to handle a lawsuit brought by a taxpayer in U.S. Tax Court pursuant to Section 7345(e). This notice was issued on the heels of IRS Deputy Chief Counsel Drita Tunuzi stating at a recent ABA Tax Section meeting that the IRS would probably start issuing the notices of passport revocation or denial by the end of February.
Notice CC-2018-005 provides the following regarding judicial review:
- A taxpayer cannot challenge the amount of the liability because Section 7345 does not provide for judicial review of the amount of the liability that constitutes a seriously delinquent tax debt.
- A taxpayer will have six years from either (i) the issuance of a certification notice to bring an action in either U.S. Tax Court or Federal District Court to determine whether a certification was erroneous when made, or (ii) the date that grounds for reversal existed to bring an action challenging whether the IRS failed to reverse a certification.
- The court’s review will be limited to the IRS’ records and whether the certification or failure to reverse the certification was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.
The notice provides guidance to IRS Chief Counsel attorneys regarding procedural issues in Tax Court, such as information to be included in the Answer filed by IRS counsel, and guidance for filing a Motion to Dismiss for Lack of Jurisdiction, Motion to Dismiss for Failure to State a Claim, Motion for Judgment on the Pleadings, Motion for Summary Judgment, or Motion to Dismiss on the Ground of Mootness. In addition, the notice includes recommendations for assisting the Department of Justice when a Section 7345 action is filed in Federal District Court.
By way of background, Section 7345 entitled “Revocation or Denial of Passport in Case of Certain Tax Delinquencies” was added to the Internal Revenue Code in late 2015. 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. The 90-day grace period for resolving a 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. A taxpayer who receives a Notice CP 508C cannot challenge a certification administratively, but instead must challenge the certification by filing a lawsuit in U.S. Tax Court or Federal District Court.
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.