The IRS targets passports, that’s been possible for years, but the level of concern and anxiety has increased. It’s in the news again, something has stirred up activity and some of the 360,000+ Americans with outstanding, overdue tax debts have probably already felt the pinch.
The IRS targets passports because it’s the law.
Using your need or desire to travel, and limiting your ability to do so, as a means to enforce and collect tax debts is not new. In 2011, the GAO reported that 224,000 people, collectively owing almost $6 billion in unpaid federal taxes, received passports in 2008. Using passports as a tool to collect taxes was first proposed in 2012, but was considered a bad idea. The IRS gained power over passports when Congress added Section 7345 “Revocation or Denial of Passport in Case of Certain Tax Delinquencies” to H. R. 22.
“(a) In General.–If the Secretary receives certification by the Commissioner of Internal Revenue
that an individual has a seriously delinquent tax debt, the Secretary shall transmit such certification
to the Secretary of State for action with respect to denial, revocation, or limitation of a passport
pursuant to section 32101 of the FAST Act.”
The little-known Section 7345 to the “infrastructure-friendly” FAST Act requires the IRS to certify and notify the State Department of taxpayers owing a seriously delinquent tax debt. The FAST Act also requires the State Department to deny their passport application or deny renewal of their passport. In some cases, the State Department may revoke their passport.
In mid-2016 the details were unclear. They still are. In fact, the Treasury regulations explaining how the program will be administered haven’t been published yet, and the IRS manual and the State Department haven’t provided any specific rules. It could be several months before these are ready.
As the IRS targets passports, who is at risk?
That is still unclear. The dollar amount of tax debt is set at $51,000. Who determines that amount and who is right and who defines seriously delinquent? The laws and definition can be defined any way the IRS chooses. The IRS might get creative:
You’re a business owner, perhaps with partners. You’re also a silent partner in another business. And you have ongoing financial associations with something else. Your business and an individual partner and the other association you’re involved with all have some tax debt issues, and you’ve got a smaller individual tax debt. None of these separately hit $51,000, but combined they are slightly over. It’s the IRS’s choice as to how they connect the dots.
Dealing with the IRS is not the same as “innocent until proven guilty.” If the IRS determines that an individual owes money or needs to do something specific, it becomes truth. It’s now upon the individual to prove otherwise. In the meantime, a passport could be rendered invalid or revoked, or an application denied.
The IRS targets passports, and they know where to look.
The IRS knows where to look for tax debts. A lot of scenarios on what could happen have been speculated on:
- This law also applies to those whose identity has been stolen. Say, your Social Security number was used by someone else get a job. The worker gets paid under your Social Security number with zero withholding, a W-2 was issued tied to your account, and the IRS comes after you for the taxes owed.
- Taking this a step further, assume that the thief claimed some dependents, and because of this, there was no withholding, which means no money was paid to the IRS for the taxes due against wages earned. It often takes several years for the IRS to respond, and interest and penalties are increasing the debt. $51,000 could be a very low threshold. There were almost two million suspected tax-related identity theft incidents in 2013 alone.
- Some Americans who live abroad assume they don’t need to file returns. But, as of January 1, 2015, your foreign bank account and income will, under FATCA, be reported to the IRS. This data can be used to prepare SFRs and create a debt, and then the IRS has you. The IRS will not give you credit for FEIE when they prepare an SFR.
What’s the bottom line?
If you’ve never consulted a CPA tax specialist, now is the time to do it. If you think you may be red-flagged by the IRS, if you’ve had your identity compromised, or you have any associations with another person, business or entity that might have tax issues, contact us immediately.
Our goal is to become part of your overall life and business goal planning team so that you’ll be able to establish your own goals and know that you have a trusted professional on your team. We establish and maintain a personal and business relationship with our clients. Your LIFE is your business and your BUSINESS is your life. We’re here for YOU.
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You may wish you had read those letters from the IRS. They may not bother sending one about your passport. But here’s 5 things to do when you receive a letter from the IRS.
If you have a financial interest in or signature authority over a foreign financial account, you’ve probably heard of FBAR. If you haven’t, you could find yourself on the No Passport-No Fly list. The IRS targets passports, and this is one of the best ways to catch their eye!