Within
days, the IRS will be able to revoke your passport for unpaid taxes.
This bad idea has been kicking around for several years. This time, it is
buried within 1300 pages of highway legislation. The government will surely see
it as a nice complement to FATCA, the Foreign Account Tax Compliance Act. That massive law
penalizes foreign banks that don’t hand over American account holders.
Not
everyone is happy about giving the IRS power over passports. A group called
American Citizens Abroad has urged Congress to reject tying
tax collection to passports. Their press release is
worth reading. But Congress is poised to pass H.R.22,
which has already passed both the House and the Senate.
It is in conference, but is not expected to change. So, get ready
for new section 7345 of the tax code, called “Revocation or
Denial of Passport in Case of Certain Tax Delinquencies.”
The State
Department could revoke, deny or limit passports for anyone the IRS
certifies as having a seriously delinquent tax debt in an amount in excess of
$50,000. In January
of 2016, the State Department will start blocking Americans with
‘seriously delinquent’ tax debts. Administrative details about how all this
will work are scant. But in all likelihood, it will mean no new passport and no
renewal. It could even mean the State Department will rescind existing passports of people who fall into
that category.
The
list of affected taxpayers will be compiled by the IRS.
The IRS will use a threshold of $50,000 of unpaid federal taxes. But
this $50,000 figure includes penalties and interest. And as everyone
knows, interest and penalties can add up fast. Notably, if you are contesting a
proposed tax bill administratively with the IRS or in court, that should not
count. That is not yet a tax debt.
There is also an
administrative exception, allowing the State Department to issue a
passport in an emergency or for humanitarian reasons. But how that will
work isn’t clear, nor is the amount of time it will take to get special
dispensation. You would still be able to travel if your tax debt is
being paid in a timely manner, as under a signed installment agreement.
Yet the dynamics are still
significant and could drastically alter how people interact with the IRS.
Moreover, these harsh rules are not limited to criminal tax cases. They
aren’t even limited to situations where the government thinks that you
are fleeing a tax debt. In fact, you could have your passport revoked merely
because you owe more than $50,000 and the IRS has filed a notice of lien.
A $50,000
tax debt is easy to amass today, especially considering interest and penalties.
Moreover, the IRS files tax liens routinely. It’s the IRS way of putting
creditors on notice so the IRS eventually gets paid. In that sense,
the you-can’t-travel idea seems extreme. IRS tax liens cover all your
property, even acquired after the lien is filed. The courts use
liens to establish priority in bankruptcy proceedings and real estate
sales. The IRS can file a Notice of Federal Tax Lien after:
·
IRS
assesses the liability;
·
IRS
sends a Notice and Demand for Payment saying how much you owe; and
·
You
fail to fully pay within 10 days.
A
tax lien can also be filed by mistake. In most cases,
there’s no mistake and the IRS lien is valid. But occasionally, the person
might not actually owe the taxes and may just need to straighten out
a pile of paperwork. With all this in mind, if this becomes law, is it
subject to challenge? Is it constitutional? The right to travel is established,
both between states and internationally. And although some restrictions have
been upheld, it is not clear that this measure would pass the constitutional
test. Consider especially the roughly eight million Americans living
overseas, many of whom are already reeling from FATCA compliance problems.
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