Abroad summer travel plans may be indefinitely delayed due to a new tax collection tool – Internal Revenue Code (IRC) § 7345, which permits the IRS to certify to the State Department individuals who have serious delinquent tax debt. Once the State Department receives a certification, it may deny or revoke the passport of that taxpayer or limit the passport to permit only return travel to the U.S. Currently, some 362,000 individuals are at risk of losing their passports! With this renewed focus on enforcement, both domestic and foreign taxpayers must be aware of the consequences this statute might have on their ability to travel.
A seriously delinquent tax debt is a tax liability (tax, penalty and interest) of an individual which satisfies all the following requirements:
1) the tax liability has been assessed
2) the liability is greater than $51,000
3) a levy was issued or a notice of lien has been filed and the taxpayer has either exhausted its administrative rights or failed to timely exercise those rights.
There are situations where the IRS will not certify a seriously delinquent taxpayer to the State Department. The IRS will not certify a tax liability as seriously delinquent if:
- the taxpayer is paying the liability in installment payments approved by the IRS
- the liability is being paid through an offer in compromise
- the taxpayer requests a collection due process hearing
- collection of the debt has been suspended under certain circumstances such as innocent spouse relief
Furthermore, the IRS may, in its discretion, determine that it will not certify a tax liability where the liability is uncollectible due to hardship, the liability results from identity theft, or the taxpayer is in bankruptcy, among other criteria. Certification is postponed while the taxpayer is serving in a combat zone or participating in a contingency operation.
In several circumstances, the IRS will reverse the certification of a tax debt. However, obtaining a reversal is not as simple as paying down the liability below $51,000—this will not result in decertification. The IRS will decertify a taxpayer only if:
1) all certified tax modules are fully paid
2) the tax becomes legally unenforceable
3) the tax debt falls under one of the statutory exclusions
The IRS may also, at its discretion, reverse a certification where a previously certified taxpayer files bankruptcy, a certified taxpayer enters a combat zone, a certified taxpayer later becomes uncollectible due to hardship, or an adjustment reduces the original amount below $51,000, among other criteria. Expedited decertification may be available where the taxpayer must travel and where the taxpayer presents valid criteria for decertification.
The IRS must send a notice of certification to the taxpayer contemporaneous with sending the notice to the State Department. Upon receiving this notification, the taxpayer has a right to challenge the certification.
This alert was provided by Chair of the Tax Practice Group, Terry Zabel and Adam Baginski, 2nd year Summer Associate from Notre Dame Law School.