Back in December of 2015, President Barack Obama signed the Fixing America’s Surface Transportation Act (the FAST Act) into law. As part of the funding measures included in the bill, Congress added §7345 to the Internal Revenue Code, which requires the Secretary of State to deny, revoke, or otherwise limit the passport of a taxpayer that the Commissioner of the Internal Revenue Service has certified as owing a “seriously delinquent tax debt.” §7345 defines a “seriously delinquent tax debt” as an “unpaid, legally enforceable Federal tax liability of an individual -- (A) which has been assessed, (B) which is greater than $50,000, and (C) with respect to which -- (i) a notice of lien has been filed pursuant to section 6323 and the administrative rights under section 6320 with respect to such filing have been exhausted or have lapsed, or (ii) a levy is made pursuant to section 6331.
The remainder of the code section deals with exceptions to certification and provisions for the reversal of the certification. As with most Internal Revenue Code sections the IRS is tasked with enforcing, the statutory requirements of the FAST Act and IRC §7345 have been modified and expanded through the IRS’s regulatory discretion. This means that in practice, the IRS’s enforcement of IRC §7345 strays well beyond the strict text of the code section in question, and understanding not only the provisions of the bill itself but the IRS’s interpretation and implementation of the bill are critical to avoiding certification or reversing the certification if need be.
It bears mentioning that it is the State Department, not the Internal Revenue Service, that revokes, suspends, or limits a taxpayer’s passport. The IRS merely refers a taxpayer meeting the certification requirements to the State Department. Furthermore, in practice, while the State Department does have the authority to revoke currently-issued passports, in practice, certification generally only results in the State Department refusing to reissue you a passport when your old passport has expired. Therefore, if you believe your tax debt is at risk of certification, it may be in your best interest to utilize available options to delay certification while you apply for a new passport.
If your tax debt has been referred to the State Department by the IRS as being seriously delinquent, the IRS will send you a CP508C notice notifying you of the certification and the tax periods giving rise to the certification.
Seriously Delinquent Tax Debt in Practice:
It is important to recognize that the $50,000 figure is both indexed for inflation (and rounded up to the nearest thousand dollars -- as of 2020, the threshold was increased to $53,000), and includes only assessed penalties and interest. The term assessed is critical, as the IRS typically maintains both an assessed and accrued balance. Penalty and interest amounts are typically accrued on a separate balance before periodically being assessed by the IRS systems. A review of IRS account transcripts can reveal what portion of the liability is assessed and which is still being accrued. The $50,000 is in aggregate across any years for which the taxpayer has been assessed a tax or penalty and for which Collection Due Process rights have been exercised or lapsed. The figure also spans a number of different types of tax liabilities, including business taxes and Trust Fund Recovery Penalties for which a taxpayer has been found to be personally liable. However, it does not include certain assessments, such as Affordable Care Act Shared Responsibility Assessments and FBAR penalties.
Exceptions to Certification:
The bill itself provides three exceptions to certification: (1) a debt that is being paid in a timely manner pursuant to an installment agreement, (2) a debt for which collection is suspended due to a pending Collection Due Process request, and (3) a debt for which collection is suspended due to a pending Innocent Spouse request (future article coming). The IRS has administratively expanded the number of exceptions beyond the statutorily required exceptions, what they call “discretionary exclusions.” The IRS’s administrative procedures regarding Passport Certification are buried under IRM Section 5.1.12 - Cases Requiring Special Handling. Specifically, guidance related to Passport Certification is contained in IRM §5.1.12.27 - Passport Certification in Case of Certain Tax Debts.
The IRM expands the umbrella of “statutory exclusions” to include debt that is being paid in accordance with an Offer in Compromise or settlement entered into with the Department of Justice and delays certification for taxpayers that are serving in a combat zone. It also clarifies that a continuous levy does not meet the requirements for a timely paid installment agreement nor does an Equivalent Hearing qualify as a statutory exception.The IRS has added the following Discretionary exclusions from Certification:
Debt that is Currently Not Collectible (CNC) due to hardship,
Debt that resulted from identity theft,
Debt of a taxpayer in bankruptcy,
Debt of a deceased taxpayer,
Debt that is included in a pending Offer in Compromise,
Debt that is included in a pending installment agreement,
Debt with a pending adjustment that will full pay the tax period, and
Debt owed by taxpayers in a Disaster Zone.
Reversal of Certification:
The IRM provides several circumstances that will result in the reversal of a previously issued seriously delinquent certification, namely:
The tax debt has been fully satisfied,
The tax debt becomes legally unenforceable (e.g. bankruptcy discharge, CSED expiration)
A statutory or discretionary exclusion criteria is met.
Do note, however, that once a tax debt has been certified as seriously delinquent, paying the aggregate balance down below the certification threshold will not result in decertification. This means that it’s often easier to prevent certification to begin with than to reverse a certification that’s already in place. For this reason, if your tax liability with the IRS is approaching $50,000 and putting you at risk of certification, it’s advantageous to see what can be done to proactively prevent certification before it happens.
Generally speaking, once a taxpayer’s account has met the criteria for certification reversal, the IRS will notify the State Department within 30 days, at which time the State Department will remove any blocks in place that are preventing the taxpayer from obtaining or traveling on their passport, though as is the case with any federal bureaucracy, delays in the decertification process are not uncommon. The IRS does provide provisions for expedited decertification, so if your passport has been restricted owing to a seriously delinquent tax debt and you have travel plans in the near future, please contact us to discuss your situation to see if we can help expedite the reversal of the certification.