Recently while working to settle an audit dispute with the IRS, I had something very interesting pointed out to me. The IRS agent stated that the IRS was starting to enforce part of a law that Congress passed in 2015. This overlooked law says that Americans with overdue tax debts will be denied new or renewed passports if they don’t agree to a settlement for these debts with the IRS. Studies have shown this could potentially affect over 360,000 Americans.
The IRS had begun providing more guidance on the law and its enforcement. The IRS started to enforce the law back in February of this year. The law requires that the IRS and State Department deny passports or revoke them for taxpayers who have more than $51,000 of overdue tax debt. Once the IRS identifies a taxpayer for having unsettled tax debt over $51,000, they forward that information to the State Department. The IRS hopes to be sent all the taxpayers' information that violates this law by the end of 2018.
The State Department can then revoke existing passports and deny new ones. It has been confirmed that the State Department has already rejected passport requests to some tax debtors. As of the middle of 2018, the agencies had not revoked any passports, but are denying applications for new or renewals to tax debtors that fall under the scope of this new law.
So, what can you do if you have significant unsettled tax debt? The IRS is advising taxpayers to pay the debt in full or to make payment arrangements such as an installment agreement. If you chose to do an installment agreement, it is crucial that you make monthly payments on time and to stay in compliance with the agreement. If you cannot pay your tax debt due to financial hardships, then you might be able to reach an offer-in-compromise with the IRS. As long as the taxpayer has an agreement in place, then they should not be in danger of losing or being denied a passport.
The taxpayers most at risk appear to be taxpayers who are subject to tax liens and are not making any effort to settle their outstanding tax debts. I want to point out that taxpayers who are currently contesting an assessment administratively or in court do not seem to be at risk under this new law. Also, taxpayers who are victims of identity theft, that are in bankruptcy, that have filed for innocent spouse relief, or live in a federally declared disaster area seem to be not at risk under this law. It should also be pointed out that those serving our country in combat zones are not targeted under this law. Also, the State Department can issue a passport for emergencies or humanitarian reasons. A department spokesman said it does so to make sure an American citizen overseas can return to the U.S.
The law seems to be helping agents in collecting outstanding tax debts. The IRS has released data showing that as of mid-2018, over $11.5 million of tax debt had been collected and over 1,400 installment agreements have been signed by taxpayers wanting to ensure that they will not lose or have any issues renewing their passports.
The law has received much criticism from some tax watch agencies. It appears right now that the IRS is not giving many taxpayers much time to resolve the issue before notifying the State Department of the outstanding debt. Also, many debtors are not being made aware of possible exemptions from the new law and possible exceptions.
If you are concerned that you may be affected by the enforcement of this law, I advise that you consult with a CPA immediately. We would love to assist you in making sure that you take the necessary steps to avoid any issues with this law.