How Unreported Income Leads to US Passport Cancellation

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How Unreported Income Leads to US Passport Cancellation

How Unreported Income Leads to US Passport Cancellation

How Unreported Income Leads to US Passport Cancellation

When a US Citizen has a significant tax debt, they may become subject to IRS passport revocation. As you can imagine, for some taxpayers who travel internationally and/or reside overseas as an Expat, they can be a serious issue. Take for example an American Expat who resides in a foreign country and learns that one of their parents who lives in the United States has fallen ill. They want to race back and visit their parents, but when they try to renew their passports, that renewal is denied. Alternatively, for US-based taxpayers who travel globally to conduct business, this can also have a serious impact on their livelihood. It is important to note, that since US citizens are taxed on their worldwide income, even if they have unreported foreign income, this too can lead to passport revocation or cancellation.

26 USC 7345: Revocation or Denial of Passport 

      • (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.

      • (b) Seriously Delinquent Tax Debt

        • (1) In general For purposes of this section, the term “seriously delinquent tax debt” means 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.

            • (2) Exceptions Such term shall not include—

              • (A) a debt that is being paid in a timely manner pursuant to an agreement to which the individual is party under section 6159 or 7122, and (B)a debt with respect to which collection is suspended with respect to the individual—

          • (i) because a due process hearing under section 6330 is requested or pending, or

          • (ii) because an election under subsection (b) or (c) of section 6015 is made or relief under subsection (f) of such section is requested.

      • (c) Reversal of Certification

        • (1) In general In the case of an individual with respect to whom the Commissioner makes a certification under subsection (a), the Commissioner shall notify the Secretary (and the Secretary shall subsequently notify the Secretary of State) if such certification is found to be erroneous or if the debt with respect to such certification is fully satisfied or ceases to be a seriously delinquent tax debt by reason of subsection (b)(2)

        • (2) Timing of notice

          • (A) Full satisfaction of debt In the case of a debt that has been fully satisfied or has become legally unenforceable, such notification shall be made not later than the date required for issuing the certificate of release of lien with respect to such debt under section 6325(a).

          • (B) Innocent spouse relief

          • In the case of an individual who makes an election under subsection (b) or (c) of section 6015, or requests relief under subsection (f) of such section, such notification shall be made not later than 30 days after any such election or request.

          • (C) Installment agreement or offer-in-compromise

          • In the case of an installment agreement under section 6159 or an offer-in-compromise under section 7122, such notification shall be made not later than 30 days after such agreement is entered into or such offer is accepted by the Secretary.

          • (D) Erroneous certification In the case of a certification found to be erroneous, such notification shall be made as soon as practicable after such finding.

      • (d) Contemporaneous notice to individual

        • The Commissioner shall contemporaneously notify an individual of any certification under subsection (a), or any reversal of certification under subsection (c), with respect to such individual. Such notice shall include a description in simple and nontechnical terms of the right to bring a civil action under subsection (e).

      • (e) Judicial review of certification

        • (1) In general After the Commissioner notifies an individual under subsection (d), the taxpayer may bring a civil action against the United States in a district court of the United States, or against the Commissioner in the Tax Court, to determine whether the certification was erroneous or whether the Commissioner has failed to reverse the certification. For purposes of the preceding sentence, the court first acquiring jurisdiction over such an action shall have sole jurisdiction.

        • (2) Determination If the court determines that such certification was erroneous, then the court may order the Secretary to notify the Secretary of State that such certification was erroneous.

      • (f) Adjustment for Inflation

      • In the case of a calendar year beginning after 2016, the dollar amount in subsection (b)(1)(B) shall be increased by an amount equal to—

        • (1) Such dollar amount, multiplied by

        • (2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year, determined by substituting “calendar year 2015” for “calendar year 2016” in subparagraph (A)(ii) thereof. If any amount as adjusted under the preceding sentence is not a multiple of $1,000, such amount shall be rounded to the nearest multiple of $1,000.

      • (g) Delegation of Certification

        • A certification under subsection (a) or reversal of certification under subsection (c) may only be delegated by the Commissioner of Internal Revenue to the Deputy Commissioner for Services and Enforcement, or the Commissioner of an operating division, of the Internal Revenue Service.

What does this mean?

It means that when a US Person has a serious tax debt, the IRS reserves the right to certify the information and then proceed to seek a revocation, denial or limitation of the US persons passport. It also provides information regarding how to reverse the certification of tax debt — and possible defenses.

IRM 5.19.25.3 (08-12-2020) & Seriously Delinquent Tax Debt

      • Seriously Delinquent Tax Debt

      • For the purpose of passport certification, seriously delinquent tax debt is the unpaid, legally enforceable federal tax liability, which has been assessed, of an individual totaling more than $50,000 for which A Notice of Federal Tax Lien has been filed and all administrative remedies under IRC 6320 have lapsed or been exhausted, or

      • Note: When a Collection Due Process (CDP) Lien hearing is timely requested, or pending, in connection with the filing of a Notice of Federal Tax Lien, the taxpayer’s remedies under IRC 6320 have not been exhausted until the CDP hearing (and any appeals of the determination) have been concluded. If no CDP Lien hearing is requested for the NFTL, the above criteria is met once the time period for requesting a timely CDP hearing has lapsed.

      • Note: A pending or requested Equivalent Hearing (EH) in connection with the filing of a Notice of Federal Tax Lien, as described in IRM 5.1.9.3.2.2, Equivalent Hearing (EH) and Timeliness of EH Requests, and in IRM 5.19.8.4.3, Equivalent Hearing (EH) Requests and timeliness of EH Requests, will not preclude a liability from being considered a seriously delinquent tax debt. A levy has been issued.

      •  The $50,000 threshold, which is indexed yearly for inflation, is the aggregate unpaid balance of assessment. The unpaid balance of assessment includes tax and assessed interest and penalties. It does not include accrued interest and penalty. Note: As of January 1, 2020, the threshold amount indexed for inflation is $53,000. Caution: Once the taxpayer is certified, paying the account below the threshold amount indexed for inflation effective at the time of certification will not result in decertification. Certification will not be reversed unless all certified modules have been fully satisfied (e.g. Status 12), become legally unenforceable, or meet the criteria for reversal in accordance with IRM 5.19.25.10, Reversal of Certification.

      • Unless otherwise listed as statutory or discretionary exclusions in IRM 5.19.25.4, Statutory Exclusions from Certification, or IRM 5.19.25.5, Discretionary Exclusions from Certification, a seriously delinquent tax debt includes, but is not limited to, tax assessments made under an individual’s taxpayer identification number (SSN or EIN) such as U.S. individual income taxes, trust fund recovery penalties, business taxes for which the individual is liable and other civil penalties. This does not include other non-tax liabilities such as:

      • ACA assessments, Individual Shared Responsibility Payments (SRP) modules (MFT 35 or 65)

      • Employer Shared Responsibility Payments (ESRP) modules (MFT 43)

      • Criminal Restitution assessments (MFT 31 with unreversed TC 971 AC 102)

      • Child Support Obligations (NMF MFT 59). See IRM 3.8.45.6.35, Sub-Pays for Child Support MFT 59

      • Report of Foreign Bank and Financial Accounts (FBAR) assessments Note: FBAR penalties are asserted under Title 31 as a non-tax debt and do not appear on IDRS. They are tracked on a separate database at Detroit where payments are posted and notices generated.

What does this mean?

This excerpt is from the IRM (Internal Revenue Manual). It provides further insight into what the IRS must do in order to pursue a passport revocation, denial or limitation when it is based on a seruously delinquent tax debt.

508C Notice

  • The 508 C notice, is the Internal Revenue services notice to the taxpayer that they are seriously delinquent in their tax payments and this may result in a passport revocation or denial
  • As provided by the IRS: What this notice is about
    • The IRS has identified your tax debt as meeting the definition of “seriously delinquent” in Internal Revenue Code Section 7345, and provided that information to the U.S. Department of State.
    • The U.S. Department of State generally will not renew your passport or issue a new passport to you after receiving this certification from the IRS, and they may revoke or place limitations on your current passport.
  • What you need to do
    • Read your notice carefully. It explains the amount due, due date, what you need to know, and what you need to do to prevent the U.S. Department of State from denying, revoking, or limiting your passport.
    • If you have any questions or disagree with the notice, contact us within 30 days from the date of the notice at the toll-free number at the top right corner.
    • Keep this notice in your permanent records.
    • You may want to
    • Learn more about your payment options and how to make a payment arrangement.
    • Learn more about how the certification of your tax debt as seriously delinquent might cause your passport to be denied.

What does this mean?

Be Careful of Tax Debt and Passport Revocation

Passport Revocation, Denial and Limitation are very strong (and unfair) tools the IRS has at it’s disposal in order to pursue seriously delinquent tax debts against US persons. The US Person has the right to defend against this type of IRS action.

About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure. 

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