- 1 Can the IRS Revoke or Deny a US Passport?
- 2 IRS Notice to Revoke Passport
- 3 FEIE and FTC
- 4 Example 1: Steven – U.S. Person Abroad (Accidental Americans)
- 5 Example 2: Michelle – Legal Permanent Resident (Small Business Owner)
- 6 Are you Out of Compliance?
- 7 Golding & Golding: About Our International Tax Law Firm
- 8 Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Can the IRS Revoke or Deny a US Passport?
IRS Passport Revocation: The US has significantly increased enforcement of international tax laws. The penalties for not being in foreign accounts compliance and/or unreported foreign income can be harsh. In order to further pursue U.S. person across the globe with tax debt, the IRS has begun revoking and denying US passports to certain citizens and permanent residents with Tax Debt.
We will summarize the IRS Passport Revocation rules, along with two examples.
IRS Notice to Revoke Passport
Recently, the U.S. Government snuck in a law that allows the IRS to cancel, deny or revoke your passport if you owe more than $50,000 to the IRS.
As provided by the IRS:
If you have seriously delinquent tax debt, IRC § 7345 authorizes the IRS to certify that debt to the State Department for action.
The State Department generally will not issue a passport to you after receiving certification from the IRS.
This article will summarize the following IRS Passport related issues:
- IRS Passport Revocation
- U.S. Passport Status
- IRS Passport Denial
- IRS Tax Debt & U.S. Passports
- How To Avoid Passport Revocations
FEIE and FTC
We understand that for most individuals, they will be able to fall back on either the Foreign Earned Income Exclusion (FEIE) and/or Foreign Tax Credit (FTC). The important (read: very, very important) thing to keep in mind is that if you have not filed taxes, then you have not applied the exclusion or foreign tax credits to your returns, and the IRS will have no record of it for your file.
Moreover, especially when it comes to the FEIE, if you do not properly claim the exclusion timely, the IRS can deny your request to use the exclusion in an untimely filed tax return at a later date.
The Foreign Earned Income Exclusion (FEIE) and/or Foreign Tax Credit (FTC) are two mechanisms which can only be claimed on the actual tax return. For example, if Steven lives overseas and earns $105,000 USD equivalent, but never filed taxes in the US and/or claimed the exclusion then the IRS has no record of it, and it would not be applied to Steven’s tax liability.
Example 1: Steven – U.S. Person Abroad (Accidental Americans)
Steven is a U.S. citizen who was born overseas and is only a US citizen because his mother was a US citizen. He earns $95,000 annually and pays all of his tax in the foreign country – albeit a low tax jurisdiction – and if he did file, he would meet the elements to establish the Foreign Earned Income Exclusion. Steven never filed a US tax return, but Steven does have a Social Security number and a US passport that he travels on because that’s just always what he did when his mother first got him the passport. Moreover, Steven just received a “FATCA Letter” from his bank.
Steven has family in the United States and travels to the US about 3 to 4 times a year for about a week at a time. As a single person, Stephen would owe somewhere in the neighborhood of $15,000 -$25,000 a year depending on his deductions.
Problem: After not filing for about three (3) years, including penalties and interest, Stephen could easily exceed the $50,000 IRS debt liability threshold.
Resolution: Stephen should qualify for the Streamlined Foreign Offshore Procedures, which would both get him into tax compliance as well as avoid any penalties.
Example 2: Michelle – Legal Permanent Resident (Small Business Owner)
Michelle is a legal permanent resident who resides abroad. The entrepreneurship bug bit Michelle when she was very young, and she has been operating two small businesses outside of the U.S. for many years.
Even though Michelle is a legal permanent resident of the United States and has been one for more than 20 years, she has not resided in the United States for many years (we are not taking into consideration any immigration status issues regarding “involuntary abandonment issues“). While Michele’s businesses do not earn much money, she does have some foreign mutual funds along with a business structure called a Sociedad Anonima.
Michelle travels to the United States (as well as many other countries) various times throughout the year for business and does not meet the FEIE Physical Presence Test – but she would qualify as a Bona-Fide Resident (BFR) of her foreign country.
Problem: Michelle has not filed the necessary form 5471 or 8621 for her foreign mutual fund/ PFIC. The penalty for the 5471 can be $10,000 per year and because she did not file the 8621, the statute of limitations on the prior year tax returns have not yet begin to run. Michelle could end up owing hundreds of thousands of dollars to the IRS in fines and penalties.
Resolution: since Michelle will not meet the streamlined “foreign resident rule,” she can get into compliance using either the Streamlined Domestic Offshore Procedures, or consider a Reasonable Cause Submission.
Are you Out of Compliance?
If you are out of compliance for not properly disclosing foreign income, accounts, assets, and/or investments — you may consider submitting to IRS Voluntary Disclosure (IRM, Streamlined or Reasonable Cause) in order to get into compliance.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.