If an individual has a seriously delinquent tax debt, the Internal Revenue Code (Section 7345) authorizes the US Internal Revenue Services (IRS) to notify the US State Department, which can deny a passport application or revoke a current passport. (If this happens when the individual is already overseas, the State Department may issue a limited validity passport good only for direct return to the United States).
A seriously delinquent tax debt is one in which an individual’s unpaid, legally enforceable federal tax debt totals more than $52,000 (including interest and penalties) for which a notice of federal tax lien has been filed and all administrative remedies have lapsed or been exhausted, or an IRS levy has been issued. This amount is indexed for inflation annually.
A seriously delinquent tax debt does not include certain debts that the IRS may collect, such as FBAR penalties or child support. It also does not meet the definition if:
- A debt being paid timely with an IRS-approved installment agreement.
- A debt being paid timely with an IRS-approved offer in compromise.
- A debt for which a collection due process hearing regarding a levy is timely requested.
- A debt for which collection has been suspended because of a request for innocent spouse relief.
- A taxpayer is in bankruptcy.
Before denying a passport, the US State Department will hold the passport application for 90 days to allow the individual to resolve errors, make full payment of the tax liability, or enter a satisfactory payment arrangement with the IRS. In addition, certification will be postponed if the individual is serving in a designated combat zone or participating in a contingency operation.
The IRS is required to notify the taxpayer in writing at the time the IRS certifies the seriously delinquent debt to the US State Department. The IRS is also required to notify the taxpayer in writing when it reverses the certification. The IRS will reverse the certification when the tax debt is fully paid or becomes legally unenforceable, the tax debt no longer meets the definition of being seriously delinquent, or it is determined that the certification was erroneous. The IRS will make the reversal within 30 days and provide notification to the State Department as soon as possible.
The IRS began notifying the State Department of seriously delinquent tax debts in February 2018. While this likely does not affect a significant percentage of U.S. citizens, the practice is not well-known, and taxpayers should be aware in order to avoid any potential problem.