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U.S. Passports in Jeopardy for Taxpayers Owing the IRS

December 9, 2015

On December 4, the United States dramatically increased the consequences of tax non-compliance when President Obama signed into law the Fixing America's Surface Transportation Act (the "FAST Act").  The statute includes a provision placing at risk the holding of a U.S. passport for any American taxpayer with serious debts to the Internal Revenue Service ("IRS").  More broadly, it provides the IRS with yet another weapon in the Service's continuing push to root out and punish tax-noncompliance among taxpayers who have international tax problems or live overseas.

Under newly enacted section 7345 of the Internal Revenue Code, if the State Department receives a certification from the IRS that a person has a "seriously delinquent tax debt," the Secretary of State may deny, revoke, or place a limitation on the person's passport.  A person has a "seriously delinquent tax debt" if the IRS has assessed a tax liability exceeding $50,000 (adjusted each year for inflation) against the person and either filed a notice of federal tax lien or made a levy with respect to the assessed liability.  The new law requires contemporaneous notification to the individual whenever the IRS sends such a certification to the State Department.

The statute provides a safe harbor for taxpayers who are paying their tax liabilities in a timely manner under an installment agreement or offer-in-compromise, or who are undertaking certain permitted challenges to the IRS, causing the Service to suspend temporarily its collection action.  Individuals serving in a combat zone or contingency operation, as defined in section 7508 of the Code, are also exempt from certification.  The statute also allows for removal of a valid certification where, in general, the tax debt is subsequently paid, has become legally unenforceable, or has been reduced to an installment agreement or offer in compromise, or where the affected individual seeks innocent spouse or related relief under section 6015 of the Code.  Taxpayers may also challenge a certification in court.

U.S. taxpayers who owe taxes, interest and/or penalties to the IRS now face a serious risk that their passports may be revoked or severely restricted.  Such taxpayers should be sure to exercise their lawful rights in the IRS audit and collection processes, as the issues of taxpayer liability or ability to pay cannot be argued or litigated in the context of an IRS certification to the Department of State.  And while the statute obviously reaches those taxpayers who now owe more than $50,000 assessed after audits, it also portends serious problems for taxpayers living abroad, or with unreported foreign assets, if the IRS later ascertains that they are non-compliant and assesses liabilities.  Many individuals with such international issues have taken the view that the IRS cannot reach them, or their assets, because they live outside the U.S.  To the extent taxpayers now ignore IRS audit and collection activity, they run the risk of having their passports revoked.

Caplin & Drysdale attorneys are experienced in assisting individuals who owe substantial sums to the IRS and who run the risk of detection, examination, and collection action arising from any form of tax-noncompliance, including that involving unreported foreign assets.  For further information, please contact any of the attorneys below:

Mark D. Allison  
mallison@capdale.com

212.379.6060

     

Niles A. Elber
nelber@capdale.com
202.862.7827

    

Dianne C. Mehany
dmehany@capdale.com
202.862.5068

Charles M. Ruchelman
cruchelman@capdale.com

202.862.7834

  

     

   

Victor A. Jaramillo
vjaramillo@capdale.com

202.862.8851

 

      

Zhanna  A. Ziering
zziering@capdale.com

212.379.6075

________________________________________________

 

About Caplin & Drysdale
Having celebrated our 50th Anniversary in 2014, Caplin & Drysdale continues to be a leading provider of tax, tax controversy, and litigation legal services to corporations, individuals, and nonprofits throughout the United States and around the world. We are also privileged to serve as legal advisors to accounting firms, financial institutions, law firms, and other professional services organizations.

The firm's reputation over the years has earned us the trust and respect of clients, industry peers, and government agencies. Moreover, clients rely on our broad knowledge of the law and our keen insights into their business concerns and personal interests. Our lawyers' strong tactical and problem-solving skills - combined with substantial experience handling a variety of complex, high stakes, matters in a boutique environment - make us one the nation's most distinctive law firms.

With offices in New York City and Washington, D.C., Caplin & Drysdale's core practice areas include:


-
Bankruptcy
- Complex Litigation
Corporate Law
-
Corporate, Business & Transactional Tax
-
Creditors' Rights
- Employee Benefits
- Exempt Organizations

- International Tax
- Political Law
- Private Client
- Tax Controversies
- Tax Litigation
- White Collar Defense

For more information, please visit us at www.caplindrysdale.com.

Washington, DC Office: 
One Thomas Circle, NW
Suite 1100
Washington, DC 20005
202.862.5000

       

New York, NY Office:
600 Lexington Avenue
21
st Floor 
New York, NY, 10022
212.379.6000

 ___________________________

Disclaimer
This communication does not provide legal advice, nor does it create an attorney-client relationship with you or any other reader. If you require legal guidance in any specific situation, you should engage a qualified lawyer for that purpose. Prior results do not guarantee a similar outcome.

Attorney Advertising
It is possible that under the laws, rules, or regulations of certain jurisdictions, this may be construed as an advertisement or solicitation.

© 2015 Caplin & Drysdale, Chartered
All Rights Reserved.


________________________________________________

About Caplin & Drysdale
Having celebrated our 50th Anniversary in 2014, Caplin & Drysdale continues to be a leading provider of tax, tax controversy, and litigation legal services to corporations, individuals, and nonprofits throughout the United States and around the world. We are also privileged to serve as legal advisors to accounting firms, financial institutions, law firms, and other professional services organizations.

The firm's reputation over the years has earned us the trust and respect of clients, industry peers, and government agencies. Moreover, clients rely on our broad knowledge of the law and our keen insights into their business concerns and personal interests. Our lawyers' strong tactical and problem-solving skills - combined with substantial experience handling a variety of complex, high stakes, matters in a boutique environment - make us one the nation's most distinctive law firms.

With offices in New York City and Washington, D.C., Caplin & Drysdale's core practice areas include:

-Bankruptcy
-Business, Investment & Transactional Tax
-Complex Litigation
-Corporate Law
-Employee Benefits
-Exempt Organizations
-International Tax
-Political Law
-Private Client
-Tax Controversies
-Tax Litigation
-White Collar Defense

For more information, please visit us at www.caplindrysdale.com.

Washington, DC Office:
One Thomas Circle, NW
Suite 1100
Washington, DC 20005
202.862.5000
        New York, NY Office:
600 Lexington Avenue
21st Floor 
New York, NY 10022
212.379.6000

___________________________

Disclaimer
This communication does not provide legal advice, nor does it create an attorney-client relationship with you or any other reader. If you require legal guidance in any specific situation, you should engage a qualified lawyer for that purpose. Prior results do not guarantee a similar outcome.

Attorney Advertising
It is possible that under the laws, rules, or regulations of certain jurisdictions, this may be construed as an advertisement or solicitation.

© 2017 Caplin & Drysdale, Chartered
All Rights Reserved.