New IRC §7345 completely modifies how US citizens living and traveling around the world have to now consider very seriously actions taken by the Internal Revenue Service. It is the IRS, which now holds the power under this new law that requires the US Department of State to revoke or deny to issue a US passport in the first place. US State Department is in charge of the actual suspensions.
- In other words, the US State Department can revoke, deny or limit passports for anyone the IRS certifies as having a "seriously delinquent tax debt."
- The two new IRS provisions:
- Passport Provision
- Taxpayers with delinquent taxes in excess of $50,000 are potentially subject to having their passports revoked and/or denied unless they get into an agreement to pay the debt. There are many questions about the “due process” that the IRS will use to enforce this provision.
- As an administrative exception, the State Department can issue a passport in an emergency or for humanitarian reasons, granting special dispensation.
- You are still able to travel if your tax debt is being paid in a timely manner, e.g. under a signed Installment Agreement. The rules are not limited to criminal tax cases or where the government thinks you are fleeing a tax debt.
- In fact, you could have your passport revoked merely because you owe more than $50,000 and the IRS has filed a notice of lien. A $50,000 tax debt including interest and penalties is common, and the IRS files tax liens routinely. It’s the IRS way of putting creditors on notice.
- The IRS can file a Notice of Federal Tax Lien after the IRS assesses the liability, sends a Notice and Demand for Payment, and taxpayer fails to pay-in-full within 10 days.
- Collection Agency Provision.
- IRS may soon contract with private collection agencies in pursuit of taxpayer delinquent taxes. A monument concern with the IRS proceeding with private collection agencies, is to ensure taxpayers' collection due process rights, and taxpayers' rights to an “affordable” resolution as currently stated in the IRM are observed. An equal concern is the degree to which private collection agents are trained to help the taxpayer arrive at a suitable resolution based on the current IRM, and the many potential failures that could occur as the result of overly aggressive collection activity.
New IRC §7345(e) provides in relevant part as follows: “upon receiving a certification described in section 7345 of the Internal Revenue Code of 1986 from the Secretary of the Treasury, the Secretary of State shall not issue a passport to any individual who has a seriously delinquent tax debt described in such section. . . ” [emphasis added].
- IRC §7345 that provides for a new collection technique—the revocation or denial of a passport to individuals who have past due taxes under certain conditions.
- The denial or revocation takes place if the IRS sends certification to the State Department that an individual has a “seriously delinquent tax debt.”
- A “seriously delinquent tax debt” exists when there is an unpaid, legally enforceable Federal tax liability of an individual:
- Which has been assessed;
- Which is greater than $50,000 (which will be adjusted for inflation in future years); and
- A notice of lien has been issued and the administrative rights under IRC §6320 have lapsed or
- A levy has been made [IRC §7345(b)(1)]
- However it does not include:
- A debt being paid in a timely manner under an installment agreement or offer in compromise;
- A debt for which collection has been suspended
- Because a due process hearing under IRC §6330 is requested or pending or
- Innocent spouse relief has been requested under IRC §6015(b), (c), or (f) [IRC §7345(b)(2)]
- An affected individual will have a right to challenge either an IRS certification or failure to reverse a certification in either US District Court or the United States Tax Court. [IRC §7345(e)]
(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.
Checkpoint summary of all three relevant provisions.
- Under pre-Act law, Chapter 75 of the Code, “Crimes, Other Offenses, and Forfeitures,” makes no provision for denying or revoking passports on the basis of unpaid taxes.
- New law. The FAST Act adds a new Code section, IRC §7345, to Chapter 75 of the Code. (Act Sec. 32101) Under IRC §7345, having a “seriously delinquent tax debt” is, unless an exception applies, grounds for denial, revocation, or limitation of a passport, effective January 01, 2016.
- RIA observation: Passports are handled by the State Department, not IRS. This new provision effectively authorizes disclosure of certain tax information from IRS to the State Department, which in turn will use this information in making passport-related determinations.
- Except as provided in the next sentence, a seriously delinquent tax debt is an assessed tax debt that exceeds $50,000 and for which a notice of lien has been filed under IRC §6323. A seriously delinquent tax debt does not include a debt for which: there is an agreement in place to repay the debt under IRC §6159 or IRC §7122; or collection is suspended because of a collection due process hearing under IRC §6330 or because innocent spouse relief under IRC §6015(b), IRC §6015(c), or IRC §6015(f) is requested or pending.
- The $50,000 amount will be adjusted for inflation for calendar years beginning after 2016.
- The Act provides procedures for, and restrictions on, IRS's disclosure of the return information for purposes of passport revocation, as well as procedures for how an individual who was certified by IRS as having a seriously delinquent tax debt gets that certification reversed (i.e., in the case of an error).
- Under pre-Act law, IRS is authorized under IRC §6306 to enter into “qualified tax collection contracts” with private debt collection agencies. This provision permits the use of such companies to locate and contact taxpayers owing outstanding tax liabilities and arrange for payment thereof. There must be an assessment pursuant to IRC §6201 in order for there to be an outstanding tax liability. An assessment is the formal recording of the taxpayer's tax liability that fixes the amount payable. An assessment must be made before the IRS is permitted to commence enforcement actions to collect the amount payable. In general, an assessment is made at the conclusion of all examination and appeals processes within the IRS.
- There are several steps involved in engaging private debt collection companies, and there are a number of safeguards and taxpayer protections in place.
- The Omnibus Appropriations Act of 2009, however, included a provision stating that none of the funds made available under it could be used to fund or administer IRC §6306 private tax debt collection activities, and IRS announced in IR 2009-19 that it wouldn't renew its contracts with two private debt collection agencies, having “determined that the work is best done by IRS employees who have more flexibility handling cases, which is particularly important with many taxpayers currently facing economic hardship.”
- RIA observation: The National Taxpayer Advocate has repeatedly criticized prior efforts to use private debt collectors for unpaid taxes, noting that these programs raise significant taxpayer rights concerns and have repeatedly fallen far short of revenue-raising expectations.
- New law. The Act adds two new subsections to IRC §6306 (adding new subsections (c) and (d) after the existing (b), and redesignating prior (c) through (f) as (e) through (h), accordingly), both applicable to tax receivables identified by IRS after the enactment date. (Act Sec. 32102)
- New IRC §6306(c) says that IRS shall enter into one or more qualified tax collection contracts for the collection of all outstanding “inactive tax receivables.” An inactive tax receivable is any outstanding assessment that IRS includes in potentially collectible inventory, if:
- (i) at any time after assessment, IRS removes the receivable from active inventory for lack of resources or inability to locate the taxpayer;
- (ii) more than ⅓ of the period of the applicable statute of limitation has lapsed and the receivable hasn't been assigned for collection to any IRS employee; or
- (iii) for a receivable that has been assigned for collection, over 365 days have passed without interaction with the taxpayer or a third party for purposes of furthering its collection.
- RIA observation: The use of the word “shall,” typically construed as mandating a certain action, is a significant departure from the present law version of IRC §6306(a), which permits, but doesn't require, IRS action.
- New IRC §6306(d) renders certain tax receivables ineligible for collection by private collectors, including those that, among other things, are subject to a pending or active offer-in-compromise or installment agreement, are classified as an innocent spouse case, or involve taxpayers that are deceased, under age 18, or identity theft victims.
- The Act adds IRC §6103(k)(11) to provide procedures and restrictions on the disclosure of return information to qualified tax collection contractors.
- New law. New IRC §6307 provides that IRS should establish an account for carrying out a program consisting of the hiring, training, and employment of special compliance personnel. Special compliance personnel are individuals employed by IRS as field collection officers or in a similar position, or employed to collect taxes using the automated collection system or an equivalent replacement system. (Act Sec. 32103)
2. Internal Revenue Code