Revocation or Denial of US Passport: §7345 US Citizens with Seriously Delinquent Tax Debt

Revocation or Denial of US Passport: §7345) - US Citizens with “Seriously Delinquent Tax Debt"

New §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."

§7345 is part of HR 22 – Fixing America’s Surface Transportation Act, the “FAST Act.”

• 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.

Passport Section Code Provisions:

• New §7345(e) provides in relevant part as follows: “upon receiving a certification described in §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].
• §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
• Either:
• A notice of lien has been issued and the administrative rights under §6320 have lapsed or
• A levy has been made §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 §6330 is requested or pending or
• Innocent spouse relief has been requested under §6015(b), (c), or (f) §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. §7345(e)
• §7345. Revocation or denial of passport in case of certain tax delinquencies.
• (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.

Revocation or denial of passports to certain delinquent taxpayers:

• 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,§7345, to Chapter 75 of the Code. (Act Sec. 32101) Under §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 §6323. A seriously delinquent tax debt does not include a debt for which: there is an agreement in place to repay the debt under §6159 or §7122; or collection is suspended because of a collection due process hearing under §6330 or because innocent spouse relief under §6015(b),§6015(c), or §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).

New rules mandating IRS use of private debt collectors:

• Under pre-Act law, IRS is authorized under §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 §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 §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 §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 §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 §6306(a), which permits, but doesn't require, IRS action.
• New §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 §6103(k)(11) to provide procedures and restrictions on the disclosure of return information to qualified tax collection contractors.

Establishment of special compliance personnel program:

• New law. New §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)

References:

1. Jonathan Bochese, Director of Resolution Services, Tax Defense Network
2. Internal Revenue Code

IRS Audit Rate on the Rich Collapses

IRS Audit Rate on the Rich Collapses
Source: Forbes
Ashlea Ebeling Forbes Staff

The Internal Revenue Service (IRS) audited only 0.59% of individual income tax returns last year, (nearly half of the annual norm), the lowest audit rate since 2002. A closer look shows it’s the highest earners whose audit rate has dropped the most? IRS 2018 Data Book

For the highest-income taxpayers—returns showing AGI of $10 million or more--the audit rate dropped from 14.52% in 2017 to just 6.66% in the 2018 report.

For households with AGI between $5 million to $10 million, the audit rate dropped from 7.95% to 4.21%.

For households with AGI between $1 million to $5 million, the audit rate dropped from 3.52% to 2.21%.

For households with AGI between $500,000 to $1 million, the audit rate dropped from 1.56% to 1.1%.

For households with AGI between $200,000 to $500,000, the audit rate dropped from 0.70% to 0.53%.

By comparison, for households with AGI under $200,000, the audit rate dropped slightly, stayed the same, or climbed (from 0.48% to 0.54% for $50,000 to $75,000 AGI households).

The report covers data from returns filed in the calendar year 2017 and audits in the fiscal year 2018. The nearly 1 million audits the IRS completed included more than 892,000 individual income tax returns.

Where Tax Dollars Went in 2015

IRS Withholding Lock-In Letters

 IRS Withholding Lock-In Letters

• Issue of IRS Withholding Lock-In Letters. Often a client’s employer will receive these letters from IRS, and the client almost immediately has their withholding “locked-in” at Single 0, even though the client may have a legitimate reason to be Married 4. 
• There seems to be some confusion regarding whether “Lock-in Letter” W-4 adjustments can be changed after the 30 day deadline in the letter. The IRS department that handles lock-in letters states, 
• when an employer receives a "Lock-in Letter" from the IRS, the employee has 30 days to disagree with the letter based on legitimate exemptions. 
• If the employee does nothing, the lock-in letter goes through and the W-4 is changed to single zero. Even after the 30 days, and the W-4 has changed to single zero, the W-4 can still be adjusted back to proper withholding's. 
• The IRS will allow the taxpayer to claim the number of exemptions based on the most recently filed return. 
• Many times, the IRS allowable exemption amount is above and beyond what the client SHOULD be withholding. 
• You will need to call to have a "Lock-in Letter" adjusted.
• How to get help
• Call toll free 1-855-839-2235 weekdays between 8:00 am and 8:00 pm
• Send a fax to 1-855-202-8300
• Write to:

US Treasury Dept
Internal Revenue Service

Compliance Services

Withholding Compliance Unit

PO Box 9047, Stop 837
Andover, MA 01810-9047

Source: Eric Roffer, Esq. Tax Defense Network/Karle Simmons

Tax Penalty Abatement Letter Request & Form 843

Tax Penalty Abatement Letter Request & Form 843
Below is a sample penalty abatement letter request to the IRS. It is intended to be used as a guide and is for information purposes only when trying to abate tax penalties.

Date:  September 20, 20xx

To:  IRS (Penalty Abatement)
(address given on notice of tax amount due)

From:  Jane Doe
123 Any Street
Any City, State 99999
SSN: (***-**-****)

Re: Request for Penalty Abatement

Dear Sir:

I am writing to request an abatement of penalty in the amount of $(amount) as assessed in the attached notice that is dated ____/____/____.

The reason why I _________(pick one)

• Paid late 
• Filed late 
• Failed to report income 

was because I ____________ (pick one) 

• Had a serious medical condition 
• House burned down 
• Documents were stolen 
• Death of a close family member 
• ...or any other reason that prevented you from complying with the IRS requirements 

Please find the enclosed (documents that support my claim) 

• Death notice of a family member 
• Letter from a doctor stating the conditions of your illness that prevented you from filing or paying 
• Picture of house burned down in fire 
• Insurance notice of theft of private property and documents 
• ...or any proof you can enclose (a copy of) to prove statement above 

Please consider my request for abatement of penalty based upon reasonable cause. If there are any questions or further information required, I can be reached at (telephone number) from 9am to 6pm. I have enclosed a payment in the amount of taxes owed, net of the penalty portion.

Sincerely,
/s/ Jane Doe

Editorial Note:

• If you have the funds to pay, you should pay the tax owed. 
• If you do not have the funds, you can apply for an Installment Agreement to pay back taxes owed over time or file an Offer-in-Compromise based upon reasonable collection potential (RCP).
• When enclosing your documents, be sure to keep copies for yourself.
• Review the penalty to determine:
• how and why it was assessed (late-file, late-pay and/or underreporting penalties), 
• what happened to create a situation for the taxpayer (TP) where a penalty was assessed (why the TP didn’t file or pay), and 
• whether the penalty abatement program would benefit the TP, and
• should TP apply for penalty abatement?
• For example, a TP who is Currently-Not-Collectible (CNC) would not benefit from penalty abatement; although, a first time abatement may be beneficial for someone who qualifies for CNC and has maxed out the 25% failure to pay penalty on their oldest tax year. 
• Abatements can be requested and authorized over the phone with ACS.
• More difficult to obtain are Reasonable Cause abatements. These abatements generally must be submitted on Form 843 and have well established reasonable cause criteria that must be met to qualify. File for these abatements at the end once a collection status has been resolved for the client.
• It will take a few months to get a response from the IRS, and whether the abatement is possible.  
• Reason for an abatement request cannot be illegal or a ‘protester’ argument. 
• When filing Form 843, know the IRS is the determining party. The TP will receive notice of acceptance or denial within three to six months. Any denial has appeal rights, so if the TP disagrees, the TP can respond to the IRS denial accordingly.
• IRM §20.1 contains the Penalty Abatement Handbook, which includes the reasonable cause standards.

Enc.

Federal Tax Collection Rules & Procedures :: Internet Resource Links

Federal Tax Collection Rules & Procedures :: Internet Resource Links:
Purpose of this public resource: This site provides an organized assembly of many rules and procedures that govern the collection of unpaid federal tax. Electronic links connect researchers to the full text of many statutes, regulations, Internal Revenue Manuals, US Attorney Manuals, IRS Forms, US Government internet resources, several published cases and other materials. Source: irscollectionlaw.com

Chief Counsel Notices
Chief Counsel Bulletins
CODES - transcript and processing, 2011
FOIA Request Forms, IRS
Innocent Spouse, IRS self-help tool and information
Installments, IRS self-help tool and information
Internal Revenue Code
Internal Revenue Manuals
IRS Forms
IRS Publications
IRS Reading Room (notices, CCA, training material, etc.)
Treas. Regulations
US Attorney Manuals, index
Criminal Tax Manual (DOJ)

IRS' "New & Improved" Taxpayer Bill of Rights

IRS' "New & Improved" Taxpayer Bill of Rights

The ten rights, IRS website, are:

1. The Right to Be Informed: Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.
2. The Right to Quality Service: Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service.
3. The Right to Pay No More than the Correct Amount of Tax: Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.
4. The Right to Challenge the IRS’s Position and Be Heard: Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.
5. The Right to Appeal an IRS Decision in an Independent Forum: Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.
6. The Right to Finality: Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.
7. The Right to Privacy: Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and will provide, where applicable, a collection due process hearing.
8. The Right to Confidentiality: Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.
9. The Right to Retain Representation: Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.
10. The Right to a Fair and Just Tax System: Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.

"The Taxpayer Bill of Rights contains fundamental information to help taxpayers," said IRS Commissioner John A. Koskinen. "These are core concepts about which taxpayers should be aware. Respecting taxpayer rights continues to be a top priority for IRS employees, and the new Taxpayer Bill of Rights summarizes these important protections in a clearer, more understandable format than ever before."