Page 4 - Passport Revocation and Denial for Seriously Delinquent Tax Debts: New IRS Procedures Signal More Stringent Enforcement

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than calling the IRS at the phone number
in the notice of certification to request Other Frequently Asked Questions
reversal, the only procedure for review of
the IRS’s action is to file a civil action in Will the IRS really send notification to the State Department for all seriously delinquent tax debts, or
court under section 7345(e); the taxpayer will it only focus on the really serious offenders? Time will tell, but the IRS has established internal pro-
cedures to systematically upload information for cases to be certified [IRM para. 5.8.1.8(4)], and certifications
may not challenge the certification through
will be provided systematically to the State Department on a weekly basis (IRM para. 5.1.12.27.6). CPAs
an appeal to the IRS (Notice 2018-01). should advise all individuals with tax debts of over $51,000, or any who are expecting an assessment of
The Tax Court is developing new Rules that amount or more in the future, about the passport denial and revocation procedures so that they have
of Practice and Procedure for certification an opportunity to comply before any action is taken. TAS has estimated that there are 270,000 taxpayers
actions, and the IRS has stated that a tax- who meet the criteria for a seriously delinquent tax debt and do not meet one of the exceptions (2017 Annual
Report to Congress, p. 73).
payer has six years from the issuance of
the certification to bring an action (Chief Can the IRS go back to years that would otherwise be uncollectible because the statute of limitations
Counsel Notice 2018-005). The IRS’s view for collection has expired? No. IRC section 7345 refers to a “legally enforceable” liability. A liability that
the IRS can no longer collect because of the application of IRC section 6502 is not legally enforceable.
is that the court’s review will be confined
to the administrative record and that the After the IRS has issued the certification, can passport revocation or denial be avoided by making
standard of review is whether the IRS’s a payment to reduce the debt to below $51,000? No. For reversal of certification, the debt must be paid
action was “arbitrary, capricious, an abuse in full, not just paid below $51,000 (IRM para. 5.1.12.27.2; “Revocation or Denial of Passport in case of
Certain Unpaid Taxes,” http://bit.ly/2tqvSm4).
of discretion, or otherwise not in accor-
dance with law” [Chief Counsel Notice What does “seriously delinquent tax debt” cover? Does it include FBAR penalties or state and local
2018-005, citing 5 U.S.C. section taxes? The liability must be the federal tax liability of an individual; accordingly, state and local taxes will
706(2)(a)]. There is no administrative not give rise to passport action. In addition, IRS assessments that fall outside of the IRC—such as FBAR
exhaustion requirement, and thus the tax- penalties, which are assessed under Title 31, the Bank Secrecy Act—cannot be the basis for passport action
(Chief Counsel Notice 2018-005).
payer is not required to file an administra-
tive claim or otherwise contact the IRS What about penalties and interest? Are they included in reaching the $51,000 or is that number just
before filing suit in the Tax Court or U.S. the amount of the tax liability itself? The total amount due to the IRS for the federal tax liability of an
District Court. individual, including tax penalties and interest, is included in the $51,000 (Notice 2018-01; “Revocation or
Denial of Passport in case of Certain Unpaid Taxes”).
The IRS’s position is that the taxpayer
cannot challenge the underlying liability; What about trust fund recovery penalties? Yes. Although these penalties may begin as the liability of a
however, the statute itself contains no such business and not an individual, once assessed under IRC section 6672, these liabilities are the debts of the
limitation, and there is no legislative history responsible individual and can be the basis for a seriously delinquent tax debt.
to that effect. IRC section 7345(e)(2) mere-
Will new delinquencies be added to the seriously delinquent tax debt after certification? It depends.
ly states that “the taxpayer may be bring If the taxpayer’s account was previously certified and the taxpayer incurs an additional liability, and the total
a civil action against the United States … liability meets the threshold for certification, the aggregate assessed balance will recalculated to include the
to determine whether the certification was new liability (e.g., IRM para. 5.1.12.27.1). If the total amount is under the threshold, the new amount will
erroneous or whether the Commissioner not be included.
has failed to reverse the certification.” It Does action under IRC section 7345 or the filing of an action for judicial review of the certification
remains to be seen whether the courts will of a seriously delinquent tax debt require the IRS to suspend collection? No. The IRS can, and likely
agree, particularly where only “legally will, continue with enforced collection action against the taxpayer, as IRC section 7345 does not stop collection
[IRM para. 25.3.3.7.5(2)].
enforceable” tax liabilities can be the basis
for certification and significant constitu- How can the IRS share tax information with the State Department without violating the taxpayer
tional rights are implicated. As noted by privacy provisions of IRC section 6103? Other statutes have been amended to facilitate the enforcement
the Taxpayer Advocate, IRC section 7345 of IRC section 7345, including IRC section 6103. IRC section 6103 now permits the IRS to provide information
to the State Department regarding the taxpayer’s identity and the amount of the seriously delinquent tax debt
and the IRS’s enforcement of it could
[IRC section 6103(k)(11)]. Officers and employees of the State Department can only use this information for
unconstitutionally deprive citizens of the purposes of carrying out IRC section 7345, and not for any other purpose.
fundamental right to travel, protected by
the due process clause of the U.S. What happens if an individual’s passport is revoked while traveling? How will she get home? The
Constitution [Memorandum for Taxpayer certification of a seriously delinquent tax debt will not prevent return travel to the United States. The State
Department can issue passports for direct return to the United States for individuals whom the IRS has
Advocate Service Employees, p. 1]. q certified as having a seriously delinquent tax debt [22 U.S.C. section 2714a(e)(2)(B); 22 C.F.R. section
51.60(a)(3)].
Megan L. Brackney, JD, is a partner at
Kostelanetz & Fink LLP, New York, N.Y.

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