Originally published by Jack Townsend.
A new article has good information on the state of § 7345, here, dealing with potential State Department denial, revocation or limitation of use of the U.S. passport. Jim Buttonow, Ten things you need to know about passport restrictions on delinquent taxpayers (TaxProToday 1/31/17), here. I previously wrote on the subject, New Transportation Bill, FAST, Adds Some Tax Provisions (Federal Tax Crimes Blog 12/7/15; 2/27/16), here, but I strongly recommend the TaxProToday article.
I offer some excerpts for new information since my blog, but encourage readers to read the entire article:
4. What will happen to the person who owes seriously delinquent tax debt?
Starting in late March, the IRS will send Letter 508C, Notice of certification of your seriously delinquent federal tax debt to the State Department, to the taxpayer’s last-known address to notify the taxpayer that they are certified as owing seriously delinquent tax debt. At that time, the IRS will also send the certification to the State Department.
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6. Can taxpayers just pay the balance to under $50,000 to remove the certification and passport restrictions?
The short answer from the IRS is no. Just reducing the amount under $50,000 will not decertify the taxpayer. The key is to get into good standing – that is, individuals certified as having seriously delinquent tax debt must either pay the entire balance or set up a payment agreement with the IRS.
Two quick collection alternatives come to mind. First, the quickest way to remove passport restrictions could be paying the balance to under $50,000 and setting up a streamlined installment agreement for the rest (payment terms up to 72 months).
Second, taxpayers who owe between $50,000 and $100,000 can use the new IRS expedited installment agreement process to quickly get in good standing with the IRS. Taxpayers who owe more than $100,000 can pay the balance down to under that amount to get into this special 84-month payment plan. Otherwise, taxpayers who owe more than $100,000 or need terms longer than 84 months must file detailed collection information statements (Form 433 series) with the IRS and wait for the IRS to approve their installment agreement. This process can take months, which will also mean extended passport restrictions until the IRS approves the agreement and decertifies the taxpayer.
7. Can taxpayers appeal their seriously delinquent tax debt certification?
Under Section 7345(e), taxpayers can appeal their status in federal district court or U.S. Tax Court. But the taxpayers’ passports will remain restricted while they appeal.
Expect further legislative and administrative remedies to allow taxpayers to contest their status at the same time they learn about passport restrictions. One reason we should see these additional remedies is the uncertainty of international mail. Many taxpayers may not be receiving IRS letters about their unpaid taxes. In fact, they may first find out about their passport restrictions when they try to travel to another country or return to the United States. A 2015 Treasury Inspector General for Tax Administration study reported that the IRS had no idea whether U.S. taxpayers living abroad had received the 855,000 notices it sent.
For taxpayers who are surprised by their passport restrictions when they try to travel, the best way to expedite travel is to obtain a quick installment agreement.
Here, taxpayers are in a pickle, because time is of the essence. For example, if the IRS assessed tax on an unfiled return (that is, the IRS filed a return for the taxpayer, called a substitute for return), or through a completed audit or underreporter inquiry, there’s not much the taxpayer can do to quickly contest the tax assessment and remove the seriously delinquent tax debt certification. Filing an original return or contesting the tax through IRS administrative options or courts may take a long time.
To get immediate relief, the only quick option is for taxpayers to pay the balance, or more likely, set up an installment agreement, and contest the tax later with the IRS.
Again, recent IRS changes to installment agreements for people who owe between $50,000 and $100,000 may also help. These rules streamline the process to set up an installment agreement and would help cut down on the wait time to get passport restrictions lifted.
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Next steps for taxpayers affected by passport restrictions
Owing taxes without being in an arrangement with the IRS to pay them has bad consequences for any taxpayer. That’s why all taxpayers, regardless of passport restrictions, should arrange to pay their unpaid balances.
Starting in March, taxpayers who think that they may be subject to passport restrictions because of tax debt can call the National Passport Information Center at (877) 487-2778.
And taxpayers who want to avoid or remove passport restrictions should contact a tax professional or call the IRS to set up an agreement on their balances right away: (855) 519-4965 for domestic calls, (267) 941-1004 for international calls.
Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.
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