As Expats Coninue Multiflying, U.S. Government Withdrawls One Potentional Passport Problem

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The American government has given a small win to taxpayers over the matter of seizing American passports because of large unpaid past tax debt.

The U.S. government has withdrawn a notice of proposed rulemaking “that has been determined to be unnecessary” and that proposed to authorize the U.S. Department of State (aka, the U.S. State Department) to disclose returns and return information to its contractors who help revoking or denying a passport of any individual certified to have a seriously delinquent tax debt.

The reason, authorities said, was that the American Internal Revenue Service (IRS) can already instruct the U.S. Department of State to revoke an American passport if the holder has unpaid back taxes (including penalties and interest) of more than $64,000. (The IRS must have tried all other remedies to collect the  debt first.)

Easing off on the proposal comes just as more Americans than ever consider emigration from a troubled U.S.

Background

Sec. 7345 of the U.S. Internal Revenue Code requires the IRS to notify the State Department about any tax debt of an individual that the IRS certifies as seriously delinquent. Section 32101(e) of the FAST Act (Fixing America’s Surface Transportation Act, passed in 2015 that provides long-term funding for highway, public transit and rail programs in the U.S.) gives the State Department power to deny such individual a passport (or the renewal of a passport) if the IRS notifies the State Department that the individual has been certified as having a seriously delinquent tax debt. Sec. 32101(e) also permits the State Department to revoke a passport previously issued to such person.

Under Sec. 6103(a) of the IRC can also render public returns and return information.

A proposal eight years ago would have added the State Department to the list of agencies that could have similarly disclosed returns and return information, but the permission was recently determined to be redundant.

Seizing of passports but some breaks

The IRS doesn’t revoke passports lightly nor without what even the harshest critics of the agency must admit is fair due process.

Before trying to revoke your passport, the IRS sends you Notice CP508C when it certifies you to the United States State Department. The IRS will send the notice by regular mail to your last known address.

Before denying a passport, the State Department holds your application for 90 days to allow you to resolve incorrect certification issues or to make full payment or arrange a payment plan or Offer in Compromise with the IRS. The authorities may also ask the State Department to revoke your passport if you promise to pay then fail to, or if you could use offshore activities or interests to resolve your debt but choose not to. Before doing so, the IRS will send you Letter 6152 asking you to call the IRS within 30 days to resolve your account.

The IRS will send you Notice CP508R when it reverses certification. This can occur when you pay off your tax debt or it becomes legally unenforceable, it’s no longer seriously delinquent or the certification is determined erroneous. The IRS will make this reversal within 30 days and notify the State Department.

The State Department may deny your passport application or revoke your current passport. If you’re overseas, the State Department may issue you a limited validity passport good only for direct return to the United States.

Some tax debt is excluded from seriously delinquent tax debt – significantly for many U.S. and residents with many overseas ties, the Report of Foreign Bank and Financial Account (FBAR) penalty. Also not included are debts for which a collection due process hearing is timely requested regarding a levy to collect; and debt for which collection has been suspended because a request for innocent spouse relief has been made.

Also, the IRS will not certify anyone as owing a seriously delinquent tax debt who’s in bankruptcy; who’s identified by the IRS as a victim of tax-related ID theft; whose account the IRS has determined is not collectible due to hardship; or who’s within a federally declared disaster area. The onus is on you the taxpayer, however, to prove these events happened.

Emigration up

Passport regulations are becoming increasingly important as more Americans look to not only long-term vacation overseas but live there as well, reports show.

Latin America and Asia are becoming a major destination for U.S. citizens, especially those seeking second passports. Costa Rica is reportedly becoming a particular hotspot, with Uruguay, Panama and Argentina becoming incensing popular. Latin America and Asia offer faster and more affordable programs, analysts said, with minimal presence requirements.

Your tax specialist needs to stay on top of this and many other issues of wealth, foreign income and tax enforcement. If we can help, please let us know.

About the Author 

Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high-net-worth families and their advisors.

Alicea has more than 20 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm.

Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection.

Alicea also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S.

Alicea is fluent in Spanish and has a working knowledge of Portuguese.

Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York State Society of Certified Public Accountants (NYSSCPAs), the American Institute of Certified Public Accountants (AICPA), the International Fiscal Association (IFA), a member of Clarkson Hyde Global, a world-wide association of accountants, auditors, tax specialists and business advisors and the Global Referral Network (GRN).

Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA Forty Under 40 Award. She was selected as someone that has notable skills and is visibly making a difference in the accounting profession.

In 2021 and 2022, Alicea was the Gold and Silver Winner, respectively, of Citywealth’s Powerwomen Awards in the category USA – Woman of the Year – Business Growth (Boutique). In 2023, she continued her winning streak by receiving the Gold award for Company of the Year Female Leadership (Boutique) and the Silver award for Accountancy Firm of the Year at the Magic Circle Awards. Furthermore, Alicea has consistently secured her position in the Global Elite Directory for four consecutive years, being recognized as a Private Client Global Elite Advisor and is currently listed for 2024 as a Non-Legal Adviser. This exclusive directory annually highlights the world’s elite lawyers and outstanding wealth advisors serving ultra-high net-worth clients.

Please note: This content is intended for informational purposes only and is not a replacement for professional accounting or tax preparatory services. Consult your own accounting, tax, and legal professionals for advice related to your individual situation. Any copy or reproduction of our presentation is expressly prohibited. Any names or situations have been made up for illustrative purposes — any similarities found in real life are purely coincidental.