August 6th, 2022 – New York, United States
How you can lose a passport due to tax debt
If you owe enough in delinquent American federal taxes, the U.S. government can take your passport.
The Internal Revenue Service certifies “seriously delinquent” tax debt to the U.S. State Department. This is an individual’s unpaid, legally enforceable federal tax debt, including interest and penalties, that totals more than $55,000 (that amount is adjusted yearly for inflation).
The State Department generally will not issue a passport to you after receiving certification from the IRS, denying your passport application or revoking 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.
How you’re informed
The IRS will send you Notice CP508C when it certifies your to the State Department. (The IRS will send the notice by regular mail to your last known address. Your power of attorney will not receive a copy of the notice.)
Before denying a passport, the State Department will hold 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 IRS may also ask the State Department to revoke your passport if you promise to pay then fail to – or if 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 to prevent this action.
If you’re leaving soon for international travel, the IRS will expedite reversal of your certification to the State Department, generally from 30 days to as few as nine. You’ll need to inform the IRS that you have travel scheduled within 45 days or that you live abroad – and you must provide proof of travel showing location and approximate date of travel or time-sensitive need for a passport and a copy of the letter from State denying your passport application or revoking your passport.
You can file suit in the U.S. Tax Court or a U.S. District Court to have the court determine whether the certification is erroneous, or whether the IRS failed to reverse the certification when it was required to do so. If the court sides with you, it can order the IRS to notify the State Department that the certification was incorrect.
The IRS will send you Notice CP508R when it reverses certification. This can occur when you pay off your tax debt or becomes legally unenforceable, it’s no longer seriously delinquent or the certification is determined to be erroneous. The IRS will make this reversal within 30 days and notify the State Department.
The IRS will not reverse certification if your request for a collection due process hearing or innocent spouse relief is on a debt that’s not certified. The agency also won’t reverse the certification because you pay the debt below the threshold.
Can you avoid losing your passport for U.S. tax debt?
Not all debt triggers this problem, though – and in fact, you have several options for avoiding this situation.
The Internal Revenue Service certifies what it calls “seriously delinquent” tax debt to the U.S. State Department. This is an individual’s unpaid, legally enforceable federal tax debt, including interest and penalties, that totals more than $55,000 (that amount is adjusted yearly for inflation). The debt can include U.S. individual income taxes, Trust Fund Recovery Penalties, business taxes for which you’re liable and other civil penalties.
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.
The IRS does not automatically send all debt to the State Department, however.
Some tax debt isn’t even included in seriously delinquent tax debt – significantly, the Report of Foreign Bank and Financial Account (FBAR) penalty.
Also not included:
· Tax debts being paid timely with an IRS-approved installment agreement or with an Offer in Compromise accepted by the IRS or a settlement agreement entered with the U.S. Justice Department;
· debts for which a collection due process hearing is timely requested regarding a levy to collect;
· debt for which collection has been suspended because a request for innocent spouse relief has been made.
· debts of those who have a request pending with the IRS for an installment agreement or with a pending Offer in Compromise or with whom the IRS has accepted an adjustment that will satisfy the debt in full.
There are still other ways out of the passport snare. 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 identity theft; whose account the IRS has determined is not collectible due to hardship; or who’s within a federally declared disaster area.
The IRS will also postpone certification while an individual is serving in a designated combat zone or participating in a contingency operation.
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 17 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 International Advisory Experts (IAE).
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. Alicea has also been recognized as a leading expert for Tax advice and she has been invited to join Advisory Excellence, as their exclusively recommended tax expert in the USA.
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). Furthermore, Alicea is currently listed in the Global Elite Directory 2022, which is an annual exclusive directory of the world’s elite lawyers and outstanding wealth advisors advising 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.