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ResourcesCorporate and Tax AdvisoryUS Tax LawUpdate Regarding US Passport Cancellation for Tax Delinquency

Update Regarding US Passport Cancellation for Tax Delinquency

Transcript of the above video:

In this video today we are going to do a further update with respect to passport revocation for tax delinquency or specifically how tax delinquency could impact an American citizen's passport. This is especially even the case with American citizens abroad, outside the United States.

As has previously been discussed in I think two prior  videos on this channel,  the US Congress, the US Government I should say, created legislation which allowed the, which allowed  for the revocation of US passports under circumstances where the passport holder was delinquent in terms of their US tax obligations. Specifically this delinquency needed to be over 50,000 Thai baht, excuse me not Thai baht, US $50,000, 50,000 or more in delinquency, penalties, fines payable to the Internal Revenue Service. But what I want to specifically talk about in this video is legislation was initially passed early last year, we did a video discussing this and basically said look it’s looking like they're going to start certifying these. They said, or there at least were some indications at the time, that that was going to happen. Up until now January 2018, it apparently did not happen but now they are doing it. So now what has to happen and what needs to occur is Internal Revenue Service, IRS, needs to certify the Department of State that an individual American citizen or lawful permanent resident, although this doesn't really pertain to lawful permanent residents because they can't have a US passport, but basically the IRS can certify to the Department of State that an individual American citizen is in arrears in their obligation to pay US income taxes and once that certification occurs, it is then possible for, or very likely, that the Department of State will go ahead and cancel that individual's passport. How this cancellation will operate as a practical matter remains to be seen. In my experience in the past in dealing with passport revocation in connection with delinquent child support, it usually only occurs when the individual who is delinquent in their support obligations travels to the US Embassy in order to do something like passport renewal or obtain some kind of certified documentation. At that time their passport is seized and they are told by the officer that they need to, they can either be given a travel letter specifically for the purpose of returning to the United States, or they can try to settle the matter with the specific authority concerned, get their situation in order to have their passport reissued. The IRS, or the irs.gov website has recently issued some notices, notice CP-508R, Reversal of Certification, and what they mean by Reversal of Certification is rescinding certification from IRS by Department of State, specifically, this type of certification kicks off the mechanism which causes passport revocation. So how do you  unwind it is basically what this discusses. "The IRS will reverse a certification when the tax debt is fully satisfied or becomes legally unenforceable, the tax debt is no longer seriously delinquent, the certification is erroneous". Well that will sort of speak for themselves. "The IRS will make this reversal within 30 days and provide notification to the state department as soon as practicable".  So this isn't an immediate thing. It's not like you know, you pay off whatever ever was due and owing or you prove it was erroneous or it becomes legally unenforceable. No it's going to take another month for a passport to be issued, at the very least, because that's just the decertification process. A previously certified debt is no longer seriously delinquent when: you and the IRS enter into an installment agreement allowing you to pay the debt over time, the IRS accept an offer in compromise to satisfy the debt, the Justice Department enters into a settlement agreement to satisfy the debt, collection is suspended because you request innocent spouse relief under IRC section 6015, you make a timely request for a collection of due process hearing in connection with a levy to collect the debt. So those are some of the circumstances under which they can decertify this. "And finally" and this is still quoting directly from irs.gov, "the IRS will not reverse certification where a tax payer requests a collections due process hearing or innocent spouse relief on a debt that is not the basis of a certification. Also the IRS will not reverse the certification because the taxpayer pays the debt below $50,000". That is interesting to me because I originally thought when I first heard this, that last part, about the $50,000, when I first heard about this law coming into effect I said “well okay there may be a business situation wearing somebody ended up in a situation where they owed more than 50,000 bucks but let's say they pay 10 of it. They've got 10 cash, they pay it, they get it down to below 50, now please decertify it”. It appears IRS is not going to be doing that so the thing to take away from this video more than anything, other than what I have just gone through specifically, the final thing to take away from this video is be very, very aware of this $50,000 rule. The reason to be aware of it is due to the fact that in the event that this mechanism is triggered, simply paying down below the threshold is not going to be enough. Further steps are going to have to be taken, either satisfying it fully, entering into as they noted, an offer on compromise , somehow figuring out a way to make the claim legally unenforceable or to find that the certification was erroneous, again innocent spouse relief possibly, if there truly is grounds for that.  So the thing to take away from this is triggering this mechanism, it's a tough “bell to un-ring”, in fact I would argue it's impossible to un-ring it. Once that $50,000 is triggered and it’s certified by IRS, it's not going to be possible to just pay a dollar below it and get rid of the certification. No!   You have to take further steps to deal with this and those further steps probably, I would assume, could result in some significant hardship, some substantial effort in resource expense and just in general, not something I would want to go so take care of these issues before that occurs is probably the most prudent course of action.