Cases are beginning to be filed challenging U.S. IRS certifications of delinquent tax debt to the U.S. State Department that could lead to passport revocation or denial.
According to the IRS, some 20 cases are now before the U.S. Tax Court, and one in a U.S. District Court, raising a variety of issues.
Included in the 2015 highway bill, signed into law by the President on 4 December 2015, is a revenue-raising provision that requires the IRS to work with the State Department to revoke or deny the passport of any taxpayer with “seriously delinquent tax debt.”
A seriously delinquent tax debt is defined as a tax liability that has been assessed (as opposed to merely asserted) of an amount greater than $50,000, and for which the taxpayer has exhausted all administrative appeal rights. That amount includes penalties and interest in addition to the taxes. The statutory $50,000 amount is adjusted annually for inflation, and is $51,000 in 2018.
IRS and the State Department began implementing the law 1 January 2018. Notice 2018-1 provides detailed information about the provision and its implementation. Under the law, when the IRS certifies that there is a seriously delinquent tax debt exceeding $51,000, the Treasury Department will transmit that certification to the State Department. The taxpayer will also be notified. Generally, when notified of a qualifying delinquent debt the State Department will give the taxpayer 90 days to resolve the issue, generally by arranging for payment of the debt.
Although as noted there are a number of cases pending challenging the IRS certification, it is doubtful taxpayers will prevail. Judicial review of passport revocation certifications is limited and does not include challenges to the underlying tax liability. Judicial review is confined to the administrative record, and to determining whether the certification, or failure to reverse it, was arbitrary or capricious.
According to the IRS, most cases certified to the State Department are still pending, although the agency has denied more than 1,300 passport requests. It is unclear whether the State Department has moved to revoke existing passports, but there are anecdotal reports of revocations when a taxpayer visited a consulate office for services.
Related: U.S. Passport Revocation Could Affect 360,000+ Taxpayers Worldwide
Companies with employees who are assigned overseas, or who work temporarily in other countries, will need to make sure that such employees do not have tax debt sufficient to run afoul of the passport revocation provision. If such an employee has a passport revoked, movement between countries will become impossible and business disruption will occur.
Stay tuned for the upcoming Government Affairs Update webinar, which will cover the impact of the 2018 midterms on the mobility industry plus tax and immigration policy, Brexit, and much more. Register today – the webinar is free to attend.