The Fixing America’s Surface Transportation (FAST) Act signed by President Barack Obama on December 4, 2015, includes a provision regarding a United States Passport and delinquent tax debt. This provision requires the Internal Revenue Service (IRS) to collaborate with the State Department. As a result, the IRS may deny or revoke the passport of any US taxpayer with seriously delinquent tax debt.

What is the issue?

The IRS has issued Notice 2018-1 “Revocation, Limitation, or Denial of Passport in Case of Certain Tax Delinquencies” to provide clarification on the issue.

  1. Section 32101(a) of the FAST Act adds new Code Section 7345. This requires the Treasury Department to notify the State Department if a certification is made that an individual has a “seriously delinquent tax debt.”
  2. Code Section 7345(a) provides that if the Treasury Department receives certification by the IRS Commissioner that an individual has a seriously delinquent tax debt, they must send this certification to the State Department for action and may include denial, revocation, or limitation of the taxpayer’s passport.
  3. Under Code Section 7345(b)(1), a “seriously delinquent tax debt” is an unpaid, legally enforceable, and assessed federal tax liability of an individual. The amount must be greater than $50,000, and for which:
    • A notice of federal tax lien is on file under section 6323, and
    • The taxpayer’s right to a hearing under section 6320 exhausts or lapses; or
    • A levy issues under section 6331.

Additionally, Code Section 7345(f) requires the $50,000 amount to adjust for inflation each calendar year beginning after 2016.

What is the need for Code Section 7345?

The basic concept of Code Section 7345 is to increase revenues. Prior to Code Section 7345, a taxpayer who was seriously delinquent on their tax debts faced limited consequences. Often residing outside of the country, such taxpayers had little incentive to pay their tax obligations in a timely manner.

Who does Code Section 7345 affect?

Code Section 7345 affects taxpayers who have seriously delinquent tax debt with no arrangements to settle. An important point to note is that this tax debt does include penalties and interest. A somewhat manageable $20,000 tax debt can quickly grow to over $50,000 when the amount includes penalties and interest. This in turn will trigger the possible passport denial or revocation. As a result, approximately 362,000 Americans could be at risk of losing their passport. Importantly, taxpayers who are in bankruptcy, subject to tax-related identity theft, or are working with the IRS to create a payment plan will not face passport denials or revocations.

What should employers expect?

Employers should expect that their United States citizen employees on assignment outside of the United States either permanently or on temporary basis are subject to Code Section 7345’s requirements. Employees denied a passport renewal or who have their passport revoked will not be able to move between countries.

What should employers do?

Employers who have US citizen employees on permanent or temporary assignment outside of the country should communicate Code Section 7345’s requirements to these employees. The IRS has remedies in place for taxpayers with seriously delinquent debt to prevent the loss of a passport. However, those employees must take action or face the denial of a passport renewal, or revocation of their current passport.

Conclusion

Global Mobility Solutions’ team of global relocation experts has helped thousands of our clients with their country-specific employment, visa, and residency requirements. As a result, we can help your company understand how to respond effectively to Code Section 7345’s requirements. Learn how to respond to IRS and State Department passport enforcement issues that may impact US citizen employees on permanent or temporary assignment. Global Mobility Solutions’ relocation industry and technology experts are dedicated to keeping you informed and connected. Contact our experts online or give us a call at 800.617.1904 or 480.922.0700 today.

Customers choose Global Mobility Solutions’ business model because it is rooted in providing our clients and their transferees the freedom of choice. This means our clients are given the choice to work with “the best of the best” service providers in any market around the globe. GMS is able to offer this unique model in the industry because unlike most relocation companies, we are not owned by or affiliated with any one real estate, household goods, or any 3rd party service provider. GMS has been able to build strong relationships with top providers all over the world who act as an extension of GMS. Our worldwide network of partners allow us flexibility while providing our clients with a real-time, on-the ground consultant to assist with the day to day needs of the individual and family moving.

Related Posts

Looking for something?