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The IRS, compared to other federal agencies, is unique in its ability to collect debts. The IRS generally does not have to sue a taxpayer before it can collect back taxes. Current law allows the IRS to administratively assess tax debts and then start collecting those debts without the courts’ involvement if the taxpayer does not contest the legitimacy of the assessment.
The administrative collections powers given to the IRS are broad and generally include liens, bank levies and wage garnishments.
Congress recently gave the IRS a new power: the ability to revoke your passport or deny the issuance of a passport. On Dec. 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act. Buried within the act were a couple of tax provisions. One requires the IRS to use private debt collection companies to collect delinquent inactive tax accounts. The the other requires the State Department to revoke a passport, deny a passport application or renewal of a passport for taxpayers who have seriously delinquent tax debt.
Seriously delinquent tax debt is defined as an amount larger than $50,000, including penalties and interest, for all outstanding tax years. The IRS also must have sent many notices and either attempted to levy accounts or filed a lien against a taxpayer and advised him that his passport may be revoked before it is revoked. Basically, a taxpayer must have ignored the IRS’s notices and collection efforts for more than a year.
The IRS cannot revoke the passport itself, but it will transmit a list of seriously delinquent taxpayers to the State Department, which will make the revocation. Congress put due process procedures in place that require that taxpayers receive warning notices and have the ability to dispute the revocation in a federal court.
The revocation not only affects taxpayers who travel for business or pleasure, but also the millions of Americans living abroad. The law does allow for an exception for humanitarian or emergency situations. What those are and how aggressive the IRS will be are yet to be seen.
If a taxpayer is seriously delinquent and has received threats of passport revocation, all is not lost. There are several tax debt resolution procedures a taxpayer can pursue that will prevent his or her name from going on the passport revocation list. Those tax resolutions include installment payment plans, Offer in Compromises, Collection Due Process hearings, innocent spouse relief, or hardship determinations.
Under an installment payment plan, a taxpayer can pay off the debt over several years without being subjected to the harsh IRS collection practices.
An Offer in Compromise allows taxpayers to settle tax debt for less than what is owed. That option is for taxpayers who have few assets or income that is too low to pay off the debt in an installment payment plan.
A Collection Due Process hearing allows the taxpayer to contest a levy or lien and propose a collection alternative with IRS Appeals.
Lastly, the request for innocent spouse relief allows spouses to legally distance themselves from a marital tax debt because of their spouse’s illegal or fraudulent acts.
Taxpayers who believe a tax debt is incorrect and the amount owed is actually much less or zero, can request an IRS audit reconsideration or an Offer in Compromise, doubt as to liability.
The IRS is very computer-driven and makes mistakes all the time. An audit reconsideration allows a human to review the tax assessment for any errors or needed adjustments. The end result of an audit reconsideration may lower the taxpayer’s debt to below the $50,000 threshold.
The revocation of a passport is a completely preventable event if a taxpayer opens up a dialogue with the IRS to resolve the tax debt. We recommend that taxpayers who are in the position to lose their passport contact a qualified tax professional to start the resolution process and meet with that qualified tax professional face to face. Be very careful in hiring tax resolution firms that advertise on television or the radio and are out of state. I have heard many horror stories about out of state firms that don’t properly represent their clients.