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Tax debts above USD50,000 can now trigger US passport revocation

Wednesday, 9 December, 2015

A highway funding bill signed by President Obama on December 4, gives the US government the right to revoke or deny the passports of US persons who owe more than USD50,000 in federal taxes (including penalties and interest). The new provision is expected to become effective on January 1, 2016.

Blank Rome LLP explains that the law "adds a new provision to the Internal Revenue Code (section 7345) which authorizes the Treasury Secretary to certify, to the Secretary of State (SoS), that a taxpayer has a 'seriously delinquent tax debt'". A "seriously delinquent tax debt" is greater than USD50,000, and one for which the IRS has either filed a lien or levy.

On receiving the certificate, the US SoS can deny, revoke, or limit the taxpayer's US passport. However, the law firm explains, those who have entered into instalment agreements or offers-in-compromise, or who have requested collection due process hearings or innocent spouse relief are exempt from the application of this provision as are those who need to travel for emergency or humanitarian purposes.

Nigel Greene of the deVere Group, quoted in CNN Money, has warned US citizens abroad to ensure their financial affairs are in order before December 31 as they rely more heavily on their passports and are, therefore, more vulnerable to the provision. US residents living abroad, says Greene, have more complex financial affairs than those who live in the US, and the Foreign Account Tax Compliance Act (FATCA, which requires the financial institutions of other countries to report the accounts held by US citizens) "may add to that complexity".

Certain safeguards exist for taxpayers, however, including the right to prompt written notice when a certificate of having a "seriously delinquent tax debt" is issued to the SoS or when such a certificate is then revoked. The notice must spell out that "the taxpayer is entitled to file a lawsuit in the US Tax Court or a federal district court to challenge the certification" says Blank Rome LLP.