If you have tax debt of $51,000 or more and you need to apply for or renew your passport, you may receive a denial. And the IRS estimates that more than 362,000 Americans have this amount of outstanding tax debt.
A new enforcement tool allowing the agency to deny or revoke passports became law in late 2015, but the IRS and State Department had to write rules about how the process would work before enforcement started. According to the IRS, it has started sending batches of taxpayer names to the State Department. By the end of the year it should finish this initial process.
Denied requests, but no revocations
For now, the agencies are not revoking passports. This means if you have a passport and significant tax debt, you can still travel internationally. But when your passport expires, you risk have a renewal application denied.
Having an effect
The IRS already has powerful collection tools, but reports the new enforcement strategy is working. One taxpayer paid one million dollars toward back taxes to avoid a passport denial. And 220 have paid past debts in full, while another 1,400 have entered installment agreements.
More notice to taxpayers
The National Taxpayer Advocate Nina Olson has voiced concerns about one part of the process. The IRS sends simultaneous notifications to a taxpayer and the State Department. Olson has advocated an approach more like the one the Department of Health and Human Services uses for unpaid child support.
She would like to see the IRS offer a taxpayer 30 days' notice before sending their name to the State Department. As it currently stands, if your name is on the list, the State Department will hold your passport application open for ninety days. If you are unable to resolve the tax issues, then you must reapply for a passport.
Several options exist to avoid passport issues if you cannot pay the full bill:
- Appeal a tax assessment through administrative or court
- Apply for an installment agreement
- Submit an offer in compromise
- A request for "innocent spouse" relief
- Debts in "not collectible" hardship status or a bankruptcy
For U.S. taxpayers who live outside the country, there is an added complication. Often IRS data systems make mistakes on international addresses, which can lead to undelivered mail. Having an U.S. address or a U.S. person you trust as a power of attorney ensures that you do not miss important correspondence from the IRS.
The State Department has also said that emergency and humanitarian passports are available to ensure that U.S. citizens can return to the country. Now is the time to solve back tax issues, if you frequently need to travel internationally or you live abroad.