Officially On: Revocation/Denial of Passport For Americans With Seriously Delinquent Tax Debt

 

The IRS has now posted a notice on its website indicating that it has began sending certifications of unpaid tax debt to the State Department in February 2018. Americans with seriously delinquent tax debt (totaling more than $51,000 (including interest and penalties) , per IRC § 7345 will be certified as such  to the State Department for action. The State Department reportedly will not issue passports to to individuals after receipt of certification from the IRS.

Back in December 2015, we first reported in this blog  about the “Fixing America’s Surface Transportation Act,” or “FAST Act” which includes Section 7345 that provides for the revocation or denial of U.S. passports to applicants with certain tax delinquencies considered ‘seriously delinquent tax debt’ –that is, a tax liability that has been assessed, which is greater than $50,000 and a notice of lien has been filed. That law was passed and the IRS was supposed to start certifying in early 2017 but that did not happen.

According to the recent IRS notice, upon receiving certification, the State Department shall deny the tax delinquent individual’s  passport application and/or may revoke his/her current passport. If the passport application is denied or the passport is revoked while said individual is overseas, the State Department may issue a limited validity passport but only for direct return to the United States. Read more here via IRS.gov

Note that the guidance also says that the State Department is held harmless in these matters and cannot be sued for any erroneous notification or failed decertification under IRC § 7345.  Affected individuals can file suit in the U.S. Tax Court or a U.S. District Court to have the court determine whether the certification is erroneous or the IRS failed to reverse the certification when it was required to do so. “If the court determines the certification is erroneous or should be reversed, it can order the IRS to notify the State Department that the certification was in error.”

The State Department’s statement on this issue is available here with IRS contact details.

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GOP Tax Plan Includes Major Headaches For Homeowners #CallCongress

Posted: 3:28 am ET
Updated: 2:01 pm PT

 

Update: Tax Reform and the Foreign Service via afsa.org:

Several AFSA members have expressed concern that the House of Representatives version of the pending tax reform bill would impose a capital gains tax that could exceed $35,000 on anyone who sells their primary residence without having physically lived there for five out of the previous eight years. 

The good news is that, after Congress adopted the current two-in-five-year rule in the early 2000s, AFSA joined with groups representing members of the U.S. military in securing passage of a law in 2003 that extended the qualifying period by up to 10 years for a taxpayer who is away from their primary residence on a Foreign Service, military, or intelligence community assignment. The current House bill does not change that special provision. 

If the House provision becomes law, the 10-year extension for Foreign Service members would remain. Thus, the new five-out-of-eight-year rule would be a five-out-of-eighteen-year rule for Foreign Service members serving away from their primary residence.

If you may need to take advantage of this special treatment, please learn more about it in AFSA’s annual Tax Guide which is updated and printed every January in The Foreign Service Journal and on the AFSA website. Additional information is in IRS Publication 523 (page 5 in the current 2016 edition). The actual law is in Section 121 of the IRS code (26 USC 121).

AFSA would like to highlight the role of our then-Director of Congressional Relations Ken Nakamura, who was instrumental in securing the 2003 law affording special treatment for the Foreign Service. Since then, hundreds of AFSA members have each saved tens of thousands of dollars in taxes when they sold their primary residence after an extended period of overseas service. Your AFSA dues make possible victories such as this one.

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Tax lawyer/lobbyist and friend of a friend who is highly engaged on the Hill on both tax bills asked that we pass on this alert for homeowners:

A provision in the House tax bill (H.R. 1) could cost us $100,000 in capital gains taxes when we sell our houses.  Under current law, a homeowner filing jointly is allowed to exclude the first $500,000 of gain on the sale of a principal residence.  The House bill deletes the current law’s $500,000 exclusion of gain from the sale of a principal residence.  The Senate bill only lengthens the holding period from 5 years to 8 years, but retains the $500,000 exclusion.

The two bills will be reconciled in the next two weeks or so. I urge you to contact House and Senate tax writers asking them to adopt the Senate bill’s approach.  The most important person to contact is your home state Senator and your own Representative in the House.  

U.S. Senators – Get contact information for your Senators in the U.S. Senate.

U.S. Representatives – Find the website and contact information for your Representative in the U.S. House of Representatives

In addition, you can call the office and leaving a message or, in some circumstances, sending emails to the following key decision makers:

House Ways and Means Chairman Kevin Brady:  Phone: (202) 225-4901

House Speaker Paul Ryan:  https://paulryan.house.gov/contact/email.htm email him or call his office to leave a message of concern at his Washington office (202) 225-3031.

Senate Majority Leader Mitch McConnell:  https://www.mcconnell.senate.gov/public/index.cfm/contactform and fill out the form or call his Washington office at (202) 224-2541

Senate Finance Committee Chairman Orrin Hatch:  (202) 224-5251 or please call (202-224-4515), fax a letter to (202-228-0554).

Here is a Sample Message:  I oppose the repeal of the $500,000 exclusion for gain from the sale of a principal residence in the House Tax bill (H.R.1).  The $100,000 tax imposed by that repeal is important for my retirement, my family, and my ability to move to a new job in another location.  There is no tax reduction in the bill that will offset that tax cost.  The Senate version is better, and should be substituted for the House repeal.

It takes time and effort, but we understand that calls and emails coming from outside Washington, D.C. play an important role in this process.

You may review the text of H.R. 1 here; use the browser’s find function to see details under SEC. 1302. MORTGAGE INTEREST.

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IRS to Start Certifying Unpaid Taxes of $50K+ in Early 2017 For Revocation/Denial of US Passports

Posted: 1:16 am  ET
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In December 2015, we reported in this blog  about the “Fixing America’s Surface Transportation Act,” or “FAST Act.” One item included in the FAST Act, which had been signed into law, affects the State Department and the traveling American public. Section 7345 provides for the revocation or denial of U.S. passports to applicants with certain tax delinquencies considered ‘seriously delinquent tax debt’ –that is, a tax liability that has been assessed, which is greater than $50,000 and a notice of lien has been filed. (see New Law Authorizes Revocation or Denial of U.S. Passports to Certain Tax Delinquents).

A recent IRS notice says that the agency has not yet started certifying tax debt to the State Department but that such certifications will begin in early 2017. The website here currently provides information “for informational purposes only” but will be updated to indicate when the process has been implemented. Excerpt:

If you have seriously delinquent tax debt, IRC § 7345 authorizes the IRS to certify that to the State Department. The department generally will not issue or renew a passport to you after receiving certification from the IRS.

Upon receiving certification, the State Department may revoke your passport. If the department decides to revoke it, prior to revocation, the department may limit your passport to return travel to the U.S.

Certification Of Individuals With Seriously Delinquent Tax Debt

Seriously delinquent tax debt is an individual’s unpaid, legally enforceable federal tax debt totaling more than $50,000* (including interest and penalties) for which a:

–Notice of federal tax lien has been filed and all administrative remedies under IRC § 6320 have lapsed or been exhausted or

–Levy has been issued

Some tax debt is not included in determining seriously delinquent tax debt even if it meets the above criteria. It includes tax debt:

–Being paid in a timely manner under  an installment agreement entered into with the IRS

–Being paid in a timely manner under an offer in compromise accepted by the IRS or a settlement agreement entered into with the Justice Department

–For which a collection due process hearing is timely requested in connection with a levy to collect the debt

–For which collection has been suspended because a request for innocent spouse relief under IRC § 6015 has been made

Before denying a passport, the State Department will hold your application for 90 days to allow you to:

–Resolve any erroneous certification issues

–Make full payment of the tax debt

–Enter into a satisfactory payment alternative with the IRS

There is no grace period for resolving the debt before the State Department revokes a passport.

Read more here: https://www.irs.gov/businesses/small-businesses-self-employed/revocation-or-denial-of-passport-in-case-of-certain-unpaid-taxes.

Note that the passport denial for individuals who owe more than $2500 in past-due child support, based on a certification by the responsible State child-support agency to the Department of Health and Human Services (HHS) has been challenged and upheld in two cases before Federal courts: Eunique v. Powell, 281 F.3d 940, 2002 (9th Cir. Cal. 2002 – statute does not violate Fifth Amendment freedom to travel internationally); Weinstein v. Albright, 261 F.3d 127; 2001 (2nd Cir. 2001 – statutory and regulatory scheme comports with due process and equal protection).

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