New Law Allowing IRS to Seize Passport

New Law Allowing IRS to Seize Passport

by Mark A. Muntean *

Introduction

A new law allows the Internal Revenue Service ("IRS" or the "Service") to revoke or deny passports for certain taxpayers who owe unpaid federal taxes. This change to the tax law was included in the Fixing America's Surface Transportation Act, ("H.R. 22"), which was signed into law on December 4, 2015. [PL 114-94, Title XXXII Offsets, Subtitle A Tax Provisions, Section 32101(a).] The new law is effective on the date of enactment,[IRC § 7345(i).] so this is now part of the federal tax law.

H. R. 22 added new Internal Revenue Code (hereafter "IRC" or the "Code"). Section 7345, "Revocation or Denial or Passport in Case of Certain Tax Delinquencies" requiring the Secretary of State, on certification by the Treasury, to deny, revoke, or limit the passport of any person who the IRS certifies as owing in excess of $50,000 (referred to as a "seriously delinquent tax debt"). [IRC § 7345(a)
.] The seriously delinquent debt requirement of $50,000 is adjusted annually for inflation [IRC § 7345(f)], but includes penalties and interest. [IRC § 7345(b).]

Revocation and Seizure

Specifically, IRC Section 7345 provides that except in humanitarian or emergency situations, or for individuals serving in a combat zone, on receiving a certification from Treasury, the Secretary of State shall not issue a passport to any individual who has a seriously delinquent tax debt described in such section. [IRC § 7345(e)(1)(A).] Moreover, on receipt of such certification the Secretary of State can revoke a passport previously issued to any individual. [IRC § 7345(e)(2)(A)
.] 

For example, a $36,000 tax assessment can quickly become a tax liability in excess of $50,000 when the IRS includes interest and penalties. An individual who is audited for two years (which is more often the case) need only have adjustments of approximately $18,000 from each year to incur the possibility of a seriously delinquent tax debt when interest and penalties are added. Accordingly, the "seriously delinquent tax debt" threshold of $50,000 is not reserved for the "one-percent" but will more often equally impact the little guy.

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Removed From Certification

The new law allows taxpayers who no longer have a seriously delinquent tax debt to be decertified. [IRC § 7345(g).] The IRS can also correct erroneous certifications (the law anticipates mistakes will happen) through decertification. [IRC § 7345(c)(1)(D).] ...

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Taxpayers Outside the United States


Where an individual is outside the United States ("U.S.") at the time that such individual's passport is revoked for a seriously delinquent tax debt, the Secretary of State may (but is not required to) (i) limit a previously issued passport only for return travel to the United States; or (ii) issue a limited passport that only permits return travel to the United States. [IRC § 7345(e)(2)(A)(i) and (ii).] This could impact expatriates, for example residing outside the United States who have tax delinquencies. Moreover, individuals whose employment is tied to overseas travel could be seriously affected by this law.

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Is This Really Constitutional?

Critics have questioned whether the seizure of a passport for tax purposes violates a citizen's fundamental right to travel guaranteed by the U.S. Constitution. Notable as well is that, beginning in 2016, a U.S. passport may also be required for domestic travel.

Ten years ago Congress passed the "Emergency Supplemental Appropriation for Defense, the Global War on Terror, and Tsunami Relief" [HR 1268, PL 109-13 (2005). which included the "Real ID Act." Initially, the Real ID Act was to go into effect for the first time in January 2016. It would require a passport to travel domestically, depending on an individual's state of residence. By an announcement on January 8, 2016, the Director of Homeland Security announced a delay in the implementation of the Real ID Act to January 22, 2018 to allow fuller compliance by all the states. That notwithstanding, no doubt a Constitutional challenge will take place in the courts at some point.]
Information referenced herein is provided for educational purposes only. For legal advice applicable to the facts of your particular situation, you should obtain the services of a qualified attorney licensed to practice law in your state.
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Mark Muntean, J.D., LL.M. Taxation (Georgetown) is a business and tax lawyer in the San Francisco/Bay Area of California with over 30 years of experience in federal, state, and international tax matters. He represents clients in connection with corporate, real estate, mergers and acquisitions, private equity, business law, and criminal tax issues.
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