While the IRS has a dogged reputation for extracting every dollar due from American citizens, there have been loopholes where they could at least escape a while and continue enjoying their lifestyle. The government appears to have finally shut that door with the innocuously sounding Fixing America’s Surface Transportation Act signed into law on December 4, 2015. Moreover, we can assure you this has nothing to do with repairing potholes in your street.
How This Legislation Works in Practice
The FAST Act, as the law abbreviates the title, allows the Internal Revenue Service to have delinquent taxpayers’ passports revoked or denied. This would prevent them spending what the IRS might consider ‘ill-gotten gains’, or even skipping the country hoping to avoid paying completely. However, the IRS must follow a process before taking action.
- The delinquent taxpayer must owe the IRS more than $50,000. This amount can include penalties and interest.
- The Internal Revenue Service must have already filed a notice of levy or lien to collect the debt.
- This involves sending the defaulting taxpayer a Notice and Demand for Payment that details the amount they owe
- Finally, the taxpayer must have failed to hand the amount over the IRS despite within 10 days despite having due notification.
Moreover, that is not the end of the process. Passports are not within the IRS remit. Technically, it can no more revoke or decline a passport, than it can issue a marijuana license in California. Thus it needs a helping hand from the State Department that manages American passports, although it does not have direct authority to instruct it.
The IRS has been routinely filing liens over delinquent taxpayers from early days. However to implement the FAST Act it must forward the identities bound over by the liens to the Department of the Treasury. The latter then sends these to the State Department empowering it to take action.
What the State Department Will Do to Implement This
In the absence of any constitutional appeals, a notification by the Treasury allows the State Department to implement its power to revoke, deny, or limit the American passport of any person appearing on the list. Details of how this will work in practice are still sketchy.
However, it is clear that the delinquent taxpayers will be unable to obtain new passports, or renew existing ones. They could conceivably even have their valid ones rescinded. Thus, any taxpayer owing over $50,000 to the IRS must take action if they are contemplating traveling.
The Only Workaround Is Coming to an Agreement
The Internal Revenue Service regularly agrees to affordable payment plans with taxpayers in arrears. Where such agreements are in place, the force of the FAST Act is effectively in limbo provided they make timely payments. A similar temporary waiver applies if the taxpayer has counter-filed a Collection Due Process review hearing (or there is an Innocent Spouse Relief request or pending).
If you owe the IRS over $50,000 in arrears and wish to travel, it follows that you must pay the whole amount, agree to an installment payment scheme, or agree to an offer in compromise. As these requests take time to process, we recommend taking action well ahead of time.
Do you owe more than $10,000 in back taxes? Protect yourself. Protect your business. Contact IRS Solver for a consultation.