It was hard to miss the dramatic changes to tax collection introduced at the end of 2015 in the Fixing America’s Surface Transportation Act (FAST Act). At the time, journalists and tax professionals alike wrote about and discussed FAST’s re-implementation of the IRS’ use of private debt collection agencies and the IRS and Department of State teaming up to revoke or suspend passports over unresolved tax debt. While private debt collection agencies dominated the narrative come the end of 2016, recent talk of how the new passport rules in FAST will play out have taken center stage.
The IRS issued guidance in early 2017 providing insight on how the program will be run. According to Section 32101 of the FAST Act, the Secretary of Treasury upon receipt of a certified list of seriously delinquent taxpayers will provide such list to the Secretary of State for action with denial, revocation or limitation of the passports for those on the list. The law describes “seriously delinquent taxpayers” as those having an assessed liability of more than $50,000 for which a Notice of Federal Tax Lien has been filed (and appeal rights exhausted or lapsed) or a levy has been issued.
There are, however, exceptions. The law reads that liabilities that have been resolved by an installment agreement or Offer in Compromise, have exercised Collection Due Process Rights (CDP) in response to a levy, or cases in which collection has been suspended due to an innocent spouse claim will not qualify for certification from IRS. The good news is that if you find yourself on the list, you can get off of it. The law provides for reversal of such certification, generally within 30 days, of the liability being satisfied or in the event that the taxpayer meets one of the aforementioned exceptions.
Despite the IRS’ guidance there undoubtedly remains a degree of uncertainty with the continued development of the program and its inner workings. For example, will the initial IRS certification include every taxpayer that could qualify or is the IRS going to exercise some internal judgment on a smaller class of more “serious” delinquencies? How often will the IRS be providing a list its seriously delinquent taxpayers to the State Department? Will the IRS include taxpayers that have been placed into Currently Not Collectible status? How will the State Department develop its protocols and how strict will those be? Can the IRS abide by its requirement to decertify a taxpayer within a certain timeline and how quickly will State subsequently respond to the decertification by releasing a taxpayer’s passport? All valid questions and concerns that will eventually need to be addressed.
And there remains yet another concern for a taxpayer making it on to the IRS’ certification, domestic travel. According to a 2005 law, REAL ID Act only certain types of state ID will be recognized by federal agencies in the future. Think TSA. For taxpayers that have identification issued by states whose driver’s license do not yet meet the federal requirements of the 2005 ID law travel from state to state could also be impacted. To see where your state stands with complying with REAL ID Act, click here.
With such uncertainties on the horizon, the best way to combat these potential scenarios and unanswered questions surrounding the new passport law is to enter into an agreement to resolve your unpaid taxes as soon as possible. If you find yourself in a situation where you don’t know where to turn or have specific questions regarding your unique circumstances, please contact us now.