New Law Broadens IRS Enforcement

Fun in the sun in Mexico?  Maybe not if you owe the IRS back taxes.  On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act, also known as the FAST Act.  What does that have to do with taxes and your ability to travel?  Everything…

The FAST Act includes a new provision in the Internal Revenue Code (IRC), Section 7345, titled Revocation or Denial of Passport in Case of Certain Tax Delinquencies.  In short, the law says that the State Department can revoke, deny or limit passports for anyone the IRS certifies as having a seriously delinquent tax debt. 

So, what is a “seriously delinquent” tax debt?  The bill defines a seriously delinquent tax debt as one that is unpaid and legally enforceable, in excess of $50,000 (including penalty and interest) and has been assessed along with a Notice of Federal Tax Lien or Notice of Levy.  The $50,000 limit with be adjusted each year for inflation but still is a relatively low number especially considering the inclusion of penalty and interest.  After all, penalty alone can accumulate up to 47.5% and interest compounds daily.

Thankfully, there are exceptions to the rule.  A taxpayer that is subject to an Offer in Compromise, an installment agreement, due process rights or innocent spouse relief will not be affected.  But how the IRS will ensure those that are exempt raises the practical question of how exactly this information will be communicated to the State Department.  The law indicates that the State Department must rely on Treasury for a list of those taxpayers that may be affected by this law.  How often will the IRS send a list?  Will the list include every taxpayer owing over $50,000 or will the IRS set a higher bar, at least initially?  And what about a taxpayer listed by mistake or one that pays the tax debt? The concern then becomes: how quickly can they be removed.

Only time will tell how the IRS chooses to employ this new power.  And there is some question about whether a taxpayer that lands on the list will challenge it in court.  In the meantime, it behooves every taxpayer that could fall into this category to reach an understanding on repayment with the IRS as soon as possible.